Some solutions to tackle risk of changes in exchange rate for enterprises borrowing join stock commercial bank for investment and development of vietnam at so giao dich 1 branch

20 Chapter 2: Reality of reducing exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch ..... 34 2.2.3 Some solutions to reduce exchange rate risk for corporate borrowe

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TRƯƠNG QUỐC DƯƠNG

SOME SOLUTIONS TO TACKLE RISK OF CHANGES IN EXCHANGE RATE FOR ENTERPRISES BORROWING JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAMAT SO GIAO DICH 1 BRANCH

MỘT SỐ GIẢI PHÁP HẠN CHẾ RỦI RO TỶ GIÁ ĐỐI VỚI DOANH NGHIỆP VAY VỐN TẠI NGÂN HÀNG TMCP ĐẦU TƯ

VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2018

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TRƯƠNG QUỐC DƯƠNG

SOME SOLUTIONS TO TACKLE RISK OF CHANGES IN EXCHANGE RATE FOR ENTERPRISES BORROWING JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAMAT SO GIAO DICH 1 BRANCH

MỘT SỐ GIẢI PHÁP HẠN CHẾ RỦI RO TỶ GIÁ ĐỐI VỚI DOANH NGHIỆP VAY VỐN TẠI NGÂN HÀNG TMCP ĐẦU TƯ

VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS NGUYỄN THỊ KIM

Hà Nội - 2018

DECLARATION

The author confirms that the research outcome in the thesis is the result of author’s independent work during study and research period and it is not yet published

in other’s research and article

The other’s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Date …./01/2018

ACKNOWLEDGEMENT

“During the process of fulfilling this master’s thesis, I have received many necessary assistances First of all, I would like to express my sincere thanks to Ms.Nguyen Thi Kim Oanh PhD, the supervisor of this research, who has created favorable conditions, instructed and helped enthusiastically as well as responsibly to me during the thesis Secondly, I also appreciate the teachers in Hanoi School Of Business And Management – Vietnam National University, the scientists, the authors of scientific papers helping me complete this essay”

TABLE OF CONTENTSS

TABLE OF CONTENTSS 1

LIST OF TABLES ii

LIST OF CHARTS AND FIGURES iii

INTRODUCTION 1

1 Rationale of the study 1

2 Research overview 2

3 Research objectives 5

3.1 General objective 5

3.2 Specific objectives 5

4 Research object 5

5 Research scope 5

6 Research methods 5

7 Organization of the thesis 6

Chapter 1: Theoretical framework on exchange rate risk and reduction of exchange rate risk for corporate borrowers at commercial banks 7

1.1 Overview of exchange rate risk 7

1.1.1 Concept 7

1.1.2 Influence of exchange rate risk 7

1.1.3 Classification of exchange rate risk 9

1.2 Reduction of exchange rate risk for corporate borrowers at commercial banks 9

1.2.1 Concept 10

1.2.2 Necessity of reducing exchange rate risk for corporate borrowers 10

1.2.3 Contents of reducing exchange rate risk for enterprises 10

1.2.4 Factors affecting the reduction of exchange rate risk for corporate borrowers 17

1.3 Experience in reducing exchange rate risk of some commercial banks 20

Chapter 2: Reality of reducing exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch 23

2.1 Introduction of BIDV – Sogiaodich1 Branch 23

2.1.1 Foundation and development history 23

2.1.2 Organizational structure 23

2.2 Reality of exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch 28

2.2.1 Results of loan offering to corporate customers at BIDV – Sogiaodich1 Branch 28

2.2.2 Reality of risks for corporate borrowers at BIDV – Sogiaodich1 Branch 34

2.2.3 Some solutions to reduce exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch 41

2.4 Factors affecting the reduction of exchange rate risk for corporate borrowers at BIDB – Sogiaodich1 Branch 46

2.4.1 Bank-related factors 46

2.4.2 Enterprise-related factors 49

2.4.3 Environment-related factors 51

2.5 Assessment of the reduction of exchange rate risk for enterprises borrowing funds from BIDV – Sogiaodich1 Branch 52

2.5.1 Achievements 52

2.5.2 Limitations 52

2.5.3 Causes of the limitations 52

Chapter 3: Solutions to reduce exchange rate risk for corprate borrowers at BIDV – Sogiaodich1 Branch 54

3.1 Development orientation of BIDV – Sogiaodich1 Branch 54

3.1.1 General orientation 54

3.1.2 Development orientations in the next five years 54

3.1.3 Orientation to reduce exchange rate risk for corporate borrowers 55

3.2 Solutions to improve the reduction of exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch 55

3.2.1 Diversifying and improving the quality of derivatives 55

3.2.2 Enhancing the position of the branch 56

3.2.3 Improving the level of consultant team of exchange rate risk prevention 57

3.2.4 Increasing relevant sources of information 59

3.2.5 Other solutions 59

3.3 Recommendations 60

3.3.1 To enterprises 60

3.3.2 To the State 61

Conclusion 63

REFERENCES 65

ABBREVIATIONS

1 BIDV Joint Stock Commercial Bank for Investment and

LIST OF TABLES

Table 2.1: Business results of the branch in the stage of 2014 -2016 27

Table 2.1: Results of lending operations to export enterprises 31

Table 2.2: Results of lending operations to import enterprises 33

Table 2.3: List of risks for export enterprises 35

Table 2.4: Risk structure of lending operations to export enterprises 36

Table 2.5: List of risks for import enterprises 38

Table 2.6 Risk structure of lending operations to import enterprises 39

Table 2.7: Forward contract of foreign currency transaction of BIDV 41

Table 2.8: Number and value of forward contracts with export enterprises 43

Table 2.9: Number and value of forward contracts with import enterprises 44

Table 2.10: Number of future, swap and option contracts 45

Table 2.11: Results of survey with customers on the diversity of exchange rate risk products 46

Table 2.12: Results of survey with customers on exchange rate risk consultants 47

Table 2.13: Results of survey with customers on prestige of the bank 48

Table 2.14: Results of survey with customers on charges of exchange rate risk preventive tools 48 Table 2.15: Results of survey with customers on enterprises’ perception 49

Table 2.16: Results of survey with customers on enterprises’ ability to take risks 50

Table 2.17: Results of survey with customers on enterprises’ ability to analyze and forecast market 50

LIST OF CHARTS AND FIGURES

Figure 2.1: Organizational structure of BIDV – Sogiaodich1 Branch 27

Chart 2.1 Results of export and import financing for corporate customers 29

Figure 2.1 Basis of risks for export enterprises 37

Figure 2.2 Basis of risks for import enterprises 40

INTRODUCTION

1 Rationale of the study

Any business activities related to exchange ratearelikely to suffer from exchange rate risk In international trading activities, export- import enterprisesall face foreign exchange risk For importers, the foreign exchange risk arises when foreign currencies to be paid in the future increase in price compared to the domestic currency,particularly when a customer opens an L/C to importmachinery and equipment to create fixed assets or sellthem in the country At the time of goods import, the exchange rate is low, so the company sellsgoods at low price However, at the time of L/C settlement, the exchange rate increases sharply, leading to losses.Or whenan enterprise borrows money in foreign currency, its annual liabilities increase due to increased exchange rate will have to set up a large provision(the case of Pha Lai Thermal Power Joint Stock Company -stock code PPC).For exporters, the foreign exchange risk arises when foreign currencies to be received in the future reduce in price compared todomestic currency This happens in cases where exporters (especially agricultural and aquatic product exporters) sign contracts with their foreign counterparts and plan to buy domestic products for export.The exchange rate

at the time of signing contracts is high However, right after that, the exchange rate reducesand makes the revenue from export currency when converted into VND lower than the domestic purchase price, causing enterprises to suffer from losses In addition, in the context wherecurrency inflation has become a common phenomenon, the purchasing power of currencies, including the key currency for international payment, always fluctuates anddirectly affects the interests of entities engaged in international trade, investment and credit transactions Therefore, it is necessary to prevent exchange rate risk

in export and import activities in particular and in business in general In order to prevent foreign exchange risk, credit institutions as well as enterprises often use tools such as forward transactions, swap transactions, option transactions and future transactions

These preventive activities have been remarkably paid attention in recent years when the exchange rate fluctuates unpredictably In 2015, the exchange rate had changed four times.In the period of 2005 – 2015, the USD exchange rate increased from 11,000 to 22,000 dong The main reason for exchange rate risk in foreign currency trading was that this business activity depends mainly on the changes of the world’s economy with such

typical events asthe devaluation of Chinese Renminbi inAugust, 2015, the Brexit event in June, 2016 and the rise of Brics (Brazil, Russia, India, China, South Africa) in the future Thus, withsuchpotential exchange rate risks for banks and import-export enterprises mentioned above, the fact that whether the foreign currency trading bringsprofitsto the banksdepends not only on how the banks manage risks but also on the ability to reduce exchange rate risk for corporate borrowers Only by that way can the banksattractcorporate customers to borrow foreign currenciesfrom them

Recognizing this, in recent years, Joint Stock Commercial Bank for Investment and Development of Vietnam–Sogiaodich1 Branch(BIDV – Sogiaodich1 Branch) has taken many measures to limit the exchange rate risk for corporate customers However, the efficiency of the work was not high due to lack of practical experience, insufficient time of participation in the international market of commercial banking system, inadequate professional qualifications and weak management experience Therefore, the study of solutions to limit the risk of exchange rates for corporate borrowersat the bank to attract export- import enterprisesis very important and has agreat practical significance

Starting from this reality, the author chose the topicentitled"Solutions to reduce

exchange rate risk for corporate borrowers at Joint Stock Commercial Bank for Investment and Development of Vietnam – Sogiaodich1 Branch" as his thesis

2 Research overview

The problem of managing exchange rate riskat commercial banks has been studied

by many authors However, the problem of limiting exchange rate risk for corporate borrowershas been rarely addressed Therefore, when conducting the research, the author referredto a number of articles on minimizing exchange rate riskfor import-export enterprises and some studies on exchange rate risk management at commercial banks, which were presented in the following contents

+ The researchby a group of authors at Foreign Trade University (2013) on "Basic problems of exchange rate risk and management of exchange rate riskat Vietnamese export- import enterprises" In the study, the authors provided theoretical bases on exchange rate risk including concept, classification, causes and influence of exchange rate risk Next, the authors analyzed the business operations as well as the reality of exchange rate risk at Vietnamese export-import enterprises From the analysis, the authors presented the orientations for overcoming exchange rate risk for Vietnamese export- import

enterprises such asusing exchange rate forecasting method, selecting foreign currencies for payment,using parallel exporting contract and using foreign exchange risk provision However, the study of the authors was conducted on a macroscale, so the results of research were general Moreover, the authors had not paid much attention to the tools forpreventing exchange rate riskprovided by commercial banks

+ The research by a research team at Ho Chi Minh City University of Economics (2010) in the scientific research competition on "Use of foreign exchange derivatives to prevent exchange rate risk for Vietnam export- import enterprises" In this research, the team achieved the following objectives: Firstly, giving an overview of derivatives and how

to use them in exchange rate risk prevention; Secondly, analyzing and assessing the reality

of the use of exchange rate risk management tools in import-export activities of Vietnamese enterprises, and raising restrictions in the use of these tools; Thirdly, proposing some solutions for Vietnamese export- import enterprisesin applyingderivatives to reduceexchange rate risk in their import - export activities The study made fundamental contributions to the synthesis of theories on derivatives and the reality of preventing exchange rate risk in import-export activities by derivativesfor Vietnamese enterprises However, the authors just focused on studying derivatives to prevent exchange rate risk for export-import enterprises but had not focused on the content of exchange rate risk prevention for export- import enterprises in Vietnam

+ The research by Do Thi Thu Thuy (2004) on solutions to limit exchange rate risk

in foreign currency trading activities at Military Commercial Joint Stock Bank The main contents of the study were as follows:

- Chapter 1: The author presentedthe theoretical framework on exchange rate risk including concept, how to recognize, causes and conditions for the bank to manage exchange rate risk

- Chapter 2: The author examined the reality of exchange rate risk and the management of exchange rate risk at Military Commercial Joint Stock Bank

Chapter 3: The author proposed specific solutions to limit the exchange rate risk at the bank including the overall solutions and professional solutions The author also proposed a variety of recommendations for implementing the proposed solutions

It can be seen that the author's research was quite comprehensive and precise, covering both theoretical and practical aspects However, the studyjust stopped at the

reduction of risk without building measures to prevent exchange rate risk for the export enterprises

import-+ The research by Pham Ngoc Anh (2006) on “Foreign exchange risk prevention - requirements for Vietnamese export- import enterprises” In the study, the author provided

an overview of the tools for preventing foreign exchange riskforexport- import enterprises Besides, the author also mentioned the reality of access and use of foreign exchange rate preventive toolsof enterprises in our country The author’s research had a highly practical value, but the authorhad not evaluated the successes and limitations in exchange rate risk prevention of import and export enterprises when using preventive measuresprovided by commercial banks

+ The research on "Hedging and invoicing strategies to reduce exchange rate exposure: a euro-area perspective" by BjörnDöhring (2008) In the study, the author developed strategies to reduce exchange rate risk at export-importenterprises in Europe The main contents of the research included the influence of exchange rate fluctuation on import-export enterprises, tools for managing exchange rate risk, strategies for preventing risks, ad so on Apart from the results achieved,the research still had some limitations For instance, the author did not mention the role of banks in the prevention of exchange rate risk for export-import enterprises

+ The research entitled “A guide to managing foreign exchange risk” (CPA Australia, 2009) CPA Australia comprises more than 122,000 members working in the fields of finance, accounting, banking and economics in 100 countries The study of the organization consisted of some main contents such as:concept of exchange rate risk, origin

of exchange rate risk, impact of exchange rate risk on enterprises and methods of measuring and managing risks Although the study presented detailed and specific contents

of exchange rate risk, itdid not mention measures to recognize exchange rate risk that might occur in each enterprise so that the management of exchange rate risk would be more effective

In summary, the reviewing of previous studies showed that there have been no studies on solutions to limit exchange rate risk for corporate borrowers at commercial banks in terms of both theory and reality Thus, the author's thesis was somewhat new, necessary and not duplicated with published researches and had important practical and theoretical implications as it filled the gaps of previous studies

3 Research objectives

3.1 General objective

The aim of the study was to investigate the exchange rate risk from business activities that enterprises may encounter and offer solutions to limit and prevent exchange rate risk for enterprises

3.2 Specific objectives

Based on the general objective, the author defined the specific objectives as follows:

- Present a theoretical framework on exchange rate risk and reduction ofexchange rate risk for corporate borrowers at commercial banks

- Analyze the reality of exchange rate risk and measures to limit exchange rate risk for corporate borrowers from BIDV - Sogiaodich1 Branch and then evaluate the work of limiting exchange rate risk for corporate borrowers as a basis for proposing solutions

- Propose solutions and recommendations to limit the exchange rate risk for corporate borrowers from BIDV - Sogiaodich1 Branch

+ For primary data: Primary data was collected through interviews from 20 August to

20 September, 2016 with corporate borrowersthat borrow money at BIDV – Sogiaodich1 Branch

6 Research methods

During the research process, the author combined the following methods:

Theoretical method: This method was used to collect scientific information, articles, journals and previous studies Theoretical method was used to write the research overview and build the theoretical framework for the topic

Sociological investigation: The sociological investigation was conducted by interviewing enterprises borrowing money at BIDV The purpose of the investigation was

to determine the effectiveness of the solutions offered by BIDV to help enterprises reduce exchange rate risk and enterprise-related factors To conduct the investigation, the author designed the survey questionnaire and sent it to customers using products and services at BIDV – Sogiaodich 1 Branch The questionnaire was divided into two parts (Appendix 1): + Part 1: Information of respondents

+ Part 2: Survey contents

In the thesis, the author investigated customers' perceptions of the bank’s products and services in order to limit exchange rate risks for customers including: Diversity of exchange rate risk preventive tools; Exchange rate risk consultants; Prestige of the bank; Charges of risk preventive tools In addition, the author also reviews the customer's own factors: Enterprises’ perception, ability to take risks, ability to analyze and forecast market With each of these contents, the author designed the survey questions for corporate customers The questions were assessed through Likert scale with 5 different levels: very dissatisfied, dissatisfied, Neutral, satisfied and very satisfied The number of questionnaires distributed was 150 The number of returned questionnaires was 146, of which 3 returned questionnaires were invalid Therefore, the author calculated the survey data with 143 questionnaires Survey data were input into Excel and means were calculated The results

of the means were set as follows:

- Means of 1.00-1.79 - Very dissatisfied

- Means of 1.80-2.59 - Dissatisfied

- Means of 2.60-3.39 - Neutral

- Means of 3.40-4.19 - Satisfied

- Means of 4.20 -5.00 - Very satisfied

The results of the survey were presented in Section 2.4.1

7 Organization of the thesis

The thesis consists of three chapters:

Chapter 1: Theoretical framework on exchange rate risk and reduction of exchange rate risk for corporate borrowers at commercial banks

Chapter 2: Reality of reducing exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch

Chapter 3: Solutions to reduce exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch

Chapter 1: THEORETICAL FRAMEWORK ON EXCHANGE RATE RISK AND REDUCTION OF EXCHANGE RATE RISK FOR CORPORATE

BORROWERS AT COMMERCIAL BANKS 1.1 Overview of exchange rate risk

1.1.1 Concept

Exchange rate risk is the uncertainty about the value of a future earning or expense in foreign currency due to the fluctuation of the exchange rate (Ghassem A Homaifar, 2004) Exchange rate risk is the risk arising when the fluctuationof exchange rate affects the expected value in the future All activities where cash inflows incurred in a currency while cash outflows incurred in another currency will contain exchange rate risk (Nguyen Minh Kieu, 2008)

The fluctuation of the exchange rate can create huge risks for enterprises when the exchange rate fluctuates in the opposite direction with expectation but can bring extraordinary profits if the exchange rate fluctuates favorably for enterprises

Thus, the fluctuation of the exchange rate can have positive or negative effectson enterprises The problem is how enterprisescan deal with negative changes of the exchange rate

1.1.2 Influence of exchange rate risk

+ Influence on banks

When a bank is in a short position with a foreign currency, it is facing exchange rate risk The impact of exchange rate risk on the bank depends on the direction and extent of exchange rate fluctuation, i.e.:

Gains / losses on foreign exchange i = (foreign exchange position of foreign currency i) x (fluctuation extent of foreign currency i)

A bank can adjust its foreign exchange status, but it can not adjust the exchange rate

of a foreign currency The main factor determining the fluctuation of the exchange rate is the economic forces and speculation;therefore, banks always facethe exchange rate risk In the context of increasing integration into economic organizations in the region and in the world, it is required that bank managers have good policies in managingand preventing exchange rate risk as well as constantly improve their knowledge of risk management so that they can respond quickly to the fluctuation of exchange rates, or judge the direction of exchange rates, from which making the most accurate decisions and bring profits to the bank That way, the bank can minimize the effects of exchange rate fluctuation

+ Influence on enterprises

- Influence on competitive capacity of enterprises

Exchange rate risk affects the competitive ability of enterprises compared to competitors in terms of"prices of products" in the market If an enterprise is exposed to the risk of exchange rate, it will have to find ways to increase the prices to cover losses Therefore, the prices of the enterprise’s products will not be as attractive as those of its competitors, makingits competitive capacity decrease

- Influence on financial ability of enterprises

Financial risk affects the financial planning of enterprises for long-term investment projects subject to exchange rate fluctuation Export-import sector is very sensitive to the fluctuation of the exchange rate; any large or small fluctuation will have a certain impact

on enterprises That impact can be positive but can also be negative When exchange rate fluctuation becomes a negative impact, it becomes a significant obstacle for enterprises and affectsall the revenues or expenditures in foreign currencies As a result, the financial capacity of enterprises is also affected

The influence of exchange rate risk on enterprises is now considered a great pressure,

so import-export enterprises should pay attention and recognize the importance of the forecast of exchange rate fluctuation as well as the use and selection of preventive tools

1.1.3 Classification of exchange rate risk

- Financial risk: Value of assets in foreign currenciescompared to that in domestic currency will change when the exchange rate between foreign currencies and the effective currency changes

- Translation risk: Translation risk arises when financial statements are converted from the effective currency to other currencies for informative or comparative purposes The balance sheet represents the book value of assets, capital and shares at the end of the reporting period The foreign exchange rate of currencies traded at the end of the reporting period (spot exchange rate) is usually not the effective exchange rate when assets are recorded

Transaction risk: The transaction risk arises when a party agrees to buy or sell commodity with a certain foreign currency on a specified date, but actually pays or receives payment on a later date If the exchange rate changes in the middle of the session, the price of the sale or purchase transaction in the effective currency will change

- Economic risk: Economic risk arises when the changes in foreign exchange rate change the competitiveness of enterprises This risk usually occurs when an enterprise generates revenue in one currency and incurs expenses in another Economic risk can also arise when enterprises operate with only one currency

+ Based on the business areas of enterprises, exchange rate risk is classified into:

- Exchange rate risk in investmentactivities: Exchange rate risk in investment activities often arise at multinational companies or with financial investors whose investment portfoliosare diversified internationally The reason is that the investment capital and revenue are measured in different currencies

- Exchange rate risk in export- import activities: This is the most frequently encountered and worrying exchange rate risk for enterprises with strong import-export activities The changes in the exchange rate of foreign currenciescompared todomestic currency change the expected value of future revenues or expenditures in foreign currencies and affect the efficiency of import - export activities

- Exchange rate risk in credit activities:Credit in foreign currency also carries huge exchange rate risk, which can become more serious when the exchange rate fluctuates

1.2 Reduction of exchange rate risk for corporate borrowers at commercial banks

1.2.1 Concept

In the market economy, risks in business are unavoidable, especially the exchange rate risk for enterprises with business activities involved in foreign currencies Therefore, enterprises must always take measures to prevent as well as reduce losses and influence of exchange rate risk The use ofderivatives provided by commercial banks is the measure being paid attention by most enterprisesin our country

Thus, reducing exchange rate risk for corporate borrowers at commercial banks means that commercial banks provide measures and tools to minimize losses as well as prevent risks for corporate borrowers at their banks when there is fluctuation in foreign exchange rates

1.2.2 Necessity of reducing exchange rate risk for corporate borrowers

In order to serve the macro targets, the foreign exchange rate has relatively been stabilized by the State through banking system, especially the State Bank.Fluctuation in exchange rates did not have great influence on business activities, which madeenterprises not pay much attention to the prevention of exchange rate risk

However, the situation has changed since Vietnam's economy moved to a new stage

of development with strong reforms in all areas, especially in the economic field In order

to better adapt to the level of openness and integration of the world’s economy, many adjustments ineconomic policies have been proposed, including the proposal that the State Bank of Vietnam should extend the exchange rate band This mechanism, together with the general fluctuation of the global economy, has caused relatively high rise in the exchange rate in recent years

The more flexible the system is, the greater the exchange rate risk is Currently, exchange rate risk is being assessed as one of the five major pressures that enterprises face

in business in addition totax policy,competitive environment, capital capacity and market fluctuation

Therefore, the reduction of exchange rate risk is set as an indispensable requirement for enterprises with foreign currency-related activities

1.2.3 Contents of reducing exchange rate risk for enterprises

1.2.3.1 Identifying possible risks to enterprises

Exchange rate risk is a form of market risk, so it is possible to determine the losses caused by the market Exchange rate risk occurs when there is a change in the exchange rate of foreign currenciescompared to the domestic currency in the opposite direction to the expectation of enterprises which have revenues and expenses related to foreign currencies Commercial banks participate in the foreign exchange market for two main purposes: customer service (buying and selling for other enterprises) and trading for themselves When providing foreign currency-related services to enterprises, commercial banks must recognize the types of exchange rate risk arising to their customers, namely:

- For financial investment enterprises: Exchange rate risk usually arises when these financial investment enterprises have internationally diversified investment portfolios Invested capitals and revenues are measured in different currencies Therefore, the exchange rate fluctuation will have the potential to cause losses to the business

- For enterprises engaged in export-import activities:Exchange rate risk usually arises when there is a change in the exchange rate against the domestic currency This changes the expected value of the revenues or expenditures in foreign currencies in the future, thussignificantly affectingthe efficiency of import-export activities

The identification of types of exchange rate risk for each of these enterprises is necessary for the bank to provide tools in time to help them reduce the impact of exchange rate risk

For example, it is supposed that anenterpriseis holding a certain amount of foreign currency, namely: 10 million EUR at the exchange rate of EUR/ USD = 1.2030.If

thecurrent exchange rate of EUR/ USD = 1.2020, the enterprise is currently at risk of 10 million EUR x (1.2030 - 1.2020) = 10,000 USD

- The foreign exchange status is calculated on each currency

- Estimated exchange rate fluctuation is calculated as follows:

Estimated exchange rate

fluctuation with a reliability of

99%

5,2

of the exchange rate

x = average of xi

n = 90 (closing price within 90 consecutive banking days)

2.5 is the standard deviation at which 99% of the exchange rate will fluctuate as expected (In other words, 99% is the level of reliability)

The risk value is set to allow a certain level of flexibility to respond to market price changes

The risk value reflects the level of exchange rate risk on the basis of considering two factors of foreign exchange status and level of exchange rate fluctuation expected for each currency In addition, the risk value measures the level of exchange rate risk, ie the extent

of the loss expected by an enterprise when the exchange rates fluctuate

1.2.3.3 Solutions to reduce exchange rate risk for enterprises

Foreign currency-related business activities of enterprises are often subject to capital losses due to the fluctuation in exchange rates To limit exchange rate risk, banks often offer professional solutions such as future, swap, option transactions to reduce risk to their corporate customers, namely:

+ Forward transactions

Forward transaction is a transaction in which a bank and an enterprise commit to trade a certain amount of foreign currency at a specified future time, at a specified exchange rate immediately upon thesigning of the contract Forward contracts of foreign currencies are made, on the one hand, to meet the capital needs of enterprises at a certain time, and on the other hand,to help enterprises limit risks when they forecastunfavorable exchange rate fluctuation for them Forward transactions of foreign currencies are signed at the current time and are terminated ona specific maturity date specified in the contract (15 days, 1 month, 3 months, 6 months, or even more than 1 year) Forward exchange rate is determined by two major factors in the market: spot exchange rate and market interest rate

of the two currencies involved

The calculation of forward rate according to the standard formula proposed by Trinh QuocTrung (2006) is as follows:

Forward rate = Spot rate + Forward point

Forward point = D(T2 – T1)N

36000 + T1N

In which: D –Spot rateDm/Db

T1- Interest rate of commodity currency

T2- Interest rate of terms currency

company at the exchange makes sure that both purchase and sale orders are compared and matched,these orders will definitely be implemented The supply and demand for future contracts are expressed through the willingness of partners to buyto sell contracts This makes the price of contracts fluctuate at the price of the purchase or sale orders On the other hand, the price fluctuation makes the sales contracts match In special situations,purchase and sale orders are far different in prices, market transactions do not occur After trading, future contracts are seldom maintained until the maturity date Contracts maintained until the maturity date will be paid as forward transactions For future contracts, the amount of foreign currencies is specified It is mandatory in future transactions that both buyers and sellers of the contractsare members of the market who must deposit and pay transaction fees Unlike forward contracts, future contracts can be transferred at any time during the contract period

In the process of selecting risk-preventive tools, import-export enterprisesoften prefer to use forward contracts rather than future contracts In contrast, future contracts are chosen by investing enterprises to reduce exchange rate risk However, future contracts have not been applied by banks in Vietnam

+Swaptransactions

Swap transactionsinclude foreign exchange swaps and interest rate swaps These two operations are based on the same basic principle, but they have different marketspecifications Swap is one of the most effective tools for investing enterprises and enterprises who borrow foreign currencies Since the thesis only concerns exchange rate risk, the author only studies the foreign exchange swap

Swap transaction is a combination of a spot transaction with a forward transaction that exchange a fixed amount of foreign currency for acertain amount of another foreign currency within the specified time by signing two contracts at the same time: a spot sale contract and a purchase forward contract Thus, Swap is a simultaneous combination of spottransaction anda reversed forward transaction whichis conducted with a corresponding account(the same currency) Therefore, it does not affect the ability to borrow money of enterprises and the banks and can eliminate exchange rate risk

The general formula for calculating a swap transaction (Pham BaoKhanh, 2010) is:

R = D(T2 – T1)N

36000 + T1N

In which: D- Spot exchange rate

T1- Interest rate of commodity currency

T2- Interest rate of terms currency

N- Number of days in the contract period

R- Swap point

R = D (T2 - T1) N

36000 + T1N

If T2> T1, there will be an increase point

If T2 <T1 there will be a deduction point

Therefore, the Swap sale point is:

Rb = D(T 2b – T1m)N

36000 + T1mN And theSwap purchase point is:

Rm = D(T2m – T1b)N

36000 + T1bN Application of Swap

- Balancing capitals: In practice, many enterprises often face temporary surplus of this currency but lack of another currency at the same time.Swap transactions will balance the capitalon demand

The determination of the spot exchange rate in Swap transactions is agreed upon by participating parties In practice, the quoting bank may apply different exchange rates in the contract However, in order to reduce costs and facilitate transactions, the chosen exchange rate swap is the average exchange rate of the purchase and sale rates

- Balancing foreign currency status: A swap transaction is always associated with forward and spot transactions When performing a swap transaction, if there is the purchase offorward foreign currency in the market, there will be the sale of spot foreign currency Commercial banks balance the position of spot foreign exchange by circulating them every day or every month until the maturity of forward contract

- The duration of a future transaction can be shortened (carried out earlier than maturity) or lengthened (extended) by Swap This means that the initial maturity date of the forward contract can be replaced by the earlier or later maturity date

+Optiontransactions

A currency option transactionis a right (not an obligation) to buy or sell one currency against another at a predetermined fixed exchange rate over a given period of time

Unlike forward and future contracts, option contracts allow enterprises to have a right (not an obligation) to buy or sell a foreign currency at an agreed rate which is called

an optionexchange rate Option contracts allow enterprisesto buy the rights to:

- Carry out payment transactions at the exchange rate fixed in advance by the bank if

- Contract seller and contract buyer: A contract seller is a bank that sells a put option

or a call option whereas a contract buyer is an enterprise that buys a call option or a put option

- Call option contract (buy call options or buy put options): After paying the bank the purchase chargeforoptions, an enterprise is always interested in the right to conduct the transaction if it is profitable or the right not to conduct the transaction if its is unfavorable

- Put option contract (sell put options or sell call options): The bank, after collecting the charge for options from enterprises, is obliged to be willing to trade at the agreed price

if enterprises want to usetheir options

The time when the parties sign the contract is called the time of signing contract; the time of paying contract is called the time of transaction

In currency options, the exchange rate used in the transaction is called the option exchange rate This exchange ratedepends on the high or low charge for options,in addition

to supply and demand factors

If the option charge is ignoredwhen the option contract holdercarries out the transaction without generating any foreign exchange gains or losses, this is known as the

At the money (ATM)

If the option exchange rate is exactly equal to the current spot rate, this is called At the money spot (ATM-F)

If the option charge is ignored when the option contract holder carries out the transaction withgains, this is known as the In the money (I TM)

If the call option rate is lower or the putoption rate is higher than the current spot rate, this is called In the money spot (ITM - S)

If the call optionrate is lower or the putoption rate is higher than the forward rate, it

is called In the money forward(ITM - F)

When the holder of a call option trades with a loss, this is called Out of the money (OTM)

If the call option rate is higher or the put option rate is lower than the current spot rate, it is called Out of the money spot (OTM - S)

If the call option rate is higher or the call rate is lower than the forward rate, it is calledOut of the money forward (OTM - F)

1.2.4 Factors affecting the reduction of exchange rate risk for corporate borrowers

1.2.4.1 Bank-related factors

Prestige of the bank

Prestigeis the image of the bank in customers’ eyes.Customers tend to use services of branded and prestigious banks The reason is that these banks' products will be safer and the source of information will be more accurate

For the reduction of exchange rate risk, enterprises will also choose to use services of banks with good brands in the market since the sources of information provided by these banks are highly reliable and predictable They will be moreeffective in providing customers with exchange rate risk preventive tools

Thus, the more reputable the bank is, the more accurate source of information is provided.This willmakethe reduction of exchange rate risk for enterprises more effectively

Consultants on exchange rate risk

In theactivity ofexchange raterisk reductionfor corporate borrowers, people are the management subjects and transactions related to foreign currency risk prevention for enterprises are management objects Therefore, the capacity and level of managers, especially those who advise on exchange rates, are extremely important,directly affecting the effectiveness of exchange rate risk management The reduction of exchange rate risk for enterprises is not a simple thing It requires consultants on exchange rate risk preventive tools to be professionally trained and have a certain level The capacity of the consultants is not only reflected in the in-depth knowledge of exchange rate risk management, but also expressed in their experience and judgment in the process of implementing operations of foreign currency trading in general and operations of preventing exchange rate risk for enterprises in particular

Consultants should regularly follow and analyze the fluctuation of the exchange rates, are knowledgeable and good atbanking operations, have a firm stuff and are ready to deal with unexpected situations Especially, they have to be able to acquire modern technology quickly because modern equipment will be worthless if human beings can not catch up and apply them to the reduction of exchange rate risk At the same time, it is necessary to regularly update the policies related to management and trading of foreign exchange in order to make appropriate adjustments to the market

Exchange rate premium

The exchange rate risk preventive tools provided by the bank to enterprises are derivative contracts When enterprises use these tools, they will have to pay a certain charge to the bank called exchange rate premium

An enterprise using exchange rate risk preventive tools provided by a bank will compare the charge with the expected loss if the risk arises If the exchange rate premiumis lower than the forecasted loss value, enterprises will choose to use the exchange rate risk preventive tools provided by the bank This will make the work of limiting exchange rate risk for enterprises more efficient and vice versa

Diversity of exchange rate risk preventive tools

The diversity of exchange rate risk preventive tools is also a critical determinant of the risk prevention of commercial banks

If the bank provides a variety of exchange rate riskpreventive tools, enterprises will have an opportunity to select the most appropriate tool for its foreign currency-related

business operations This helpsenterprises reduce more losses and the reduction of exchange rate risk of commercial banks more effective and vice versa

1.2.4.2 Enterprise-related factors

Enterprises’ perception

Exchange rate fluctuation is the cause of risks for enterprises involved in foreign currencies In order to limit the losses due to exchange rate fluctuation, enterprises can use the exchange rate riskpreventive tools provided by the bank

However, the operations involved in this tool are very complicated and require business executives to have certain knowledge about the products as well as tools for reducing exchange rate risk in order to use these tools effectively In addition, not all enterprises are aware of the exchange rate and exchange rate risk

If enterprises are aware of the importance of exchange rate risk prevention and are knowledgeable about exchange rate riskpreventive tools,they tend to use more of these tools provided by the bank, and the reduction of exchange rate riskwill be more efficient and vice versa

Abilityto analyze and forecast market

Enterprises’ analysis abilityis the ability to forecast the market and capture changes

in exchange rates in the future

Ifenterprises’ ability to forecast and analyze the market is good, enterprises will accurately forecast the fluctuation trends of exchange rates in the market Based on these forecasts, enterprises will select appropriate exchange rate risk preventive tools to ensure that the losses due to exchange rate risk are minimized Accordingly, the exchange rate risk tools provided by banks will be more effective In contrast, enterprises without ability to forecast and analyze the market will not be able to use the exchange rate riskpreventive tools provided by the bank effectively

Ability to take risks

Enterprises involved in foreign currencies use foreign exchange risk preventive tools

to minimize the amount of possible losses However, when the risk value is less than the costs that enterprises have to pay to use the exchange rate risk preventive tools provided by the bank, enterprises will tend to take risks instead of using preventative tools As a result, exchange rate risk preventive tools for enterprises will be less used

1.2.4.3 Business environment-related factors

Conditions on the foreign exchange market

The bank can only apply exchange rate risk preventive tools when the foreign exchange market has developed to a certain extent If the foreign exchange market develops with a full range of institutions and tools to run foreign exchange transactions that are capable of meeting all derivative foreign currencies, the risk management of the bankfor enterprises will be more effective The bank will then have more information to help the forecast of exchange rate changes and risks for enterprisesto be more accurate In contrast, if the foreign exchange market has not developed or developed inadequately, the implementation of foreign currency trading and risk prevention for enterprises will be very limited As a result, the management of exchange rate risk of the bank for corporate customers involved in foreign currency-related business will be very difficult

Legal mechanism

The legal mechanism is also a decisive factor in the reduction of exchange rate risk for corporate customers With legal documents such as laws, ordinances and decisions, the State creates a legal corridor for foreign exchange trading activities, as well as exchange rate risk prevention operations.However, this policy is not always in line with market rules Inappropriate policy will limit the effectiveness of the bank's management of exchange rate risk For example, the State Bank stipulates that the forward exchange rate is equal to the spot exchange rate plus the percentage of the spot exchange rate without taking into account the interest rates of the two exchangecurrencies Therefore, when the exchange rate increases strongly, no banks dare to provide forward or option contracts to reduce the exchange rate risk for enterprises In general, in order to create conditions for banks to apply effective measures to reduce exchange rate risk forenterprises, there should be a legal corridor in line with the development level of the market and development level of each enterprise

1.3 Experience in reducing exchange rate risk of some commercial banks

Experience of Vietcombank

Commercial banks are now offering a number of financial derivative products to meet the various needs of customers in exchange rate risk prevention Depending on the needs, enterprises can choose the exchange rate risk insurancepackages such as Forward, Option, Future or Diversification AtVietcombank, derivative products are diversified so

that they bring the greatest benefits to customers Enterprises can selectamong basic,standard or complex derivative products to meet their specific needs

Vietcombank's derivative financial products provide customers with a number of eminent benefits including: Preventing, reducingfluctuation risks of exchange rates and interest rates, especially in long-term and large-scale projects; creating flexibility in balancing capital, helping convert capital from one currency to another, etc

pre-In addition, derivative products of Vietcombank help enterprises convert liabilities and assets from floating interest rates to fixed interest rates and vice versa In addition, Vietcombank’sfinancial derivative products designed and advised to clients are based on market research and market analysis

At present, Vietcombank has a division specializing in developing derivativeproducts and a network of more than 100 branches nationwide providingcustomers with the most convenient derivative products

Experience of Vietinbank

In oder to reduce exchange rate risk for borrowers, Vietinbank has a specialized unit which regularly reviews legal documents on foreign exchange management and exchange rate adjustment and minimize procedures and time to perform swap operations at the bank

In addition, the bank is always ready to provide such contracts as forward contracts, swap contracts, option contracts in foreign currenciestoenterprises to minimize the speculation of foreign currencies and reduce the foreign currency stress for the bank

In addition, in the operation process, Vietinbank often draws experience through the pilot of implementing the bank's options for enterprises, issue detailed transaction documents to all transaction offices and branches of the bank

Technical equipment and risk management software are upgraded periodically and become an important tool to provide managers with accurate information on exchange rate risk

Vietinbank performs a daily check record for the status of each foreign currency, grasps the situation, and identifies risks to take measures to limit and avoid losses to the bank as well as its customers in time

Experience lesson for BIDV–Sogiaodich1 Branch

Learning experience fromother banks in reducing exchange rate risk for corprate borrowers, BIDV – Sogiaodich1 Branchdrew the lessons as follows:

Firstly, set up a specialized division responsible for market research, development of derivative products and tools to limit exchange rate risk for corporate borrowers

Secondly, keep track of the status and fluctuation of each currency regularly to capture the situation and early detect risks to propose appropriate solutions

Thirdly, pay attention to the training of staff, especially those who are in charge of foreign currency-related operations such as trading, foreign exchange and derivative contracts

Fourthly, invest and upgrade modern information technology system andmanagement software of exchange rate risk to help managerseasily control risks and simplify procedures and records

Chapter 2: REALITY OF REDUCING EXCHANGE RATE RISK FOR CORPORATE BORROWERS AT BIDV – SOGIAODICH1 BRANCH 2.1 Introduction of BIDV – Sogiaodich1 Branch

2.1.1 Foundation and development history

Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)

is one of the four largest commercial banks in Vietnam (Agribank, Vietinbank, Vietcombank, and BIDV) in terms of total assets and operating network

According to Decision No 70 QĐ/TCCB dated 28 March, 1991 of BIDV's General Director, BIDV established Sogiaodich1 Branch which was a subsidiary and BIDV's legal representative, carrying out internal accounting with separate balance sheet and its own seals, and directly conducting transactions with customers From 1991 to 1998, Sogiaodich1 Branch was located at 194 Tran QuangKhai and moved to 53 QuangTrung in

1998 After that, it was moved to 191 Ba Trieu, which is also the current office Sogiaodich1 Branch was built with the duty of a direct business unit of the Head Office and gradually become a key unit in BIDV system At the same time, Sogiaodich1 Branch was also a leader in experimenting new products, implementing new technologies, performing special customer service tasks, and training managers and specialists for the Head Office In 1998, the branch became an independent cost-accounting division and in

2000, Sogiaodich1 Branch actually became a multi-functional business model During the past 24 years since its foundation, the branch has grown up, affirmed itself as a reliable address, a brand deserving to be the "leading bird" as the compliments of BIDV’s CEO

2.1.2 Organizational structure

The operational system of Sogiaodich1 Branch is divided into specific departments which are then divided into professional divisions The specific tasks of the divisions are presented as follows:

- Corporate customer divisions: have the task marketing, selling products and services to corporate customers; directly propose credit limits, credit proposal; monitor and manage customers’ situation; receive and examine interest remission documents, interest remission proposals, etc Currently, the branch has 5 corporate customer divisions, in which Corporate Customer Divisions 1, 2, 4, 5 are corporate customer divisions; Corporate Customer Division 6 performs additional duties on international payment

- Individual customer divisions: have the function of marketing, selling products and services to individual customers; directly propose the credit limits, credit proposals; monitor and manage customer situation; receive and examine interest remission documents, interest remission proposals, etc

- Corporate customer transaction office: directly manages accounts and transactions with corporate customers; prevent money laundering; timely handle transactions with suspicious signs; make international payment, etc

- Individual customer transaction office: manages accounts and transactions with individual customers; examines the accuracy and adequacy of transaction documents; manages and store profile records

- Risk Management Department 1: proposes policies, measures to raise the credit quality; Reviews, analyzes and evaluates potential risks to the branch's credit portfolio; Supervises the classification of debts, sets up risk provisions; Advises and recommends on the building of credit risk management measures and submits them to competent credit authorities; acts as a guarantee for customers; handles problematic loans, and so on

- Risk management division 2: Implements operational risk management; guides and coordinates with professional department in evaluating and detecting operational risks

- Credit management division: Performs lending operations and management; calculates and sets up risk provisions according to debt classification results of the corporate customer divisions and individual customer divisions

- Budget management division: Performs operations of warehouse management and butget receiving and spending; advise the branch director on measures to ensure safety of warehouse, etc

- Planning and accounting department:

+ Planning division: collects information for the planning work; evaluates the overall performance of the branch; controls operating capital, etc

+ Accounting division: performs detailed accounting, general accounting; carries out post-inspection work for financial and accounting activities; manages and supervises finance, and so on

+ Administrative department: carries out the tasks of personnel organization, training and recruitment; manages logistics, organizes programs; makes business contacts

- IT department: directly performs work accordance with their competence, regulations and information technology processes; coordinates with information technology centers under the Head Office to deploy new software programs

- Transaction offices (5 offices): makes transactions with customers; mobilizes capital; provides credit services, guarantee, payment, etc for individual customers

The organizational structure is demonstrated as follows:

Ton DucThang Transaction Office QuocTuGiam Transaction Office Ngo ThiNham Transaction Office Kham Thien Transaction Office HoaBinh Transaction Office

Subsidiaries

Internal Management Department

Planning and Finance Department Information Technology Department Administrative Department

BOARD

OF

DIREC

TORS

Credit Management Division

Individual Customer Transaction Division

Enterprise Customer Transaction Division

Budget Management Division

Customer Management Department

Risk Management Division 1 Risk Management Division 2

Operation Department

Risk Management Department

Corporate Customer Division 1 Corporate Customer Division 2 Individual Customer Division 1 Individual Customer Division 2 Corporate Customer Division 4Corporate Customer Division 5 Corporate Customer Division 6

Figure 2.1: Organizational structure of BIDV – Sogiaodich1 Branch

2.1.3 Business results

With 25-year experience of foundation and development, BIDV – Sogiaodich1 Branch has achieved many successes in its operation process and successfully accomplished many tasks assigned This was reflected in the business results of the branch

in recent years with stable growth indicators over the years

Table 2.1: Business results of the branch in the stage of 2014 -2016

Unit: million dong

Indicators Year 2014 Year 2015 Year 2016

Difference 2015/2014

Difference 2016/2015 Amount Ratio Amount Ratio

1 Capital

mobilization 21.649 30.969 27.179 9.320 43,05% -3.790

12,24%

-2 Credit balance 9.785 17.421 18.890 7.636 78,04% 1.469 8,43%

3.Total revenue from

4 Profit before taxes 779,7 851 932 71,30 9,14% 81 9,52%

Source: Statement of business results at Sogiaodich1 Branch(2014 -2016)

In 2012, BIDV system transformed its operation model into a joint stock commercial bank in the context that the Vietnamese economy in general and the banking sector faced many difficulties and challenges due to the fierce competition in the market However, with BIDV’s tradition and strength, all the staff of Sogiaodich1 Branch quickly implemented BIDV's orientations, assessed the situation, and determined the targets to have suitable and creative developing strategies; proposed synchronous and effective measures and solutions to adapt to the difficult and challenging business environment; developed working emulation movements and created a professional, active, and friendly working environment; promoted scientific research, innovation, and work improvement; took care of the material and spiritual life of laborers, etc Thanks to these activities, the business results of the branch always had stable growth over the years Namely, as for the capital mobilization, the mobilized capitals of the branch reached 21.649billion dong in 2014; 30.969billion dong in 2015 (decrease by 43,05%and 27.179billion dong in 2016

(increase by 12,24% compared to 2015) The increase of mobilized capitals of the branch was due to the fact that the branch always applied flexible forms of mobilization to ensure the value for depositors at all times

Besides, the credit balance of the branch also increased rapidly with the amount of credit in the years of 2014, 2015, and 2016 was 9.785billion dong, 17.421billion dong, and

18.890billion dong respectively The increasing credit balance was strictly controlled in terms of quality with the bad debt ratio of much lower than the average in the area and the whole sector (in 2016 at 0.09%) On the other hand, the profit of the branch was also at the top of the BIDV system and was constantly increasing every year In 2015, the branch's profit was 851billion dong (9,14%compared to 2014) and its total profit reached 932billion dong in 2016 (increase by 8.5% compared to 2015) These achievements were because in recent years the branch had provided a full range of products and services of a modern bank including many leading efficient products in BIDV system; The customer structure was improved with a wide range of economic sectors, types of enterprises, and sectors such

as production, business, circulation, distribution, electronics and telecommunications, etc

To sum up, business activities of BIDV – Sogiaodich1 Branchachieved many positive results which created favorable developing conditions for other types of service including card services

2.2 Reality of exchange rate risk for corporate borrowers at BIDV – Sogiaodich1 Branch

2.2.1 Results of loan offeringto corporate customers at BIDV – Sogiaodich1 Branch

In order to evaluate the scale of financing for export and import of BIDV – Sogiaodich1 Branch, the author built the following chart:

Chart 2.1 Results of export and import financing forcorporate customers

Unit: Thousand USD

Source: BIDV – Sogiaodich1 Branch

The chart shows that the data on the two types of financing of the branch changed in the increasingly rapid direction over the years To achieve this result, BIDV in general and Sogiaodich1 Branch in particular had made great efforts These efforts were demonstrated

by the award of "The Best Domestic Trade Finance Provider in Vietnam" voted by Euromoney Magazine in the United Kingdom.In order to get this award, BIDV had to overcome many domestic banks and meet such criteria as: Product quality, quality of consultants, professional operation model, serving customers under international standards; ability to manage, reduce risks,offer competitive prices but still ensure good profitability, wide network of transaction points, unique solutions and initiatives for customers and other factors

- In terms of loan outstanding balance for import financing: Loan outstanding balance for import financing accounted for the bulk of the branch’s outstanding loans over the years The amount of loans for import financing of the branch in 2014, 2015 and 2016 was 189,650 thousand USD, 211,403 thousand USD and 246,021 thousand USD respectively In fact, in recent years, BIDV – Sogiaodich1 Branchhas stepped up loans for import financing with large quantities of iron, steel and petrol with contract value from

0 50,000

211,403 171,890

246,021

2014 2015 2016

20to 25 million USD Therefore, the increase fluctuationwhen offering loans to a foreign trade contract also greatly affects the loan outstanding balance at the end of the period

- In terms of loan outstanding balance for export financing: Loan outstanding balance for export financing at the branch also fluctuated with the amount of loans in the period of 2014-2016 of 150,596 thousandUSD, 162,152 thousand USD and 171,890 thousand USD, respectively These outstanding loans were explained as follows: For export financing product, the number of borrowers was not high but constantly increased over the years At the same time, the financing for export activities of the branch was relatively stable and mainly focused on a number of enterprises operating in the fields of aquatic products, textiles, wood and chemical substances with quite good turnover These customers had stable business plans over the years, so the capital turnover was generally unchanged Although being affected by external environment factors, these enterprises still retained their long-term contracts Therefore, every business cycle, these enterprises have the need for export financing and settled the contract on time It can be said that the export financing of BIDV – Sogiaodich1 Branchdepended mainly on frequent and traditional customers

To sum up, by the end of 2016, BIDV – Sogiaodich1 Branchhad quite high loan outstanding balance for import and export financing This result met most of the capital needs of importers and exporters in our country in general and in Hanoi in particular,especially importers and exporters of key commodities in the import-export turnover of our country such as textile and garment, aquatic products and wood

2.2.1.1 Results of lending operations to exportcorporate customers at BIDV – Sogiaodich1 Branch

When carrying out a specific assessment of lending activities to exporters at BIDV – Transaction Office according to the loan products, the author gained the following table of figures: