LV Thạc sỹ_Increase the effectiveness of capital mobilization in Vietinbank thai nguyen

 Chapter 2: Theoretical framework of capital mobilization in commercial banks.. The marketing activity:...18 CHAPTER 3 : THE REAL SITUATION OF CAPITAL MOBILIZATION EFFECTIVENESS IN VIET

The structure of the thesis includes 4 parts:

 Chapter 1: Introduction about rationale, research objectives, research scope and research methodology.

 Chapter 2: Theoretical framework of capital mobilization in commercial banks.

 Chapter 3: The real situation of capital mobilization effectiveness in VTN

 Chapter 4: Solutions and recommendations to increase the effectiveness of capital mobilization in VTN.

In the process of doing this report, I have received a lot of support from both of university and the branch I would like to express my gratitude to my supervisor, Mrs Nguyen Thi Thuy Duong, Ph.D, teacher of banking and finance faculty, National Economics University, and all the staffs of Business Bureau, Vietinbank, Thai Nguyen branch.

TABLE OF CONTENT

PREFACE TABLE OF CONTENT

ABBREVIATION

LIST OF TABLES

LIST OF DIAGRAM AND FIGURES

CHAPTER 1: INTRODUCTION 1

1.1 Rationale: 1

1.2 Research objectives: 2

1.3 Research scope: 2

1.4 Research methodology: 2

CHAPTER 2: THEORETICAL FRAMEWORK OF CAPITAL MOBILIZATION IN COMMERCIAL BANKS 4

2.1 The capital source of commercial banks: 4

2.1.1 The concept of capital in commercial banks: 4

2.1.2 The structure of capital in commercial banks: 5

2.1.2.1 Equity: 5

2.1.2.2 Borrowed fund: 5

2.1.2.3 Other sources of funds: 8

2.2 The theory of capital mobilization in commercial banks: 8

2.2.1 The role of capital mobilization activity in commercial banks: 8

2.2.2 Method to mobilize capital of commercial banks: 9

2.3 Effectiveness of capital mobilization activity: 10

2.3.1 Concept of capital mobilization effectiveness: 10

2.3.2 Indicators reflecting the capital mobilization effectiveness: 11

2.3.2.1 Capital size: 11

2.3.2.2 Capital structure: 12

2.3.2.3 Cost of raising capital: 12

2.3.2.4 Adequacy between capital mobilization and capital allocation: 14

2.3.3 Factors affecting the effectiveness of capital mobilization: 14

2.3.3.1 External factor: 14

2.3.3.1.1 Legal environment: 14

2.3.3.1.2 Social, political and economical environment: 15

2.3.3.1.3 The culture environment: 15

2.3.3.1.4 The competition factor in the financial market: 16

2.3.3.2 Internal factor: 16

2.3.3.2.1 Bank’s mobilizing funds methods, the quality of services and business network system: 16

2.3.3.2 2 The quality of credit activity: 16

2.3.3.2 3 Prestige of banks: 17

2.3.3.2 4 Business strategy of banks: 17

2.3.3.2 5 Competency and professional ethics of banking staffs: 17

2.3.3.2 6 The marketing activity: 18

CHAPTER 3 : THE REAL SITUATION OF CAPITAL MOBILIZATION EFFECTIVENESS IN VIETINBANK TN 19

3.1 Overview of Vietinbank Thai Nguyen: 19

3.1.1 History of foundation and development: 19

3.1.2 Management structure and functions: 20

3.1.2.1 Management structure: 20

3.1.2.2 Functions: 21

3.1.3 Business operation of Vietinbank TN in recent years: 21

3.1.3.1 Capital mobilization: 21

3.1.3.2 Credit activity: 23

3.1.3.3 Services and foreign exchange: 25

3.1.3.4 Income statement of VTN: 27

3.2 The reality of capital mobilization effectiveness in Vietinbank TN: 28

3.2.1.Capital size: 28

3.2.2 Capital structure: 29

3.2.3 Cost of raising capital: 33

3.2.4 Effectiveness of capital utilization: 34

3.2.4.1 Making loans.: 34

3.2.4.1.1 Short-term loan: 36

3.2.4.1.2 Medium and long-term loans: 39

3.2.4.2.Adequacy between capital mobilization and capital utilization: 40

3.3 Assessment of VTN’s capital mobilization effectiveness: 41

3.3.1 Achievements: 41

3.3.2 Drawbacks 41

3.3.3 Causes of drawbacks: 42

3.3.3.1 Internal causes: 42

3.3.3.2.External cause: 43

CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO INCREASE THE EFFECTIVENESS OF CAPITAL MOBILIZATION IN VTN 44

4.1 Development orientation of capital mobilization activity in VTN 44

4.2 Suggested solutions to increase the effectiveness of capital mobilization in VTN: 45

4.2.1 Expanding the capital mobilization methods: 45

4.2.2 Applying the flexible interest rate policy: 46

4.2.3 Restricting the business risks, improving business performance: 47

4.2.4 Improving the quality of marketing strategy: 48

4.2.5 Training and improving frequently the professional skills of staff: 49

4.3 Recommendations: 50

4.3.1 Recommendations to Vietinbank Vietnam: 50

4.3.2 Recommendations to State bank of Vietnam: 51

4.3.3 Recommendations to the Government: 52

CONCLUSION 54 REFERENCES

Vietinbank Vietnam bank for industry and trade SBV State bank of Vietnam

VTN Vietinbank Thai Nguyen

CRM Customer relationship management

LIST OF TABLES

Tale 3.1 Operation profit of VTN 27

Table 3.2 Mobilized capital of VTN 28

Table 3.3 Capital mobilization structure by types of customer 29

Table 3.4 Capital mobilization of VTN by currency 31

Table 3.5 Capital mobilization of VTN by deposit 32

Table 3.6: Cost of capital mobilization 33

Table 3.7 Lending activity results 34

Table 3.8 Comparison between mobilized funds and total outstanding loan 40

LIST OF DIAGRAM AND FIGURES

Diagram 3.1 Organizational structure of VTN 20

Figure 3.1 Capital mobilization 22

Figure 3.2 Loan sale by customers 24

Figure 3.3 The results of services operation 26

Figure 3.4 Structure of deposit by term of maturity 30

Figure 3.5 Outstanding loan structure at VTN 35

Figure 3.6 Short-term loan sale: 37

Figure 3.7.Outstanding short-term loans 38

Figure 3.8 Outstanding medium and long-term loans 39

CHAPTER 1: INTRODUCTION

1.1 Rationale:

Along with the development of the economy and banking system,more and more problems are brought to our attention, one of which is capitalmobilization Fund mobilization is one of the basic and profitable activitiesfor commercial banks like other activities such as payments, credit activities,card services, etc With the high demand, capital plays an important role forthe development and growth of bank and the whole economy Governmentbudget is only contributed in investing in infrastructure which is not be able

to refunded, while capital for business operation or fixed and floating capitalare mobilized through borrowings Therefore, capital is not only needed inshort-term but also in medium and long-term Without capital, economicsystems cannot improve, industrial areas and service centers cannot be setup

Banks are only one part of a vast financial system of markets andinstitutions that circles the globe The primary purpose of this ever changingfinancial system is to encourage individuals and institution to save andtransfer those savings to the individuals and institutions planning to invest innew projects This process of encouraging savings and transforming savingsinto investment spending causes the economy to grow, new jobs to becreated, and living standard to rise For this reason, it is essential for a bank

to have sufficiency of capital in hand In addition to that, capital helps bank

and financial institution (B&FI) to diversify and enlarge their businesses butalso ensures the safety of the banking system Hence, a research related tocapital mobilization of banks is critical.

Over recent years, capital activities at Vietinbank Thai Nguyen branchhave been always focused Although approaching a number of achievements,these activities are facing some problems and revealing some shortcomings.Fund mobilization of the branch still needs to be further analyzed andimproved to better serve for its need That’s why I choose the topic:

“Solution to increase the effectiveness of capital mobilization in VietinbankThai Nguyen branch ” for my graduation thesis

1.2 Research objectives:

The objectives of this thesis are:

 Reviewing some theoretical framework of capital mobilization incommercial bank

 Analyzing and assessing the real situation of capital mobilizationactivity in Vietinbank TN

 Proposing some solutions and making some recommendations toimprove the capital mobilization effectiveness

1.3 Research scope:

This thesis concentrates on fundamental theories of capitalmobilization and studying and evaluating the current situation of capitalmobilization in VTN during the period from 2009 to 2011

1.4 Research methodology:

The methodology applied is a descriptive method of the research.There are 2 sources as following:

Secondary data:

The secondary data of this research was acquired through readingmany books in Bank management & Financial Services, Capitalmobilization in banking, and some information on the Internet which will bereferred on the reference The research also has a reference on previousresearches on capital mobilization of commercial banks

Regarding the bank introduction and history, the data was collectedfrom Vietinbank official website Also, some parts of the data were takenfrom the Economic magazine, Annual Report

CHAPTER 2: THEORETICAL FRAMEWORK OF CAPITAL MOBILIZATION IN COMMERCIAL

BANKS

2.1 The capital source of commercial banks:

2.1.1 The concept of capital in commercial banks:

The commercial banks are the financial intermediaries with theprimary functions including: credit intermediary, payment intermediary andcapital providing function In order to function properly, commercial banksneed stable operating capital to be efficient and profitable

We have concept of capital in commercial bank as follows:

“ Capital in commercial bank is the monetary value that is created andmobilized by the own commercial bank in order to make loan, invest orcarry out other financial services.”

The statement above has mentioned completely the compositionsmaking the capital in commercial bank The nature of commercial banks isthe banks own funds and other idle funds The capital going to thecommercial banks is accompanied by variety of purposes: Gaining interest,asking for collecting payment or receipts, employing other bank’s services,etc In other words, people transfer the right to use capital for the banks Themoney that banks have to pay for or make services is the price of right to usethat monetary value Having the capital, commercial banks can conductservices such as lease, granting loans and advances, etc In summary, capitalhas crucial effect on making services in commercial banks.

2.1.2 The structure of capital in commercial banks:

Capital in commercial banks includes:

- Equity ( Bank’s own funds)

Equity is the beginning or establishing fund of commercial banks

Bank’s own fund has 3 three types: Paid up capital, Reserve fund and

proportion of undistributed profit.

Bank’s own capital: The amount with which banking company is

registered is called nominal or authorized capital It is the maximum amount

of capital which is mentioned in the capital clause of memorandum ofassociation of the company.

Reserve fund: it is another source of funds which is maintained by all

commercial banks At the time of declaring dividend, a certain portion of theprofit is transferred to the reserve fund This reserve belongs to theshareholders and at the time of liquidation, the shareholders are entitled tothese reserves along with the capital The main purpose of setting aside part

of profit is to meet unforeseen expenses of the bank

Profit is another source to the bank for the purpose of business Profit

signifies the credit balance of the profit and loss account which has not beendistributed

2.1.2.2 Borrowed fund:

a Borrowing from State bank of Vietnam: This is loan that solves

the emergency need in payment of commercial banks In case oflack of reserve (Required reserve, payment reserve), commercialbanks have to borrow from the state bank of Vietnam The populartypes of State bank are discount or rediscount valuable short-termpapers The purpose of this activity is that the state bank wants thecommercial banks carrying out the monetary policy and ensuringthe banking system’s security

b Borrowing from other financial institutions: This is the source

that commercial banks borrow from each other and borrow fromother credit institutions in the interbank markets The commercialbanks which have surplus reserves are ready for making loans forother banks to earn higher interest rate In reverse, banks whichlack of reserve is in need of capital to ensure the liquidity Inaddition, the price for interbank borrowing is called interbank rate

It is the rate of interest charged in short-term loan made betweenbanks and financial institutions For the purpose of managingliquidity and meeting the requirement, banks borrow and lendmoney in the interbank market.

c Deposit: Deposit has 3 main types: Transaction or demand deposit,

Non-transaction or saving deposit, and time deposit

c.1 Transaction deposit:

The characteristic of this demand deposit is that depositor is allowed

by banks to withdraw his amount any time he choose These accounts areoften belongs to the traders or merchants This is one of the oldest servicesoffered by commercial banks has centered on making payments on behalf ofcustomers Transaction deposit includes regular non-interest bearing demanddeposits that do not earn an explicit interest payment but provide customerwith payment services, safekeeping of funds, and recordkeeping for anytransactions carried out by check, card, or via an electronic network, andinterest-bearing demand deposits that provide all of the foregoing servicesand pay interest to the depositor as well Transaction deposit is usedfrequently by many enterprises Most of cash income and expenditureactivities are mostly done through this type of deposit Therefore, The flow

of fund of the enterprises takes the large proportion in the total capitalmobilized by banks

Many banks today provide customers with hybrid checking-savingdeposit This is the combination between non-interest –bearing transactiondeposit and saving deposits called negotiable order of withdrawal ( NOW)account which give the offering depository institution the right to insist onprior notice before the customer withdraws funds Owner of this account canhold money in the bank, withdraw upon need of transaction and still receive

interest income as a partly compensation of the opportunity cost ifdepositing to a saving account Therefore, in order to compete with others,banks often raise interest rate in this type of account to attract customers.

c.2 Non-transaction deposit( Saving deposit):

Saving deposits, or thrift deposits, are designed to attract funds fromcustomers wishing to set aside money in anticipation of future expenditures

or financial emergency These deposits generally pay significantly higherinterest than transaction deposits does While their interest cost is higher,thrift deposits are generally less costly to process and manage

The purpose of this form is to attract money from individuals in thepublic Generally, saving deposits bear the lowest rate of interest offered todepositors but may be of any denomination and permit customer to withdraw

at will The depositors can deposit money to the banks with short to longmaturity depending on the demand for future use

c.3 Time deposits carry fixed maturity dates ( usually covering

30,60,90,180, 360 days) with fixed interest rates Time deposits must carry aminimum maturity of seven days and cannot be withdraw before that Timedeposits come in a wide variety of types and terms The rate of interest onfixed deposit depends upon the period of deposits The longer the period, thehigher the interest rate offered Fixed deposits as the name implied areaccepted by banks for a certain period of time After giving the reasonablenotice, the customers can withdraw their money In case the customers wish

to draw very huge fixed deposit, before maturity, the bank may pick certainperiod of time to fulfill the obligation However, the most popular of all timedeposit are CDs or certificate of deposits CDs may be issued in negotiableform that may be bought and sold at any number of times prior to reaching

their maturity -or in negotiable form – smaller denomination accounts thatcannot be trade prior to maturity and are usually acquired by individuals.

2.1.2.3 Other sources of funds:

Banks also raise funds by issuing many other forms of debtinstruments on the financial market like bonds, debentures, cash certificates,promissory notes and so on Though it is not common but it is a dependablesource of borrowing

2.2 The theory of capital mobilization in commercial banks:

2.2.1 The role of capital mobilization activity in commercial banks:

a Capital is the fundamental for all business activities of banks.

Differentiating to the normal enterprises, banking activities has itsown characteristics in which capital is not only the main business mean butalso a crucial trading subject Banks are the institutions that commercializethe special product in the financial market and stock market Thecommercialization of capital of banks is coded by the formula T- T, in which

T is the beginning capital, T is the recovered capital after business operationperiod and T > T from this formula, it is obvious that banks have advantages

in market are banks with the strong sources of funds Therefore, beside theauthorized capital, banks have to care how to increase its capital in theoperation period

b Capital determines the payment ability and ensures the prestige of banks

in the market:

Banks operate based on the mutual trust, hence, without prestigebanks cannot exist and expand the market share Prestige is expressed in the

ability for making payment for customers The higher the payment ability,the bigger the available capital of banks Hence, excluding other factors,payment ability is in the direct proportion of usable capital With the highmobilizing funds ability, banks can operate with the large size, carry outeffective competitive activities, build solid brand name and enhance theposition in the financial market.

c Capital determines the competitive competence of banks:

Competition is one of the basic rules of the market economy.Competition helps enterprises to perfect themselves With commercialbanks, capital is the factor determining the competitive ability In fact,Capital size, professional skills and modern technical media are the premisefor the funding attraction Large capital size facilitates banks to expand thecredit relationship with economic elements in term of size, credit quantity,and interest rate As a result, banks’ capital is increased, risks are dispersedand the competitive competence of banks is enhanced in the financialmarket

2.2.2 Method to mobilize capital of commercial banks:

a Mobilize capital from customers’ deposit capital:

Customer’s deposit capital is the deposits of individual, financialinstitutions, and enterprises both inside and outside country that havedepositing relationship with the banks These sources of mobilizing capitalare depend largely on the income, saving customs, monetary stabilizationand economic environment

b Mobilize capital by issuing debt instruments:

This is the method of mobilizing funds by issuing bonds, bill, etc Thecharacteristic of this method is high interest rate compared to the interest

rate of saving deposit The purpose is mobilizing funds for the largeinvestment projects

c Mobilize capital by borrowing from others financial institutions and State Bank:

When the banks have lost the adequacy between mobilized capital andused funds, the phenomenon of lack of capital appears unexpectedly Inorder to ensure the liquidity, banks often borrow from each other on theinterbank market This market helps banks supplement capital and solve thecondition of shortage of capital If banks cannot borrow from interbankmarket, they have the last choice which is borrowing from State Bank toensure the liquidity

d Mobilize capital from other sources:

Beside the other sources above, banks can borrow capital from theinternational financial organizations This is the huge capital sources withlong period of time, often from 5 years to 50 years with preferred interestrate

2.3 Effectiveness of capital mobilization activity:

2.3.1 Concept of capital mobilization effectiveness:

Effectiveness categories expose the mutual relationship among goals,outcomes, costs, mobilization resources, or a process being studied As aresult, we should make comparison between the goals with the resultsobtained, and compare the results obtained with the costs in order to assessthe effectiveness

As a financial intermediary, commercial banks have its uniquecharacteristics Therefore, considering the efficiency of raising capital ofbanks is not merely taking into account the costs and net economic benefits

It is necessary to consider how mobilized capital meets capital utilization,legal relationships, level of risk of the mobilized capital and the flexibilitywhile using those funds.

Under ordinance 1990, a Bank is not allowed to mobilize capitalexceeding 20 times its own funds As lending to customers, the totaloutstanding loans cannot be higher than 15% of its own funds according tothe Law of Financial Institutions Moreover, financial institutions have toapply appropriate interest rate in accordance with the interest ratemanagement mechanism of state bank because interest rate is the crucial tool

to control circulation of money, price stability, and inflation There is oneimportant thing that banks have responsibility to repay principal and interest

to customers unconditionally regardless of how effective banks use thesefunds

Regarding the level of risk, to evaluate how effective capitalmobilization was, we have to examine the level of risk of mobilized capital.Mobilized capital is considered as effective with the low level of risk ofcapital utilization Equity capital, among sources of funds, has always beenthe lowest level although only accounting for small amount of totalmobilized fund The majority of funds are deposits The more easily thefunds are withdrawn, the higher risk level is Therefore , it is necessary todetermine the appropriate capital structure in order to achieve the highestefficiency

In addition, the flexibility of mobilized capital is also one of theimportant factors to consider the mobilizing fund effectiveness Short-termfunds, which have lower cost and higher level of risk, have less flexibilitythan the long-term funds Long-term funds are flexible in both lending andliquidity

To assess the effectiveness of capital mobilization, a variety of aspectshould be considered This thesis only focuses on evaluating theeffectiveness of capital mobilization based on economic benefit aspect.Economic benefit illustrates the real results obtained by fund mobilization.

2.3.2 Indicators reflecting the capital mobilization effectiveness:

2.3.2.1 Capital size:

It is obvious that commercial banks always control the sources ofcapital to ensure solvency and capital requirement in sudden need ( notmobilize from high-cost sources) In general, mobilization plan is set up bybanks in the beginning of the fiscal year and conduct mobilization activity inthe year to achieve the planning amount Banks use the rate of completion ofthe mobilization plan to assess the size of the capital:

Completed ratio = Actual mobilized capital/ Expected mobilized capital (%)

If the ratio is less than 100%, the banks have to raise funds from theother sources if necessary to supplement working capital Conversely, if theratio is greater than 100 %, banks have to use the surplus capital wisely orthe cost will increase because they have to pay more for the interest but donot make profit

Capital size should be developed for each specific period, includingincreased funds plan, ability to change structure of capital, and the ability tofind the new sources of fund Mobilizing plan must be put in relation toutilizing plans and expected profit

2.3.2.2 Capital structure:

It is evident that structure of capital plays a important role in bankingactivities because of its different term, interest rate and stability of eachspecific capital source When considering the capital structure, we oftenevaluate rates of mobilized capital from each category over total mobilizedcapital that is expressed in the following formula:

Ratio of capital from each source = Capital from each source/ Totalmobilized capital (%)

The actual demand for capital in each category is the crucial factorthat has influence on this ratio Capital structure is considered as reasonablestructure when the cost of mobilization is low and the structure is consistentwith the utilizing plan

2.3.2.3 Cost of raising capital:

The cost of raising capital directly has an effect on performance andeconomic efficiency of the banks It is calculated as follows:

Cost of raising capital= interest paid to mobilized capital + othercosts of raising capital

The other costs include advertising cost, premium paid, issued costand so on Interest paid ( interest expense) is calculated as follows:

Interest paid = size of mobilized capital * Interest rate

It is complicated to calculate the cost of raising capital which has vitaleffect on the capital mobilization effectiveness in commercial banks Banks’capital mobilization is considered effective in term of cost in thesesituations:

1.The cost of borrowing money is low while banks still have adequacybetween capital mobilization and capital utilization

2 banks manage these costs regularly because changes in capitalstructure or changes in interest rate make change in interest cost

Normally, banks pay low-cost for short-term fund due to the stability

is not so high, and vice versa, they pay high cost for the long-term deposit ashigh stability The cost of capital mobilization will affect the income ofutilization funds activities, so the banks seek to minimize costs andmaximize profits Income is an important indicator to evaluate theeffectiveness of capital mobilization This indicator is calculated asfollowed: Income of capital utilization = Revenue from capital utilization-capital mobilization costs/

Combine indicators of income from raised capital and mobilizedcapital source we calculate the ratio of profit to mobilized funds Thisindicator is calculated as follows:

Return on capital = Net income capital utilization / Total capital (%) This ratio will show the results of effectiveness of capitalmobilization The higher this ratio is, the higher effectiveness of capitalutilization is, and vice versa

2.3.2.4 Adequacy between capital mobilization and capital allocation:

It is the matching between the mobilized funds and the utilized fundsthat matters for the banks For the sake of profit, the bank will convertfunds- deposits, loans, equity into assets such as treasury, credit, securitiesand other assets in a manner appropriate to satisfy the objectives set by thebank

Assets can make profits for banks and capital relates to cost of interest expense The higher the size of capital, the higher the asset is and

banks-possibility of making profit may be exceeding or vice versa If we use netinterest margin formula:

Net interest margin = (interest income – interest expense)/ Total asset2

To measure the relationship between capital and assets, it measureshow large a spread between interest revenues and interest costs managementhas been able to achieve by close control over earning assets and pursuits ofthe cheapest source of funding The higher the ratio is, the bettereffectiveness of capital mobilization is Bank could pursue higher interestrates to find source of capital with large scale and low cost The banks whichare not participating in bidding, must adjust capital structure and assets tosatisfy the need of profitability

2.3.3 Factors affecting the effectiveness of capital mobilization:

There are two kinds of factors that affect the effectiveness of capitalmobilization in commercial banks: External factor and internal factor

2.3.3.1 External factor:

2.3.3.1.1 Legal environment:

As a matter of fact, commercial banks’ activities have effectsignificantly on the overall economies of countries To be more specific, themobilizing fund and utilizing fund have impact directly on the growth rate ofthe economy, subject’s income, rate of capital flow, unemployment rate,inflation rate, and so on Therefore, banking activities need to be managedmore strictly than the other enterprises’ In fact, banks are controlled by alarge number of policies or regulations of government and State bank.Hence, the compositions of capital mobilization are surely to be changed and

the results affect the size and effectiveness of mobilizing activity, and theability to attract funds and capital quality of commercial banks.

2.3.3.1.2 Social, political and economical environment:

Activities of commercial banks in general and mobilizing fundsactivity in specific cannot be put aside of the business environment or social-political- economical environment

Among the banks’ activities, the mobilizing funds and utilizing fundsactivities are impacted frequently by the economical goals such as growthrate, income, inflation, unemployment rate, and so on When the economygrows, production expands, the accumulation is hoarded and the capitalmobilization of banks is facilitated Conversely, when the economy is indepression, inflation rate increases, the investment environment of banks iscontracted, which lead to the difficulties in mobilization

No country can develop without the stable political system Thestability of politic and diplomatic policy has also impact on the capitalrelationship of banks with other countries in the area or over the world Thisfactor also has considerable effect on the bank’s capital mobilization

2.3.3.1.3 The culture environment:

Cultural environment is a factor determining the habits, attitude,customs of residents in capital utilization Therefore, it impacts on the fundsmobilizing activity of banks To be more specific, the mobilizing funds ofbanks can face troubles in the area that residents have habits to save idlecapital as archives

Moreover, risk acceptance level of society and accumulation customaffects on the decision of members in society in term of consuming method,saving method, stock or real estate investment, etc

2.3.3.1.4 The competition factor in the financial market:

Banking business has more and more presence of new banking formsand non-banking financial institutions Therefore, competition has tendency

to increase and the differences between commercial banks and financialinstitutions are narrowed The competitive tendency in banking industry isincreasing because of monetary policy, financial innovation of monetaryoperating enterprises, and so on

When commercial banks provide the capital mobilization methods inmultiform, with the expansion of business networks, more and morecustomers come to the banks Therefore, it is the advantageous condition forbanks to mobilize funds Conversely, if the mobilizing methods are notplentiful, the services quality is not high, business networks are still notconsiderable, customers have difficulties in trading with banks.Consequently, it affects the mobilizing activity of banks in the substandardmanner

Nowadays, with the profound innovation of banking industry,commercial banks continue to renovate in science and technology, expandthe services activities, enlarge the business networks, and so on

2.3.3.2 2 The quality of credit activity:

Credit activity of commercial banks plays an important role inmobilizing saving deposits in banking network While the mobilizing fundsactivity mobilizes the idle capital in the economy, the utilizing funds activityuses those funds into the manufacture, commerce, services, etc…to bring theprofit for banks Therefore, if the utilizing funds activity is not efficient, themobilizing funds will be narrowed, the resident’s trust in banks is lessen As

a result, it is hard to mobilize to idle funds On the contrary, the efficientcredit activity leads to many positive consequences such as efficiency inbusiness activity, increase in social income, decrease in unemployment rate,higher living standard, increase in idle capital, growth opportunities forbanks, and so on

2.3.3.2 4 Business strategy of banks:

Business strategy is a particular characteristic of each bank It isestablished based on the current position of banks, the strengths,weaknesses, opportunities, threats and the forecast in changing businessenvironment in future By the business strategy, banks can make decision tonarrow or expand the size of the mobilizing activity , to change theproportion of capital sources, to increase or decrease the cost of raisingcapital Therefore, the mobilizing funds activity is effective when the

business strategy is appropriate and the capital sources is exploited in themaximum way.

2.3.3.2 5 Competency and professional ethics of banking staffs:

When the banks manage well the human resources, debit, credit,forecast the possible risks, predict the investment environment, then thebusiness activities of banks are ensured , banks’ prestige is increase andcustomers are attracted more

On the contrary, if the staff’s professional skills are high, the servicesattitude and manners are good and enthusiastic, customers will have thegood impression of banks Therefore, in order to attract more customers,banking staffs have to pay attention to the services’ attitude along with theimproving in knowledge and profession

2.3.3.2 6 The marketing activity:

Commercial banks are paying more attention to the application ofmarketing in business Even the investment in this activity is still restricted,marketing is also one of the most important strengths of banks in capitalmobilization competition Banking managers have to consider the relatedfactors to choose the right marketing strategy that depends largely on theproduction circle of services

CHAPTER 3 : THE REAL SITUATION OF

CAPITAL MOBILIZATION EFFECTIVENESS IN

VIETINBANK TN

3.1 Overview of Vietinbank Thai Nguyen:

3.1.1 History of foundation and development:

Vietinbank Thai Nguyen, who is a member of the whole familyVietinbank, has been established in 1988 The foundation of VietinbankThai Nguyen is the requirement of the emergency conditions The branchhas mission to restrict inflation, contribute to the economic development,stabilize the financial market and helps to raise living standard of residents

At the beginning of establishment, the branch has only one principalhead office and two branches with the small operation size, limited bankingservices, staffs are new to the surroundings, its main customers are stateenterprises In addition, its technology is still at the start with low transactionspeed During the establishment and development, even facing with lost ofobstacles and difficulties from the requirement of economic innovation, thebranch has become the monetary , credit and payment center of the

economy, contribute to the development of local area economy according tothe local authority directions.

The operating network of the branch is focused mainly in the city,county town and developed economic areas, and the resident zones with thepossibilities to mobilize funds, make investment or expand providing thebanking services The economic components that belong to all themanufacture and business industries ,have needs to use the banking servicesand have the performance capability, are approached and satisfied timely bythe branch

During more than 15 years of establishment and development,Vietinbank Thai Nguyen has attained considerable achievements in manyaspects, satisfied the target of Vietinbank and State Bank of Vietnam,developed in both quality and quantity, contributed to the development ofthe economy

3.1.2 Management structure and functions:

3.1.2.1 Management structure:

Vietinbank Thai Nguyen has a head office located in number 62,Hoang Van Thu Street, Thai Nguyen City Until 31/03/2012, the branch hastotal 148 officers, in which 5 staffs have master degrees, 137 staffs haveuniversity degrees The branch has 6 professional bureaus with 5 level- Itransaction offices and 10 level-II transaction offices

The organization structure of VTN branch is demonstrated moreobvious in the following diagram:

Diagram 3.1 Organizational structure of VTN

(Source: Operation reports of Vietinbank Thai Nguyen in 2009, 2010, 2011)

The organization structure of the branch is arranged in the modernway The highest level is board of director, the lower levels areAdministrative Bureau, Accounting bureau, Transaction offices, andBusiness Bureau which includes Customer Relationship Division, CreditAdministration Division and Customer Relationship support Division

Providing loan in VND and foreign currency

Carrying out currency exchange: bank trade one form of currency toanother in return for fee

Board of director

Accounting Bureau

Business Bureau

Administrat

ive Bureau

Transaction office

Customer

relationship

Division

Customer Relationship Support Division

Credit Administration Division

Discounting commercial notes and making business loans forpurchasing merchants based on account receivable and for purchasinginventories of good ( short-term) or for constructing new facility.(long-term).

Safekeeping of valuables: keep gold and other valuables of customers

in secure vaults in return for fee

Guaranteeing capital, project, product quality, etc

Offering international payment in VND and foreign currency, moneytransfer payment via SWOFT, Telex

Managing cash and offering checking accounts, ATM

Providing financial advice

3.1.3 Business operation of Vietinbank TN in recent years:

3.1.3.1 Capital mobilization:

Being the branch that manages all activities of Vietinbank in thewhole Thai Nguyen province, Vietinbank TN always considers mobilizingfunds activity as the vital activity The branch understands that stable capitalleads to the smooth in business activity, liquidity assurance, and activeness

of banking activities Therefore, the branch offers lots of policies forcustomers such as flexible interest rate, fee maturity and other preferentialprograms As a results, the branch’s capital mobilization effectiveness isimproved clearly as illustrated in the following figure:

Figure 3.1 Capital mobilization

( Unit : Billion VND)

(Source: Operation reports of Vietinbank Thai Nguyen in 2009, 2010, 2011)

The figure above shows that the funding growth of Vietinbank Tnincrease significantly In 2010, despite the fact that Vietnam still suffer fromsubstantial trade, current account and fiscal deficits, and other remarkablemacroeconomic factors such as exchange rate, gold price, interest rate, CPI,etc… the funding of the branch in this year is still high with 1499.670billion VND which is 34.32 % larger than the 2009’s number In 2011, thefunding is 2042.563 billion VND which makes the growth rate 36.2 % incomparison with the 2010’s funding In general, the funding of Vietinbank

TN has a stable increase which is demonstrated in constant growth rate

With the high and stable capital source, Vietinbank TN has a sufficientresource to satisfy all funding needs in the Thai Nguyen province, transferthe capital into the Vietinbank, and contribute to regulate the whole bankingsystem It is undeniable that in the time of difficulties in mobilizing fundsand interest rate competition, the branch has achieved commendable resultswith the understanding about capital need in the economy and long-termcapital growth strategy.

3.1.3.2 Credit activity:

It is evident that the main target of all commercial banks is profitmaximization, and credit activity plays the crucial role in gaining profit forbanks Understanding this issue, Vietinbank TN always focuses on theseactivities from the beginning, carry out the credit activity in harmony withthe policies on demand and economic growth stipulation of government.Generally, handing hand in hand with the capital mobilization, the growth ofcredit activities in VTN is impressive over 3 years in comparison with otheraspect

Figure 3.2 Loan sale by customers

(Unit: Billion VND )

(Source: Operation reports of Vietinbank Thai Nguyen in 2009, 2010, 2011)

From the figure above, we can see that in 2009, the total outstandingloan is 731.839 billion VND, increased only 219.726 billion VND compared

to the previous year- 2008 ( 512.1127).It is can be explained that in 2008 and

2009, the Vietnam economy is suffered from global financial crisis withmany negative impacts However, the year 2010 marked the rapid growth of

the branch with more than 2000 billion VND These results are due to thecause that the branch has been successfully exploiting its advantages: broadtransaction network, diversified products and services, enthusiastic and well-trained staffs to make customer’s services quickly and efficiently Thanks tothese advantages and the financial crisis has shown its bottom line, thebranch completed the target outstanding loan beyond the set plan in 2011.

It is obvious that the proportion of loan to corporation is higher thanproportion of loan to individual It is easy to understand that corporation’sneeds of capital are always higher than the citizen’s needs because of largesize and big projects Nevertheless, the proportion of loan to individual isincreasing fastly in comparison with the loan to corporation: it soars from117.018 billion VND in 2009 to 1172.520 in 2011, almost 10 times increase

in size while the loan to corporation only increases about 3 times, from614.821 billion VND in 2009 to 1521.824 billion VND in 2011 Althoughthe credit activities had a high growth rate, the safety index of operation stillmet the Vietibank’s requirement

3.1.3.3 Services and foreign exchange:

In the high competitive environment and fast-changing economy,beside the traditional services, VTN has also implemented several effectiveand accuracy banking services The branch has provided some strategies forthe development of service activities like lower transaction fee, internationalpayment, L/C, , and so on