LV Thạc sỹ_Solutions to improve the efficiency of funds mobilization in Military Bank

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM***************************** BACHELOR THESIS IN FINANCE The solutions to improve the efficiency of funds mobilization in Milit

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM

*****************************

BACHELOR THESIS IN FINANCE

The solutions to improve the efficiency of funds mobilization in Military Bank, Hai Ba

Trung branch

As being a senior student majoring in Finance, in order to prepare graduate report well

as well as have chances to review, improve and apply learned knowledge in practice,during three-month internship cource, I fortunately had an opportunity to do internship inMilitary Bank, Hai Ba Trung Branch At first, I was in full of embarrassment about what

I will have to do and how I will use my learned knowledge to accomplish my work asbest as possible However, only after a short time did I gradually realize that I was goingcloser to my major in a practical way and know what and how I had to do and which ofshortcomings I possessed so that I myself had orientations for my future job

This report was the result of my three-month internship Therefore, I would like toexpress my deep gratitude to two very important people, including my supervisor, PhD

…,and my internship guide, Mr … , Personal Customer Specialist in Military Bank, Hai

Ba Trung Branch Finally, I am also thankful to Board of Directors as well as all staffs inMilitary who support me a lot to accomplish the thesis

TABLE OF CONTENTS

ABSTRACT

ABBREVIATION

LIST OF TABLES

LIST OF FIGURES

Chapter 1: Introduction ……… ……….1

1.1 Rationale……… ………….1

1.2 Research objective ……….2

1.3 Research methodology……….2

1.4 Scope of research……… 2

Chapter 2: The foundation of funds mobilization of commercial bank……… ……… ……

22.1 The overview of commercial bank………

……….2

2.1.1 The definition of commercial bank……….………… 2

2.1.2 The main business activities of commercial bank……….3

2.1.2.1 Fund mobilization……… 3

2.1.2.2 Capital using activities………4

2.1.2.3 Other activities ………… ……… 5

2.2 Funds mobilization forms of commercial bank…….……… 6

2.2.1 Different kinds of economic entities……… ………… 6

2.2.2 The nature of fund mobilization……… ……….7

2.2.3 Terms……….……….10

2.3 The efficiency of funds mobilization in commercial bank……….10

2.4 Factors affect commercial bank’s efficiency of funds mobilization……… 13

2.4.1 Subjective factors………13

2.4.1.1 Bank’s policy of interest rate………13

2.4.1.2 The forms of funds mobilization, the quality of banking services… ……….14

2.4.1.3 The banking technology………15

2.4.1.4 Marketing strategy of banks……… 15

2.4.1.5 Ability, profession and business ethic of bankers……….17

2.4.2 Objective factors……….………17

2.4.2.1 Savings from residents……… 17

2.4.2.2 Socioeconomic, political and cultural environment……….18

2.4.2.3 Law environment……… 19

2.4.2.4 Competitive environment……… 19

Chapter 3: The situation of fund mobilization of MB, Hai Ba Trung branch……… ………

……… 203.1 The introduction to MB, Hai Ba Trung Branch ……….20

3.1.1 The history and development of MB, Hai Ba Trung branch……… 20

3.1.1.1 Military Bank………20

3.1.1.2 Military bank, Hai Ba Trung branch……….22

3.1.2 The branch organization……….22

3.1.3 Branch services……… 24

3.2 Business performance of MB, Hai Ba Trung branch from 2009 to 2011……….……… 24

3.2.1 Business performance of MB……….24

3.2.2 Analysis of business performance of MB Hai Ba Trung branch………29

3.2.2.1 Funds mobilization………29

3.2.2.2 Credit performance………30

3.2.2.3 Other activities……… 32

3.2.3 Business results of the branch……….32

3.3 The status of funds mobilization of MB, Hai Ba Trung branch ………35

3.3.1 The growth of mobilized funds……… 35

3.3.2 Analysis of mobilized funds by VND and foreign currencies……… 36

3.3.3 Analysis of mobilized funds by types of deposits……… 37

3.3.4 Analysis of mobilized funds by economic entities……….38

3.4 Assessment of funds mobilization of Hai Ba Trung branch……… 39

3.4.1 The achievements……… 39

3.4.2 The limitations and reasons………41

3.4.2.1 The limitations……… 41

3.4.2.2 The reasons………42

Chapter 4: The solutions to improve funds mobilization of MB, Hai Ba Trung branch……… 43

4.1 Development orientations of MB, Hai Ba Trung branch………43

4.1.1 Sphere of transaction points and offices ………43

4.1.2 Orientations in competitive environment.………43

4.1.3 Customers and customer services………43

4.1.4 The commitments and other orientations……… 40

4.2 The solutions to improve funds mobilization of MB, Hai Ba Trung branch……… 46

4.3 The recommendations……….49

4.3.1 The recommendations to MB……… 49

4.3.2 The recommendations to government……… 49

4.3.2.1 Stabilizing macroeconomic environment……….49

4.3.2.2 Establishing comprehensive and stable environment of law………50

4.3.2.3 Transferring social environment under appropriate directions……….50

4.3.3 The recommendations to State bank………51

4.3.3.1 Policy of interest rate………51

4.3.3.2 Policy of exchange rate……….51

4.3.3.3 The development of capital market……… 52

CONCLUSION………53 REFERENCES

After integrating in WTO, Vietnam gave itself a lot of advantages for developing itseconomy dramatically Interestingly, the businesses in Vietnam are establishing more andmore with state-owned companies being decreasing and instead of foreign-invested orsmall and private enterprises, which are increasing at both the number and quality Thisfacilitates commercial banks to foster their services and operations in order to raise tradeopportunities, expand network and put up profits As a result, Military Bank is also in thisarea

Only after 18-year establishment did Military Bank create significant forward stepswith branches nationwide and strong reputation Therefore, the purpose of this report is togive the overview of Military Bank and Military Bank, Hai Ba Trung Branch The page isprimarily devoted to explain the organization structure, business performance and status

of funds mobilization as well as solutions to improve this activity, then developmentorientations and recommendations for Military Bank, Hai Ba Trung Branch In brief, thethesis concentrates on six main contents:

1 Introduction of Military Bank, Hai Ba Trung Branch

2 Business performance of Military bank, Hai Ba Trung Branch, from 2009 to 2011

3 Situation analysis of funds mobilization in Military bank, Hai Ba Trung branch

4 Solutions to improve funds mobilization

5 Development orientations for branch

6 Recommendations

MB: Military Bank

FDIC: Federal Deposit Insurance Corporation

SBV: State Bank of Vietnam

ATM: Automatic Transfer Machine

POS: Point of sale

UDIC: Urban Infrastructure Development Investment Corporation

LIST OF TABLES

Table 3.1: Services, products of MB, Hai Ba Trung branch……… 25

Table 3.2: Scale and speed of credit growth………… ………30

Table 3.3: Loans structure of MB Hai Ba Trung branch.……… 31

Table 3.4: Business results of MB Hai Ba Trung branch in 2008-2010………33

Table 3.5: Structure of mobilized capital in VND and foreign currencies……… 36

Table 3.6: Structure of mobilized capital by term……….37

Table 3.7: Mobilized capital based on types of customers………38

Table 3.8: Structure of deposits from financial institutions……… 39

Table 4.1: The general targets of MB Hai Ba Trung branch……….44

LISTS OF FIGURES

Figure 3.1: Organization framework of MB, Hai Ba Trung branch……… 23

Figure 3.2: Total assets……… 26

Figure 3.3: Total chartered capital.………27

Figure 3.4: Earnings after taxes……….28

Figure 3.5: The growth of ROE and ROA……….29

Figure 3.6: Business results of MB Hai Ba Trung in 2008-2010……… 34

Figure 3.7: Total mobilized capital ……….35

CHAPTER 1: INTRODUCTION:

1.1 Rationale:

In difficult economic condition today, to industrialize and modernize, Vietnam mustfoster the technological evolution, optimally salvage all sources, especially, capital Capital is always one of basic inputs in business of each of companies Forcommercial banks, a financial intermediation, capital plays a very important role In fact,commercial banks usually use capital to gain benefits However, to supply funds enoughfor market, banks will mobilize funds from outside sources For the reason, commercialbanks should pay attention to their funds mobilization to meet their demands In Vietnam,funds mobilization of banks is still improper, which leads to the high cost of funding,unstable size of funds, disagreement between funding portfolio of assets and size,structure, which limits the profitability of banks, then puts them in risks Therefore, theimprovement of the problems of funds mobilization related appropriate costs and highstability is the more essential and more important requirement

To do so, we must not only research the forms of funds mobilization, the factorsrelated to assessing the efficiency of funding, for example, size and structure of capital,sources of capital at appropriate costs, or risks management associated to fundsmobilization, but also analyze the factors affecting funds mobilization

According to the results achieved, MB can be confident enough to its development inthe future as well as improve its funds mobilization to strengthen its competitiveness Toillustrate more clearly, in recent years, resources of capital at cheap cost from Department

of Defense and enterprises of defense industry have become less and less In addition,there exists tremendous competition between not only commercial banks but also non-bank institutions As a result, MB must enforce correct solutions of funds mobilization inorder to meet the demand in capital for the economy Throughout three-month-internshipcourse at the Personal Banking Department of MB Hai Ba Trung branch, the thesis’s

topic would appropriately be:” The solutions to improve the efficiency of fundsmobilization in Military Bank, Hai Ba Trung branch”.

1.2 Research objective:

Based on the fundamental concepts about the funds mobilization in commercialbank, the thesis will analyze, assess the status of funds mobilization of MB Hai Ba Trungbranch to identify the existing problems; then give some recommendations and solutions

to improve funds mobilization and enhance the business results of MB in general and Hai

Ba Trung branch in particular

1.3 Research methodology:

Based on both data supported by bank and the backgrounds of commercial banks andtheir activities, the thesis uses the following methodologies: statistic, analysis, synthesis,and so forth in order to interpret the problems included its content

1.4 Scope of research:

The thesis focuses on basic problems related to fund mobilizations of MB Hai BaTrung branch Due to limited time and the availability of data supplied, the thesis onlyconcentrates on three fiscal years of MB Hai Ba Trung branch from 2009 to 2011, then

go to analyze some of the most outstanding problems in its funds mobilization, forinstance, the forms, size, structure of funds mobilization as well costs of capital

CHAPTER 2: THE FOUNDATION OF FUNDS MOBILIZATION

OF COMMERCIAL BANK:

2.1 The overview of commercial bank:

2.1.1 The definition of commercial bank:

In history, there were many concepts of commercial bank Firstly, definition byfunctions banks serve, commercial bank are institutions which involve in transferringfunds from savers to borrowers ( financial intermediation) and in paying for goods andservices ( payment intermediation)

Secondly, definition by services it offers to customers, commercial bank areinstitutions which accept deposits, make commercial loans, offer trust services, managecash, etc

Thirdly, definition by legal basis, in U.S, commercial bank is any institution thatcould qualify for deposit insurance administered by the FDIC However, in Vietnam(Law of credit institution 2004), commercial bank is a credit institution permitted toconduct all banking activities and other related business operations

In short, we can consider commercial banks as the financial institutions that typicallyoffer a wide range of financial services with the basic business being to receive depositsand loans, to provide payment services, to offer a lot of other services to satisfy themaximum demand of society as well

2.1.2 The main business activities of commercial bank:

2.1.2.1 Fund mobilization:

Commercial banks run their monetary business under fund mobilization, lending,investment and other activities Fund mobilization – activity creates resources of capitalfor commercial banks - plays an important role and affects performance of banks as well

In normal, bank‘s capital resources are set up by the following main sources: own capital,borrowed capital (the borrowed from financial institutions, residents, or state bank),retained earnings; however, in some other banks, working capital can be set up bychartered capital or capital trust, etc On the other hands, when a commercial bank needscapital for its business, it can rely on mobilizing idle funds from main sources as oneslisted above

 Mobilizing from owner’s capital: As you know, owner’s capital consists ofprivate sources of bank given by the distribution of ownership, and its accumulated funds

in its business performance as retained earnings Thus, it is highly stable source and thebank needn’t refund Moreover, it plays an important role in funding scale-expandingactivities of a bank such as expanding the network of its branches, joint venture, and so

on In order to implement this task, in normal, the bank issues stocks, convertible bonds

or receives allocations from government’s budgets

 Mobilizing from deposits: Because owner’s capital of the bank holds a smallproportion in total money which the bank needs to perform its business, the bank mustmobilize from deposits in major However, basic characteristic of deposits is that thebank can only use them for a specific time due to they still depend on the depositors’demand; for the reason, the bank mobilizes funds by giving the different types of depositssuch as demand deposits, time deposits, saving deposits

 Mobilizing from borrowed sources: In some cases that the bank has no fundsenough to satisfy loans-making as well as payment demand for customers, so it can makeloans with state bank, other commercial banks, or monetary market, even foreigninstitutions Although borrowed funds hold a small proportion in capital structure, theyare an essential factor to ensure the bank to perform its business normally

 Mobilizing from other sources: Instead of the sources above, commercial bankcan also mobilize funds through the functions of agent banks, etc

2.1.2.2 Capital using activities:

Associated with mobilized funds, commercial bank must use them in the mosteffective ways According to its target – safety and profits, capital using activities of thebank focus on three main tasks: reserve, lending and investment

 Reserve: This is the required fund that any commercial bank has to set aside part

of not-in-use capital in cases of meeting the demand of payment In regulations, the StateBank set a minimum requirement of reserve ratio in each specified period, and interestpayment for this deposit is regulated by government Also, reserves include primary andsecondary reserves In fact, high or low amount of reserves depends on economics ofscale of each bank, or the relationship between payment and transferring as well as thetemporary payment of cash

 Lending: This is major task in commercial bank to make profits In other way,gains from this activity hold the biggest proportion in total income of the bank However,because of logical relationship between income and risks, lending activity also contains

of risks, especially credit risk which may result from either subjective activities of bank,for example, building wrong strategies, evaluating credit profiles incorrectly, lendingwithout basing on common principles or objective reasons, including fire, flood, etc Infact, the lending goes hand in hand with all fields of economy from consumption tomanufacturing; therefore, along with the economic growth, lending activity becomesmore and more diversified to satisfy the demand of capital of economy, to increaseprofits for banks In commercial banks, lending activity is classified by terms, includingthree groups: short-, medium and long-term loans In other ways, the activity is alsoclassified by lending fields, for instances, agricultural lending, industrial lending,consumption lending, and so on

 Investment: This activity of commercial bank includes security investment andother investments

 Security investment: This activity gains the bank a significant amount of profit.Especially, while the bank does not still find out its reliable customers to lend, securityinvestment is the most effective activity in resolving capital problems for bank However,this also puts the bank in risks; as a result, the bank should consider and analyze marketcarefully before selecting type of security to invest

 Moreover, a commercial bank also invests in the others to make profits such asjoint venture, investment in equipment, and so on

2.1.2.3 Other activities:

Intermediate activity is one by which a bank provides its customers a series ofinvolving services and receives a gain called bonus It is undeniable that with the moreand more modern banking technology being developing, the more diverse this activitybecomes, the more profit the bank gains The typical activities include remittance,

collection of payment, payment authorization, collection authorization, credit letter,security broking, enterprise consulting, etc.

Moreover, commercial banks also perform other off-balance activities, includingbusiness of foreign currencies, contracts involving interest, exchange transactions suchSWAPS, futures, options and valuable papers, etc

In brief, today, common trend of all banks is to perform multifunctional activities inmany fields with different forms These activities relate to each other closely, forexample, resources of mobilized funds influence the capital using In contrast, thedemand of using funds affects the size and structure of funds Additionally, intermediateactivities gain more profits for banks, but their key point is to attract customers to makefunds mobilization and capital using effective Consequently, all activities go hand inhand, support each other in order to achieve the last goal of the highest profits

2.2 Funds mobilization forms of commercial bank:

One essential activity of commercial banks is funds mobilization so that banks canrun their business The process of mobilizing funds is almost similar in all banks, but toclassify the forms of funds mobilization is different because this depends on the selectedcriteria to classify such as different kinds of economic entities, the nature of fundmobilization, and terms

2.2.1 Different kinds of economic entities:

 Mobilizing from residents: Most of people store some non-used amount of income

in fact All banks believe that this is a potential resource and funds mobilizing fromresidents are relatively stable, so they firstly mobilize most idle amounts of money ofresidents, then transfer to people who have demand of capital to extend their business,investment To do better, banks encourage people to change their habits of storing goldand cash throughout extending the network of banks, offering varied forms ofmobilization at competitive interest rate

 Mobilizing from enterprises and social organizations: This is a significant sourcewhich holds high proportion in total capital of bank Due to their business characteristic,the enterprises usually deposit a huge amount of money in banks to take advantages inpayment To save time and cost of payment, the enterprises with small or large size allhave bank accounts These enterprises usually deposit their money in bank account afterselling their all goods, and withdraw these when needing Yet, cycle of withdrawal isdifferent between enterprises and organizations Therefore, there is always a substantialamount of money at low costs available for banks to use conveniently, especially makeloans in short and medium term But the size of the amount depends on services, benefitswhich banks bring their customers using these ones Thus, this makes funds mobilizationfrom enterprise and social organizations go along with the extension and improvement ofbanking services.

 Mobilizing from other banks and credit institutions: During their performance,banks usually have extra deposits in the others to facilitate their transactions, payment,etc Also, lending each other in different banks increases mobilized funds Although thisactivity does not often occur, it is very necessary in business performance of eachcommercial bank, especially in cases of reserve deficit, weak liquidity, and so on In fact,this process is a credit agreement between counterparts, and the increasing of mobilizedfunds can occur in currency or foreign exchange market Interestingly, there is a specialperson among lenders of commercial banks It is State bank which plays a role as the lastlender to pull banks out of problems

2.2.2 The nature of fund mobilization:

 Mobilizing by receiving deposits:

Mobilizing demand deposits: Because the goal of these deposits is to use inpayment, not to gain interest, depositors are majorly economic institutions, enterprises,merchants who must pay their bills of goods and services continuously Since thecharacteristic of demand deposit, depositors can withdrawal in any time by cash or pay

by check Especially, depositors can withdrawal by ATM without transacting at theirbanks Meanwhile, the banks will preserve these deposits in two accounts: paymentaccount and current account.

 Payment account is a type of deposit whose holders have a whole right to usetotal money in account but only in allowed balance This account always has creditbalance

 Current account is one which has debit balance or credit balance, which isused for economic institutions While credit balance shows the amount of deposit ofcustomers, debit balance discloses credit limit in which the banks allow their customers

to borrow

Since the goal of customers when depositing is to use banking services, interest rate

on this deposit is very low, even zero However, in the countries where the rate of cash payment is low like Vietnam, in order to foster the depositing, commercial banksstill pay interest on this

non-Mobilizing time deposits: Time deposit is one which economic institutions,individuals deposit in bank account and withdrawal in maturity In case, depositors areusually economic institutions with a specific business cycle, fixed time of payment Due

to not only the banks can use these amounts easily but also the depositors would like toboth use banking services and gain interest, the banks must pay higher interest cost As aresult, mobilized funds of banks will witness quick and clear effect of interest changes

Mobilizing saving deposits: This is the most popular and the oldest way of banks

to mobilize funds Mobilizing savings deposits consist of the following types:

 Non-term saving deposits: Mobilizing these deposits are nearly similar tomobilizing demand deposits, but in comparison, because the balances of these formersare more stable, the banks must pay higher interest

 Certificate of deposit (CD): This is the most popular type, depositors canwithdraw after specific maturities and the banks must usually pay the highest interest

rate However, in current situation, to strengthen competition and attract more funds, thebanks are very flexible in customers’ withdrawal before maturity In this case, the bankscan pay their customers either non-term or the highest interest rate corresponding to thenumber of days for which they deposit Moreover, the banks also provide a lot of CDtypes which meet the demand of customers, such as bump-up CD – allows a depositor toswitch to a higher interest rate if market rates rise, step-up CD – permits periodic upwardadjustments in the promised interest rate, liquid CD – permits the depositor to withdrawsome or all of their funds without a withdrawal penalty.

 Mobilizing by borrowed amounts:

Borrowing from credit institutions: It is a normal borrowed amount which thebanks borrow each other on interbank or monetary markets To do this, the banks usuallynurture good relationships to support each other without borrowing from State Bank

Borrowing from State Bank: When the commercial banks fall in the deficit ofrequired reserve or lose their liquidity, their last rescue is only State Bank In thesituations, the State Bank usually lends through rediscounting commercial papers, so thecommercial banks can borrow by these ones In the other ways, although the State Bankonly lends commercial banks in a specific limit, it is also very essential way to add fundsfor these ones in certain periods

 Mobilizing by issuing debt instruments: Issuing debt instruments is a relativelyhighly effective way to mobilize funds for commercial banks When the business chancesoccur, to invest, the banks need additional funds with specified size of funds, type ofcurrency, proper costs as well To do so, the banks can issue bonds and term bills

Bond is a type of valuable papers, confirms loans of customers the banks madewith specified maturity in future These bonds are issued in the retire bank system tomobilize medium and long-term funds

Term bill is a type of short-term debt papers that the banks issue to mobilize fromresidents in order to support their business projects

 Mobilizing by other ways: To improve the mobilizing idle funds from residents,economics institutions, commercial banks serve social services such as guaranteeservices, payment intermediation, etc In fact, the more the economy grows, the morefunds the services above bring the banks to help them run the business safely andefficiently

2.2.3 Terms:

Mobilizing funds based on term means a lot to banks because it closely relates tosafety and profitability of mobilized funds as well as maturity of deposits Therefore, thismethod of mobilization is divided as following:

 Mobilization in short term: It is primary method of commercial banks based onissuing short-term debt instruments on monetary market, receiving short-term deposits,payment deposits, etc The majority of these funds are used to make short-term loans and

or converted in term to make medium-term loans Because of mobilizing in short term,the interest rate of mobilization is usually low, but less stable

 Mobilizing in medium term: Commercial banks do this method based on issuingmedium-term debt instruments on capital market, or receiving medium-term deposits(from 1 to 5 years) The time in which the banks use these funds is relatively long andflexible However, the interest rate of mobilizing is usually higher than that in short term

In fact, these funds are very necessary to banks to do investments, change technology,make medium and long-term loans with high interest rate

 Mobilizing in long term: As the same as in medium term, banks do this activity oncapital market Although these funds are highly stable and easy for banks to use, banksalso pay very high interest rate to get it

2.3 The efficiency of funds mobilization in commercial bank:

Mobilized funds originate from the business needs of commercial banks In order torun business effectively, and to diversify business forms to strengthen theircompetitiveness, banks must need a huge amount of funds mobilized from all sources in

society However, mobilized funds of banks must grow over time, stabilize in quantityand time The reason is that if the bank often has a large amount of funds which may bewithdrawn, its liquidity, lending and investment will be influenced In contrast, themobilized funds are stable enough for banks to be confident in investing high-profitactivities Also, mobilized funds are large enough for banks to meet their customers’demand, to expand their business and to improve the quality of their banking services andproducts In addition, banks must control their mobilized funds effectively to avoid thestagnancy of capital, which leads to reduce banks’ profit, increase associated costs such

as interest costs, accounting costs, and so forth In brief, the efficiency of fundsmobilization not only assesses this activity exactly in particular, but also reflects thesustainability and development of a bank on the market in general

To assess the efficiency of funds mobilization in commercial banks, there are manydifferent criteria corresponding to different research methodologies On the view ofbankers, we will focus on assessing on size and cost of funds mobilized with thefollowing criteria

 Cost of funding/total mobilized funds ratio: As you knew, commercial

bank’s capital consists of owner’s capital and liabilities However, liabilities hold themajor part in resources of banks, and are key support for its business; additionally, thebanks must pay for these as well These costs include interest expenses and non-interestexpenses with the former are major Thus, this criterion will be divided in two sub-criteria

 Interest expenses/total mobilized funds: show how much interest a bank

must pay to mobilize one unit of capital, given interest rate

 Non-interest expenses/total mobilized funds: how much a bank must pay

for management, storage, and others else to fund one unit of capital

In short, with this criterion, when considering the efficiency of funding, the bankmust estimate the costs carefully to ensure its gains to cover the costs and to make profit

for it The lower the ratios above are, the higher the efficiency of funds mobilization is.But, to reduce the funding costs needs to lower the funding interest rate as well as othercosts Therefore, giving appropriate interest rate is very necessary to ensure banks’benefits and relationships with their customers

 Difference between interest gains and interest expenses/interest expenses: This ratio assesses the relationship between funds mobilization and capital

using Moreover, it shows one unit of costs banks pay will gain how many profits Thehigher the ratio is, the higher the banks’ efficiency of using capital is and the lessfunding costs banks must pay On the other hands, the reason why this ratio is high isthat the difference between the high interest gains before other expenses and the lowinterest expenses

 Total mobilized funds/salary costs:

First of all, to measure the fund mobilization efficiency of commercial bank by this

criterion, we must consider ratio of total mobilized funds over total labor participated

in funding to know one banker funded how many capitals or the person’s fund

mobilization efficiency in specific time The increasing in the ratio shows the increasingfund mobilization efficiency in bank when either total mobilized funds increases morethan total labor participated in funding or the decreasing in the former is much less thanthe reduction of the latter However, the ratio is quantitative estimation in fundingefficiency of labor

The following criterion is that total mobilized funds over salary costs ratio, which

indicates how many funds one unit of salary costs which bank pays its banker will earns

As same as the ratio above, the high the ratio is, the more efficient funds mobilization ofbank is But the ratio measures the fund mobilization efficiency of bank in quantityspecifically

 The growth and stability of funded capitals: Fund mobilization activity ispositive when mobilized funds cost low, meet the demand of bank, and not change in

using time suddenly In fact, mobilized funds all can be estimated using time such as timedeposits, saving deposits, etc Therefore, mobilized funds must stabilize in quantity andtime For example, if banks fund a large quantity of capitals to satisfy their creditdemands, but not estimate its stability, their performance will be influenced significantly,then, banks may fall in unpredicted risks In contrast, if banks only fund a small andunchanged-time amount of capitals, their performance will be efficient and gains benefitsfor them In brief, the criterion is measured by the growth of funded capitals If mobilizedfunds increase over years by unchanged and regular rate, fund mobilization efficiency ofbanks is high.

2.4 Factors affect commercial bank’s efficiency of funds mobilization:

2.4.1 Subjective factors:

2.4.1.1 Banks’ policy of interest rate:

The first thing that any individual or economic organization would like to refer towhen sending money to banks is the interest rate Thus, the policy of interest rate is one

of the most important of supporting policies for banks’ funding Interest rates have directimpact to regulate credit operations, lending and bank funding as well as impact onprofits when considering business results, calculating the interest difference betweenoutput and input Therefore, the banks use interest rate as a key tool in mobilizing andchanging the size of capital attracted into banks, especially deposits sizes To maintainand attract more funds, banks need to set competitive rates, to implement preferentialinterest rates for large customers sending money regularly However, not every bankoffering high interest rates attracts more idle funds of the population The problem is thatthe specific rate that banks offer will bring depositors how much actual income to be.This means that the rate that the banks offer must ensure higher than inflation rate, thus,the banks must accurately predict the inflation rate in each period to make proper rates.Also, when making decision on offering any interest rate depends on several factors such

as maturity of deposits, the convertibility between terms, the level of risks, profits gained

from other investments, the regulations of government, of State Bank of interest rate atwhich commercial bank can apply to borrowers It cannot be denied that the higher theinterest rate is, the more depositors are attracted, but this rate means higher interest rate oflending so that bank’s business is profitable The interest rate is not only high enough toattract depositors, but also not too high to still be able to attract borrowers not to declinethe banks’ profits Furthermore, banks must consider the cost of mobilization and thecorrespondence of bank’s interest rate to the others

2.4.1.2 The forms of funds mobilization, the quality of banking services:

Another factor affecting the size and quality of mobilized capital is the banks’ formsand term of funding as well as involved services such as home banking, automated teller,business consulting, collection services, etc In addition, there are a number of otherfactors such as time, and transaction procedures Due to the different demand ofcustomers, the banks will improve the performance of mobilization when satisfying theseones In market economy, the competition is unavoidable, so meeting customers’ needs isthe prerequisite to achieve success in business In fact, that a bank offers methods andterm of mobilization diverse, flexible and convenient will attract more new customersand retain existing ones than other banks The banks currently not only mobilize savingdeposits but also encourage people to deposit in different forms such as opening depositaccounts, funding by debentures, bonds, etc To do so will lower the cost of mobilization,

in addition, create chances to attract funds from various sources with different properties

on the quantity, quality, and term, which will help banks use their funds flexible, safe andmore efficient

Despite banking services is only a byproduct in banks’ performance, competitivestrategy has shown that banks which offer a numerous of high-quality services meetingthe needs of customers will attract more people At present, the participation andcompetition of a series of banks in different types as well as non-bank institutions providecustomers advantages on selecting the best banks satisfying their requirements For the

reason, banking services become increasingly important and is a contributor of attractingcustomers the most effectively

2.4.1.3 The banking technology:

The bank is a type of special business in the fields of monetary and credit.Additionally, the banks have a huge role in promoting economic development.Consequently, banking technology should be in advance because it directly relates to theactivities, for example, payment, transaction, accounting, and so forth In competition, thebanks do not stop to innovate their technology owing to banking services will not bediversified unless banks adopt advanced banking technology For a bank with advancedtechnology, the quality of services will satisfy the customers’ needs better, attract morepeople and as a result, much more capital are funded

2.4.1.4 Marketing strategy of banks:

According to market condition, banks must compete to survive, to develop, to createthe difference, to dominate in comparison with their competitors In fact, to do this is noteasy because the banks, when adopting marketing, will meet some difficulties, forinstance, with the trend of economic development and increasing demand of customers,the banks need more funds to be able to innovate equipment, technique, and profession ofstaffs quickly Through marketing activity, the banks must provide the forms ofmobilization with proper terms, at acceptable price and in accordance to each specificstage of development in order to best meet the needs and expectations of customers.Besides, this activity should also stimulate the customers’ needs to attract them; then addnew ones, in that, attract more funds Based on market research, banks have builtmarketing tools focusing on four major policies

Firstly, it is the policy of informing, researching, exploring and investigating themarket and customers To enforce this policy, banks should use all physical meansnecessary to make the observation, analysis, and synthesis of the basic areas related tobanking market Since the information obtained, the banks will build general business

policy and particular funding policy in accordance with customer needs and demand ofcapital market.

Secondly, in the product and pricing policy, the products and services of banks arefunds mobilization, capital using, payment and supporting services including consultingservices, safety services, etc Although supporting services have no direct profits forbanks, they stimulate customers’ attention, attract them and increase their satisfaction forbasic banking services For the reason, the diversification of products in funding willencourage banks to expand their resources of funds The fact is that not only a bankoffering good and varied banking services will have many advantages compared to theothers, but a bank whose service of payment is good will also attract more paymentdeposits than the other ones

On the other hands, in currency trading, the price is mainly expressed in the form ofinterest rate on deposits, loans, costs of banking activities This factor directly affects theresults of mobilizing, using capital and providing banking services In that, policy ofcompetitive interest rate is a key strategy of banks Especially, maintaining thiscompetitive rate is very important when market rates are volatile In fact, the bankscompete for funds with not only each other but also saving institutions and issuers offinancial instruments on capital market Particularly, during the stage of currencyscarceness, even only small change in interest rate will stimulate savers and investors tomove capital from one tool they are holding to another, or to transfer investment, savingsfrom an organization to another for higher profits

Thirdly, distribution policy is a collection of all material means to bring products andbanking services to customers The diversification of distribution channels and extension

of trading desks have had a great influence on banks’ funding It is evitable that a bankthat has more channels, more trading desks will be able to interact with customers more,and lead to the rise in mobilizing funds However, to do so will require costs, so bankshave to calculate carefully to match between costs and efficiency gained

Finally, the policy of communication and promotion is the one that all banks payattention than the others The reason is that in banks, the staffs’ communication withcustomers creates the image of bank in people’s eyes as well as brings their trust to bank.

It is not deniable that good communication will protect the benefits of banks Besides,promotion is also a necessary tool to enhance the bank’s position, to attract morecustomers, to create their trust to banks

2.4.1.5 Ability, profession and business ethic of bankers:

If a bank manages its human resources, assets and liabilities, it means that in itsperformance, bank can predict the possible risks, predict its investment environment to beefficient or not so that its performance ensures the capital adequacy, improves bank’sposition and attracts the depositors as well as borrowers

Moreover, that the higher the skills of bankers, the quicker, more exact and moreeffective steps of procedures, the better the bankers’ behaviors will impress the peopleand attract them to make transactions more

2.4.2 Objective factors:

2.4.2.1 Savings from residents:

Funds mobilization of banks is formed mainly from funding amounts of idle money

of residents These amounts are accumulated due to people’s expectation – saving currentconsumptions for spending more in the future Thus, this activity is greatly influenced bythis Without savings, there will be no funds to invest production and vice versa In fact,saving factor of population depends on many other ones such as their income, habits ofconsumption in cash, especially, the stability of economy If the economy is volatile, thecurrency will be fluctuate, as a result, the common trend of all people is that they willchange currency into foreign currencies, or store jewels, or buy real estates, which arehighly stable assets

Moreover, the distribution of population in different areas also leads to the differences

in psychology, culture, lifestyle In that, banks must capture their psychologicalexpressions to set out appreciate methods of mobilizing

2.4.2.2 Socioeconomic, political and cultural environment:

A society, an economy is considered stable when it don’t occur the signs of inflation,crisis, or war On the other hand, economic development is also a macro factor impactingthe operation of commercial banks in general and funds mobilization in particular Instable-growing economy, people’s income is ensured and stablized, their demand ofaccumulation is higher, leading to the increase in deposits and the result of moremobilized funds Also, when the economy is high and stable growth, the demand of usingcapital increases, and banks can expand credit volume by rising interest rate to stimulatepeople to deposit more in order to meet the credit needs of economy Conversely, whenthe economy falls into recession will lead to the decreases and fluctuation in real income

of workers As a result, this will reduce customers’ confidence in the stability ofcurrency, even when their income is low not only causes the amount of idle money in theeconomy to reduce, but also makes amounts of deposited money be able to withdraw.Meanwhile, the banks will have difficulties in funding, managing reserves, strengtheningcustomers’ confidence in bank system

Hardly can a nation develop if its political environment is not stable Also, thestability of politic or foreign policy impacts on the relationship about capital betweencommercial banks and other nations in the same area and over the world This factorinfluences funds mobilization of banks as well

Finally, it cannot be denied that cultural environment is a key element affectingpsychology and habits of using money of residents, which will impact funds mobilization

of banks, especially, people’s habits of using idle money in the form of storing.Alternatively, acceptability of risks as well as habits of accumulation of community is a

contributor to all members’ behaviors in spending, saving, storing, depositing andinvesting.

2.4.2.3 Law environment:

All business activities, including banks’ ones are subject to regulation ofgovernment In particular, the activities of commercial banks are subject to the laws ofcredit institution and the system of legal documents of government Besides, in Vietnamtoday, the commercial banks are organized in the form of corporation, so their branchesmust comply with not only laws enacted by government but also regulations of StateBank in each specific period about interest rate, reserves, lending limit, etc according tothe force of law, the changes of elements of funds mobilization will adjust the size andquality of this activity, moreover, commercial banks are enterprises operating inmonetary field which contains huge risks, so they must strictly comply with theregulations of government

2.4.2.4 Competitive environment:

At the moment, the number of commercial banks licensed is increasing along withthe dramatic appearance and development of non-banking institutions while the idlesources of residents and economic institutions are limited Thereby, the monopoly ofbanks is depressed and affects their performance In addition, less diverse forms ofcompetition than other industries make banks’ competitiveness higher and higher InVietnam today, banks mainly compete in the form of interest rates, so they must offer theinterest rate at the most proper and most attractive level along with their reputation toincrease their marketshares of funding It is very difficult because either if interest rate ishigher than their competitors, the lending rate will have to rise to ensure that banksremain profitable or if the interest rate is lower, it will be difficult to attract customers Inother way, the increasing competition leads to the increasing trend of mobilizing ratewhile services related to deposits respectively increase

CHAPTER 3: THE SITUATION OF FUND MOBILIZATION OF

MB, HAI BA TRUNG BRANCH:

3.1 The introduction to MB, Hai Ba Trung branch:

3.1.1 The history and development of MB, Hai Ba Trung branch:

3.1.1.1 Military Bank:

The establishment of MB was derived from the idea of constructing a financialinstitution and developing military enterprise to be Military Commercial Joint StockBank Therefore, after 18 months of active preparation, Military Commercial Joint StockBank officially started running into business on the date of 4 November 1994 with itsinitial head office located at 28, Dien Bien Phu street, Hanoi city, original charteredcapital of VND20 billion and 25 official staffs

During its eighteen – year performance, MB always confirms its leading position infinance - banking market in Vietnam

In 1997, MB was confident enough to surpass financial crisis to be the onlycommercial bank in Vietnam which still had gains

In 2004, MB marked an important pace of ten years of construction and developmentwith much larger scale For example, total fund mobilization increased by 511 times, totalassets raised from VND32 billion to VND7000 billion, total profit achieved more thanVND500 billion At the same time, MB moved to its new headquarters at Lieu Giai –Hanoi

From 2004 to 2009, it has been the most dramatic stage of MB since it wasestablished MB accomplished its strategic targets excellently and comprehensively, andimproved its reputation quickly MB’s total equity increased every year, and reached toVND4.026 billion on 31 December 2009 Especially, in 2009, most banks were in troubleabout liquidity due to the difficulty in funds mobilization, but MB still remained stableand became a bank having high liquidity ratio and mobilizing funds up to more than 150percent MB’s total assets at the end of 2009 were VND41809.7 billion, or were 10 times

as much as the period of 1January 2004 Total outstanding credit, at end of 2009, alsorose continuously by VND15041.9 billion or increased 5.6 times in comparison with thebeginning of 2004 Bad debts were always controlled at lower of 2% as well.Remarkably, during the period of 2004 – 2009, earnings before taxes went up highly,average at 61percent with earnings before taxes of 2009 being approximately VND711billion and increasing 10 times as high as in 2003.

Marking 15 years of building and developing of MB, in 2009, it obtained significantresults with total profit of about VND1300 billion, increasing by 65 percent andsurpassing 44 percent of original target

In 2010, MB marked a new stage of development as well as a new success to be one

of the top commercial banks in Vietnam MB opened a branch in Laos-the first branch of

MB oversea- marked the expansion of investment abroad of MB Moreover, not only MBhas bên evaluated and ranked in the E+ by Moody, which corresponds to the group of thebest banks in Vietnam, but it also continued to be ranked in A by State Bank

In 2011, MB further confirmed its financial capacity and strong competition as well

as its compliance with minimum capital requirements of State Bank to become one oflarge-scale commercial banks Until now, the number of its major shareholders has beenfour, including Joint Stock Commercial Bank for Foreign Trade of Vietnam, ViettelCorporation, Vietnam Helicopter Corporation and Tan Cang Company Beside, itsnetwork of traditional and modern communication channels rated expanded significantlywith one branch in Laos and one branch in Cambodia, 165 branches and transactionoffices nationwide, 327 ATM and 1328 POS, 4 transaction points and 4 saving fundsdistributing over 30 developed provinces and cities Moreover, MB held more than 50%stakes of its subsidiaries such as Thang Long Securities Joint Stock Company, VietR.E.M.A.X Corporation, MB Fund Management Stock Company, MB AssetsManagement Company Ltd., and MB Real Estate Stock Company Hence, total humanresources of MB have been more 5000 staffs

3.1.1.2 Military Bank, Hai Ba Trung branch:

During the period of 2006 – 2007, MB was actively transferring its managerialactivities from large branches to headquarter In order to implement its purpose, MBorganized and gradually completed the departments such as credit management,enterprise banking services, personal banking services, treasury, and investment Onlywhen headquarter developed strongly enough, all performances of headquarter-ownedbranches would be controlled by their headquarters, and these only perform businessactivities driven by orientations of headquarter The large-size primary branches, orheadquarter – owned ones, will be divided into many medium-size ones which wereunder online management from headquarter

According to given orientation and purpose, until late in 2009, the entire smallbranches owned by large ones of MB would be separated into 8 online units Hence, tomeet the general trend, Minh Khai branch - a secondary branch - was also converted into

a primary one and renamed ‘Hai Ba Trung’ branch – headquarter-owned one Up to now,there are five transaction offices directly under Hai Ba Trung branch, including, MinhKhai, Nguyen Du, Lo Duc, Nguyen Duc Canh and Le Thanh Nghi offices

To keep the motto on the MB system, at Hai Ba Trung branch, MB always tries tobuild a series of professional and devoted staffs to provide organizations, individuals thebest services and finance – banking solutions at optimal costs Furthermore, it must alsofocus leading to the common vision of MB and on six its core values such as teamworkacross the bank, trustworthy, customer care, creative, professional and performance –driven

3.1.2 The branch organization:

Figure 3.1: Organization framework of MB, Hai Ba Trung branch

(Source: Report of MB, Hai Ba Trung)

Functions of departments directly under branch:

 Board of Directors (one director and two deputy directors): manage all activities

of branch as a whole

 Accounting and Customer Services Department: support cash transactions anddomestic remittance of customers, additionally, account and monitor funds, andstore accounting documents

 Banking Services Department (personal and enterprise customer department):satisfy a variety of service requirements of personal customers as well asenterprise ones