LV Thạc sỹ_Deposit mobilization at BIDV ninh binh – facts and recommendations

Quality of deposit mobilization assesses the potential in business of the banks.Regardless how well banks do business, the first necessary requirement is that theymust have funds, and mo

Foremost, I would like to thank all the staff of management board as well as allthe teachers of Advanced Program for supporting me during my internship Also, Iwant to thank all the teachers of the School of Banking and Finance, for theirencouragement, insightful comments, and hard questions

Besides, I would like to express my sincere gratitude to my supervisor PhD…for the continuous support of my thesis, for her patience, motivation, enthusiasm, andimmense knowledge Her guidance helped me in all the time of research and writing ofthis thesis I could not have imagined having a better supervisor and mentor for mythesis

My sincere thanks also goes to the staff of the Accounting & FinanceDepartment at BIDV Ninh Binh, for offering me the internship opportunity in theirplace and leading me working on diverse exciting projects

I thank my classmates, for the stimulating discussions, for the sleepless nights

we were working together before deadlines, and for all the fun we have had in the lastfour years

Last but not the least, I would like to thank my family, my parents, for givingbirth to me at the first place and supporting me spiritually throughout my life

ACKNOWLEDGEMENT 1

CONTENTS 2

LIST OF ABBREVIATIONS 5

LIST OF TABLES 6

LIST OF GRAPHS 7

CHAPTER I: INTRODUCTION 8

1.1 Rationale 8

1.2 Research objectives 9

1.3 Research methodology 9

1.4 Scope of research 10

1.5 Thesis structure 10

CHAPTER II: THEORETICAL FRAMEWORK 11

2.1 Overview of commercial banks’ deposit 11

2.1.1 Concept of deposit 11

2.1.2 Characteristics 13

2.1.2.1 Liquidation 13

2.1.2.2 The scale of deposits 13

2.1.2.3 Cost 13

2.1.2.4 Sensitiveness 14

2.1.2.5 Deposit interest rates are directly proportional to deposit terms 14

2.2 Deposit mobilization of commercial banks 14

2.2.1 Role of deposit mobilization 14

2.2.1.1 A stable & cheap source for bank operation 14

2.2.1.2 Customer base for other activities 15

2.2.2 Indicators to assess deposit mobilization 16

2.2.2.1 Volume 16

2.2.2.2 Cost for deposit mobilization 16

2.2.2.3 Relationship between deposits and loans 17

2.3 Factors affecting the deposit mobilization 18

2.3.1 Internal factors 18

2.3.1.1 Deposit interest rate policy 18

2.3.1.2 No of deposit mobilization products 19

2.3.1.3 Marketing policies 19

2.3.1.4 Technological application 21

2.3.1.5 The quality of bank personnel 22

2.3.2 External factors 22

2.3.2.1 Economic environment 22

2.3.2.2 Political - Social environment 23

2.3.2.3 Legal environment 23

2.3.2.4 Competition environment 24

CHAPTER III: DEPOSIT MOBILIZATION AT BIDV NINH BINH 25

3.1 Overview of BIDV 25

3.1.1 History 25

3.1.2 Development strategies 26

3.1.3 The operation 27

3.1.3.1 Period 1957 – 1975 27

3.1.3.2 Period 1976 – 1990 27

3.1.3.3 Period 1990 – present 27

3.2 Introduction to Ninh Binh branch 27

3.2.1 History of foundation and development 27

3.2.2 Organizational structure 28

3.2.3 Tasks and activities 30

3.2.4 Advantages and difficulties 31

3.2.5 Banking operation at the Branch 33

3.2.5.1 Deposit mobilization 33

3.2.5.2 Credit activities 34

3.2.5.3 Service activities 36

3.2.5.4 Business results 39

3.3 Deposit mobilization at BIDV Ninh Binh 41

3.3.1 Volume 41

3.3.2 Assess the structure of deposit 43

3.3.2.1 Based on terms 43

3.3.2.2 Based on sources 44

3.3.2.3 Based on currencies 46

3.3.3 Assess the cost of deposit mobilization 47

3.3.4 The relationship between deposit mobilization and loans 50

3.4 Evaluating deposit mobilization at BIDV Ninh Binh 52

3.4.1 Achievements 52

3.4.2 Shortcomings 53

3.4.3 Reasons 54

3.4.3.1 Internal factors 54

3.4.3.2 External factors 55

CHAPTER IV: RECOMMENDATIONS FOR DEPOSIT MOBILIZATION AT BIDV NINH BINH 57

4.1 Orientations for increasing deposit mobilization at BIDV Ninh Binh 57

4.1.1 General orientations for the development 57

4.1.2 Deposit mobilization orientations 57

4.2 Recommendations for deposit mobilization at BIDV Ninh Binh 58

4.2.1 Applying flexible, reasonable and relevant interest rate policies 58

4.2.2 Diversify deposit mobilization products 59

4.2.3 Expand non-cash payment services 61

4.2.4 Improve marketing activities 62

4.2.5 Improve the personnel professional skills and ethics 63

4.3 Other recommendations 64

4.3.1 Recommendations to BIDV HQ 64

4.3.2 Recommendations to SBV 64

4.3.3 Recommendations to the State Administration 65

CONCLUSION 67

LIST OF ABBREVIATIONS

LIST OF TABLES

Table 3.1: Brief history of BIDV 26

Table 3.2: Deposit mobilization of BIDV Ninh Binh in 2007-2011 period 34

Table 3.3: Credit activities results 35

Table 3.4: Revenue from service activities of BIDV Ninh Binh 37

Table 3.5: General business result of BIDV Ninh Binh 39

Table 3.6: Changes in deposit at BIDV Ninh Binh in 2007-2011 period 41

Table 3.7: Deposit mobilization results and outstanding loans structure based on currencies 46

Table 3.8: Official interest rate for individual customers of BIDV Ninh Binh 48

Table 3.9: Cost of deposit mobilization 49

Table 3.10: Deposits and loans 50

LIST OF GRAPHS

Graph 3.1: Outstanding loans based on durations of BIDV Ninh Binh 36

Graph 3.2: Net profit from service activities of BIDV Ninh Binh 38

Graph 3.3: EBIT, EBT and net profit from services 40

Graph 3.4: Total deposit at BIDV Ninh Binh in 2007-2011 period 42

Graph 3.5: Proportions of total deposit divided by terms 43

Graph 3.6: Structure of deposit based on sources 45

Graph 3.7: Growth rate of deposit in VND and USD 47

Graph 3.8: Portion of medium and long –term deposits and loans in total deposits and loans of BIDV Ninh Binh 51

CHAPTER I INTRODUCTION

1.1 Rationale

Experiences of the fast-growing countries around the world have confirmed thatgathering and accumulating funds have an important role in the industrialization andmodernization of the country

In Vietnam, the growth rate of the economy in general and the particularindustries is primarily based on the larger amount of investment And in this process,commercial banks play an important role, since they are the biggest investors

In the banking system, in order to raise funds, banks can use a variety ofsources, such as a fixed budget from the state, may borrow from the economicorganizations or from other banks, and possibly from the equitization For branch, thisshall be a certain budget from headquarter, but most of which still comes fromdeposits

It can be said that deposit mobilization today is one of the most importantactivities and involve the survival of commercial banks

During the internship at BIDV Ninh Binh, I had also found that depositsmobilization is even more important for branch such as Ninh Binh branch Because thebranches cannot borrow from the economic organizations or other banks but onlyfunded from HQ, they have to put more effort in improving deposit mobilization

From this importance of deposit mobilization, I had decided to study the depositmobilization at BIDV Ninh Binh in order to understand how they are operating For

this reason, I had chosen the topic “Deposit mobilization at BIDV Ninh Binh – Facts and Recommendations”

1.2 Research objectives

The paper was conducted for my first objective is summarizing the theoreticalframework on deposit mobilization of commercial banks in general

Then, my next objective is coming to analyzing the fact of deposit mobilization

in BIDV Ninh Binh

According to the understanding of working mechanism of the market in generaland the particular economic and social conditions of Ninh Binh, I can find outchallenges and obstacles in deposit mobilization action Taking the case of BIDV NinhBinh, I aim to penetrate not only reality but also to learn any problems in BIDV NinhBinh’s deposit mobilization

After done with the work of review the theory and analyze, I’m having somerecommendations for deposit mobilization in BIDV Ninh Binh

1.3 Research methodology

In order to do this research, I’m using secondary database methods

Based on BIDV Ninh Binh intramural financial report, I will collect all data andanalyze its indicators and evaluate its deposit mobilization results Besides, I still make

a comparison among the period from 2007 to 2011 following economics situation andbusiness outcomes

Additionally, I will take some information (not so specific) that regulates tosome other activities such as credit and service, in an effort to access the effectiveness

in operating of the Branch That trying will helps to take a more clearly look into themutual impact between business and deposit mobilization of the Branch

From collected data, I will use statistical analysis in order to analysis the fact ofdeposit mobilization in BIDV Ninh Binh

Technically, I had drawn tables and graphs based on the database and drewconclusions from my own study It might be not perfectly correct in compared with

professional soft-ware that used by specialist And some are used for statistic andanalysis purposes.

1.4 Scope of research

My thesis is just limited within the deposit mobilization of BIDV – Ninh Binhbranch in the period 2007 – 2011 All the data before 2007 were somehow too old andquite hard to access

Inevitably, the outcomes are not compared perfectly due to differentorganization structure of particular credit institutions and lack of industry data, thus Icannot compare BIDV Ninh Binh with headquarter or other commercial banksbranches

On the other hand, with the limitation of time to access intramural information,

my findings and suggestions are just the merit on the surface

1.5 Thesis structure

My thesis will include four chapters

− Chapter I: Introduction

− Chapter II: Theoretical framework

− Chapter III: Deposit mobilization in BIDV Ninh Binh

− Chapter IV: Recommendation for the operation of deposit mobilization

at BIDV Ninh Binh

At the end of my thesis will be conclusion and references

CHAPTER II THEORETICAL FRAMEWORK

2.1 Overview of commercial banks’ deposit

2.1.1 Concept of deposit

Deposits are a key element in defining what a banking firm really does andwhat critical roles it really plays in the economy This is the most important source offunds for commercial banks When a bank start running in business, the first action isopening deposit accounts in order to saving and paying on behalf of customers,thereby banks will mobilize funds for credit business

The number and range of deposit services offered by depository institutions areimpressive indeed and often confuse the customers Today, deposit plans designed toattract customer funds come in 31 flavors and more, each plan having featuresintended to closely match business and household needs for saving money and makingpayments for goods and services

In the term of banking system now, deposit is divided into three main types:

Transaction (Payment or Demand) Deposits

One of the oldest services offered by depository institutions has centered onmaking payments on behalf of customers This type of deposit service requiresfinancial-service providers to honor immediately by the customer to the recipients offunds withdraw Transaction deposits are divided into two smaller types:

Noninterest-Bearing Transaction Deposits

Those deposits do not earn any explicit interest payment It simply provides thecustomers with payment services, safekeeping of funds, and recordkeeping for any

transactions carried out by check, card, or via an electronic network Nowadays,almost no one use these types of deposits anymore.

Interest-Bearing Transaction Deposits

Many consumers today have moved their funds into other types of transactiondeposits that pay at least some interest Basically, interest-bearing transaction depositsprovide all the function as noninterest-bearing transaction deposits but adding someinterest to the depositors as well

With the development of banking system, negotiable order of withdrawal(NOW) accounts began to appear NOWs give the offering depository institutions theright to insist on prior notice before the customer withdraws funds After NOWs, therewere two other important interest-bearing transaction deposits created They aremoney market deposit accounts (MMDAs) and super NOWs (SNOWs)

Nontransaction (Saving or Thrift) Deposits

Saving deposits, or thrift deposits, are designed to attract funds from customerswho wish to set aside money in anticipation of future expenditures of financialemergencies These deposits generally pay significantly higher interest rates thantransaction deposits do While their interest cost is higher, they are generally lesscostly to process and manage than transaction deposits

For many years, customers who use have been offered time deposits whichcarry fixed maturity dates with fixed interest rates Recently, time deposits have been

issued with interest rate adjusted periodically (such as every 90 days, known as a leg

or roll period) Time deposits must carry a minimum maturity of seven days and and

cannot be withdrawn before that Most of customers who take nontransaction depositsare businesses and social organizations

Saving Deposits

Wage earners and salaried individuals can make deposits with tax free into asaving deposit in order to keep their money safe and earn some profit Banks will give

the depositors a passbook each time they make deposit to substitute for certificate ofdeposit of banks This passbook cannot be used for payment but can be used ascollateral under permission of banks when borrowing loans.

Deposits of other banks

The situation that a bank deposits into another bank does exist in the bankingsystem This serves the purpose of payment on behalf and some other purposes Butthe scale of this type of deposit is usually just within the total deposits

2.1.2 Characteristics

2.1.2.1 Liquidation

A general feature of deposits is that they must be paid whenever customers ask,regardless whether they are non-term deposits or undue term deposits Any changes,especially changes in short-term deposits will lead to changes in the liquidity of banks

2.1.2.2 The scale of deposits

The scale of deposits is very big in comparison with other sources It usuallytakes about more than 50% of total funds and be annual growth goal of banks This isbecause deposits takes an important role as most of raw material for banks to dobusiness comes from deposit, according to the definition of deposits

However, the amount of cash deposited depends much on the financialconditions of individuals and economic organizations, because the source of deposits

is the money from there Financial conditions, on the other hand, are affected by localconditions An area where there is high developed economy, high intellectual standardtend to have more changes for banks to mobilize more deposits In addition, theamount of deposit somehow is also affected by the interest rates Obviously, no onewill want to deposit unless they are offered an interest rate which they feel acceptable

2.1.2.3 Cost

This is the cost for banks to reserve and manage the deposits which theymobilized Deposits is compulsory reserve object, therefore the cost for deposits is

usually higher than the interest rate payment In many nations, banks must purchaseinsurance for deposits.

2.1.2.4 Sensitiveness

Deposits, especially short-term deposits is usually sensitive with the fluctuation

of interest rate, exchange rate, income, consumption cycle and many other factors.High interest rate is a stimulus factor which motivate individuals and businessesdeposit In high inflation condition, customers more concern about real interest rate,meaning only a positive real interest rate can attract customers

Other factors such as banks location, branch network, products of deposit andservices, etc all affect the structure and the scale of deposits In holidays such asLunar New Year, deposits tend to decrease In big cities where there is most of highincome class, there will be a king of big depositors Income increasing also changesthe scale and terms of deposits When banks expand loans, deposits will increase aswell Lastly, saving deposits are usually more stable than transaction deposits

2.1.2.5 Deposit interest rates are directly proportional to deposit terms

Each of different types of deposits typically carries a different interest rate Ingeneral, the longer the maturity of a deposit is, the greater the yield that must beoffered to depositors, because of the time value of money and the frequent upwardslope of the yield curve

2.2 Deposit mobilization of commercial banks

2.2.1 Role of deposit mobilization

2.2.1.1 A stable & cheap source for bank operation

Important indicators of management’s effectiveness are whether or not fundsdeposited by the public have been raised at the lowest possible cost and whethersufficient deposits are available to fund all those loans and projects management of a

bank or thrift wishes to pursue The ability of management and staff to attracttransaction (checkable) and savings deposits from businesses and consumers is animportant measure of depository institution’s acceptance by the public.

Through the deposit mobilization, the funds for banks to carry out the mission

as an intermediary in the national economy are increased This is a really cheap sourcebecause the money which banks use is come from the population Banks just have tospend very little in order to maintain and expanding this source Also, it’s stablebecause in any time there are always people who want to keep their money both safeand profitable

2.2.1.2 Customer base for other activities

Deposits provide much of the raw material for making loans and, thus, mayrepresent the ultimate source of profits and growth for a depository institution Thescale of deposits is very big in comparison with other sources It usually takes about50% of total funds and be annual growth goal of banks Moreover, deposits providemuch of the raw material for making loans and, thus, may represent the ultimatesource of profits and growth for a depository institution

Quality of deposit mobilization assesses the potential in business of the banks.Regardless how well banks do business, the first necessary requirement is that theymust have funds, and most of banks’ funds come from deposits mobilization Ofcourse there are different perspectives on quality in different times, depending ondifferent factors

Deposit mobilization and credit activities have a mutual impact If quality ofdeposit mobilization assesses the potential in business of the banks, then credit qualityassesses the real ability in business of banks A good deposit mobilization quality will

at least provide banks a better basis for credit services Good credit services willincrease the profit, thus increase the ability to pay the interest for depositors It willcreate better images of banks, raise the reputation and become a fulcrum for banks toincrease the number of loyal customers and attract more new customers

We can say, with those benefits, the strengthening and enhancing the depositmobilization quality of the commercial banks is the need for object of existence andlong-term development of the banks.

2.2.2 Indicators to assess deposit mobilization

2.2.2.1 Volume

Be measured through the fluctuation of the deposit A steady growth deposit is

a deposit which has steadily increased over years and reaches the annual goals.Properly evaluate the stability of deposit will help determine rational terms, anddetermine the necessary liquidity Banks can use the rotation of funds or the averageduration of deposit to assess the stability

If the rotation of the mobilized funds is short or the average duration of themobilized funds is long, the funds are more stable Then bank can lend with longerterm or reserve less while still maintaining the liquidity

The easiest way to check the growth of deposit mobilization is looking at thevolume of deposits The absolute value can show us the scale of deposit while therelative value will tell us its growth rate, trends and even the stability of the depositmobilization

2.2.2.2 Cost for deposit mobilization

Be assessed the average deposit rates, interest rates from each source and thedifference of interest rates output, input

Measuring the costs incurred in the process of mobilizing deposit is veryimportant for banks because it allows banks to search for the lowest cost for theirbusiness activities With other conditions constant, the banks will try to find and usethe funds which bring highest profit after deducting all expenses.

Moreover, measuring the cost of deposit mobilization will help banks determinethe basis of interest rates and lending rates in accordance with banks’ businessconditions, thereby maximizing profits

Average cost

2.2.2.3 Relationship between deposits and loans

Assessed by comparing the raised funds with the demand for credit, paymentsand other needs to see how much mobilized deposit has met the demands and howmuch more does bank has to borrow

In order to assess the ability of deposit mobilization to respond to businessactivities of banks, or in other word, whether deposit is being mobilized well or not,

we can compare the relationship between deposit a bank mobilized and loans it made

We can use three following formulas:

This ratio is called coefficient of variation of deposit in comparison with creditoperating This ratio expresses the efficiency of banks in using deposit If it is too lowmeaning the deposit mobilization cannot respond to the funds for credit of banks On

the contrary, if the ratio is too high meaning the growth of deposit mobilization is highbut the business somehow is bad, or in other word, banks are storing rather than using,and we all know that storing doesn’t generate profit.

2.3 Factors affecting the deposit mobilization

2.3.1 Internal factors

2.3.1.1 Deposit interest rate policy

Deposit interest rate is the percentage of the money that depositors receive frombanks in compared to the principal amount The first thing which any individual oreconomic organization will to refer to when deposit money to the bank that is theinterest rates High interest rate is the element which stimulates individuals andorganization making deposits So the interest rate policy is one of the most importantpolicies affecting the funding policies of the bank

However, it’s not any bank which offers high interest rate can attract deposit.The problem is with a specific interest rate given by the bank, how much the incomethe depositor will actually receive In condition of inflation, customers tend to considerthe real interest rates That means it must be a positive interest rates in order to attractdepositors Therefore the bank must accurately predict the inflation rate of theeconomy in the years to provide the reasonable interest rates A reasonable interest ratemust also be mobilized to ensure the relative purchasing power among the currencies

is unchanged, meaning that it must be added the factors of exchange rate fluctuations

Solving this problem is not a simple task It is not only scientific but also an art.Bank managers must be very clever and skillful in order to make a reasonable interestrate policy which is flexible and suitable for market conditions as well as forexpectations of banks of the scale and quality of deposit, helping banks gain efficiency

in the work of raising funds

2.3.1.2 No of deposit mobilization products

A good mobilization process is a mobilization can satisfy as much demands ofcustomers as possible If forms of deposit offered are richer, more diverse, flexible andconvenient, then the ability to attract funds in the economy will increase It must alsoresult from differences in demand and mentality in the population The diversification

of forms of deposit has helped people to find themselves a rational investment method

If banks can provide as much demands in deposits form, it means the depositmobilization of banks is being processed well

A bank which has plentiful, flexible and convenient forms and term limit willattract new customers and retain existing customers better than other banks In themarket economies now there are more and more banks entering, the customers havefavorable conditions to find a best choice Therefore banking services is a factor toattract customers

on customers Together, 4P and 4C respectively form 4 pairs of P – C

The first C – Customer Solutions goes along with the P – Product Thisexpresses the opinion that each product sold out to the market is really a solution forthe customer, to resolve a certain particular need of customers rather than just a

"solution profits" of the firm In the case of banks deposit, Product can be considered

as terms and types of deposit account For example, there are customers who want todeposit for saving, and also there are customers want to deposit for transfer or usingbut don’t want to keep too much cash Customers can choose high interest rate but(usually) high risk or vice versa; they can choose short-term if they want to earn moreprofit in short time while still can have money to do other stuff but have to be fined ifchange or cancel contract with in term, or they will open long-term account if theydon’t have anything to do with cash and want this cast make profit itself; or customersjust open an account to transfer money, or using through checks, credit card, or ATMfor them can withdraw cash everywhere

Second C – Customer Cost is attached with P – Price expressed the view thatthe price of the product should be seen as costs that buyers will spend This costincludes not only the product cost but also the cost of using, operating, anddemolishing products This cost must be adequate with the benefit that products bring

to the buyers In banks, we also have many types of fees: fee to open an account, feefor services, withdrawal fees, transfer fees, etc I will show a sample, to open an ATM,

you need 50,000 VND, and it’s constant To maintain this, we have card managementfees, maintenance fees, kind of those.

Third C is Convenience This C forms a pair with the P – Place Theconvenience requires the ways of distribute production of the firms must be convenientfor customers Typical samples of convenience in distribution may include ATMnetworks of banks Banks which has more machines, placed extensively, less likely toexperienced problems when withdrawing cash, will have more customers openaccounts Moreover, having many branches located at convenient locations and easy tocontact also helpful when customers need dealing with the banks

The last C – Communication goes in pair with the P – Promotion in order toshow the requirement in communicating Communication must is interaction, two-waycommunication between companies and customers Firms must study the needs, theaspirations of customers, and then can show the customers - not like an advertisementwhere a person come in and read out loud all information of the production from asheet of paper, but more like two persons are talking to each other in a mutualunderstanding conversation - about how the product will satisfy their needs Aneffective communication strategy must be the result of interaction between firm andclients to achieve mutual understanding from customers for product and brand Thispair of P – C, I think, is perfectly correct for all firms including banking firms

Applying those knowledge, learning from customers’ view will help enterprise

in general as well as banks in particular making strategies to achieve the success, or inthis report, is gain efficiency in raising funds by means of deposit

2.3.1.4 Technological application

Technology and equipment is also a factor affecting the quality of depositmobilization, especially in an era of science and technology development rushing ascurrent A bank using modern technology, equipped with high quality technicalequipment means will facilitate for the simplification of procedures, shortentransaction times, provides maximum convenience for customers It is a prerequisitefor banks to attract more customers, extending deposit The support of the modern

techniques also help to gather information quickly, accurately, since then the planningand construct policies will be more effective.

2.3.1.5 The quality of bank personnel

The human factor always plays an important role, is a decisive factor in thesuccess or failure of the bank The modern technical facilities can only help, not toreplace the sensitive experience of the credit officers Thus the matter of the particularquality of human resources and human resources management is a critical factor

Personnel Quality: The qualifications of staff, conscience, ethics, discipline thebehavior of staff The transaction staff must be dynamic, friendly, enthusiastic, andprofessional manners to create sympathy from customers The executive staff musthave highly qualified professional skill, have extensive knowledge and clear-headed inorder to give right decisions

The level of human resource management: Is the staff arrangement appropriatefor abilities of each person, thereby promoting the strengths and minimize weaknesses

themselves So bank executives need to be able to forecast the evolution of the market,grasp the opportunity to take out the strategic plan to develop banks in each period,and long-term development plan.

2.3.2.2 Political - Social environment

Political - Social environment stability is an important basis to draw outimportant decisions of depositors The political - social policies of the state and habits

of the country, etc all have strongly influence on the bank's activities Therefore bankmanagers need to grasp the changes in government policies as well as social trends tobring out the strategic plan for bank development in each period, and developmentplan for long-term

Fortunately, Vietnam is one of the countries with most stable political andsocial background on the world Therefore that is the opportunity for the bank as well

as the customers This has promoted the quality of deposit mobilization extended andenhanced

2.3.2.3 Legal environment

Unified and stable legal environment will be favorable conditions for businessactivities of banks and businesses So it impacts the quality of bank depositmobilization The policy such as monetary policy, fiscal policy, etc has large anddirect impact to the banking – finance sector Only a small change in state policy canlead to a shift in performance of the bank as an intermediary in the economy In fact,the legal environment is still not stable; the laws still need to be amend to fit thedevelopment direction Therefore that it does affect not small the effectiveness ofbusiness operations of the bank For example, currently there are problems in thedeposit interest rate The state make a fixed rate, but the people are not satisfied withthat rate since it cannot match with the real inflation and the increase of consumptionprice Then people are not interested in deposit On the other side, banks need funds,

or I should say cash Government budget is not enough as itself is suffering deficit.Borrowing is either not enough as other banks also need cash So they have no choicethan doing some modification in contract in order to make interest rate higher to

satisfy the customers but still look legal regardless the fact that banks can beadministrative penalties or even worse.

2.3.2.4 Competition environment

In market economy, competition is an inevitable law, and banking is an industrywith high level of competition In recent years, financial market has been becomingcrowded due to the entering of several types of banks and other non-bank financialinstitutions Currently in Vietnam there are about 100 commercial banks, dozens offoreign bank branches, and the number of credit funds can be up to thousands.Meanwhile, the idle funds sources in the population and economic entities are limited,while the any bank wants to maximize the market share of their deposit mobilization

Form of competition is not as diverse as the other industries and sectors also putthe competitiveness of banks higher The commercial banks mainly compete in twomajor forms – interest rates and services Thus, each bank must determine whatinterest rates are most reasonable, most attractive as well as provide the best service,most convenient, combined with the reputation and prestige of the bank to increasemarket share in deposit mobilization

CHAPTER III DEPOSIT MOBILIZATION AT BIDV NINH BINH

Abbreviated name BIDV

Address BIDV tower, 35 Hang Voi St, Hoan Kiem

district, Hanoi

Phone 04.2220.5544 Fax 04.2220.0399 Website www.bidv.com.vn

Email Info@bidv.com.vn

Bank of Investment and Development of Vietnam (BIDV) was one of fourbiggest state-owned commercial banks in Vietnam and the most age-old commercialbank in Vietnam The Branch has a large network including headquarter in HN andmore than 100 branches all over the country

From the establishment on April 26th, 1957 under the Decree 177/TTg, adopted

by President of Council of Minister – now called Prime Minister until now, BDV hasbeen changed name several times, each name reflected one remarkable period of theBranch with different main responsibility This table below summarizes thedevelopment of BIDV through years

Table 3.1: Brief history of BIDV

Managemen t organization

Distributing funds for fundamental construction

State Bank ofVietnam

Leading medium and term funds for projects based

long-on directilong-on of the government

State Bank ofVietnam

Undertaking all activities as a modern commercial bank such

as taking deposits, lending funds, financial leasing, factoring, guaranteeing, trading foreign currencies, issuing commercial papers…

3.1.2 Development strategies

Keep the technology up to date; improve information technology applying inbanking activities

Expand to other markets

Develop human resource to ensure an advanced and high educated staff withprofessional working manner

3.1.3 The operation

3.1.3.1 Period 1957 – 1975

From 1957 to 1960 is the period of economic recovery and implement first years plan In this period, BIDV had provide 1.483 trillion VND (valued at 1960) for

5-primary fundamental construction, repairing war consequences, recovering theeconomy.

3.1.3.2 Period 1976 – 1990

BIDV has contributed to carry out social-economic development policies of the

IV, V VI Party Congress and the direction of investment to recover economic after thewar in order to create the preconditions for investment in economic development

3.1.3.3 Period 1990 – present

This is the period when BIDV started implement innovation policies of theState The bank had to face many difficulties during the early years of this period

In 1995, the funds allocation function was passed to General Investment Office

of Vietnam, BIDV officially operated as a commercial bank Although lack ofexperience, BIDV step by step fulfilled all the function as we all know now

3.2 Introduction to Ninh Binh branch

3.2.1 History of foundation and development

Vietnamese transaction name Ngân hàng đầu tư và phát triển Việt Nam – chi

Abbreviated name BIDV Ninh Binh

Address No.1, Le Hong Phong St, Ninh Binh city, Ninh

Binh province

Phone 030.3871519 Fax 030.3871518 Website www.bidv.com.vn

Email ninhbinh@bidv.com.vn

BIDV Ninh Binh was established on 26 April 1957, firstly named BasicConstruction Funds Allocation Office under the supervision of Ha Nam Ninh FinanceDepartment, the predecessor of Bank for Construction of Vietnam – Ninh Binh branch.

In 1992, with the separation of Ninh Binh province from Ha Nam Ninh province, thebranch of Bank of Investment and Development of Vietnam in Ninh Binh wasofficially established based on Decision 198/QĐ-HĐQT announced on 12 April 1992

of the Chairman of the Board of Director of BIDV

3.2.2 Organizational structure

The structure of BIDV Ninh Binh was innovated based on model TA2 of Bank

of Investment and Development of Vietnam and has officially gone into operationsince 01 October 2008 at the same time the whole system of BIDV This new modelwas changed basically in comparison with the old model, especially in the creditblock

In the new model, below the Board of Managers are included 5 blocks:

 Customer relations block: includes 3 departments: Business customer

relations 1&2 and Individual customer relations Main responsibilities ofcustomer relations block are maintaining strong relationship with customers

to ensure repeat business, contacting potential customers to introduce theproducts and seek for new business development opportunities and updatingall customer related date to support for bank’s business

 Risk management block: has only 1 department – Risk management

department which is responsible for proposing risk management methods,analyzing and evaluating risks of the Branch’s portfolios and contracts,maintaining credit grading system, classifying debts, calculating debtprovision and proposing solutions for bad debts as well as deciding structureand credit line for customers

 Operation block: includes 4 departments: Credit management department,

Business customer services department, Individual customer servicesdepartment, and Management and Treasury department

 Internal control block: includes Administrative department, Accounting

and Finance department, General planning department (Computing groupdirectly under - this is noted in brackets in the document, not the name ofthat department, I do not know how to translate this phrase exactly)

 Dependent block: is the authorized representative of Ninh Binh branch,

includes 2 transaction counters (Tam Diep transaction counter and GianKhau transaction counter) and 2 saving funds within Ninh Binh province

3.2.3 Tasks and activities

BIDV Ninh Binh is the legal representative of Bank of Investment andDevelopment of Vietnam, uses separated seal, and is operated based on regulation andoperation of Bank of Investment and Development of Vietnam

BIDV Ninh Binh is one of two biggest commercial banks within Ninh Binhprovince; do business in monetary, credit and payment Main responsibility of theBranch is funds raising, funds supplying for economy and society developmentprocess in the area based on local and industry basic development strategy throughperiods of time

Bank of Investment and Development of Vietnam – Ninh Binh branch is themain force in enforcing national monetary policy and investing and developing keyprojects and programs in economy development of the local and the industry; as well

as fulfill all the responsibilities of a commercial bank

With high educated staff go along with professional working manner andmodern equipment, BIDV Ninh Binh attempts to bring its customers the best productsand services

3.2.4 Advantages and difficulties

As the Branch of one the four biggest state-owned commercial banks inVietnam, BIDV Ninh Binh also has many advantages With the longest developmenthistory among the commercial banks in Ninh Binh province in particular and inVietnam in general (the Branch was establish at the same time with the BIDV system

in 1957), it can be said that BIDV Ninh Binh had been following the development ofthe Ninh Binh province.Annually, BIDV Ninh Binh receives an amount of funds fromnational budget to maintain and improve its business

BIDV Ninh Binh was the first commercial bank in the area accomplishesmodernize technology in May 2005 All of the data were stored and handled at thecentral The Branch was the first bank in Ninh Binh province applies information

technology in banking activities The equipment of the Branch was renewed to ensuresatisfy customers’ demand.

The Branch keeps improving the staff The human resource is added andrejuvenated By performing exactly the recruit staff process and arranging trainingcourses internally, BIDV Ninh Binh ensures that its staff always up to date with newknowledge and technology According to data updated to 31/12/2010, the Branch had

a staff with more than 80% were college graduated and over It’s no doubt when saythat BIDV Ninh Binh has one of the most advanced and high educated staff in NinhBinh province

The last advantage might be a little bit sensitive, but as a state-ownedcommercial bank, BIDV in general and BIDV Ninh Binh in particular has morepriority in government regulation and policy to support and regulate the bankingactivities in the area of Ninh Binh province

Besides the advantages, difficulties are inevitable Ninh Binh province is not acentral economy and politic, either Ninh Binh city is not a central city, therefore thecommercial business activities cannot be so busy as in the big central cities such asHanoi or Ho Chi Minh city If who have opportunity to gather data from BIDV Hanoi

or BIDV Ho Chi Minh and compare to BIDV Ninh Binh will find out that the financialnumbers of BIDV Ninh Binh often smaller than those two cities

Competition is a typical factor of economy In Ninh Binh province, BIDV is notthe only commercial bank One of the biggest competitors of BIDV Ninh Binh isAgribank Ninh Binh This is one of the four biggest state-owned commercial banks aswell And in a province where agriculture still take the main role in the economy asNinh Binh province, Agribank which main business somehow focus on agriculturewith many agriculture support policies will somehow has more advantages than BIDV

Besides, there are very many joint stock and private commercial banks areoperating in the area of Ninh Binh province Those banks might be not so big asBIDV, but have more attractive policies than BIDV Being a state-owned is an

advantage but somehow also a disadvantage since they must not do anything whichcan be considered as violate the government image It doesn’t mean the other bankscan do out of the regulation, it just means that they can do business more freely andnot too concerned about this or that action could damage the image of any-what or not.Moreover, those banks can offer sales promotion, special offer, awarded program, highdeposit interest rate (even higher than government limitation, they always find theirways to break the limit) etc in any way they want as long as it’s still inside the limit toattract customer while BIDV Ninh Binh cannot, because it is under the direct control

of the government and whatever program the Branch want to offer, for example,offering higher deposit interest rate, must be approved by the Congress

3.2.5 Banking operation at the Branch

3.2.5.1 Deposit mobilization

Deposit mobilization of a bank is needed to provide a major amount of fundsneeded for its all others activities such as lending, factoring, financial leasing…Therefore it plays an important role with every bank, including BIDV Ninh Binh Inrecent years, BIDV Ninh Binh has put many efforts to enhance deposit mobilization

The operation of deposit mobilization from idle funds inside the population isalways paid attention especially Total deposit of each year is always higher than theprevious year The Branch had applied flexibly deposit mobilization products whichare very attractive and suitable, convenient for customers such as: non-term deposits,transaction deposits, accumulated deposits, savings bonus, stair-shape deposits, bills,certificate of deposits, etc The Branch always try to actively follow every changeswithin the area in order to adjust policies Combining with using advertisement,provide promotion, etc the Branch really did put so much effort in developing depositmobilization

Table 3.2: Deposit mobilization of BIDV Ninh Binh in 2007-2011 period

Unit: billion VND

target

Difference between result and target

Absolute value Relative value

(Source: Accounting & Finance Department – BIDV Ninh Binh)

In 2007 – 2011 period, BIDV Ninh Binh could not reach the pre-defined targetsthey had planned in the beginning of the years Main reason for this problem was thecumulative impacts of the irregular and unpredictable fluctuation in global and localeconomy, which affected adversely to the Branch system in general and BIDV NinhBinh in particular However, the stability in total raised capital was still remainedwhen this figure only decreased slightly in 2010 after the rapid rise in 2009

Table 3.3: Credit activities results

Unit: billion VND

(Source: annual report from 2007 to 2011 of BIDV Ninh Binh)

There were a rapidly increases in total outstanding loans of BIDV Ninh Binhfrom 2008 to 2011, which the highest is 49.38% from 2008 to 2009 In those totaloutstanding loans, loans for business organizations were always stable in highproportion – about 97% in total Average outstanding loans always keep at high level

The Branch’s bad debt is ensured under the limitation Obviously, althoughoutstanding loans increased continuously, the percentage of bad debt decreased, whichmeans the credit quality of the Branch is better and better