LV Thạc sỹ_Current situation of mobilizing activities in BIDV and solutions for improvement

3.1: Overview of Bank of Investment and Development of Vietnam, Hanoi branch..... 4.2.2: Provide appropriate policies in order to encourage opening new account and use of services at the

TABLE OF CONTENTS

TABLE OF CONTENTS 2

LIST OF TABLES 5

LIST OF FIGURES 6

ABBREVIATIONS 7

CHAPTER 1: Introduction 8

1.1: Rationale 8

1.2: Research question 9

1.3: Research methodology 9

1.4: Research scope 9

1.5: Research structure 9

CHAPTER 2: Theoretical background of mobilizing funds 10

2.1: Overview of commercial bank’s funds 10

2.1.1: Definition 10

2.1.2: Classification of capital 10

2.1.2.1: Equity 10

2.1.2.2: Mobilizing capital 10

2.1.2.3: Borrowing 13

2.2: Capital mobilizing activity of commercial bank 15

2.2.1: Definition 15

2.2.2: General orientations for capital mobilization 15

2.2.2.1: Economic direction 15

2.2.2.2: Technological orientation 16

2.2.2.3: Psychological orientation 17

CHAPTER 3: Current situation of capital mobilization in Bank of Investment and Development of Vietnam, Hanoi branch 24

3.1: Overview of Bank of Investment and Development of Vietnam, Hanoi branch

24

3.1.1: The foundation and development of BIDV, Hanoi branch 24

3.1.2: Organizational structure of BIDV, Hanoi branch 25

3.1.3: Major activities of BIDV, Hanoi branch 25

3.1.4: Business performance of BIDV, Hanoi branch from 2008 to 2011 27

3.1.4.1: Mobilizing activity 27

3.1.4.2: Lending activity 30

3.1.4.3: Service 32

3.1.4.4: Operating activity 33

3.2: Current situation of mobilizing funds in BIDV, Hanoi branch 35

3.2.1: Fund mobilization performance of BIDV, Hanoi branch from 2008 to 2011 .35 3.2.1.1: Structure of capital mobilization by clients 36

3.2.1.2: Structure of capital mobilization by maturity 38

3.2.1.3: Structure of capital mobilization by currency 40

3.2.1.4: Structure of total working capital by source 42

3.2.2: Evaluations on the current performance 44

3.2.2.1: Achievements of BIDV, Hanoi branch in mobilizing activities from 2008 to 2011 44

3.2.2.3: Limitations of BIDV, Hanoi branch in mobilizing activities from 2008 to 2011 45

* Reasons for limitations 46

CHAPTER 4: Solutions to improve capital mobilization activity in BIDV, Hanoi branch 51

4.1: Capital mobilization orientation for BIDV, Hanoi branch 51

4.2: Solutions to improve capital mobilization activity in BIDV, Hanoi branch 53

4.2.1: Enhance and diversify forms of mobilization 53

4.2.2: Provide appropriate policies in order to encourage opening new account and

use of services at the bank 54

4.2.3: Solutions for marketing 56

4.3: Recommendations to improve capital mobilization activity in BIDV, Hanoi branch 57

4.3.1: Recommendations to the government, State Bank of Vietnam and other related entities 57

4.3.2: Recommendations to BIDV headquarter 60

CONCLUSION 63

REFERENCES 64

LIST OF TABLES

LIST OF FIGURES

1 Total fund mobilization of Hanoi branch from 2008 to 2011 27

2 Total outstanding loan of Hanoi branch from 2008 to 2011 30

3 Service performance of BIDV Hanoi branch, from 2008 to 2011 32

4 Operating performance of BIDV, Hanoi branch from 2008 to 2011 34

5 Structure of capital mobilization of Hanoi branch by clients 36

6 Structure of capital mobilization of Hanoi branch by maturity 38

7 Structure of capital mobilization of Hanoi branch by currency 41

8 Structure of total working capital of Hanoi branch by source 43

2 Hanoi branch’s credit proportion to the whole system from 2008 to 2011 31

3 Hanoi branch’s profit before tax proportion to the whole system from 2008

to 2011

34

4 Movements in the structure by clients of Hanoi branch from 2008 to 2011 38

5 Movements in the structure by maturity of Hanoi branch from 2008 to

SBV: State Bank of Vietnam

BIDV: Bank of Investment and Development of VietnamNPL: Non performing loan

CHAPTER 1 INTRODUCTION

1.1: Rationale

One of the most important roles of commercial bank is to gather capital ofthe economy In economies, there are surplus money holders (for example: theyhide in the house and the money has not been brought into circulation) However,they are willing to give away money to earn some profitability from people whoneed money more than them at the moment In some cases, the lender and borrower

do not know each other, thus, cannot trust each other so the transaction fails to takeplace In those situations, banks as their intermediary, receiving money from peoplewho want to borrow, paying interest to them and bring money to the person whowants to borrow loans This means bank serves as a borrower and lender withinterest differences and use the amount to maintain its operation This action alsopromotes the well being of the society because the resource is allocated to peoplewhenever they need it

Apparently, from the above indication, we can realize the importance ofcapital for a bank’s operation If bank fails to get the money from surplus moneyholders, they cannot give the money to lenders, thus, cannot get profit from theinterest differences

Understanding this, bank should always add capital to fulfill its duty as anintermediary as well as making profit However, in order to raise capital in acompetitive environment like these days is not easy Because of the fact that thereare many banks and institutions being established in 2011, it is very difficult for anybank alone to get the money from potential surplus money holders

From March to May 2012, I had a chance to do internship in Bank ofInvestment and Development of Vietnam, Hanoi branch, in which I can work andlearn with employees of customer relationship department After studying theperformance of the branch over the past few years, I have noticed several problems

in the mobilizing capital field Thus, I decided to choose the topic “ Current situation of mobilizing activities in BIDV, Hanoi branch and solutions for improvement”

1.5: Research structure

This thesis is divided into 3 main parts:

 Theoretical background of capital mobilization

 Current situation of capital mobilization in BIDV, Hanoi branch, from 2008

to 2011

 Solutions to improve capital mobilization in BIDV, Hanoi branch

CHAPTER 2 THEORETICAL BACKGROUND OF CAPITAL MOBILIZATION

2.1: Overview of commercial bank’s capital

2.1.1: Definition

Capital of commercial banks is defined as all assets in the balance sheet ofBank Accounting It includes equity and borrowings, in which borrowings play animportant role as it actually creates profit for the banks

2.1.2: Classification of capital

2.1.2.1: Equity

Any bank that begins operation must have a certain amount of capital, known

as equity This type of capital banks can be used in long term, forming equipmentand fixed assets for the bank Even though it has a small fraction, however, it isconsidered the buffer against risks to ensure the soundness operation of a bank Italso shows the financial potential of the bank to the eyes of investors

It includes: charter capital, additional capital during operation, borrowingsthat can be transferred into equity and other funds

2.1.2.2: Mobilizing capital

This is the first and most important sources of capital raised from outsiders

It normally contributes the most to the total capital and it has impact on everyactivities of a bank Banks do not own this capital, thus, they have theresponsibilities to pay the principal and interest whenever the owner wants towithdraw the capital This source of capital always fluctuates depending on severalfactors of the economy As a result, banks should keep a small fraction of the capital

to ensure the solvency instead of using the whole amount

Demand deposit

This is a deposit that the customer can withdraw at any time and the bankmust satisfy these requirements of customers In fact, it is deposited as the paymentguarantee

Normally, customers deposit their money in the bank in the forms of demanddeposit to make payments conveniently and economically Unlike saving deposits,these funds are only temporarily idle As a result, customers only temporarily

transfer the money to the banks to preserve and perform several services for them.

In this way, they do not lose the ownership of the money, but have the rights to usethe money anytime they need They even can remove or transfer the money toanyone at anytime Customers can use their own money by means of payment such

as checks, authorized payment or letters of payment

For banks, this is a debt, which the bank is obliged to execute the settlementand payment to the beneficiary of the depositor Thus, the cost to maintain this type

of deposit is quite significant comparing to the other types However, in returns, theinterest rate is usually lower than the interest paid for other types of deposits Theassociated cost is also offset by the fact that the number of deposits into andwithdrawals are not at the same time and the account holders often do not use allyour money on the account Therefore there is always a sum on account of thebalance for a long time it was used for banks to invest in some businesses andindividuals for profit Likewise, for the payment deposit account balance on tradingaccount not only cover costs but also can bring profit to the bank

Nowadays due to technological development, new technologies are applied

in banking activities Therefore, there have been many businesses and individuals toopen accounts at the bank transactions, making the amount of demand depositsincreasing It is being used widely for lending purpose and its contribution to thetotal assets of the whole bank is becoming more and more important

Term deposit from enterprises and social entities

Term deposits are temporarily idle funds of the business, unused in a givenperiod, which period shall be determined in advance Therefore, individualenterprise often deposits in banks in the forms of term deposits Most of thesedeposits derived from the profit accumulation of the businesses that they have Inprinciple, customers can withdraw money at maturity and are entitled to interest onthe amount of such deposit However, in the pressure of raising capital now,commercial banks often allow customers to withdraw money ahead of time in order

to attract capital In this case, customers are not entitled to agreed upon interests, but

normally receive only the demand deposit interests.

Due to the nature of this relatively stable type of capital, banks can use most

of this fund balance for medium and long term lending purpose Large contribution

of this fund creates favorable conditions and activeness in the operation of bankingbusiness Banks often offer a variety of terms to meet customer demands and applydifferent interest rates along with different terms Usually, the longer terms, thehigher the interest rates The banks often encourage customers to send money forthe long term, because it is relatively stable for banks to do actively in business Toattract more long-term capital growth, the economy must be stable, value for money

is guaranteed, inflation at medium level (usually 1 digit a year) and businessperformances of most banks are efficient

Saving deposit from citizens

Saving deposits are saving money sent to the banks to earn the interest rateprescribed It is a special kind of money accumulated in personal consumption.When sending money to the banks, depositors are given a passbook as a certificate

of deposit in banks By the maturity, the customer receives cash amount of the totalinterest plus the principal amount

There are two types of savings are:

- Savings of non-term

For this type of deposit, the depositor can withdraw part or all of theirdeposits at any time However, unlike demand deposits, depositors may notuse the payment instrument to pay for others, the savings deposit interestrates are higher and most of the depositors do not have the specific spendingneeds in the future

- Savings deposits with a term

Money is deposited into banks on the basis of agree upon interestrates matching with the terms Traditionally, customers cannot withdrawtheir money before the maturity date Yet, in reality, banks nowadays offerthe prior withdrawal chances in returns for lower interest rates

Savings deposits of residents are the second largest amount of alldeposits in banks and it depends greatly on the average income per capita,savings rate on total income integration of residential, service quality ofbanks, currency stability and the economy was growing steadily.

2.1.2.3: Borrowing

Borrowing is the source of capital that bank borrows from outsiders to meetsome payment requirement when the amount of deposit is not enough It is theprimary source to combat liquidity risk of a bank

Borrowing from State Bank

Borrowing from State Bank is to address the urgent needs for paymentrequirement The loan is often in forms of refinancing capital; in which State Bankrediscount the commercial papers of commercial banks to become its own property

In case of not having commercial paper to rediscount, State Bank lends theirmoney to commercial bank with the refinancing rates that depends heavily onseveral economic indicators If the central bank seeks for monetary contraction, therates would be higher to limit the demands of commercial banks Meanwhile, therates would be low if the central bank applies monetary expansion

State Bank loans are aimed to ensure safety of the whole banking system andprovide the basis to govern the monetary policy

Borrowing from other credit institutions

In this type of borrowing, banks borrow from other banks or creditinstitutions in the interbank market

Banks that have excess reserve resulting from unexpected increase in capital

or decrease in credit contracts would like to lend some of the excess capital to earninterest Meanwhile, bank with shortage reserves needs immediate loans to ensuretheir liquidity position

The types of borrowing from other credit institutions are given in thefollowings:

- Overnight loan contract is unwritten agreement between the two banks

primarily through telephone, offering credit with a term not exceeding oneday

- Term loan is borrowed into written contracts with specific durations(weeks, months, or years) Generally, the borrowers must have valuablepapers as collaterals in order to be approved

These funds are mainly short-term, relatively large proportion especially forwholesale banks and the interest rates depend mostly for the demand in theinterbank market

Borrowing from the capital market

Borrowing on capital markets: Banks borrow by issuing bills (promissorynotes, bills and bonds) in the capital market The medium and long-term loans areused to match with long and medium-term loan when capital is not sufficient.Usually these loans are not secured

Reputable bank or willing to pay higher interest rates will be easier toborrow

The smaller banks are often difficult to borrow in the capital market, as theyneed to be guaranteed by agent or other investment banks

Borrowing capacity also depends on the level of development of financialmarkets, making it possible for tools to convert long-term bank debt

Trust funds

This is the fund that a bank gets from customers by performing well due togood lending and payment services It normally has low cost and its contributiondepends on the service quality and goodwill to the customers

In some cases, it is the amount of capital that a bank gets from State Bank tofinance several governmental projects

2.2: Capital mobilizing activity of commercial bank

2.2.1: Definition

Mobilizing capital is an action of receiving temporary funds from individuals

or organizations to form the operating capital of a bank

2.2.2: General orientations for capital mobilization

Reasonable interest rate

Reasonable here does not mean that banks charge the highest possibleinterest rates to maximize their profit In stead, it also infers that bank cares aboutthe other factors such as: brand name of the bank, intensiveness of the market,behavior of the target customers, etc

Specific interest rate

From the establishment and development process of each bank, the interestrate policy should be differed in each period

For example: when a bank is newly opened and wishes to enter the bankingindustry, it should consider a cost called “ penetrating cost” This means, themobilizing rates the new bank offered can be higher than the ones offered from theother banks, given the same term This action is to gain the attention from potentialinvestors To be more specific, considering bank as a manufacturing company, it isusing the low cost strategy to attract customers

Customer-oriented interest rate

The bank applies various sophisticated program and attractive interest rates

to attract people with high position in the society For customers with low andunstable balance, bank charges higher price to limit This strategy is frequentlyassociated with the program called personal banking (personal banker), under whicheach major customer has a bank official to perform all the services bank providedfor their account

The application of this policy can reduce costs thanks to sufficient accountswith high balances and stability Still, there might be some disadvantages applyingthis strategy if the bank and its branch cannot get access to the wealthy part of thesociety

Relationship-oriented interest rate

Normally, bank will charge the lower prices for services and even higherincome for customer with long-term relationship with banks The relationship isdetermined by the lending contract history of customers, or the number of servicesthat customers use at the bank The basis of this policy is the notion that customersusing more services will be more loyal and later will generate greater income forbanks

Another consideration for products is to create the most favorable conditionsfor customers The foreign banks implement this direction by introducing twoservices The first one is universal deposit account, which the customer can enjoy

different services from one deposit account The other is electronic account, whichoffer the ability to withdraw money from variable sources

Distribution

For individual clients, convenient location is one of the most importantissues Today, in order to reach a bank, going to the branches or transaction units isnot the only solution In fact, they can reach the bank indirectly through homebanking systems, EFTPOS, automatic teller machines If a bank delivers everysystem that produce easy access for customers, they can have high possibility ofattracting deposits Still, we cannot deny the importance of existence of branchesand transaction offices The spacious room with modern machinery system orwithin the buildings always creates a sense of security to customers Today,Vietnamese banks are paying more attention to this problem

Not only serve as a intermediary between borrowers and lenders, bank alsocan be a consultant for customer in making decision For instance, there would betimes when mobilizing rate of foreign currency increases as the FED wants toattract foreign currency deposits Thus, a wise banking official would suggest theirclients to deposit their money in short term to earn the higher interest rate wheneverreinvesting their money On the other hand, when the mobilizing rate for foreigncurrency decreases, the bank should suggest their clients to invest in long term tomake sure that their profit are locked during this hard time Getting the right advice

will make the impression on customers, thus, they will likely return to the banks formore services.

Marketing and promotion

The promotion of a bank ranges from sophisticated advertising program orbonuses in deposits to gifts for special and big customers

Branch network expansion and modernization of special technology todiversify distribution channels are crucial to get customers’ attention Besides,commercial banks should also stress on diversification of products and servicesportfolio savings while improving quality of payment services Processimprovement must be fast, accurate, consistent with the ability of staff whileensuring convenience for customers

For most customers to send money, time is always very important A rapidprocedure will make customers feel comfortable whenever in contact with the bank.Currently, sending process is prompted to be a one-stop process This is actuallyquite common for foreign banks The process is simple, in which customer evolveswith only one bank employee to fulfill the transaction process Specifically, instead

of two-stop, in which: an accountant, a cashier both perform the transaction, onlyone person will do all the tasks However, this can be achieved only if the person iscapable enough Or else, it will bring out the opposite result, as one person willslow down the transaction process This one-stop process is now widely offered bymost commercial banks

2.3: Factors influence on mobilizing activity of commercial bank

2.3.1: Subjective factors

Government and State Bank policy

This is one of the most important external factors that effect mobilizingactivities of banks Some policy will have the direct impact on the performance ofbank, which are: the cap mobilizing rates, the proportion of mobilizing capitalcomparing to total equity or regulations on issuing stocks or bonds

The intervention of the central bank to achieve the objective of monetarypolicy also affects the mobilization of capital, because loosen monetary policy willbring advantages for banks in raising loans from banks At the same time, it alsoworks to reduce interest rates on money markets In contrast, the implementation ofmonetary policy tightening will be more difficult to mobilize loans from banks.

Investment policy of the State also affects funding policies of the Bank Toencourage production and investment of several industries, the state launchesseveral techniques such as subsidies; tax, quotas, etc These techniques are tofacilitate business development and profitability It has the indirect impact on banks,

as enterprises have more profits and reserves, they can have more money to deposit

in banks

Economic index

In the period of economic growth, corporate and high-income individualsoften accumulated more and more money to their account to satisfy furthereconomic transactions Banks have to find measures that mobilize effectively,which means facilitating business development along with bringing profitable to thebanks

Conversely, in the economy downturn, production was delayed, theinvestment environment of the Bank will be reduced, thus, reducing the profitability

of banks and capital raising process will encounter many difficulties Moreover,inflation makes currency devaluation, causing people to not send money to thebank, which used the money to buy goods for the storage of value, also affects thefunding of the Bank In stead, they will try to seek for higher risk investment tocombat inflation

Technology

Changes in technology have a strong impact on the economy and society.Banking activities are one of the industries that bare the most influence fromtechnology, banking activity is inseparable from the development of technology,especially information technology

Technology has great influence on the development of the bank, it givesbanks more opportunities but also provide a series of new challenges Newtechnology allows banks to renew business processes, redistribute their products,develop new products, etc Thanks to technology that works to mobilize capitalimprovement, development, shorten transaction time and accuracy performance of,banks can help attract more capital, more customers and increase revenue andreputation of the bank.

Distribution of population

Environmental elements of the population is important because it constitutesnot only the needs and structure of residential demand for banking products but also

a basis to form a distribution system of the bank At the same time the environment

is the basis of population to build and adjust the operation of banks raising capital.Environmental impact is so important to the operation of bank capital that bankshave to scrutinize the economic environment before making a strategy to raisecapital in accordance with needs the bank's quality, quantity and duration, etc

Geographical environment defined by international regulations to establishnational regulations of each country in the formation of provinces, districts, townsand rural areas, etc Depending on geographic area that the bank decided to putmore or less point and decided to raise capital mobilization strategies in each regionbecause each region has a population and the different conditions

Customers’ behaviors

The bank's customers include those who have capital at banks and otherswho use that capital On the social environment of developed countries, customersalways have individual accounts and the income is transferred into their accounts.But in the less developed countries, cash is normally more favorable This cancreates some difficulties in introducing new services for banks, as theacknowledgement of customers about non-cash services is quite limited

The amount of saving deposit depends largely on two important factors,which are income and the psychology of depositors Income affects a potential

source of capital that banks can mobilize in the future On the other hand,psychological factors affect the volatility out of the money Psychology ofconfidence in the future has the effect of stable and substantial deposit Vice versa ifthe customer's confidence in the future currency depreciation causes a series ofcapital withdrawals, it can be a major concern of all banks

Another important feature of the target audience is the frequency of the use

of banking services Normally, the higher use of service, the higher capital raising

2.3.2: Objective factors

Interest rate policy

As an important factor, interest rate policy has strong impact on themobilization of commercial banks, particularly with regard to capital account,which the citizen sends to the banks for purpose of interest Banks compete not only

on interest rates with other banks but also with the money market Therefore, only asmall difference in interest rates could push the idle capital in the social investment

in different directions That was the reason for depositor funds to move from thisbank to another

Therefore, determining a reasonable interest rate, taking into accountimportant issues as mentioned above, must be considered, calculated in detail andcomprehensively Moreover, banks must calculate interest rates not only to maintaincompetitive in the market, but also to ensure the lowest input costs and havingprofit

Business strategy

Business strategy also affected directly and indirectly to the work of raisingcapital The bank, which has a system of proper business strategy, will achieve theobjectives of cost as well as benefits That is the strategy of products and services.Pricing strategy, interest rates, distribution strategy, accounting for human resourcedevelopment strategy, communication strategy and other promote programs havestrong impact on the mobilization of capital System of business strategy of the

bank practice is dynamic and it is the standard to assess the level of businessmanagement of the bank, building trust with customers

Reputation

Typically, customers choose banks with prestigious position in the marketfor trading, loans, and guarantees payment Reputation and position of the Bankhave important implications in the selection of customers, which can be shown inthe financial capability, business situation, history, quality of marketing, etc As aresult, the bank through its operations, service quality, technology modern, civilizedstyle of working and satisfaction of customer requirements, to raise the prestige andposition in the market

Forms of mobilizations and services

In the current competitive conditions, diversification of products and services

to meet the banks’ customers demand affect business operations of the Bank Withdiversified products, customers can choose a product suitable to their conditions.Moreover, along with products, the bank must also provide various services toincrease competitive advantage With these features included, banks can attractmore capital from all economic and social population Thereby, they can createmore relationships with other banks and customers

Business network

Organizing wide network operation, reasonable people in the area will createmore opportunities for banks to attract more capital and also help clients save timeand cost to perform the transaction However, opening branches must match withthe capability of the Bank Location factors also affect the psychology of customers

To be more specific, a bank located in convenient locations such as central areas,populated areas, transportation convenient will help banks attract more clients

Infrastructures and employees

It is safe to say that all customers want to trade in places with a beautifulbank, modern facilities, staff of dedicated service and courtesy A bank is equippedwith modern technology will certainly be very much shorter processing time of

work, ensure high precision in economic transactions Moreover, facilities, level ofmodern technology, team staff with high professional qualifications are necessaryconditions for them to quickly and logically resolve work

CHAPTER 3

CURRENT SITUATION OF CAPITAL MOBILIZATION IN BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM, HANOI

BRANCH

3.1: Overview of Bank of Investment and Development of Vietnam, Hanoi branch

3.1.1: The foundation and development of BIDV, Hanoi branch

On April 26th 1957, Bank of investment and development of Vietnam, BIDVwas founded regarding the name “ Bank for Construction of Vietnam” Afteroperating for 48 years with 2 times renamed and reorganization, it has been able toachieve a strong position in the banking system in general Nowadays, BIDV notalso receives many awards from the State Bank of Vietnam but it is also perceivedwell by its clients and foreign institutions To mention the foundation anddevelopment process of BIDV, we must look through several periods:

From 1957 to 1980

BIDV is considered one the oldest banks of Vietnam as on April 26th 1957the banking scale of Vietnam was quite small BIDV, which was so-called: “ Bankfor Construction of Vietnam” at that time, served as an agency for the Ministry ofFinance Its duty, as the name suggested, is to provide funds for constructionpurpose to economic and public sectors

From 1981 to 1989

After exactly 24 years, Bank for Construction of Vietnam changed the nameinto “ Bank for Development and Construction of Vietnam” and no longer servedfor the Ministry of Finance Instead, it was governed by State Bank of Vietnam andkeeping the same duty as the previous period

From 1990 to 1994

It changed the name into “ Bank of Investment and Development ofVietnam” and stood by it until nowadays This period marked the transition of the

centralized, State-subsidized mechanism toward market mechanism under Statemanagement in implementation of the State’s reform policy The bank still operatedmostly within the construction areas but the services it offered has become morevarious There are 3 main services offered at that time, which was: receiving fundsfrom state to lend to state policy projects, mobilizing capital to make developmentloans and operating in the money and capital market

From 1995 to now

The bank has stroked for continuous improvement and transformation andcontributed sufficiently to the country’s industrialization and modernizationprocess It is now operating in much wider areas and becoming a more diversifiedand comprehensive banks

3.1.2: Organizational structure of BIDV, Hanoi branch

“BIDV Hanoi” branch, where the writer worked for internship, belongs tomore than 10 branches in Hanoi In this branch, after 1-branch managers, there areabout 6 vise branch managers 2 vise-managers work for corporate customersrelationship department, 2 govern the transaction department and the 2 left are incharge of the credit management department There are about more than 20 smalldepartments in this branch and the writer belongs to the corporate customersrelationship department, which mainly deals with import-export and manufacturingcompanies

3.1.3: Major activities of BIDV, Hanoi branch

BIDV offers a wide range of products and services targeted at 3 main groups

of customers, which are: financial institutions services, corporate and individualcustomers

Financial institution

i Deposit products

ii Depository bank supervision

iii Collection at the counter and clients’ places

iv Over-drafting credit institutions

v Interbank payment

vi Bilateral payment

vii International payment cooperation

viii Cross-border payment cooperation

ix Discount valuable notes

Corporate services includes:

i Account service

ii One depositing point, multi withdrawing points

iii Automatic payroll, agent commission, other payment

iv Agent collection

v Fund management

vi Periodic payment at demands

vii Invoice/ Bill settlement

viii Domestic remittance

ix Trade finance and International Payment

x Corporate finance: Including project finance, on demand loan, revolvingfinance, installment finance, overdraft finance, institutional development,lending and others

xi Guarantee: Including loan guarantee, payment guarantee and stand- byletter of credit, bid guarantee, performance guarantee, repayment guarantee,warrantee guarantee and others

xii Other services

Individual customer services includes

i Account service

ii Promissory notes

iii Valuable paper issuance

iv Saving deposit

v Saving with bonus

vi One depositing points, multi withdrawing points

vii Periodic payment at demands

viii Invoice settlement

ix Personal lending

x Domestic remittance

xi International remittance

xii Expatriates’ inward remittance

xiii Other services

Each branch is able to perform all services that BIDV provides However,they should base on their own ability and risk tolerance level to put somerestrictions on the services and products that it chooses to give

3.1.4: Business performance of BIDV, Hanoi branch from 2008 to 2011

It is fair to say that 2008 to 2010 are tough years for the banking industry ingeneral If the crisis from U.S economy affected the other strong economies rightaway, it came to Vietnam at a slower pace If the destruction of the crisis in mostcountries showed the first and most obvious is the financial system, it is shown first

in the field of export, import and foreign direct investment, then gradually affectedVietnam banking system In Vietnam, the situation gets even worse as we have todeal with the increasing inflation (nearly 20%) at the same time and leading to lowpublic confidence

As a member of the banking industry, it is difficult for BIDV for not gettinginvolved The research provided readers with several performance results of BIDV,Hanoi branch, over the last 3 years The results include data in 4 main fields, whichare: mobilizing funds, credit, services and operating activities Due to the restriction

of time and power distance, the writer only got results in 2 main fields of the bank’sactivities, which are: mobilizing funds and credits

3.1.4.1: Mobilizing activity

Table 3.1: Total fund mobilization of Hanoi branch from 2008 to 2011

(Unit: Billion VND)

Total mobilizing capital 8.801 9.596 9.91 8.56

(Source: BIDV Hanoi branch, general planning department)

Overall, from 2008 to 2010, the total mobilizing funds increase gradually at arate of about 10% over time However, we can realize that the total capitalmobilizing decreases quite significantly from 2010 to 2011 According to the Hanoibranch’s staffs, the first half of 2011 is quite difficult for mobilizing activities Infact, this is not a situation of BIDV alone, but the banking industry in general

Most people would believe that 2011 is not a good year for the Vietnamfinancial market let alone the banking system Firstly, in 2011, our economy ingeneral suffers from high inflation, economic crisis of several European countries,and low public confidence As a result, Vietnam banking has suffered from lowmobilizing funds, regulatory and managerial weakness, high levels of non-performing loans (NPL), non-compliance with the Basel capital standards, and notvery satisfactory intervention from State Bank of Vietnam Another issue involvesthe ownership structure of the banking industry Since 1992 Vietnam’s bankingsystem has consisted of a combination of state-owned, joint stock, joint venture, andforeign banks, but the state-owned commercial banks predominate, and they sufferfrom high levels of NPL, most of them to state-owned enterprises As a state ownedbank, BIDV might have both difficulties and benefits Some benefits are lowreserve requirement (1% versus 3% comparing with the other joint stock banks),low discount rate from the state bank and high charter capital Meanwhile, severaldifficulties can be as the writer suggested earlier For instance, NPL is consideredserious issue in this bank Despite low discount rate from state bank, the funds must

be lent to several state owned companies and they normally happen to be performing

non-The previous paragraph summarizes the business environment of the bankingindustry in 2011 There is also another fact that the rivalry among banks is

becoming very serious, which leads to intensive race in mobilizing funds As smallbanks are harder to get the attention from customers, they decided to raise themobilizing interest rate to nearly 19 and 20%, which is much higher than the cap set

by State Bank (14%) Despite the fact that the interest rate cap of 14% is introduced

a long time ago, it is not prosecuted until later 2011 Thus, negotiated interest ratesare applied by many banks to get as much funds as possible All of the abovereasons explain the difficulties in the mobilizing activities of BIDV, Hanoi branch

(Source: BIDV Hanoi branch, general planning department)

It can be seen from the graph that the proportion decreases from 5.29% to3.20% from 2008 to 2011 One of the reasons is that the growth of funds in Hanoibranch cannot catch up with the growth in the whole system While the funds in

Hanoi branch increases at the rate of 10% per year, mobilizing funds of the wholesystem increase about 13.55% from 2008 to 2009 and reaches nearly 40% from

2009 to 2010 As the branch operates within central Hanoi region, it is located nearmany headquarters of big corporations As a result, such low growth in fundsmobilizing comparing to the system is considered not very good performance.3.1.4.2: Lending activity

Table 3.2: Total outstanding loan of Hanoi branch from 2008 to 2011

(Source: BIDV Hanoi Branch, general planning department)

From the data given, it can be seen that the total outstanding loans at

maturity and average outstanding loan increase over time at a natural rate of about 10%

Each year from 2008 to 2010, Hanoi branch experiences a normal growth ofabout 40% a year Yet, according to the branch’s staffs, in the first half of 2011,there is a negative growth in the credit growth offered There are several reasons forthis Firstly, BIDV, Hanoi branch, suffered decreasing capital in the first half of

2011 Because of several difficulties of the economy as the writer explained in thebusiness environment section, economic and financial entities chose to withdrawn asignificant amount of capital out of the bank Consequently, BIDV must decreasetheir credit extending in order to assure the safety level of the branch Also, despitethe fact of capital decreasing, the branch itself chooses to contract the total amount

of loans offered in order to do client screening more effectively This fact complieswith the bad debt level below in the table There is also another objective factor as it

is one of the State Bank’s policies for all banks to tighten their credit in 2011

The bad debt ratio reaches its peak in 2009 as the level of the riskinessincreases from 2008 to 2009, and fall quite significantly from 2009 to 2011 due tothe strict supervision of the headquarter According to the headquarter’s policy, thebranch must tighten their credit offering to qualify customers more carefully Still,these ratios from 2008 to 2011 all fall substantially below 3%, which is themaximum ratio that State Bank given.

The growth in total loans outstanding in Hanoi branch is low comparing withthe whole system The graph below shows the specific proportion

Figure 3.2: Hanoi branch’s credit proportion to the whole system from

2008 to 2011

(Source: BIDV Hanoi branch, general planning department)

The growth in credit extending in the branch is becoming relatively smallercomparing with BIDV as a whole The reasons is that, it is restricted by the policy

of BIDV headquarter In the era of recession, BIDV is one of State Bank’s maintools to assure the financial health of the economy BIDV has to save most of theirfunds for several government projects, in order to promote the social welfare,infrastructure and contribute largely to the economic growth As a result, the

adjustment of headquarter to each branch is essential during this period According

to the headquarters’ policy, it is Hanoi branch’s duty to restructure their credit, theirclients and reserve funds for the needs of other branches Along with customersscreening, it is important that the staffs restructure their credit extending Duringthis period, the structure of credit has experience several improvements in the sense

of maximizing profit as well as recovering of doubtful loans

3.1.4.3: Service

If credit activities took part of more than 70% of BIDV’s offerings before 2008,Hanoi branch’s top managers now suggested that BIDV replaced part of their creditactivities into services Thanks for close guidance of the leaders and effort of thewhole branch, the service activities of BIDV has gained much encouragement

Table 3.3: Service performance of BIDV Hanoi branch, from 2008 to 2011

Billio n

Percentag e

Billio n

Percentag e

Billio n

Percentag e Total net

payment 6.72 8.13% 7.97 12.4% 9.05 10.46% 9.64 10.70%Guarantee

services 44,77 54.16% 45.89 71.41% 61.67 71.25% 64.93 72.08%Foreign

currency

trade

22.96 27.77% 0.47 0.73% 3.86 4.46% 4.01 4.45%

Western

Derivatives 0.31 0.37% 0.42 0.65% 0.25 0.29% 0.15 0.16% Credit fee 0.59 0.71% 0.18 0.28% 1.94 2.24% 1.21 1.34% Treasury

(Source: BIDV Hanoi branch, general planning department)

From the table, it can be inferred that guarantee service contributes a largeproportion of BIDV’s services as it normally falls within the range of 50-75% AsBIDV has both financial strength and goodwill, it is capable to sponsor funds forbig projects and big companies in construction field

International and domestic payment are also important as they contributeabout 15% of the service revenue and they provide a stable amount of capital

In 2008, BIDV received substantial revenue in foreign currency trade Due tothe fact that most of BIDV, Hanoi branch’s clients are import companies and therewas great fluctuation in foreign exchange rate in the middle of 2008, BIDV hastaken some opportunities to earn more profits Meanwhile, in 2009, BIDV adjustedexchange rate in a way that benefit their clients and served only as an intermediary

As a result, there is not much profit in foreign currency trading In 2010 and 2011,when the world economy is recovering from the crisis, there is a positive growth inforeign currency trading and BIDV got 4.01 billions by the end of 2011

Card service has a substantial growth from 2009 to 2010 due to the trend ofmany enterprises making salary payment through card and BIDV successfullyissued international credit card into the market