Enhancing capital mobilization at joint stock commercial bank for investment and development of vietnam transaction center 1

--- PHẠM HỮU NAM ENHANCING CAPITAL MOBILIZATION AT JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – TRANSACTION CENTER 1 TĂNG CƯỜNG HUY ĐỘNG VỐN TẠI NGÂN HÀNG T

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PHẠM HỮU NAM

ENHANCING CAPITAL MOBILIZATION AT JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT

OF VIETNAM – TRANSACTION CENTER 1

TĂNG CƯỜNG HUY ĐỘNG VỐN TẠI NGÂN HÀNG THƯƠNG MẠI

CỔ PHẦN ĐẦU TƯ VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH

SỞ GIAO DỊCH 1

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2019

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

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PHẠM HỮU NAM

ENHANCING CAPITAL MOBILIZATION AT JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT

OF VIETNAM – TRANSACTION CENTER 1

TĂNG CƯỜNG HUY ĐỘNG VỐN TẠI NGÂN HÀNG THƯƠNG MẠI

CỔ PHẦN ĐẦU TƯ VÀ PHÁT TRIỂN VIỆT NAM – CHI NHÁNH

SỞ GIAO DỊCH 1

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS PHẠM ĐỨC HIẾU

HÀ NỘI - 2019

DECLARATION

I undertake that this thesis “Enhancing capital mobilization at Joint Stock Commercial Bank for Investment and Development of Vietnam - Transaction Center 1” is my own independent research under the guidance of Assoc Prof Dr Pham Duc Hieu All data used in the thesis analysis has a clear, authentic and published source in accordance with regulations

I will be responsible for my declaration

Hanoi, day … month … 2018

Author

Pham Huu Nam

ACKNOWLEDGEMENTS

I would like to express my gratitude to the Faculty of Bussiness Management –Vietnam National University, Hanoi, the Advanced Master’s Degree Program and the teachers who helped me to complete the program and my thesis

In addition, I would like to send my thanks to the Board of Directors and all the colleagues of Joint Stock Commercial Bank for Investment and Development of Vietnam - Transaction Center 1 for helping me access documents and actual data of the branch In particular, I also give special thanks to Assoc Prof Dr Pham Duc Hieu, who has read and edited the draft thesis and helped me understand the theoretical basis and analyze the actual capital mobilization and business conditions at the branch Without them, I could not complete my thesis

I look forward to receiving feedback from teachers, friends and colleagues

Thanks and Best regards!

Yours sincerely,

TABLE OF CONTENTS

LIST OF ABBREVIATIONS I LIST OF TABLES II LIST OF FIGURES III

INTRODUCTION 1

CHAPTER 1: BASIC THEORETICAL ISSUES OF CAPITAL MOBILIZATION OF COMMERCIAL BANKS 4

1.1 Activities of commercial banks 4

1.1.1 Concept and characteristics of commercial banks 4

1.1.2 Basic operation of commercial banks 5

1.2 Capital mobilization of commercial banks 9

1.2.1 Concept of capital mobilization of commercial banks 9

1.2.2 Capital mobilization forms of commercial banks 9

1.2.3 Criteria for evaluating capital mobilization of commercial banks 13

1.3 Factors affecting the capital mobilization of commercial banks 17

1.3.1 Subjective factors 17

1.3.2 Objective factors 21

CHAPTER 2: CURRENT STATUS OF CAPITAL MOBILIZATION AT BIDV- TRANSACTION CENTER 1 27

2.1 Overview of BIDV - Branch Office 1 27

2.1.1 Establishment and development history of BIDV- Transaction Center 1 27

2.1.2 Business results of BIDV- Transaction Center 1 28

2.2 Current status of residential capital mobilization at BIDV-Transaction Center 1: 32

2.2.1 Capital mobilization at BIDV-Transaction Center 1 32

2.2.2 Capital mobilization cost at BIDV- Transaction Center 1 41

2.2.3 Net income from internal capital mobilization 43

2.2.4 Forms of capital mobilization at BIDV- Transaction Center 1 44

2.3 Evaluation of the current status of capital mobilization at

BIDV-Transaction Center 1 49

2.3.1 Achievements 49

2.3.2 Limitations 52

2.3.3 Causes of limitations 54

CHAPTER 3: SOLUTIONS TO ENHANCE CAPITAL MOBILIZATION AT BIDV-TRANSACTION CENTER 1 61

3.1 Orientation for capital mobilization of BIDV- Transaction Center 1 in the 2018-2020 period 61

3.1.1 Development orientation of BIDV –Transaction Center 1 61

3.1.2 Capital mobilization orientation of BIDV-Transaction Center 1 62

3.2 Solutions to enhance capital mobilization at BIDV-Transaction Center 1 63

3.2.1 Concentration on residential customers by diverisfying saving deposits 63

3.2.2 Quality improvement of human resources 64

3.2.3 Renovation and perfection of utilities for depositors and customer care 65

3.2.4 Application of the flexible interest rate regime and the promotion mechanism 66

3.2.5 Marketing and advertising promotion 67

3.2.6 Diversification of capital mobilization products 68

3.2.7 Expansion of the retail banking service network 69

3.3 Some recommendations 70

3.3.1 For BIDV 70

3.3.2 For the State Bank of Vietnam 71

CONCLUSION 75

REFERENCES 77

LIST OF TABLES

Table 2.1 Business results of Transaction Center 1 in the 2015-2017 period 29

Table 2.2: Capital mobilization growth rate of Transaction Office 1 33

Table 2.3 Capital mobilization structure by object 34

Table 2.4: Capital mobilization scale of some branches in Hanoi City: 35

Table 2.5: Capital mobilization by currency 36

Table 2.6: Mobilized capital structure by maturity 39

Table 2.7: Capital mobilization interest rate (VND) at Transaction Center 1 42

Table 2.8: Capital mobilization cost of BIDV- Transaction Center 1 in the

2015-2017 period 42

Table 2.9: Net income from internal capital mobilization of Transaction Center 1 in the 2015-2017 period 43

Table 2.10: LIST OF DEPOSITS OF BIDV AND OTHER BANKS 45

LIST OF FIGURES

Figure 2.1: Credit growth rate of BIDV – Transaction Center 1 in the 2015-2017 period 31 Figure 2.2: Scale of capital mobilization of BIDV – Transaction Center 1 in 2015-

2017 period 32 Figure 2.3: Capital mobilization results by currency 37

INTRODUCTION

1 Rationale

Over the years, Vietnam has begun to implement international commitments in the banking sector through the signing of international trade agreements Accordingly, Vietnam will step by step open and liberalize its business in the banking sector, allowing foreign banks as well as domestic joint stock banks to operate in Vietnam According to a report of the State Bank of Vietnam, there are 47 branches of foreign banks, 5 banks with 100% foreign capital, 53 representative offices and 4 joint venture banks The presence of foreign banks with abundant financial capacity, diversified services is a big challenge for domestic banks Therefore, the competition among banks, especially in the field of capital mobilization is increasingly fierce because capital resources determines not only the scale of operation and competitiveness but also expansion or narrowness of credit activity and direct impact on the profitability of banks

In addition, the Vietnamese economy is developing, people and economic organizations have had more diversified choices in investment of their idle money in the fields of securities, real estate, gold, foreign currency, etc However, the commercial bank system with the function of a financial intermediate between savings and investment, between the excess capital and the lack of capital is always a key capital mobilization channel for the economy Currently, BIDV - Transaction Center 1 (BIDV - Transaction Center 1) as one of the leading branches in the BIDV system continues to affirm its position

in the currency business, in which the capital mobilization to meet the credit needs is always highlighted and considered as one of the main activities Although the mobilized capital growth rate of Transaction Center 1 continuously maintained at 10-13% over the past years, Transaction Center 1 still has some limitations in the capital mobilization that is needed to be overcome to not lag

behind other banks Firstly, the scale of residential capital mobilization is much smaller than its potentiality; Secondly, the mobilized capital in foreign currencies is still limited, accounting for a very small proportion of total mobilized capital; Thirdly, the mobilized capital structure is not balanced and fourthly, the mobilized capital is mainly from some major customers

Recognizing the weaknesses and importance of capital mobilization to the

TC1’s business, “Enhancing capital mobilization at Joint Stock

Commercial Bank for Investment and Development of Vietnam - Transaction Center 1” was selected as the thesis topic

2 Research objectives

The research purpose of the thesis is to analyze the current status, find out the limitations and causes, thereby proposing solutions to enhance capital mobilization at BIDV- Transaction Center 1 Specifically, the thesis has the following objectives:

- Learn about the basic theory of capital mobilization activities of commercial banks in the economy as a basis for analyzing the current status

- Analyze and evaluate the current status of capital mobilization at BDIV - Transaction Center 1 to find out the achievements and weaknesses, thereby proposing the solutions to enhance capital mobilization at BIDV-Transaction Center 1

3 Subject and scope of the study

Capital mobilization (mainly deposit mobilization) of commercial

BIDV – Transaction Center 1

- Data collection: This method is used to collect the data needed for the study

- On the basis of the collected data, statistics comparison and data sythesis methods are used to analyze the current status and specific indicators; thereby assessing the achieved results and limitations in capital mobilization activities

6 Scientific and practical significance of the thesis

- Theoretical significance: The thesis clarifies some basic theoretical issues on capital mobilization of commercial banks

- Practical significance: On the basis of practical analysis, the thesis proposes practical solutions to enhance capital mobilization at BIDV-Transaction Center 1

7 Design of the thesis

In addition to the Introduction, Conclusion and References, the thesis consists of three following chapters:

Chapter 1: Basic theoretical issues of capital mobilization of commercial banks Chapter 2: Current status of capital mobilization at BIDV-Transaction Center 1 Chapter 3: Solutions to enhance capital mobilization at BIDV-Transaction

Center 1

CHAPTER 1: BASIC THEORETICAL ISSUES OF CAPITAL

MOBILIZATION OF COMMERCIAL BANKS

1.1 Activities of commercial banks

1.1.1 Concept and characteristics of commercial banks

Commercial banks can be defined in a variety of ways through the functions, services or roles they perform in the economy However, by analyzing the content of those definitions, it is easy to see that commercial banks have one thing in common: It is a financial intermediate that operates

by mobilizing capital through trust funds - demand deposits and term deposits

to use in credit services such as lending, discounting and other business services of the Bank

According to the Decree No 49/NDCP on commercial banks,

“Commercial banks are credit institutions whose primary and regular activities are to receive deposits, provide loans, payment facilities and other banking services.”

The concept of commercial banks used in the thesis is as follows:

A commercial bank is a special enterprise operating in the monetary sector with the main activity of capital mobilization, credit granting, investment and service activities to gain one of the important objectives - the profit maximization

of collecting service charges or commission

Secondly, commercial banks must comply with the law, which means that commercial banks are allowed to operate in the market only when they satisfies the strict conditions stipulated by law such as capital condition, business plan, etc

Thirdly, commercial bank operation is a far more risky form of business than other forms of business and often has heavy impact on other industries and the economy

1.1.2 Basic operation of commercial banks

Being regarded as an important organization for the economy, the banking system has rapidly developed and operated in three main areas to meet the increasing demand of customers These activities include: capital mobilization, capital use and other activities

1.1.2.1 Capital mobilization

Capital mobilization is one of the most important and key activities of commercial banks It is the creation of capital from the receipt of deposits of organizations and individuals; the payment, entrustment or the issue of valuable papers to serve the lending and investment activities of the bank Capital mobilization is understood as attracting idle capital in the economy, promoting money circulation It reflects the financial strength that it can be negotiated directly but also shows the weakness that is unsuitable in terms of capital scale, leading to a waste of time and transaction costs Through capital mobilization, commercial banks have actually mobilized the combined power of the economy in the process of production and circulation of goods Thanks to this activity of commercial banks, savings of individuals, economic organizations are mobilized in the movement process of the economy

Banks use the following capital mobilization operations:

 Deposit mobilization: is the process of generating capital by

receiving the idle funds of individuals or households deposited in the Bank for the purpose of gaining interest or opening deposit accounts to mobilize capital from businesses for the purpose of payment or preservation of property

 Borrowing mobilization: is the process of generating capital by

borrowing credit institutions in the monetary market and the central bank in the form of rediscount, secured loans, etc for the purpose of creating a balance in managing the capital of the commercial banks when they cannot balance on the spot themselves

1.1.2.2 Capital use

Capital use is the most important and main business activity of commercial banks, mainly to bring profit to banks The capital use by commercial banks is to finance capital for enterprises, individuals and

organizations In the market economy, the capital use is increasingly diversified and implemented in various forms such as credit granting, investment, etc

 Credit granting to customers

This is the basic direction in the bank’s capital use, including: lending, financial leasing, discounting, factoring, bank guarantee and other credit operations

 Investment: This activity of commercial banks is implemented in two main forms:

- Securities investment: The bank buys securities and becomes the owner of the securities Securities that the bank can buy are short-term treasury bills, shares, government bonds and corporate bonds Buying securities brings benefits to the bank, which is the bank’s mobilized capital use to maximize profits and enhance the solvency of its reserves However, commercial banks are only allowed to make investment in securities at a certain limit in accordance with the law of the state

- Investment in joint-venture and associated companies means the bank’s contribution to joint venture with other credit organizations, commercial banks or enterprises in the field of commercial production and services to increase the capital contribution and generate advantages for banks and the economy

1.1.2.3 Other activities

In the current competitive environment, apart from the above activities, commercial banks are actively searching for profits by implementing services such as payment, foreign exchange, brokerage and securities business, entrustment, financial consultancy, guarantee, equipment leasing, etc These activities bring about notable profits for banks

 Payment

A commercial bank provides payment services for customers, including non-cash payments or cash payments through banks It is a traditional operation and is strongly developed in the market economy Through this activity, the bank collects charges and takes advantage of various sources of capital through controlling cash flow in the national economy

 Securities business

Foreign currency trades in foreign currencies in domestic and international markets The bank’s profit is the difference between the ask price and the bid price

 Securities brokerage and business

Banks act as the broker for banks to receive commissions

 Entrustment

Banks follow the entrustment of customers in a number of tasks such as asset management, agent and representative of economic organizations or law enforcement agency

 Financial consultancy

The commercial bank is the center of money, credit and payment Besides, the bank is a quite full organization that always updates market information, so it can provide the information requested by customers within permissive limits Commercial banks can give customers advice on investment project, capital mobilization plan, corporate financial statement analysis, etc

 Guarantee

The bank guarantees a certain ability- the solvency- of the guaranteed party and commits the performance or compensation if the guarantor fails to perform its ability

 Renting equipment, selling insurance services, preserving valuable papers,

1.2 Capital mobilization of commercial banks

1.2.1 Concept of capital mobilization of commercial banks

Capital mobilization is an indispensable operation as it exists and develops in parallel with the credit operation in business actitivies of commercial banks Capital mobilization is generating capital for most bank activities

With their functions and tasks, commercial banks have attracted, concentrated the temporarily idle funds of individuals and socio-economic organizations On the other hand, on the basis of mobilized capital, the banks will carry out lending activities to meet the capital needs of the society

Being introduced for a quite long time, constantly developing, changing along with the development of commercial banks, the concept of capital mobilization has changed considerably, both in terms of scale and forms Therefore, it is almost impossible to find out a complete definition of this activity and there is no complete agreement between the viewpoints

According to Clause 13, Article 4, Chapter 1 of the Law on Credit Institutions (47/2010/QH12), deposit mobilization is the receipt of money from organizations and individuals in the form of demand deposit, term deposit, savings deposit, issue of certificates of deposit, promissory notes, bills and other forms of deposit on the principle of full refund of principal and interest to depositors as agreed

1.2.2 Capital mobilization forms of commercial banks

Capital mobilization is a basic operation of commercial banks, also known as capital creation in various forms to attract capital from organizations and individuals in the economy to serve their business activities It is very important for each commercial bank to introduce suitable and flexible forms of capital mobilization

In the context of the thesis, we consider the most common form of capital mobilization used in commercial banks - deposit mobilization

Deposits are the capital resource accounting for the largest proportion

of a commercial bank, which is the foundation for its prosperity and development Deposit is also the only item on the balance sheet that distinguishes the bank from other enterprises Deposit is the main basis of borrowings and loans; therefore, it is the foundation of profit and development of the bank There are many kind of deposits at banks The banks often compete with each other based on interest rates In order to increase the deposits in a competitive environment, banks have offered various forms of capital mobilization:

- Gold mobilization: At present, beside domestic and foreign currencies, some banks are mobilizing capital in gold However, depending

on the regulations of the State Bank and each country, gold mobilization of commercial banks must be permitted by the competent authority

 Classification by object

- Individual deposit

Individual customers account for a large proportion of the bank’s objects As a result, the bank’s banking services for this group are also

diversified, especially in capital mobilization With the main purpose of saving, property preservation and profitability, personal customers have brought a large amount of mobilized capital to banks For banks, i is a relatively significant amount of capital and accounts for a large proportion of bank deposits This capital resource has the advantage of quite high stability

- Corporate deposit

Apart from individual customers, the amount of capital mobilized from corporate customers and economic organizations accounts for a large proportion of total bank deposits However, unlike individual customers, enterprises usually only leave their balance on the payment account In addition, temporarily idle deposits are shown on term deposit accounts, usually short term deposit accounts (week, day, month) Because this group’s depositing purpose is to make payments as well as conduct other transactions, the amount will not have a fixed term, which makes it difficult for the banks

to make a business plan for these funds

- Deposit of other credit institutions

In fact, deposits of other credit institutions are commercial banks’ borrowings from such credit institutions in order to create their competitiveness and solvency In some cases, banks with a large amount of mobilized capital can deposit into other banks for the purpose of enjoying a portion of interests or regulatory interests from the Main Operation Centers of such commercial banks, which helps them partially reduce costs ad bring about higher profits to banks

 Classification by mobilization purpose

- Payment deposit (Transaction deposit)

Payment deposit is one of the oldest deposit services offered by banks

It is the money of the individuals or enterprises deposited in the bank to require the bank keep and pay costs on their behalf Within the allowable

balance, the bank will meet the needs of individuals or enterprises Customers’ cash receipts are available upon request In general, the payment deposit interest rates are very low but the account holders can get low cost banking services

- Savings deposit

All classes of people have idle money and unused income Under conditions of access to the bank, they can open savings accounts at banks for purpose of property conservation and profit This source of funds is largely maintained in a fixed period of time, so it is mainly used in commecial banks’ business activities For most commercial banks, this kind of deposits account for the highest proportion in their deposit structure

- Term deposit (Non-transaction deposit)

Term deposits are savings accounts created to attract funds from individuals or enterprises that wish to set aside funds for future financial purposes In general, this kind of deposit is essentially the same as savings deposit The interest rate applicable to this kind of deposit is much higher than the payment deposit Despite the high intest rate, the management and maintenance cost for this kind of deposit is relatively low

- Issue of valuable papers

Valuable papers are debt instruments issued by banks to mobilize capital in the market This capital resource is relatively stable and is aimed at mobilizing a large competitive capital for existing products of other commercial banks, so its interest is quite attractive In addition, the interest rate of this kind of deposit depends on the urgency of raising capital, so the interest rate is usually higher than the ordinary term deposit interest rate Valuable papers issued by commercial banks are bonds, promissory notes and certificates of deposit with par-value

 Classification by maturity

- Short-term deposit mobilization: This capital resource is mobilized in less than 12 months

- Medium and long-term deposit mobilization: This capital resource is mobilized in 12 months or more Normally, commercial banks pays interest

on medium and long-term deposits which are higher than short-term deposits Commercial banks can make more efficient business plans from the medium and long-term deposits than short-term deposits

1.2.3 Criteria for evaluating capital mobilization of commercial banks

To evaluate capital mobilization results, there are many groups of measurement indicators, usually four main groups of indicators: scale and growth rate of mobilized capital, mobilized capital structure, capital mobilization cost, the relationship between capital mobilization and capital use

1.2.4.1 Scale and growth rate of mobilized capital

Scale is an important indicator reflecting the capital mobilization results of the bank, mobilized capital growth, thereby facilitating the bank’s activities, improving liquidity and stability of capital resources

Banks always keep the tight control of mobilized capital to ensure their solvency and when there is a sudden need for capital, they must not mobilize captial from other sources at a high cost Normally, at the beginning of the financial year, banks make a capital mobilization plan in the year and carry out activities get the actual mobilized capital Normally, some commercial

banks use the completion ratio of mobilization plan (symbol: T HT) to evaluate the scale of mobilized capital

supplement working capital as planned In this case, the bank may lose more costs or lose the opportunity to increase income due to failure to meet capital

needs in time Conversely, if T HT is over 100%, the mobilized capital is greater than the planned, then the bank must try to use excessive capital reasonably, otherwise the cost will increase due to interest payable of excessive capital and other operating expenses while excessive capital is not

profitable However, T HT that is 100% is not always the best because it depends on the bank’s actual capital needs in the year

The scale of the mobilized capital should be developed for each specific period, including capital increase plan, potential capital structure change and new potential capital The capital raising plan needs to be in line with the bank’s capital use plan and expected return

Capital growth rate

in year n(%)

Total capital resources in year (n-1)

% Total capital resources in year ( n-1)

The higher growth rate of capital shows the more capital mobilized However, the scale and growth rate only partially reflects the capital mobilization results because the scale of capital mobilization is usually only considered at a certain time rather than a period; therefore, it does not evaluate the stability of mobilized capital as well as the bank’s income from these resources

1.2.4.2 Mobilized capital structure

Capital mobilization results are also reflected in the mobilized capital structure, which must be reasonable in line with the capital mobilization objectives and strategies proposed by the bank and capital demand in terms of object, maturity and currency The rationality in capital structure is also a condition for the Transaction Center 1 to implement and deploy its business plans in a more profitable way

When considering the structure of deposits, it is often considered the ratio of capital mobilized from resources compared with total mobilized capital, which is necessary for the banks to evaluae the capital mobilization results because the interest rate, maturity, and stability of each specific resource of funds will affect interest rate, maturity and stability of total mobilized capital of the bank This ratio is shown in the following formula:

Capital mobilization ratio of each

resource =

Mobilized capital balance from each

Total mobilized capital

The mobilization and adjustment of this ratio will be subject to the actual capital needs of each specific resource

1.2.4.3 Capital mobilization cost

Banks are enterprises trading in money Bank owners’ capital resources often can not meet their business needs, so banks have to raise capital at a certain cost Valuation of mobilized funds or determination of mobilization cost is an important task in the valuation process of commercial banks, including mobilized capital interest rates and other costs related to mobilization, in which interest is the important part that influences the scale and performance results, accounting for a large proportion of the capital mobilization cost The capital mobilization cost shows how much the bank needs to spend to raise such capital This cost combined with the income from the loan interest will indicate the bank’s income from the mobilized capital From there, by combining this income with the rate of return on mobilized capital, banks may conclude mobilization results

Capital mobilization cost is calculated as follows:

Capital mobilization cost = interest expense + non-interest expense

The mobilization interest expense is the cost that commercial banks must pay to depositors The interest expense is based on the nominal interest

rate announced to customers by the bank This expense accounts for the highest proportion of total operating expenses of the bank This expense depends on many factors such as maturity, type of deposit, depositing target, trade strategy of the bank, add-ons, etc

In addition to the mobilization interest cost, the bank also has to spend

a lot of other expenses for capital mobilization Non-interest expenses are diversified and are constantly increasing in the context that banks increase their non-interest competition Non-interest expenses include direct payments

to depositors such as gifts, sales promotion, lucky draws, insurance, etc.; Utility costs for depositors such as opening branches, savings funds, counting machines, counterfeit money detector for customers, at-home mobilization, etc ; salary of staff of the departments; advertising and marketing expense to attract depositors and other expenses that are included in the management costs and are difficult to allocate for capital mobilization

In order to measure the capital mobilization cost, commercial banks often consider the average mobilization interest rates, i.e the interest paid by banks to mobilize 1 dong to commercial banks and measured by the following formula:

A

The average mobilization rate has a direct impact on the capital size of the bank Ordinaryly, the higher the average mobilization interest rate is, the greater the mobilized capital is However, with a large amount of mobilized capital, the bank needs to have a reasonable capital use plan, ensuring the highest profitability Therefore, banks must have a reasonable cost structure to not only attract depositors but also ensure the lowest cost for the profitability

of banks

In addition, it is necessary to evaluate the capital mobilization cost in the bank’s total costs by using the following formula:

C H V

If CHD is high, it means that the bank has to spend too much to mobilize, which makes the capital mobilization ineffective

1.2.4.4 Net income from internal capital mobilization

Net income from internal capital mobilization (TNHDV) is used to evaluate the capital mobilization of commercial banks using the centralized capital management mechanism This mechanism is also known as the Fund Transfer Pricing (FTP), which is the capital management mechanism from the HSC Center Branches become business units, trading in capital with HSC (through Capital Center) HSC will purchase the entire Debit Assets of the Branch and sell the Capital to the Branch to use for the Credit Assets As a result, the ratio of income to expense of each branch is determined by the difference in capital from HSC The liquidity risk and interest rate risk are concentrated on HSC

The net income from internal capital mobilization of banks is defined

as the difference between FTP (capital purchase) and capital mobilization interest Amplitude is calculated for a period, a quarter or a year and expressed as a percentage The net income from internal capital mobilization

is one of the most important measures for the financial performance of a deposit institution

TN HDV = FTP (capital purchase) – capital mobilization interest

1.3 Factors affecting the capital mobilization of commercial banks

1.3.1 Subjective factors

The subjective factors are the factors that the bank itself can adjust to each environment to maximize the profits from capital mobilization

The subjective factors that affect the capital mobilization of commercial banks are:

- Firstly: The bank’s capital mobilization policy

Capital mobilization policy has a direct impact on the scale and structure of mobilized capital of commercial banks, thus deciding the capital mobilization results In addition, the bank’s attractive and competitive interest policy and new marketing and promotional policies also attract new customers to the bank

In their activities, commercial banks always make the plans for each operation period in terms of credit, capital needs to meet their business activities Or in certain periods, commercial banks need a capital structure to meet certain changes in liquidity and the indicators set forth by the State Bank

of Vietnam In order to mobilize capital to meet those needs or to achieve a certain capital structure, commercial banks should regularly make the reasonable capital mobilization policies in a timely and comprehensive manner At the same time, it is necessary to require all branches and transaction offices to follow such policies so as to attract mobilized capital at

a scale and a rational structure according to demand

- Secondly: capital mobilization network

A commercial bank with a large branch network from urban to rural will have the bigger opportunity to contact with idle capital in the population The extensive branch network also demonstrates the development of a bank, making people more familiar with it and use more its services

- Thirdly: Brank’s brand name

For the business of the bank, especially in times of crisis and constant fluctuations, brand name is one of the important factors to decide success in the operation People will choose to deposit their money at a bank that has a big brand name in the market and gives them the safest and most convenient services

The bank’s brand name is its position and image in the heart of customers To get the brand name, banks have to go through a long time of operation The bank’s brand name is characterized by long-standing operation, total large assets, good management system and high-quality human resources, good service quality and high annual profits, broad relationships with other financial institutions, etc If the bank’s brand name is low in the society or does not create trust of customers due to a series of incidents, scandals, etc., it will be difficult to attract customers and mobilize capital So, banks are constantly innovating and developing, positioning and enhancing their brand name to compete in the market

- Fourthly: Diversity and utility of banking services

In the fierce competition of commercial banks in particular and banks

in general, commercial banks have developed a variety of products, forms and services to mobilize capital as diversity in deposits, maturity and interest rate, etc.; promotions and utilities related to payment cards, etc in order to bring about the convenience and highest satisfaction to customers, thereby increasing the efficiency of capital mobilization

- Fifthly: Information technology applocation in the bank

The bank’s business results partially depend on how the bank provides its services for its customers If the bank provides services in a professional, simple and convenient manner, applies modern technology to banking services, the efficiency shall be higher With the increasingly higher living standards and awareness, more customers want to have better banking services To meet that need, banks must constantly upgrade and develop information technology

Over the past years, thanks to advances in information technology, the bank has had many new products and services such as electronic payment system, home banking service, e-banking service, etc to serve the

increasingly high needs of customers in the best way Thus, it is possible for a bank that is equipped with modern technology, suitable with its ability and financial capacity, scale of operation to succeed in the market

- Sixthly: Communication policy of the bank

Communication is a very important part of the bank’s business

Communication is a marketing tool to influence the market in order to encourage the use of banking products and services, at the same time, increase the level of loyalty of existing customers and attracting future customers

Communication is a process from market research, development policy design to the introduction and promotion of new products and services to the public A bank with a good communication policy will have a huge advantage

in the business process and be able to dominate the market On the basis of market research, the bank can capture all information of the business environment, customers and develop a communication strategy Thereby, banks will use technical tools of communication flexibly in the banking activities to best meet the needs of customers

-Seventhly: professional qualificaitons of bank officerss

For any economic activity, human resources always play an important role in the success of all activities In the field of finance and banking, human resources are more meaningful because when customers deal with banks, the first factor by which customers is impressed is not the interest rate, service fee, etc but the attitudes and qualifications of bank officers Bank officers with solid professional knowledge will give the fullest and most reasonable advice to customers based on their needs; have fast operation, shorten transaction time of customers; create the best harmony for customers; thereby making customers feel that they are given the best services and will enhance the transactions at the bank as well as introduce the bank to others In contrast, a bank with a team of staffs with low qualifications, lack of

professionalism in consulting customers; failure to introduce suitable products

to customers based on their needs; bad service altitude, etc will make customers feel disgusted As a result, they dislike the bank and rarely come bank to work with the bank Thus, the capital mobilization efficiency is low

In addition, all capital mobilization strategies and solutions to enhance capital mobilization are proposed and implemented by human resources The success or failure of these strategies and solution is mainly dependent on the ability, effort and creativity of the bank officers If the bank officers offer good services and products, meet the increasing demand of customers, ensure high competitiveness; at the same time, product development strategies are given scientifically and synchronously and efficiently, the capital mobilization results shall be high In contrast, if they propose a new product that is not dominant, not creative, stereotyped, etc and the strategy is slow and not scientifical, etc., the bank’s capital mobilization efficiency will be low, even the bank will be labeled as “inmitating", making a bad influence in the eyes of customers

1.3.2 Objective factors

Besides the subjective factors of the commercial banks themselves, the capital mobilization results of commercial banks are also affected by the objective factors outside the commercial bank The objective factors include:

First: Political environment

The political situation of a country significantly influences the bank’s capital mobilization A stable and safe political environment will make people feel secure to live and earn money, so they do not have to accumulate and store more cash for special cases Therefore, commercial banks can mobilize more capital In contrast, a country with unstable political conditions often makes people be in a state of panic and fear, so they will accumulate more

money and wealth for special cases As a result, they limit depositing money

to banks, thereby reducing the capital mobilization efficiency of the bank

The bank is a financial institution that is bound by the legal framework, the stability and development of a nation The bank’s operations are under strict control of the State Bank of Vietnam Changes in state policies, finance, money, credit, interest rates by the State Bank of Vietnam will affect the ability to attract capital as well as the quality of capital of commercial banks

The State Bank of Vietnam promulgates operation policies to ensure that the commercial banks will follow its orientation in order to promote the socio-economic development of the country The SB ’s policies change over time, depending on the general economic policy of the state and the development of the financial market To regulate the capital mobilization of commercial banks, the SBV has regulations on compulsory reserve ratio, ceiling interest rate, rediscount interest rate, etc All these regulations and policies are applied to commercial banks, so their influence on the banks is very clear and direct

In addition, monetary policy of each country also greatly affect the c capital mobilization of commercial banks It is reflected in the goal of monetary policy For example, when the economy falls into a recession due

to high inflation, the state will tighten monetary policy by raising deposit interest rates to reduce the cash circulated outsite the banking system In terms of interest rates, it is easier for commercial banks to mobilize capital, thus raising capital mobilization efficiency

Thus, the legal and policy corridor of the Government and the State Bank of Vietnam is an objective factor that has a great impact on the capital mobilization results of commercial banks

Second: Economic environment

The activities of commercial banks is included in the general economic activities, so they are significantly influenced by the economy The economic environment that affects the bank's capital mobilization includes macroeconomic stability, the relationship between inflation and interest rates, competition and cooperation among banks

+ Macroeconomic stability

The economic indicators such as growth rate, gross national income, capital flow rate, inflation rate, etc directly affect the capital mobilization of commercial banks When the economy is prosperous, the growth rate is fast and the national income is high, the capital mobilization of commercial banks also develop as economic units and people have abundant sources of deposits

in the bank On the other hand, it also creates a favorable investment environment for banks, thereby banks have to find measures to mobilize capital effectively and practically for their business When the investment environment expands, the bank’s income is constantly growing, creating a premise for the bank owner’s capital expansion

On the contrary, in the context of unstable socio-economic conditions, stagnant economy, high unemployment rate, the capital mobilization in particular and other banking activities in general will meet many difficulties because people do not trust to deposit money in banks but use assets with high stability meanwhile enterprises have to reduce production scale, decreasing deposits in banks; thereby reducing capital mobilization efficiency

+ Relationship between inflation and interest rate

One of the important factors affecting the adjustment of monetary policy and the decision on the deposit interest rate of the SBV is inflation rate

In the context of high inflation rate, in order to curb inflation, the SBV will implement the monetary tightening policy - reduce the amount of cash flow outside the banking system In addition, when inflation rate is high, the

prices of goods and services are so high that people tend to accumulate goods, which is more valuable than depositing money into the bank, reducing the capital mobilization efficiency of the bank

When inflation rate is high, people only deposit money into banks when they ensure that the deposit intest may at least offset the inflation rate

In other words, they want the real interest rate to be positive Therefore, in order to attract deposits in the context of high inflation rate, commercial banks have put themselves in a race to raise deposit interest rates However, the increase in deposit interest rates requires the bank’s business operations to

be changed In fact, the input interest rates increase, the ouput interest rates must also increase accordingly, which makes it difficult for enterprises to approach capital resources to expand production and business In order to limit the deposit interest rate race and reduce the burden on enterprises, the commercial banks introduced the ceiling deposit interest rate, which made the capital mobilization of commercial banks more difficult

+ Competition and cooperation among banks

Economic globalization is a fundamental feature and a unavoidable development trend of the era In this process, the scale and form of exchanging goods and services, international flows, technology transfers between nations and regions increase rapidly, thereby increasing dependence

of the world economies International integration opens opportunities for international cooperation among commercial banks in their operation and also requires the expansion of market share in the direction of merger to form a large financial institution As a result, there is a strong trend of the global competition between banks and financial institutions

In today's banking environment, deposit competition takes many forms Financial institutions are limited in terms of deposits, so customers can discuss scale, interest rate and maturity Banks can not apply the same

conditions to all customers Therefore, the products and services related to deposits are expanded rapidly In addition, many non-bank institutions can mobilize term deposits and even offer demand deposits Due to competition, deposit interest rates at banks increased meanwhile deposit service cost declined

Today, commercial banks not only compete with each other or with other financial institutions but also exploit each other’s strengths The commercial banks can cooperate with securities companies, insurance companies, investment funds, etc to mobilize capital from them In contrast, these companies also want to seek profit from deposit interest rates and other banking services Therefore, competition is both a challenge and an opportunity for the banks to promote all activities

Third: Socio-cultural environment

The socio-cultural environment is an important factor affecting the operation of commercial banks in general and capital mobilization in particular

Distribution of population is a potential resource that can be exploited to expand the capital mobilization scale of commercial banks Therefore, it is easier for commercial banks to mobilize capital in the densely populated areas

Consumption habits also have a direct impact on commercial banks’ capital mobilization If the population is accustomed to using idle money in the form of physical assets such as gold and dollars, the bank’s capital mobilization results will not be high

In developed countries, the demand for non-cash payment is growing, most people with income open accounts at the bank to make payments through the bank However, in developing countries or underdeveloped countries, the demand for payment transactions through accounts is limited due to their low income and habit of using cash in payment, which will limit

commercial banks’ ability to mobilize capital and not effectively promote the transaction accounts

People’s income levels and spending cycles are also factors that directly influence the amount deposited in the bank In general, the higher the income of the residents is, the higher their investment and transaction demand

is The higher the demand is, the greater the need to open accounts as well as deposit money into the bank is The spending cycle affects the scale and stability of the mobilized funds On the occasion of public holidays or New Year, the deposits of enterprises as well as population tend to decrease, especially in the context that cash payments are popular

The crowd psychology and rumors are also factors that have a significant impact on capital mobilization These two factors, in addition to the positive effect of increasing the number of customers as well as the amount of mobilized capital for banks, also have negative impacts that are easy to make banks be at risk when there is no appropriate control measures fit For example, when there are rumors of the bank’s weaknesses and poor performance of the bank officers or managers, without strict controls as well as the efforts of all employees, customers will feel worried and withdraw their deposits or not continue depositing money to the bank or advise their relatives to work with other banks, etc As a result, the bank can become insolvent, the capital mobilization efficiency is low and the business results are significantly impacted

CHAPTER 2: CURRENT STATUS OF CAPITAL MOBILIZATION AT

BIDV- TRANSACTION CENTER 1

2.1 Overview of BIDV - Branch Office 1

2.1.1 Establishment and development history of BIDV- Transaction Center 1

Joint Stock Commercial Bank for Investment and Development of Vietnam went into operation on April 26, 1957 in the name of the Bank for Construction of Vietnam From 1981 to 1989, its name was Bank for Investment and Construction of Vietnam; From 1990 to April 27, 2012: its name was Bank for Investment and Development of Vietnam (BIDV); From April 27, 2012 to now: it has officially become Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)

On March 28, 1991, the Bank for Investment and Development of Vietnam was established and put into operation under the Decision No 76/QD/TCCB by the General Director of the Bank for Investment and Development of Vietnam Nearly 25 years of establishment and development have marked the drastic development of the Transaction Center in terms of scale and quality of operation, namely:

- 1991-1995: In the first phase of operation, with only two departments and one professional team, the Transaction Center successfully completed its tasks of managing the budget allocation and supervising and inspecting the capital use for investment projects of ministries and branches with the capital

of hundreds of billion dong The average capital growth rate of this period was 124% per year, the total mobilized capital was 442 billion dong; the outstanding loans increased to 504 billion dong from 13 billion dong; total assets increased to 1,446 billion dong from 137 billion dong

- 1996- April, 2012: The Transaction Center drastically changed into business activities and carried out the accounting system in line with the

market mechanism From 2 departments and one professional team, by 2012, the Transaction Center had 22 departments, 4 transaction departments and the number of staff increased more than 12 times By the end of 2012, the Transaction Center had near 300 officers and completed the separation and upgrading of 5 subordinate units into 5 Grade I branches On November 1,

2009, under the decision of the State Bank that each commercial bank has only a transaction center, the Transaction Center was renamed the Transaction Office No 1 with the unchanged organization model

- May 01, 2012 - now: It is a milestone marking the transformation of the organizational model from a State-owned enterprise to a joint stock company On May 01, 2012, the Board of Directors issued Decision No 30/QD-HDQT on the establishment of Transaction Center 1 under Joint Stock Commercial Bank for Investment and Development of Vietnam During this period, the Transaction Center 1 successfully separated the first retail branch (Hong Ha Branch) and set up three transaction offices namely Hoa Binh Transaction Office, Kham Transaction Office Thien and Ngo Thi Nham transaction office

During the establishment and development process of nearly 30 years, Transaction Center 1 has been recognized and awarded many noble titles and forms: by the State, mass organizations, BIDV, namely: Labor Heroes, the 1st,

2nd and 3rd class Labor Medals; Certificate of Merits and Emulation flag of the Prime Minister, the Certificate of Merits and Emulation flag of the Governor

of the State Bank of Vietnam and other relevant ministries Transaction Center 1 has been the leading branch in terms of business efficiency in the BIDV system for consecutive years

2.1.2 Business results of BIDV- Transaction Center 1

Business results of Transaction Center 1 are shown in the following table:

Table 2.1 Business results of Transaction Center 1 in the 2015-2017 period

Unit: billion dong, %

Indicators

Implemen tation

Impleme ntation

(+), (-)

% compar

ed with the previou

s year

Imple menta tion

(+), (-)

% compa red with the previo

us year

1 Total mobilzed capital 28.201 30.705 +8,88 35.157 +14,50

2 Total outstanding loans 10.230 10.566 +3,28 12.780 +20,95

4 Revenues from services/

5 Business result:

Source: Annual report of Transaction Center 1

2015 - 2017 is considered a difficult period of the Vietnam economy in general and the banking sector in particular This period witnessed slower economic growth, rising unemployment and limited purchasing power In the banking sector, bad debt continued to rise, banks’ profits were generally down sharply According to the General Department of Statistics, about 17% of credit institutions suffered losses and the profit of the whole banking system was only 53-64% compared with that in the 2015-2016 period

In this context, with the continuous efforts of all employees, in the

2015 -2017 period, the Transaction Center 1 completed business tasks excellently and became 01 out of 05 leading branches of BIDV on all three aspects of operations Some specific results are:

- Capital mobilization

By complying with BID ’s orientation on capital mobilization, timely adjusting interest rates under the instructions of the SBV, BIDV and market signals, fully implementing the programs and products to mobilize capital in line with the guidelines of BIDV, Transaction Office No.1 still maintains a stable and growing mobilized capital, ensures solvency and complies with regulations of the State Bank of Vietnam (SBV) Total mobilized capital increased continuously over the years, specifically from only 28,201 billion dong in 2015

to 35,157 billion dong in 2017, equivalent to the growth rate of 25%

- Credit operation

In 2015-2017 period, the economic situation was complicated, the production and business activities faced many difficulties, a large number of enterprises reduced scale, terminated operation and were wound up and banking activities were difficult However, under the drastic guidance and adherence to the guiding documents of the State Bank of Vietnam and BIDV, credit activities at Transaction Office 1 still had the positive development The growth rate of total credit debt were about 8% per year The credit growth of the branch is always accompanied by control, credit quality improvement and loan security Thanks to the consistent implementation of effective measures to reduce bad debts in combination with the strict control

of loan quality, the average bad debt ratio for the three years was always below 0.56% of total outstanding loans, about 3.8% lower than that of the banking sector and about 3% lower than that of BIDV system As a result, total outstanding loans increased sharply to 12,780 billion dong in 2017 from

10,230 billion dong in 2015, equivalent to the growth rate of more than 25%

Unit: Billion dong

Figure 2.1: Credit growth rate of BIDV – Transaction Center 1 in the

2015-2017 period

Source: Annual report of Transaction Center 1

- Earnings before tax, earnings after tax: Although the economic

situation still faces many difficulties, the profit of the banking system decreased, the earnings before tax of the TC1 has always grown strongly over the years In 2016, the earnings reached 739.77 billion dong, 11.08 billion dong higher than that in 2015 In 2017, the earnings reached 785.78 billion dong, an increase of 46.01 billion dong compared to 2016 and exceeding the assigned plan, thereby contributing significantly to the achievement of the profit targets of the BIDV system