LV Thạc sỹ_Solutions to minimize credit risks in JSC bank for Vietcombank

Subjective causes CHAPTER 2: THE REALITY OF CREDIT RISK MANAGEMENT IN JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM - THANH CONG BRANCH 2.1.. Overview of Joint stock commer

CHAPTER 1: ORENTICAL FRAMEWORK OF CREDIT AND

CREDIT RISK IN COMMERCIAL BANKS

1.1.1 The concepts of bank credit

1.1.2 The roles of bank credit

1.1.3 The forms of bank credit

1.1.3.1 Lending1.1.3.2 Guaranties

1.2.1 Types of risks in banking operations

1.2.2 The concepts of credit risk

1.2.3 Types of credit risks

1.2.4 Causes of the credit risk in commercial banks

1.2.4.1 Objective causes 1.2.4.2 Subjective causes

CHAPTER 2: THE REALITY OF CREDIT RISK

MANAGEMENT IN JOINT STOCK COMMERCIAL BANK FOR

FOREIGN TRADE OF VIETNAM - THANH CONG BRANCH

2.1 Overview of Joint stock commercial bank for Foreign Trade of

Vietnam and Thanh Cong Branch

2.1.1 History of foundation and development

2.1.1.1 Vietcombank

2.1.1.2 Vietcombank – Thanh Cong Branch

2.1.2 Management structure and organization

2.1.3 Real business situations

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2.1.3.2 Lending activity

2.1.3.3 Service activity

2.2 Activities of credit risk management in Vietcombank- Thanh

cong Branch

2.2.1 The reality of credit activities

2.2.2 The real situations of credit risk and credit risk management

2.2.2.1 Policies on credit risk management of Vietcombank

2.2.2.2 Credit risk situation in Thanh Cong Branch

2.2.3 Evaluation of credit risk management activities in VCB

2.2.3.1 Achievements

2.2.3.2 Drawbacks

CHAPTER 3: SOLUTIONS TO MINIMIZE CREDIT RISK IN

VIETCOMBANK - THANH CONG BRANCH

3.1 Development orientations of Vietcombank - Thanhcong Branch

3.2 Solutions to reduce credit risk in Thanh Cong Branch

3.2.1 Collecting information

3.2.2 Enhancing control

3.2.3 Improving quality of staff

3.2.4 Improving customer’s policies and loan evaluation process

3.2.5 Providing loan loss provision

3.3 Recommendations

3.3.1 Recommendations related to the Government

3.3.2 Recommendations related to State Bank of Vietnam

3.3.3 Recommendations related to Vietcombank

CONCLUSION

REFERENCES

APPENDIX

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1 VCB – Vietcombank

2 SBV – State Bank of Vietnam

3 CIC – Credit Information System

This thesis aims to study how credit risk affects commercial banking operations, andthen propose solutions to minimize it This thesis depicts real situations of credit riskmanagement in a commercial bank, namely Vietcombank – Thanh Cong Branch.

Credit risk is one of the oldest and most important forms of risk faced by banks asfinancial intermediaries Managing this kind of risk always is one of the predominantchallenges in running a bank

Chapter 1 is for the introduction of fundamental concepts of credits and credit risk,how they affect a commercial bank in particular Rules and factors of bank credit are alsobriefly discussed as well as the very basic idea of other risks in banking operation Types

of credit risk were mentioned, of course, then the chapter ends in exposing subjective andobjective causes of credit risk

Chapter 2 gives a picture of Vietcombank in general, and its Thanh Cong branch inparticular with recent business activities such as capital mobilization, lending, etc Creditrisk management’s real situations in five years are thoroughly analyzed and explainedaccording to different type of bank credit Underlying reasons for the pattern of creditrisk are discovered and presented

Chapter 3 aims at proposing recommendations and solutions for the complexcircumstances around VCB – Thanh Cong Branch’s credit risk management It alsosuggests strategies for lending activities in next several years

Table 2.1: Outstanding loans of VCB – Thanh Cong Branch

Table 2.2: Classification of credit according to type of user

Table 2.3: Classification of credit according to type of industry

Table 2.4: Classification of credit according to maturity

Table 2.5: Credit risk situation in Thanh Cong Branch 2005 -2009Table 2.6: Overdue loan of Thanh Cong Branch 2005 -2009

Table 2.7: Classification of overdue loan according to customer solvencyTable 2.8: Classification of overdue loan according to types of currency

Chart 2.1: Capital mobilizing at Thanh Cong Branch 2005-2009

Chart 2.2: Lending situation of VCB- Thanh Cong Branch 2005-2009Chart 2.3: Number of cards of Thanh Cong Branch 2005-2009

Chart 2.4: Import and export payment of the Branch 2005-2009

Chart 2.5: Number of customers of Thanh Cong Branch 2005 -2009

1 Rationale

One remarkable feature of world economy in recent decades is the fast development

in financial sector and banking industry It is clear that striving for a prosperous financialand baking attracts more and more attention, wisdom, and knowledge of humanity.Following the world’s trend as well as positive changes of country, especially afterVietnam officially joined the International Trade Organization (WTO), in recent years,Vietnam’s banking system has made significant changes in structure, scale, anddiversification in the term of organization types Commercial banking system is expected

to continue to promote it roles to support in capital, investment, and financial services tomake economic growth prosperously and stably

Banks perform different services: deposits, loans, remittance services, paymenttransactions The modern world banking trends to operate more kinds of services tomake more profit However, in the current period, in most countries including Vietnam,the main source of income is from credit activities

Vietcombank- Thanh Cong Brach belongs to Vietcombank and operates in Hanoi Inthe past few years, in spite of significant achievements on many aspects, this bank alsohas to confront with difficulties in managing credit risks To assert its position in themarket, Vietcombank – Thanh Cong Brach needs to find solutions to manage credit risks

smoothly and efficiently That is the main reason the internee chose the theme “Solutions

to minimize credit risks in Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)- Thanh Cong Branch " as the topic for his graduation thesis.

activities at Vietcombank – Thanh Cong Branch

Research Object: Credit risks and credit risk management in commercial banks –Research Scope: Credit activity in this minor thesis is considered in term of lending,not guaranty Time and data was conducted in five years from 2005 to 2009

The minor thesis was studied based on dialectical materialism and historicalmaterialism, statistical theory; and implemented in accordance with analysis,demonstration, synthesis method, comparison charts

Chapter I: Orentical framework of credit and credit risk in commercial banks

Chapter II: The reality of credit risk management in joint stock commercial bankfor foreign trade of Vietnam (Vietcombank) – Thanh Cong Branch

Chapter III: Solution to minimize credit risk in Vietcombank – Thanh Cong BranchConclusion

List of references

CHAPTER 1 ORENTICAL FRAMEWORK OF CREDIT AND CREDIT RISK IN

COMMERCIAL BANKS

Credit refers to the granting of a loan and the creation of debt Credit is considered

as mutual relationship between lenders and borrowers with promise to repay bothprincipal and interest after a certain period Credit reflects an economic relationship inwhich individual or organization gives another individual or organization the right to use

an amount of asset with specific conditions about interest rate, time of repayment, andpayment method

We can realize some typical features of credit:

- Credit requires faith: The concept of credit indicates that credit is the lending withpromises of repayment in specific time; these promises show credibility and trustbetween lender and borrower Credibility is invisible factor, however it cannot be absentfrom any credit activities, and is embraceable element of credit activities

- Credit happens in a specific period Lender gives borrower rights to use loans interm of money or goods within a specific period After borrowing period, borrower has torepay loan’s principle plus interest

- Credit includes refund process This is the thing to distinguish credit from othereconomic categories After lending, lender profits from loan by addition amount ofmoney called interest

In addition to three basic characteristics mentioned above, credit also has suchcharacteristics as potential risk, guarantee, supply, rule of demand, and competition, etc

Bank credit has a great deal to do with the economic health of its region; it supportscommunities and nations by providing credit to finance the development of new

businesses, sustain existing activities, and create jobs so that living standard can growover time.

Bank credit helps to increase economic efficiency Enterprises usually do businessbased on equity and debt One of the important sources of debt is bank’s loans, becausethis kind of source usually meets firm’s demands in term of quantity and duration.Inversely, in order to borrow money from bank, enterprise has to do business effectively tomeet bank’s requirement As a result, enterprise must change time by time, search newmarket, develop technology… and these things increase market efficiency It alsocontributes to market’s continuous movement, increases money transferring, and supportsbusiness strategies, monetary policy

In Vietnamese market, bank credit usually is divided into two big groups: lendingand guaranty

a) Real estate loans: are secured by real property- land, buildings, and otherstructures- and include short-term loans for construction and land development andlonger-term loans to finance the purchase of farmland, homes, apartments, commercialstructures, and foreign properties

b) Financial institution loans: include credit to banks, insurance companies,finance companies, and other financial institutions

c) Agricultural loans: are extended to farms and ranches to assist in planningand harvesting crops and supporting the feeding and care of livestock

d) Commercial and industrial loans: are granted to business to coverpurchasing inventories, paying taxes, and meeting payrolls.

e) Loans to individuals: include credit to finance the purchase of automobiles,homes, appliances, and other retail goods, to repair and modernize homes, and to cover thecost of medical care and other personal expenses, and are either extended directly toindividuals or indirectly through retail dealers

f) Miscellaneous loans: include all loans not listed above, including securities’loans

g) Lease financing receivables, where the lender buys equipments or vehiclesand leases them to its customers

1.3.1.2 Guaranties

Based on customer’s request, bank issues a written commitment to a third partydesignated by the customer (the guarantee’s beneficiary) on executes financialresponsibility for the customer when the customer does not execute or execute correctlythe responsibility committed to the guarantee’s beneficiary The customer has to acceptthe credit and return to the bank the amount paid on their behalf Some types ofguarantees that can be issued:

- Borrowing guarantee

- Payment guarantee/ Standby Letter of Credit

- Bid Bond

- Performance Bond

- Product quality guarantee

- Advance payment guarantee (Guarantee for Reimbursing advanced payment,guarantee for Reimbursing deposit or deposit guarantee)

- Guarantee for retained amount (Work quality guarantee/ Warranty guarantee/Maintenance guarantee)

- Counter guarantee

- Confirmation of guarantee

- Guarantee for studying overseas

Because of the limitation in knowledge and time of the internee, in this thesis, theinternee only focuses on loans activities of bank

Risks are uncertainties resulting in adverse variations of profitability or in losses Inthe banking universe, there are a large number of risks Bankers are usually interested inachieving high profitability, but none can fail to pay attention to the risks they areaccepting to achieve these goals Earnings may decline unexpectedly due to factors inside

or outside the financial firm, such as changes in economic conditions, competition, or lawsand regulations For example, recent increases in competition have tended to narrow thespread between earnings on assets and the cost of raising funds There are several ways tounderstand and define risks according to economists and executives, and it is very difficult

to initiate a standard definition for every cases Thus, people usually classify risks base ontheir characteristics and factors that create risks

According to Basel II, there are three types of major risks:

1.2.1.1 Credit risk

Credit risk is the first of all risks in terms of importance Default risk, a major source

of loss, is the risk that customers default, meaning that they fail to comply with theirobligations to service debt The intern will discuss deeply about credit risk in next part

1.2.1.2 Market risk

Market risk is the risk of adverse deviations of the mark-to-market value of thetrading portfolio, due to market movements, during the period required to liquidate thetransactions The period of liquidation is critical to assess such adverse deviations If itgets longer, so do the deviations from the current market value

1.2.1.3 Operational risk

Operational risk are those of malfunctions of information system, reporting systems,internal risk-monitoring rules and internal procedures designed to take timely correctiveactions, or the compliance with internal risk policy rules The Basel II accord of January

2001 defines operational risk as ‘the risk of direct or indirect loss resulting from

inadequate of failed internal processes, people, and systems of from external events’.Operational risks appear at different levels:

Process risk scope includes:

oInadequate procedures and controls for reporting, monitoring and decision-making.oInadequate procedures on processing information, such as errors in bookingtransactions and failure to scrutinize legal documentation

oOrganizational deficiencies

oRisk surveillance and excess limits: management deficiencies in risk monitoring,such as not providing the right incentives to report risks, or not abiding by the proceduresand policies in force

oErrors in the recording process of transactions

oThe technical deficiencies of the information system or the risk measures

Technical risks relate to model errors, implementation, and the absence of adequatetools for measuring risks Technology risks relate to deficiencies of the information systemand system failure

For operational risks, there are sources of historical data on various incidents andtheir costs, which serve to measure the number of incidents and the direct losses attached

to such incidents The practical difficulties lie in agreeing on a common classification ofevents and on the data gathering process, with several potential sources of eventfrequencies and costs

In fact, types of risk need to be studies in the correlation This kind of risk can be thereason for another one, and this kind of risk may relate strongly to other kinds in

commercial bank operation Studying definitions of risk in commercial bank enrichestheories of business, and then apply them to reality In business, we cannot eliminate riskperfectly; however, we can create procedures and policies to minimize it

Besides three major kinds of risks: credit risk, operation risk, and market risk, thereare also some important kinds of risk encountered daily by banks:

+) Liquidity risk

Bank managers are concerned about the danger of not having sufficient cash andborrowing capacity to meet customer withdrawals, loan demand, and other cash needs.Faced with liquidity risk, a bank may be forced to borrow emergency funds at excessivecost to cover its immediate cash needs, reducing its earnings

+) Interest rate risk

Movements in market interest rates can also have potent effects on the margins ofrevenues over costs for both banks and their competitors For example, rising interest ratescan lower the margin of profit if the structure of a bank’s assets and liabilities is such thatinterest expenses on borrowed money increase more rapidly than interest revenues onloans and security investments The impact of changing interest rates on a bank’s margin

of profit is called interest rate risk

Moreover, banks also have to consider some other kinds of risk such as Foreignexchange and Sovereign risk, off-balance-sheet risk, legal and compliance risks,reputation risk, strategic risk, capital risk

1.2.2 The concepts of credit risk

In this part, the intern will add more information about the credit risk to make itclearly and easy to understand Credit risk is one of the oldest and most important forms

of risk faced by banks as financial intermediaries The risk of borrower default — oninterest and/or principal — carries the potential of wiping out enough of a bank’s capital

to force it into bankruptcy Managing this kind of risk through selecting and monitoringborrowers and through creating a diversified loan portfolio has always been one of thepredominant challenges in running a bank

Credit risk is critical since the default of a small number of important customers cangenerate large losses, potentially leading to insolvency There are various default events:delay in payment obligations; restructuring of debt obligations due to a major deterioration

of credit standing of borrowers; plain default; bankruptcies Restructuring is very close todefault because it results from the view that the borrower will not face paymentobligations unless its funding structure changes Plain defaults imply that the non-paymentwill be permanent Bankruptcies, possibly liquidation of the firm or merging with anacquiring firm, are possible outcomes They all trigger significant losses

For example, banks make loans and take on securities that are nothing more thanpromises to pay When borrowing customers fail to make some or all of their promisedpayments, these defaulted loans and securities results in losses; and these losses caneventually erode capital Because banks tend to hold little owners’ capital relative to theaggregate value of their assets, only a small percentage of total loans need to turn bad topush them to the brink of failure

Credit risk could be causes of financial crisis, thus it is always the first concern ofbanks and financial institutions Credit activities have primitive features; they are the basicactivities of bank and are the main reasons for assessing the quality of banking operations.Credit activities have an extremely important role for any commercial bank Thus, theydeserve special attention not only from bank’s management and supervision, but also fromState bank’s adjustments Credit administration influences to commercial bank’s success

or failure Bank need to estimate and understand customer’s ability to repay loans andcontrol it in order to minimize credit risk as well as bank can

1.2.3 Types of credit risks

Credit risks are classified in many ways that depends on the investigative andmanagerial purposes In banks’ point of view, the classification is very important to designbanks’ policy, procedures, and organization structure in order to realize factors of risksclearly; and then distribute responsibility to each department and staff

a) Classifying risks according to each kind of customers

o Individual customers

o Corporate customers

b) Classifying risk according to business scale

o Specific risk: Risk that affects a specific transaction or specific customer’sloan This kind of risk usually originates in specific features of loan orcustomer

o Systematic risk: Risk that affects the entire market or entire marketsegment This kind of risk has macroeconomic features and relates tocredit portfolio management

c) Classifying risk according to period of loan processes

o Risk originates in customer-investigating process; it means that: bank doesnot have reasonable investigation about customers

o Risk originates in managing, handling debt and bad debt

d) Classifying risk according to its characteristics

o Objective risks that caused by natural calamity, epidemic diseases…

o Subjective risks caused by borrowers or lenders who loss the loans byaccident or on purpose

e) Classifying risk according to credit products

o On-balance sheet products

o Off-balance sheet products (letter of credit )

f) Classifying risk according to the term of loans

o Short- term loans

o Middle-term and long-term loans

The banking industry has a wide array of business lines, risk is unavoidable factor,and credit risk is one of the biggest and riskiest kinds of risk By operating lendingactivities, banks stimulate investment, production, and goods circulation; as the result,bank becomes very important to enterprises and economy as a whole Hence, identifying

the causes of credit risk is essential job to bank to do There are several causes listedbelow:

1.2.4.1 Objective causes

a From Socio- Economic Environment

Socio-economic relationship is collection of all relationships in society A change inthe economy will affect all business activities and credit activity is not an exception Astable economy will facilitate to improve the quality of credits Economic environmenthas a significant affects to bank’s success or failure In general, the abnormal fluctuation

of one market’s segment affects the other segments’ operations Besides, commercialbank’s activities are considered as means to link different market’s segment together inthe economy In bank’s activities, credit activity is the most sensitive one to thefluctuations of economy; in another word, these fluctuations affect commercial bank’scredit activity a lots When the economy goes up, all business activities have positive andstable performance, business environment is attractive and less volatile, demand for loansincreases; as a result, bank has a lot of potential opportunities, business condition becomegood, loans become safer and more profitable When the economy is in downturn,businesses could be narrow considerably; for this reason, bank credit would reduce interm of quality and quantity, and risk would increase

Social factors such as social order and security, education level affects main factorsrelated directly to credit relationship between bank and customers This relationship bases

on mutual trust between bank and customers, so that prestige plays an important role incommercial bank credit activities

b From Legal Environment

Legal environment influences banks and enterprises’ legal capacity In creditrelationship, legal capacity is expressed through rights to borrow, obligations to repay,and mortgage Comprehensive legal system will make business activities smoothly andefficiently, thereby ensures credit relationships Conversely, if legal environment

fluctuated with its troublesomely administrative procedures, banks would not solveappeals well.

c From Natural Environment

Natural disasters, earthquakes, droughts, floods are unavoidable risks affectingcustomers’ business and production, as the result, quality of bank credit will be affectnegatively Customers who work in agriculture, forestry, fisheries suffer a lot because ofthese risks

d From Clients

Clients are not only money suppliers but also money demanders They expect toreceive interest or convenient transaction services when depositing money Thecustomers’ trust in banks will increase the stability of the funds mobilized to meet theneeds of the borrower For borrowers, they want to meet banks’ requirements to be able

- Market capability of customers: Market capacity is assessed by customers’position in economic system, marketing network, service sector, dealer network, and thegrowth of potential customers The better the market capacity of customers, the morechances bank extends credit activities because they have high investment needs with lessspecific risks

- Finance capability of customers: Equity/ Total Asset ratio is an important criterion

to evaluate finance capability of customers Bank usually requires a minimum ratio to

make loans to firms or enterprises Moreover, bank needs to know finance capability ofcustomer to customers’ solvency and reduce risks Therefore, the higher the financecapability customers have, the higher the opportunities customers have to meet bank’srequirements; and as a result, the quality of bank credit will improve

- Enterprise’s management capability: An appropriate management structure withexcellence leaders ensure that enterprises will find solutions to the difficulties andproblems they have to cope This also means risk will reduce and firms’ abilities to repayloans for bank will increase

- The feasibility of loan projects: Loan project is the convergence of all competencescustomers have Investment project must satisfy every standard of credit such as theneeds, purposes, and results of project, ability to pay principal and interest to bank Afeasible project is an important term for the bank to make investment decisions

1.2.4.2 Subjective causes

a One of the most important ways a lending institution can make sure its loansmeet regulation standards and are profitable is to establish a written loan policy Suchpolicy gives loan officers and management specific guidelines in making individual loandecisions and in shaping the overall loan portfolio The actual makeup of a bank’s loanportfolio should reflect what its loan policy said Otherwise, the loan policy is notfunctioning effectively, and should be either revised or more strongly enforced A writtenloan policy carries a number of advantages for the bank adopting it Banks and financialinstitutions always consider credit policy as the standard criteria to manage risks Itcommunicates to employees what procedures they must follow and what theirresponsibilities are It helps the lender move toward a loan portfolio that can successfulblend multiple objectives, such as promoting profitability, controlling risk exposure, andsatisfying regulatory requirements While any loans must be flexible due to continuingchanges in economic conditions and regulations, violations of loan policy should beinfrequent events In the competitive market, good credit policy has an extremelyimportant role for bank

b Inappropriate Lending Process

Lending process includes six steps: finding prospective loan customers, evaluating aprospective customer’s character and sincerity of purpose, making site visits andevaluating a prospective customer’s credit record, evaluating a prospective customer’sfinancial condition, assessing possible loan collateral and signing the loan agreement,monitoring compliance with the loan agreement and other customer service needs Thequality of loans depends a lot to steps of lending process Inspecting and supervisingcustomer’s use of loans carefully help bank capture the situation of loans granted tocustomers (can be used for right purpose or not), and prevent or minimize risk earlier if itoccurs The important steps that determine credit quality and limit credit risk is debtrecovery and debt settlements process Credit analysis division need to evaluate step- by-step lending process, prepare summary and recommendation to bank, watch out andreduce risk as well as possible

c Weak Credit Information System

Credit activities in the market mechanism always have implicit risks One of themost important factors affecting the quality of credit is the credit information system Abank often relies heavily on outside information to assess the character, financialposition, and collateral of a loan customer Such an analysis begins with a review ofinformation the borrower supplies in the loan application Bank may contract otherlenders to determine their experience with the borrowing customer Credit informationneed to be accurate, timely and complete Therefore, banks need to have much differentsources of information, not only from the other lending institutions but also from externalsources such as domestic and foreign credit rating agencies These sources of informationare important to evaluating customers comprehensively Incorrect credit information willcaused a lot risks and losses for bank

d From Management Staff and Bank Officers

Poor management is a main cause of risks in commercial bank The staff’s dutiesneed to be specified and arranged scientifically, avoid overlapping; the structure ofmanagement will be the basis development of healthy and effective credit activity Thesethings will help bank to limit credit risk that may occur; for more details, they help bank

to meet customer’s demand in time, detect risks and solve problems on time, thereby alsoimprove credit quality of bank.

The loan officers directly involve in every steps of lending process so they areimportant factors determining the success or failure in commercial bank’s operationgenerally and credit activities particularly In addition to the law, social knowledge,economic policies, and changes in financial market, loan officers have to make accuratepredictions about market, thereby advise customers build a reasonable loan and businessplan Professional qualifications of credit officers have a great deal in manage quality ofloans and limit credit risks

Internal control allows managers to capture real situations of bank activities,difficulties that bank have to confront; and then give reasonable solutions Credit risk iscompliant with policies, regulations, timely detection of errors, as well as the causes ofdeviations affecting the implementation of lending process These are effective measures

to help manager to obtain information about the status of the business in order tomaintain efficient operations that are carried out in accordance with the policy, andimplement given objectives successfully

CHAPTER 2 THE REALITY OF CREDIT RISK MANAGEMENT IN JOINTSTOCK COMMERCIAL BANK FOR FORRIEGN TRADE OF VIETNAM

(VIETCOMBANK) - THANH CONG BRANCH

2.1 Overview of Joint stock commercial bank for Foreign Trade of Vietnam and Thanh Cong Branch

2.1.1.History of foundation and development

2.1.1.1 Vietcombank

The Joint-Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)was established and renamed on 02 June 2008 (in accordance with License forEstablishment and Operation dated 23 May 2008 by the State Bank of Vietnam, andBusiness Operation Registration Certification dated 02 June 2008 by Hanoi Investmentand Planning Department) after the equalization of the former Bank for Foreign Trade ofVietnam by its Initial Public Offering (IPO) on 26 December 2007

For more than 46 years of continuous development, Viecombank has projected itself

as the leading banking service provider in Vietnam including traditional services such asinternational settlement and trade finance, fund mobilization, lending, project finance…aswell as modern banking services such as treasury and derivatives, card service, e-bankingand so on The bank takes a significant market share in various business lines, such aslending (~10%), deposit taking (~12%), international settlement (~23%) and card service(~55%) With advantage of modern banking technologies, Vietcombank is the pioneer inapplying advanced technologies in automatic processing of banking services andlaunching electronic banking services e.g Internet banking, VCB-Money (Homebanking), SMS Banking, Phone banking… in order to “make banking services familiar tocustomers”

Originally established as a specialized bank servicing external economic activities,Vietcombank today has grown into a universal bank with presence in all major cities andprovinces throughout the country; comprising 1 Head Office in Hanoi, 1 Operations

Centre, more than 300 branches and transaction offices nationwide, 3 local subsidiaries, 1subsidiary in Hong Kong, 4 joint ventures, 3 associated companies and 1 representativeoffice in Singapore The customer service network is further extended and diversifiedwith 11,183 ATMs and POS across the country

The Bank’s operation is supported by its relationship with more than 1,300correspondent banks in approximately 100 countries and territories A home of highlyexperienced and skillful staff who possess professional working attitude, Vietcombank isproud to be a prime choice for top local and foreign corporations and enterprises aswell as more than 4 million individual customers

The year 2009 marked a significant milestone in Vietcombank’s history More than 1year since transformation into a joint-stock commercial bank, the Bank has seen arecorded profit with pre-tax profit of 5,004 billion dongs The corporate governance andadministration of Vietcombank has been increasingly flexible and drastic, making theBank more modern, professional, and effective

2.1.1.2 Vietcombank- Thanh cong Branch

VCB- Thanh Cong Branch was founded on December 21, 2001 with hopes that:youth, activeness and advanced banking technology will meet the needs of customersefficiently On August 12, 2006, Bank for Foreign Trade of Vietnam- Thanh Cong Branchwas upgraded to Level I branch from level II branch belonging to the Bank for ForeignTrade of Hanoi according Decision No 914/QD-NHNT-TCCB-DT After nearly six years

of operation, Bank for Foreign Trade- Thanh Cong branch itself had confirmed itsposition in the financial market monetary of Hanoi Thanks to efforts of innovation-oriented Bank for Foreign Trade of Vietnam, Thanh Cong Branch Bank had organizedappropriate model, developed its strengths, expanded activities in order to contribute andimprove business performance of the branch

Thanh Cong branch consists of 105 people; average age is 26 and 98% reacheduniversity degree and upper university Staffs at branch are youthful, dynamic andenthusiastic and were divided into nine rooms and groups:

Functions and responsibilities of the Branch’s departments

* Customer Relations Department:

+ Function: establish customer relationship clues, maintain and continuouslyexpand relationships with customers with all activities, all banking products aimed atachieving development business goals safely, efficiently and increase market share of theBank for Foreign Trade

+ Task: Identify the target market and target customers; build customer policy,directly involve in implementing customers policies and evaluate there policies ; Directimplement marketing programs to introduce customers about the products and servicesthat Bank of Foreign Trade has advantages and can provide; Appraisal and valuation ofassets to ensure their customers

*Accounting – Payment Department

+ Function: To organize the work of the accounting profession of additionalaccounting in the branch in accordance with accounting rules, guiding documents of theMinistry of Finance, State Bank and Bank for Foreign Trade of Vietnam

FundBank

services

Import- Export Payment

Risk management

Đồng TâmThái Hà Nam ThanhXuân

Payment accounting

General Office

Internal accountinHuman

resource

+ Task: Monitor, manage and account internal expenses, taxes, fixed assets andworking tools; coordinate with other office to perform regimes of fund payment, fundreceiving, managing cash seriously.

* Risk Management Department:

+ Function: Research, analyze, manage risks, including general risk (systemic risk,market risk ) and risks to ensure the development of credit extend business safely andeffectively

+ Mission: Develop risk management policy; manage portfolio; directly assess risklevel for each credit terms to customers; join the credit approval process, participate andsupervise the implementing process of approved decisions, participate in solving creditproblems

* Banking Services Department

+ Customer Information Division: Receive managers’ announcement andsettlement of accounts requirements; receive, manage accounts and customer records,customers’ requirements in changing information

+ Customer Service Department: Handle all transactions involving depositaccounts, customer’s payment and receiving; provide cash for credit card holders inadvance, currency exchange, personal travelers' checks…

+ Card Division: Issue cards and payment cards under the current regulations ofthe Bank for Foreign Trade of Vietnam; manage recorded deposit, mortgage, pledge

+ Lending Division: Make pledge loans, mortgage, approve credit; organizeretails

+Fund Department:

Organize the payment and receiving in revenues and expenditures in Vietnamdong, foreign currency and valuable papers; manage and organize on putting fund in andout, fund services, property mortgage, pledge valuable papers

* Import-Export Payment and Guarantee Office:

+ Function: Perform specialist skills in services and guarantees for big customers(organizations) regarding of payment for import-export goods

+ Mission: Get documents, open approved L/C from customer relationship staff,make L / C, check vouchers for foreign payment, receive records and open L / C, report

L / C export goods that received from abroad, .; transfer to foreign customers,

organizations; and carry out guarantees services in domestic and foreign

* HR Administration:

+ Organization: Advise the Board of Directors to help in scheme, appointment anddismissal, reward, discipline, employment and recruit staff; construct training programsannually, maintain staffs and monitor to implement the plan…

+ The Administrative Management: Advise the Board of Directors on matters ofgeneral administrative, manage, construct, procure assets, materials, electricity andwater ; manage secret document and archive documents

*General Staff:

Research and analysis all economics matters relating to operation of branches;plan preliminary business report, summary business of the Branch in annual meeting orother events

* Internal Inspection Staff:

Scheduling recurring or extraordinary inspection and audit; perform inspectionand supervision the observance of procedures professions, business and safetyregulations, review risk level to ensure safety in business activities and propose toimprove safety

In general, Vietcombank- Thanh Cong Branch had compact organization; staffshad necessary level of knowledge to ensure specialist skills, serious labor discipline,always notice to improve customer service quality At this time, under the leadership ofJoint Stock Commercial Bank for Foreign Trade of Vietnam with Broad of Directors andall staffs’ efforts in Thanh Cong Branch Bank, business activities in Vietcombank- ThanhCong Branch had achieved many encouraging results

2.1.3 Real business situations

At this time, Vietcombank- Thanh Cong Branch has implemented business activities

in accordance with following VCB’s plans and strategies actively and effectively TheBranch’s operations have prospered over the years, with significant growth

In recent times, Vietcombank in general and Thanh Cong Branch Bank in particularare influenced by global economics such as the fluctuation of currency exchange rate,interest rate; especially, exchange rate on international markets tends to fluctuatecontinuously The economy of the country in general and Hanoi in particular were tough:drought, floods and storms, epidemics; and along with that situation: some materials,commodities increased in price, especially those important commodities such as food,food, steel, petroleum Inflation was at high level made a visible result that: it was veryhard to bank to mobilize and banks were pressured in increasing interest rate in bothlending and mobilizing activities

Under that situation, Vietcombank- Thanh Cong Branch has overcome difficulties;been ready to receive new challenges, opportunities, and gone with the rhythm of newdevelopment and technology With the motto: technology platform is the base, humanresources development is the priority, cost saving, management are advantages; theBranch achieved significant growth in both turnover and scale

2.1.3.1 Capital mobilization activities

With the reputation that has been created over the years, Thanh Cong Branch havecompleted the plans of raising capital, largely contributed to achievement in raisingcapital of entire Vietcombank system

Table 2.1: Capital Mobilizing at Thanh Cong Branch 2005- 2009

(Source: Report of VCB- Thanh Cong Branch)

In this graph of the Branch’s mobilized capital between from 2005 and 2009, we cansee that mobilized capital had an increasing trend from Vnd 1032 billion to Vnd 2656billion with slight drop in 2007 In 2009, capital mobilization of Thanh Cong Branchmaintained good results, promoted strengths of VietcomBank; and with effectivemobilizing, the Branch succeeded in implementing and introducing new mobilizingproducts to market according VCB’s policy In 2007, because of global crisis’s influencethe mobilized capital of the branch went down considerably by 18.71% However, from

2007 to 2009, mobilized capital of the branch had increased significantly from Vnd 1177billion (2007) to Vnd 2656 billion (2009), this increasing was equivalent 125.66% incomparison with 2007 In 2009, the Branch had mobilized total deposit VND 2,656billion, increased by 20.12 % in comparison with 2008, and increased 157.36% compared

to 2005 and overcame 4% compared to plan that be settled by Vietcombank for wholeyear to the Branch Going along with mobilizing capital, the Branch also notice tomanage liquidity and interest rate actively in order to obtain safe and effectiveframework, ensure a balance between profitability and liquidity in bank’s capital

Besides, with mobilized capital for investment of 35%, the Branch used the remainingpart to transfer to internal capital, in order to increase capacity for capital system Thecauses of these increases are: the Branch had implemented new methods to mobilize fundeffectively, introduced new products on raising capital in markets such as certificates ofdeposit, bonds, periodic interest savings , and implemented preferential policies forcustomers

In spite of liquidity constraint in the last quarter of 2009, the branch not onlymaintained the most stable liquidity status in the market, but also played a key role inproviding funds to other banks, assisting to stabilize the whole banking system andincreasing its profitability from money market activities

2.1.3.2 Lending activity

The graphs compare the amount of money the branch lent customers between theyears 2005 and 2009 We can see that amount of money for lending of the Branch was onthe uptrend Credit services of the Branch continued to perform with the motto “Safetyand Effective”

Chart 2.2: Lending situation of VCB – Thanh Cong Branch 2005 - 2009

(Source: Report on Foreign Trade Bank Success)There was a steady rise between the years 2005 and 2007 In 2008, the total loandecreased slightly by Vnd 3 billion or 0.4 % equivalent With the efforts of the staff theBranch, in 2009 outstanding debt reached 926 billion VND increased 35% in comparisonwith 2008 and 76.6% in comparison with 2005; in there, short-term loans are 769 billion

VND and medium and long-term loans are 157 billion VND Generally, there was asubstantial increase in lending activities from 2005 and 2009 in Thanh Cong Branch

2.1.3.3 Services Activities

With policies: diversify banking products and services, develop network andpreferential policies for customers , Board of Directors of the bank has created conditionsfor promoting the convenience of banking services, improving the quality of customerservices to attract more customers Banking services is one of the most important factorsthat have big impact on the capital growth of the bank

With application of modern technology, payment sector ensured customers’ transfers

of capital accurately and timelessly, provided customers services with the shortest timeand best quality Electronic payment in inter-bank market got high results in both quantityand quality:

+ Payment turnover of inter-bank transfers reached 8829 billion

+ Clearing Turnover reached 418 billion

+ Remittances transferred through the Bank for Foreign Trade increasedcontinuously On the second quarter of 2009, turnover is 26.365 billion USD increased203% over the same period in 2008, increased 470.89% compared to 2004 The bankcurrently has 12 units enrolling use electronic banking services Money VCB and 116units using salary- paid service through the account with the salaries are paid on average

19 billion VND per month on over 6500 accounts At second quarter of 2009, the bankhad 1429 accounts of economic organizations that are equal 40% over the same period in

2008, increased 607.43% against 2004; and 26,365 individual accounts counted over 61%against the same period in 2008, increased of 1524.46% compared with 2004 OnDecember 31, 2009, about 635 units opened transaction accounts: increased 32%compared to 2008; and 31,826 individual accounts that increased 52% compared to theend of 2008 In 2009, 398 new accounts and 10,923 individual accounts are created

- Cards Service

Being one of the leading banks in issuing many kinds of cards, VCB issues andaccepts domestic and international cards such as Visa, MasterCard, Diner Club, Amex,

JBC, VCB Connect 24, MTV VCB also has corporative programs with other commercialbanks to develop banking network, payment network; and encourage corporation to usecard and payment services such as payment of electricity, water, telephone charges,internet, and insurance premiums.

ATM: In 2009, the total numbers of ATM cards were 26,948 cards, increased 63% incomparison with 2008, and 1629.07% in comparison with 2005 ATM network and unitsthat accept VCB’s cards spread over the country, the number of cards issued by the Bankincrease time-by-time Number of ATM cards issued last year reached 10,131 cards,contributed the total number of ATM cards to 32,000 cards on December 31, 2009,increased 47% compared to 2008 At the moment, the Branch manage 05 ATM machine,ATM withdrawals sales in six months of 2009 was VND 157.31 billion, increased 86%over the same period last year and 218.58% compared to 2004

Credit card: Total credit cards were 1294 to second quarter of 2009, grew up 20%over the same period last year, increased of 1568.97% compared with 2004 Totalinternational payment card also increased rapidly over the years, total revenues of sixmonths of 2009 was 7219 billion USD up 20.32% over the same period last year and up218.58% compared to 2004

Debit card: The number of cards was issued to the second quarter of 2009 is 354cards, up 269% over the same period last year Total quantity of international paymentcards (credit and debit card) in 2009 reached 2455 increased 379% over 2008, bringingthe total number of cards of international payment cards Branch reached 3855

SG 24 Card: In Feb 2009, VCB began to issue card namely, SG 24, after 4 month,

on the second quarter of 2009, the bank released the 24 cards