Strategy evaluation case study in vietnam technological and commercial join stock bank

Realizing that this is the time fo r bank to evaluate its strategy, this research is filled w ith an ambition to explore the present situation o f Techcombank by analyzing Vietnam’ s ban

Ms HOANG HUON G GIANG (M BA - MSC)

A thesis su b m itte d as a re q u ire m e n t fo r the degree o f

B a ch e lo r o f Business A d m in is tra tio n

^ и т с і т А і

A B S T R A C T

The financial turm oil and economic downturn at home and abroad posed big challenges for Vietnamese economy in general and banking industry in particular It is the time that banks explicitly expose their strengths and weaknesses given the d iffic u lt circumstances Therefore, it

is necessary fo r banks to deliver evaluation o f current strategy to examine whether it is suitable

to achieve their goals and adaptive to environmental change

W ithin the scope o f a personal research, this thesis is fille d w ith ambition to study strategy evaluation o f Vietnam Technological and Commercial Joint-Stock Bank by performing external and internal environment audit o f its current base strategies which are applied for long-term period 2005-2010 A model that examines the effects o f investing in fixed asset, human resources, network extension, product offerring to total operating income is b u ilt up as part o f strategy evaluation Based on results from external and internal audit, the thesis w ill evaluate current sưaiegies o f Tcchcombank using four criterio which arc consonanco, consistency, advantage and feasibility The results from model and environmental audit as well

as four criteria indicate that Techcombank’ s strategies f it w ith its current situation, not only boost the bank’ s performance but also adapt to change There is no need to change these strategies because they ensured sustainable development for Techcombank Nevertheless, some actions should be taken into account to improve notable weaknesses o f the bank

This thesis comprises o f 104 pages in which 80 pages belong to the main text from introduction

to conclusion part The main text has totally 21,150 words

S T A T E M E N T O F A U T H O R S H I P

“ Except where reference is made in the text o f the thesis, this thesis contains no material published elsewhere or extracted in whole or in part from a thesis o r any other degree or diploma

No other person’ s w ork has been used without due acknowledgement in the main text o f the thesis

This thesis has not been submitted fo r the award o f any degree o r diploma in any other tertiary institution.”

Student signature

Tran Thi Thanh Mai

A C K N O W L E G E M E N T

First and foremost, I would like to show my gratitude to m y supervisor - Ms Hoang Huong Giang - who are always full o f enthusiasm and aspiration, w illin g to answer my questions, provide me immediate suggestions and valuable feedbacks throughout the thesis progress

M y sincere thanks go to all lecturers o f the Faculty o f Management and Tourism who provide

me not only knowledge but also skills to live in m y life I had the greatest tim e ever in my student life at this second home

I want to send m y great thanks to M r Do Manh Hung, an auditor o f KPM G , fo r his support and suggestion in my research work W ithout your assistance, many ideas would never come in

m y mind

I tru ly appreciate friends from C F A V N in providing me a lot o f valuable data and information related to Vietnamese banking industry I am really happy when approaching these materials because they are very Iisefìil for me to gain more knowledge about banking sector and support

me a lot to deliver external audit in m y thesis Furthermore, I want to send many thanks to my CFA classmates at AFTC for your support and encouragements

A warm hug sent to LTS group - m y special friends in 4K05 for always making me laugh even when I feel tired W ithout you, I would lack the m otivation to complete the thesis

I am especially grateful to m y lovely fam ily for the indulgence and support to me

Finally, I would like to send m y deepest thanks to my “ C H IC K E N ” Your endless encouragement and caring have revived m y belief and aspiration to complete the thesis This work is dedicated to you

No project is the work o f only its author The contribution o f all o f you makes this research possible

T A B L E O F C O N T E N T S

A B S TR A C T

S TA TE M E N T OF A U T H O R S H IP

A C K N O W L E D G E M E N T

T A B L E OF C ONTENTS

LIST OF TABLES A N D F IG U R E S

LIST OF A B B R E V IA T IO N S

( H A P T K R 1: IN T R O D U C T IO N

1 Background o f the research

2 Problem Id e n tifica tion

3 Attempt to solve the problem

4 Research significance

4.1 Vietnamese banking industry

4.2 Vietnam Technological and Commercial Joint-Stock bank

4.2.1 M issions

4.2.2 V isio n s

4.2.3 Long-term strategies and directions period 2005-2010 4.2.4 Company inform ation

5 The research

5.1 Purposes o f the research

5.2 Research contribution

5.3 Scope and lim itations o f the research

5.4 C H A P T E R 2: L IT E R A T U R E R E V IE W •• 1 Commercial bank and retail banking

2 Strategy evaluation d e finitio n

2.1 s ia te g y

2.2 Strategy e valuation

3 Strategy evaluation steps

3.1 External environment audit

3.2 Internal environment audit

4 Importance o f strategy evaluation

5 Corporate governance in banking industry 6 Key success factors for banking industry

( H A P T K R 3: M K T H O D O L O G Y

1 Research methodology

2 Research questions

3 Data analysis

3.1 Model specification

3.2 Assumptions

3.3 Hypothesis

4 Eview results

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( И А Р М к 4: K IN IM N (;S

1 Techcombank’ s external environment audit 1.1 General environment - PEST analysis 1.1.1 Legal and p o litic a l

1.1.2 Econom ic

1.1.3 Socio-cultural

1.1.4 Technological

1.1.5 PEST Summary

1.2 Industry environment - Porter’ s Five Forces M odel o f Competition 1.2.1 Threats o f new entrants

1.2.2 Competitive riv a lry

1.2.3 Threats o f substitute products

1.2.4 Suppliers’ bargaining power

1.2.5 Buyers’ bargaining power

1.2.6 Porter’ s Five Forces Sum m ary

1.3 Competitors analysis

1.4 Customers analysis

2 Techcombank's internal environment a u d it

2.1 Finance

2.2 Operation

2.3 Human Resources Management

2.4 M arketing

2.5 Product Developm ent

2.6 Corporate Govomanco

2.7 SWOT analysis

3 Measuring performance

3.1 Consistency

3.2 Feasibility

3.3 Consonance

3.4 Advantage

C H A P T E R 5: DISCUSSIONS ON F IN D IN G S 1 Answers to research questions

2 Recommendations

3 Implications for management

4 Lim itations

( líA P T E R Ỏ : C O N C L U S IO N

1 Summary

2 Key findings and recommendations

3 Future research opportunities

BIB 니 O G R A P H Y

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I I IS I O F T A B LE S

1 Table I : F oreign strategic shareholders o f several JSCBs o f Vietnam 14

2 Table 2 : Techcombank 5 products and services 17

3 Table 3 : Key fin a n c ia l indicators in evaluating a bank 30

4 Table 4 : E ffect o f general environm ental conditions on Techcombank 49

5 Table 5 : P o rte r fiv e fo rce s m odel fo r Techcombank 57

6 Table 6: C haracteristics o f strategic groups in banking se cto r 59

ᄀ Table ᄀ : Techcombank fs fin a n c ia l h ig h lig h t 2003-2008 64

8 Table 8 : F in a n c ia l results in 2006 65

9 Table 9: F in a n c ia l results in 2007 65

10 Table 10: F in a n c ia l results in 2008 65

11 Table 11: Techcom bank’s fin a n c ia l ra tio s 2005-2008 67

¡2 Table 12: C om paring fin a n c ia l ra tio s o f the fo u r largest JSCBs in 2008 68

Ì3 Table 13: T ra in in g courses to employees 2005-2008 73

14 TubU 14: Tcchcom bank S W O T a n a ly s is 80

11 L IS T O F F IG U R E S 1 Figure 1: R elative size o f top 17 C om m ercial Banks in term o f asset 12

2 Figure 2 : Num bers o f banks in Vietnam p e rio d 199 Ì -2 0 07 12

3 Figure 3 : C re d it a nd deposit grow th in p e rio d 2002-2007 ¡3

4 tig u re 4: co m m ercia l bank m odel 21

5 tig u re 5 : A comprehensive management model 24

6 Figure 6 : P o rte r fiv e fo rce s o f com petition m odel 28

ᄀ F igure / : A fra m e w o rk fo r analysing service m arketing 32

8 Figure 8 : Service m arketing system fo r banking 32

9 Figure 9: Vietnam 5 G D P p e rio d ¡995-2007 44

10 F igure 10: Trade balance in Vietnam 1999-2007 44

1 / F igure 11: In fla tio n rate in Vietnam 2003-2008 44

12 F igure 12: С re d it-Money Supply-С P I grow th 2002-2007 45

13 Figure 13: M ilestones in interest rate p o lic y amendment 46

14 Figure 14: Relative top 17 com m ercial banks in term o f chattered c a p ita l 51

¡5 Figure 15: M arket share o f Vietnamese banks 52

16 Figure 16: S trategic group m apping o f banking sector in Vietnam 58

17 F igure 17: P ersonal customers deposit 61

18 F igure 18: Breakdown o f personal customer deposit 61

19 F igure 19: S tructure o f corporate custom ers 62

20 F igure 20: Loans to economic institutions by sector 62

21 F igure 21: Techcombartk's earnings structure 2007-2008 66

22 F igure 22: C a p ita l ra tio 2003-2008 66

23 F ig u re 2 3: C hatterred C a p ita l o f Techcombank 1993-2009 67

24 F ig u re 24: N on-perform ing loan 2003-2008 68

25 F igure 25: Loan to deposit ra tio s 2003-2008 69

26 F igure 26: N et interest m argin 2003-2008 69

27 F igure 27: Return on asset 2003-2008 70

28 F ig u re 28: Breakdown o f s ta ff 72

29 Figure 2 9 : Tecitcom bank risk governance stru ctu re 79

I I S T O F A B B R E V I A T I O N S

SBV: State Bank o f Vietnam

SO CB: State-owned Commercial Bank

JSCB: Joint Stock Commercial Bank

F JV B : Foreign and Joint-Venture Bank

SM Es: Small & Medium Sized Enterprises

W T O : World Trade Organisation

IM F : International Monetary Fund

Techcom bank: Vietnam Technological and Commercial Joint-Stock Bank

TSOs: Techcombank’s Sale Outlets

A C B : Asia Commercial Bank

STB: Sacombank

A T M : Automated Teller Machine

POS: Point o f Sale

N P L : Non performing loan

N IM : Net Interest Margin

C A R : Capital Adequacy Ratio

R O E : Return on Equity

R O A : Return on Asset

V N D : Vietnam Dong

USD: US Dollar

C H APTER 1

I N T R O D U C T I O N

Ill's sĩiỉí/y w ill dcniofistrnte síntíưíỊV с\ íth u ifiífn o f ỉ icỉỉìnm lư í Іт и Іи ц іс и І u n ti ( (ỉỉìim ưrcidl ìiỉĩỉ Stíỉck liỉitik П \ ， с Іи й т І)ш ік І to ntơdSỉirư /7ч pcrform m iLC (Ш(І síriĩte ịịic actiotìs.

I í/ì is ch up ter, и b rie f discussion lỉh iỉỉiì /Л パЬискцгоипй <ìf the rcseưrclít prohlcm stared in

Uf sîiuty w i l l be identified F urîherm orc, the section also deals w ith research significance hich provides rationale fo r studyítìỊỊ th is topic Chapter I concludes w ith scope u n ti

n a ture o f ih e thesis.

“ W ithout a strategy, an organization is like a ship w ithout a rudder, going around in circles It

is like a tramp, it has no place to go” (Joel Ross and Michael Kami, “ C ra ftin g and executing strategy” , Thompson et al) Obviously, strategy is so important that it w ill lead to success or

failure o f an organization When environmental conditions change, i f performance deviates significantly from forecasts, then the firm should renew strategy formulation The task o f strategy evaluation，therefore, should always begin w ith in-depth review o f the environment that firm operates to measure whether the current strategy is suitable w ith firm ’ s situation w ith the aim to take corrective actions or design new strategy Abraham Lincoln said that “ i f we know where we are and something about how we got there, we m ight see where we are trending 一 and i f the outcomes which lie naturally in our courses are unacceptable, to make tim ely change”

This research focuses on strategy evaluation o f Vietnam Technological and Commercial Joint- Stock Bank w ith the appraisal o f its macro-environment and micro-environment A fter recognizing the industry and competitive conditions as well as its internal strengths and weaknesses o f current based strategies, strategic recommendations w ill be pointed out

піЫ епі Id e n tifica tion

Banking is an industry which has close relation w ith the movements in the economy This industry w ill be the first one to suffer from the difficu ltie s when the economy declines but also the first one to recover to provide necessary conditions fo r economic recovery and stability Vietnam’ s banking industry is operating in an environment where difficu ltie s in global and Vietnamese economies are happening and posing their impacts It is the time that strengths and shortcomings o f banking system are e xplicitly exposed Dealing w ith the change in environment, banks must revise and evaluate its performances o f current strategies to make corrective actions as needed based on their own situations

There have been many researches about banking industry in Vietnam in different periods conducted by big banks o r credit rating agencies These researches report the reality and forecast future prospects o f banking sector in Vietnam in general In another word, they provide overall picture o f Vietnamese banking industry w ith economic viewpoint Unfortunately, the fact about strategy evaluation o f banks does not seem to be ftilly comprehended in Vietnam Because each bank has different capabilities, targets at different market nichcs and possesses difforont strategie directions, oach o f thorn develops thomsolvosstrategies that match w ith their situations and help them w in in the market place When market conditions change，new problems occur, each bank has to revise their performance o f current strategy to adjust it to be well-matched w ith current situation This jo b requires a lot o f time, money, effort and is not released to public

A t the beginning o f 2009，Techcombank’ s management has cooperated w ith world leading strategy consultants to evaluate performance and formulate new strategy development adapting

to more challenging and competitive environment conditions O liti) ： //ìì^anhannon!ine.com)

Realizing that this is the time fo r bank to evaluate its strategy, this research is filled w ith an ambition to explore the present situation o f Techcombank by analyzing Vietnam’ s banking industry - the external environment Techcombank operates in - and Techcombank’ s internal environment to study how it performs w ith current strategy Beside environmental appraisals, the thesis simultaneously takes a further step to create the model to evaluate its performance and suggest strategic actions for this bank in next periods

A ttem pts to solve the problems

W ith targeted problem is to conduct strategy evaluation o f Techcombank to assess its performance and suggest strategic actions, much time and effort have been spent to give out the findings o f this thesis

F irs t, information about Vietnam’ s banking industry is obtained and studied carefully From all

the data collected, PEST and Michael Porter’ s five forces analysis are delivered as Techcombank’ s external environment Second, a lot o f time has been spent to search

information about Techcombank A ll annual reports, financial statements and related information in recent years are gathered from the bank’ s information database A fte r catching needed information, strengths and weaknesses o f internal environment regarding finance，marketing, operation, human resource w ill be analyzed together w ith product development and corporate governance

4 Research Si

W ith the aim to evaluate Techcombank’ s strategy, the thesis strongly emphasizes on auditing

its external and internal environment E ffort ỈS focused on studying Vietnam ’ s banking industry

environment and particularly Techcombank’ s functional strengths and weaknesses given environmental change due to financial crisis This part provides a b rie f introduction about banking sector and Techcombank，significant subjects need to be analyzed in this study

4.1 Vietnamese B anking In d u stry

Since its beginning in the late 1980’s，the Vietnamese banking sector reform has come a long way Important changes have been accomplished in the structure, regulation and operations o f banks as w ell Since 1992，Vietnam has moved to a more diversified system in which state- owned, joint-stock, joint-venture and foreign banks provide services to a broader customer base This system is highly concentrated at the top, but fragmented at the bottom w ith domination o f SOCBs controlling 60% o f all assets (Figure 1 ).

Figure 1: Relative size o f top 17 Commercial Banks in term o f asset (Billion)

Source: VinaC apital

The banking industry has achieved rapid growth in terms o f both quantity and operation scale The number o f banks increased from 9 in 1991 to 80 in 2007, especially JSCBs and branches

o f foreign banks (F igure 2) A t present, Vietnam has 38 partly privatized and joint-stock banks,

four state-owned banks, one bank fo r social policies, one fo r development, five w holly foreign- owned banks，five joint-venture banks, and about 33 foreign bank offices (M oody’ s Report)

Figure 2: Numbers o f banks in Vietnam period 1991-2007

remarked a “ hot” credit growth w ith the rate o f 54% due to the high credit demand o f theeconomy including credit demands for securities and real estate investment (Figure 3) The

growth rate o f credit and deposit far exceeds the real GDP growth

Source: IM F , General S tatistics Offices，BVSC

In general, Vietnamese banks are principally corporate lenders, and consumer banking remains underdeveloped w ith only 17% o f the population holding banking accounts (Moody, 2009) Overall, low market penetration provides potential for expansion into the SMEs and consumer banking sectors M ajority o f banks fo llo w a straightforward business model w ith deposit-taking and lending as main products

Based on the sizes and total assets, Vietnam ’ s banks are divided into tw o main groups，SOCBs and JSCBs (Appendix 1) SOCBs have large scales and market sizes, huge capital, large number o f available customers Particularly, they are strongly supported by government and SBV However, cumbersome and weak management system, indigent products along w ith low service quality and risk management are the main disadvantages JSCBs w ith wide variety o f services and distribution channels, modem technology, and good risk management system are trying to make considerable improvement in their sources o f funds and expansion network operation to get more customers accessibility

Historically, SOCBs have dominated and the levels o f government ownership are still high However, government is now equitizing and slow ly privatizing the banks This process, coupled w ith foreign investments in domestic banks, w ill improve credit fundamentals The government still fu lly owns B ID V , Agribank, Mekong Housing Bank, Vietnam Development Bank and Vietnam Bank for Social Policies Post-equitization, it holds 91% in Vietcombank and 89% in V iet inbank (A C B ’ S Report, 2008) Currently, the number o f overseas institutions

as the strategic o f local banks is growing, w ith a foreign bank a bility to hold up to a 20% stake

Table 1: Foreign Strategic Shareholders o f several JSCBs o f Vietnam

Southern Bank Eximbank

Sumitomo Mitsui Financial Group 15

Sacombank Australia & NewZealand Banking Corp 10

Source: Moody, 2009

As lending to corporates carries low, banks are focusing on the SME and retail segments in which they can o ffe r more flexible services w ith high margins and use the ñ ill potential o f their client and branch network According to Nguyen Due V inh, the CEO o f Techcombank, a lot o f people among 86 m illio n Vietnamese people have demands for retail banking services

(híìp://vieínưm ncí vn) In fact, many domestic banks have been trying to make heavy

investment in retail banking by opening many more branches nationwide and investing a lot o f money on core banking software and IT They have also made effort to push up A T M systems, Internet Banking，Phone Banking and Home Banking A s Vietnam is a potential market, foreign bankers are eyeing domestic retai! banking when W TO’ S commitments come into effect In the near future, retail banking is expected to become more bustling w ith the intense competition between domestic and foreign banks and among domestic banks (Saigon Economic Times, 2007)

“ Techcombank is a multi-functional Joint Stock bank o f Vietnam, providing individuals and companies w ith high competitive, various and uniformed financing services and products in order to meet all demands o f customers, creating rising fo r shareholders, developing interests for Techcombank staffs and contributing to the development o f community，

(hups: ИЧІИ' techconibank com vtj).

4.2.2 Strategic Vision

'产 “ To become a leading joint-stock commercial bank in Vietnam in terms o f diversity, reliability, quality and efficiency w ith convenient and synchronized products and services which are preferable in big cities and provinces;

产 To provide differentiated products that are leading in each customer segmentations including individual customers and corporate customers: large corporations, medium­sized enterprises(MMEs)，small and medium-sized enterprises(SMEs), micro, small and medium enterprises(MSMEs)，households;

> To become a professional bank that challenges highnjualified personnel.”

Source: Report o f Techcombank 's CEO a t Shareholder M eeting

4.2.3 Long - Term Strategies and D irections in period 2005-2010

、 M a rk e t Development: Network extension in main areas w ith the advent o f the new division, branches and sub-branches to exploit every single business opportunities w ith special attention on marketing activities to promote bank’ s image

^ M a rk e t Penetration: increase market share for present products and services through greater marketing efforts

グ P ro d uct Development: Innovate and customize products and service convenience to meet various financial demands o f customers, especially commercial electronic products w ith the support o f the latest modem technology Focused products include cards, accounts, deposits, credit consumption, home loan

^ Focused Customers Segmentation: SMEs and Retail Banking for individuals

, Foundation o f Development: Human resources and Technology

r C orporate Governance: Enhancing risk management by the integration o f technology-

based solutions and qualified personnel, cooperation with foreign strategic shareholders

to gain know how

グ E thical Business: Attach corporate9s interests in harmony w ith society and the community

In 2001，Techcombank was not a famous brand name in banking industry and it did not make strong impression to people A t that time, when talking about JSCBs, people were more fam iliar w ith Asia Commercial Bank (A C B ) than Techcombank However, in this year, Techcombank signed a contract w ith a leading software supplier Temenos Core Banking o f Switzerland to implement new banking software G LO BUS over the network to meet the growing demand from customers This was considered as an audacious and dangerous step because it required capital intensive to invest in this system when only big banks in Vietnam invested in Core banking at this tim e w ith the support o f World Bank to use Silverlake - Malaysian software, much cheaper than Temenos

A fte r tw o years developing GLOBUS system o f Temenos, Techcombank did affirm its ranking

in technology when A T M card o f this bank was the first one that could connect immediately

w ith deposit account o f customers This created competitive advantage for Techcombank when customers o f other banks had to open separate A T M accounts to withdraw their money A fter that，a variety o f Techcombank's services has been the first ones in Vietnam w ith the support

o f modem Core Banking such as Internet Banking, payment via messages from mobile,

multifunction saving account It was the right investment that improves Techcombank’ sposition in banking industry (hup ： vici.siock.com vn ) A number o f branches were established

nationwide In 2007, HSBS increased the sharing capital to 15%, directly and sufficiently support Techcombank’ s operation W ith the raise o f the HSBC’ s property to 20% in 2008，Techcombank is currently the only Vietnamese bank having strategic partner w ith the maximum ownership property follow ing the Government’s lawsuit

A t present, Techcombank provides m ultiple products and services for customers that m ainly comprise o f the follow ing:

Table 2: Techcombank9s products and services

• Enterprises Services • Derivatives Products

Source: hifps:/A i ， w\v techcombank com, vn

Techcombank also gradually engaged in new investment operations, including investment in securities and real estate In the second h a lf o f 2008，three subsidiaries were established with combined capital o f V N D 410 b illio n including:

• Techcombank Assets and Liabilities Management Company Lim ited (Techcombank

A M C ) w ith a registered capital o f V N D 70 billion, established in July 2008

• Techcombank Securities Company Lim ited (Techcom Securities) w ith a registered capital o f V N D 300 billion, established in October 2008

• Techcombank Capital Company Lim ited (Techcom Capital) w ith a registered capital o f

V N D 40 b illio n , established in November 2008

Techcombank A M C initiated activities to serve customers w ith logistics, collateral management, asset management, and safe custody service to enhance the bank’ s asset quality and service level Techcom Securities and Techcom Capital are still in the development stage

o f building systems and operations and ready to tap business opportunities in 2009 (Techcombank’ s Annual Report ,2008)

U ntil June 2009，Techcombank has 182 branches and POS in more than 35 cities and provinces nationwide The bank is now serving 729,000 individuals and nearly 30,000 corporate customers The accumulated number o f cards including A T M card, international and domestic payment cards increases to 700,000 ( h ttp s://w ^\v techcomhunk com, vn) For its effort and

improvement overtime, Techcombank has been rewarded many prizes (Appendix 2) These achievements are praiseworthy and they are m otivation for Techcombank’ s management as

w ell as employees to reach better performance in the future

5.1 Purposes o f the research

Regarding the fact that banking sector is facing w ith difficulties due to economic downturn, many analysts from banks o r credit rating agencies have shown their attention through a large number o f standard and professional researches and analyses concerning this matter It is also the time that banks revise and evaluate strategy Notwithstanding, strategy evaluation for banks

is not carried out to public information Therefore, w ith the interest in studying the case study

o f Techcombank，this research is conducted aim ing at four main purposes

T o begin w ith, this paper audits the environment Techcombank operates in that is Vietnamese banking sector w ith the PEST analysis, Michael Porter’ s Five Forces Model to study competitive forces in banking industry, customers and competitive analysis are also audited Together w ith the preceding purposes, the research also identifies Techcombank’s internal strengths and weaknesses The third purpose o f this thesis is to build up a model to evaluate Techcombank’ s strategy Finally, based on the research findings, some strategic recommendations are suggested as corrective actions to boost Techcombank’ s performance

Due to the shortage o f qualified research on strategy evaluation for banks in Vietnam, thisthesis is carried out w ith desire to provide the case study o f Techcombank W ith this purpose, the research contribution can be classified into three main groups.

^ F o r in d iv id u a l investors

This research helps individual investors to have a better look at Vietnam ’ s banking situation and Techcombank capabilities to have the right investment decision towards banking stocks in general and Techcombank’ stock which is trading in over-the-counter market

デ F o r Techcom bank， s management

By performing external and internal audit to evaluate current strategy and suggest corrective actions, this thesis may be partially helpful fo r Techcombank's management in evaluating its current strategy and making adjustments to cope up w ith change in environment

> F o r other concerning parties

Regarding other partios, this thesis is expected to serve я« я reference document and as theoretical framework in which the way to conduct strategy evaluation is clearly presented to those who want to conduct sim ilar research in the future

5.3 Scope and lim ita tio n s o f the study

This research just emphasized on strategy evaluation o f Techcombank, a representative o f Joint-Stock Commercial bank in Vietnam The term “ commercial banks” in this thesis refers to entities that focus mainly on traditional banking activities which are lending and m obilizing Brokerage, advisory, underwriting, and derivatives-related activities belong to “ investment banking” operation In Vietnam, investment banking operation is currently the initial phase o f development, mostly executed at securities firms, only some big banks w ith developing orientation as a financial group are promoting these operations by establishing Securities firms owned by banks Due to restriction o f research’ s time and complexity o f banking industry，this thesis only concerns about operation o f commercial banks

5.4 Research paper structure

This research paper consists o f six main parts including introduction, literature review, research methodology, findings, discussions on findings, and conclusion

r In tro d u ctio n

The beginning chapter presents an overview o f the research Some issues related to strategy evaluation and overview o f Vietnam’ s banking industry and b rie f introduction o f Techcombank are presented under background o f the study, problem identification, and research significance Additionally, this chapter also clarifies the research’ s purposes, contribution and structure o f thesis

Chapter 3 w ill mention about the method to carry out this thesis The question that this paper is

trying to answer and hypotheses made before running the research model ttbu find their way in this part

Coming up next is the research findings，giving out the outcomes o f the work In chapter 4，Techcombank's external and internal environment w ill be analyzed carefully in detail

> Discussions on fin d in g s

Be closely related to previous chapter which mentions the findings o f Techcombank，s external and internal environment, chapter 5 involves in answer to research questions and points out strategic recommendations for future development o f this bank The implications and lim itation

o f this thesis are also concerned in this chapter

The last chapter w ill concisely summarize the thesis w ith key learning points

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L IT E R A T U R E R E V IE W S

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? íỊOvcrnance and key S l i d css fa cto rs in bunking im i us fry arc b rie jlx introduced.

Scholars have come up w ith a lot o f definitions o f commercial bank As look up on Wikipedia,

“ a commercial bank is a type o f financial intermediary that provides checking accounts, savings accounts， and money market accounts that accepts time deposits，

( hup://en.W ikipedia.or2/w iki/C onim ercial bank) Actually, commercial bank is the subject

operating in money market, gaining the interest margin between lending and deposit

Source: ucầm nang ngân hàng đầu tu *\ M ac Quang Huy, 2009

As being shown in the model, surplus units and deficit units cannot trade directly due to lack o f trust and unsymmetrical information Commercial bank plays an intermediary role to combine capital flow s based on its prestige Therefore, risks o f surplus units are reduced, do not depend

on the ability to pay debt o f deficit units Commercial banks have to face w ith credit risk from deficit units The term “ commercial bank，，came as a way to distinguish from “ investment bank” The primary difference between a commercial bank and its counterpart is that a commercial bank earns revenue by issuing primary loans from its pool o f deposits w hile an

investment bank brings debt and equity offerings to market for a fee w ith the advisory role，supports capital flo w directly from surplus units to d eficit units (Huy, M.Q., 2009).

Commercial bank can also refer to a bank or a division o f bank that mostly deals w ith deposits and loans from corporations or large businesses Meanwhile, “ retail banking” refers to

“ banking services to individual customers and SMEs through branches network”

(hitp://\v\Y\v invcstonvonls.com ) With these target segmentations, services o f retail banking

are normally simple and convenient, serving daily demands o f customers Through retail banking, customers can obtain a wide range o f personal banking products mainly including savings and checking accounts，debit and credit card, mortgages, and personal loans Customers also approach retail banking services via high technology like Internet banking or

M obile Banking Many banks offer both commercial and retail banking services

For such a long tim e have the public, the community o f scholars, and other concerned partiespaid so much intensive attention on strategic management issue Their interest has turned out to

be the source o f many researches, analyses and discussions relating to this issue In order to

w ork on the topic o f this thesis, definition o f strategy and strategy evaluation is collected and analyzed

at a fa irly low pace, making it feasible for the major components o f a good strategy to remain

in place for long period and impose its impacts Yet in high velocity change industries with short product life cycle, e.g, high-tech industry, two-years may be long term Thus，these industries require companies to rapidly adapt their strategies As the rule o f thumb, in practice，three years normally qualifies as long-term for most organization.

A dditionally, in 2007，in the book named “ Craft and execute strategy” , Thompson a lecture o f Alabama University and his co-workers_Strickland and Gamble, presented the definition o f strategy and related terminologies “ Strategy consists o f the combination o f competitive moves and business approaches used by managers to run the company，，(Thompson et al, 2007) Therefore, a company’ s strategy is all about “ how”

• “ H ow to please customers

• How to respond to changing market conditions

• How to outcompete rivals

• How to grow the business

• How to manage each ñinctional pieces o f a business and develop needed organizational capabilities

• How to achieve strategic and financial objectives"

The task o f identifying a company’ s strategy is m ainly one o f researching information about the company’ s action in the marketplace and business 叩proaches Yet in case o f publicly owned enterprises，the strategy is often openly discussed by senior executives in the company’ s annual report Except fo r some about-to-be launched moves, there is usually nothing secret or undiscoverable about a company’ s present strategy Moreover, a “ company’ s strategy is always

a w ork in progress” (Thompson et al, 2007) It is unlikely that the ongional strategy w ill be suitable over time This definition was not in conflict w ith M intzberg’ s theory because although strategy has long term impact, it is not an one-time event In response to changing market conditions, technological breakthroughs, the fresh moves o f competitors, evolving customer preferences, crisis situation， the strategy must be modified Furthermore, a company's strategy is partly proactive to improve the company’s financial performance and secure competitive edge, and partly reactive to unanticipated development and fresh market conditions

S(ratcg> Evaluation

The term “ strategy evaluation,, is best explained i f the strategic management process is appreciated In 2001，David Fred R., the author o f the book named “ Strategic Management Concepts” , presented a definition that “ strategic management can be defined as the art and science o f formulating, implementing and evaluating cross-ftjnctional decisions that enable an organization to achieve its objectives” (David Fred R., 2001) As this definition implies, strategic management focuses on integrating management, marketing, finance, production, research and development and computer information systems to achieve organizational success He explained that the strategic management is the process consisting three stages which are formulation, implementation and evaluation In order to understand the term

“ strategy evaluation” , it is better to look at strategic management process as evaluation is the final stage in strategic management

Figure 5: A Comprehensive Strategic Management Model

Source: Fred R David, “ Strategic Management Concepts •’ Strategy fo rm u la tio n includes developing a business mission, identifying an organization’ s

external opportunities and threats, determining internal strengths and weaknesses, establishing ІОГШ term objectives, generating alternative strategies and choosing particular strategies to

pursue Strategy implem entation requires a firm to establish annual objectives and allocate

resources so that formulated strategies can be executed

Strategy evaluation is the final stage in strategic management, it is the primary means to know

when particular strategies are not working well Three fundamental strategy evaluation activities are reviewing external and internal factors o f current based strategy, measuring performance, and taking corrective actions Strategy evaluation is needed because success today is no guarantee o f success tomorrow “ Success always creates new and different problems, complacent organizations w ill experience demise，，(David Fred, 2001)

On the “ Note on Strategy Evaluation” prepared by Professor Richard p Rumel in 2002，strategy evaluation was pointed out He stated that “ strategy can neither be formulated nor adjusted to changing circumstances w ithout a process o f strategy evaluation” Whether performed by an individual o r as part o f an organizational review procedure，strategy evaluation forms an essential step in the process o f guiding an enterprise This professor also mentioned about the “ general principles o f strategy evaluation” w ith broad criteria which are

internal consistency between goals and strategies，providing consonancp between the firm and

its environment, basing on the gaining and maintenance o f competitive advantage, and

fe a s ib ility in the light o f existing skills and resources Among those four criteria，consonance

and advantage are mostly based on firm 's external analysis whereas consistency and feasibility are largely based on internal analysis A strategy that fails to meet one o r more o f these criteria possesses serious flaws and needs to be adjusted Furthermore, strategy evaluation can base on both qualitative and quantitative criteria Common quantitative criteria are financial ratios, which strategists use to make tw o critical comparisons: comparing the firm 's performance over different tim e periods and comparing the firm ’s performance to competitors Besides, qualitative criteria such as human factors, marketing, information technology etc are also important in evaluating strategies These qualitative factors can also cause financial problems

In 2004，C olin White, in the book named “ Strategic management” , Slated that evaluation is

“ the act o f reviewing the appropriateness o f a strategy and overseeing the way in which it is implemented, there is no doubt that it is necessary to evaluate both the effectiveness o f the

general strategy and the efficiency w ith which the specific targets o f a strategy are being implemented， (C olin White, pp.653) The word uefFectiveness， refers to the general appropriateness for the organization o f the arenas chosen, the competitive differentiators, the vehicles for strategy achievement, the staging and pacing o f strategy Whereas，the term

“ efficiency” concentrates on the way in which the resources are used in the achievement o f the specific targets o f the strategy Problems can result from ineffectiveness 一 not doing the right thing or inefficiency - doing the right things poorly

Strategy evaluation activities should be performed on a continuing basis, rather than at the end

o f specified periods o f tim e or just after problems occur (Hoffman and O’ N e ill, 2000) This activity can lead to strategy-formulation changes, strategy-implementation changes, both formulation and implementation change, or no changes at all but performing this on a continuous rather than a periodic basis allows benchmarks o f progress to be established and more effectively monitored Some strategies take years to implement, consequently, associated results may not become apparent for years Therefore, successful strategists combine patience

w ith a willingness to take corrective actions prom ptly when necessary

From the preceding definitions，ỉn fact, strategy evaluation is the appraisal o f plans and the results o f plans that centrally concern or affect the basic mission o f an enterprise Its special focus is the seperation between obvious current operating results and the factors that underlie success o r failure in the chosen domain o f activity Its result is the rejection or modification o f existing strategies and plans It is usual to view strategy evaluation as a continuing process requiring data analysis and interpretation that is d iffic u lt to separate from normal planning，reporting, and controlling Consequently, it is tied more directly to the quality o f the firm ’ s strategic management than to any particular analytical scheme

Strateß> F.valuaHon

In the scope o f this thesis, the theory o f David Fred about steps involving in evaluating strategy

is taken into consideration Three fundamental activities o f strategy evaluation include (1) performing external and internal audit, (2) measuring performance based on four criteria mentioned by Richard Rumelt (consistency, consonance, competitiveness, feasibility), and (3)

taking corrective actions to ensure that performance conforms to plan In this part, the approaches to analyze external and internal environment o f a company w ill be described.

3.1 E xternal environm ent audit

“ External environment” include all relevant factors and infuences outside the company’ s boundaries This is considered as the most d iffic u lt part o f the analysis because o f tw o reasons First, the breadth o f the analysis required, the uncertainty and ambiguity that exist w ith many signals receiving from the environment make interpretation d iffic u lt Second, it deals with issue that organization cannot control However, some o f the profound influences on a company’ s strategy come from environmental factor, so it is necessary to conduct this element

o f the analysis The external environment o f a company can its e lf be divided into tw o parts, the general environment and the competitive o r industrial environment (C olin White, 2004)

The general environm ent can be divided by segment, normally using PEST analysis - Political,

Economic, Socio-Cultural and Technological In practice, the environment has both negative and positive features As a matter o f fact, the strategist should be looking fo r both opportunities and noting threats

The com petitive o r in d u stria l environm ent has a much more obvious and direct influence on

company’ s strategy than the general environment This environment consists o f variables affecting the immediate and competitive situation o f a company such as competitive position, customers, suppliers, creditors and the labor market It requires strategists to perform industry analysis, customers ’ analysis and com petitors ' analysis.

r- Industry A nalysis

The key analytical tool for analyzing industry is a framework developed by Michael Porter from Harvard University According to Porter (1979), industry structure should be analyzed in terms o f five main elements or competitive pressure This model is depicted in figure 6，holds that the state o f competition in an industry is a composite o f competitive pressures operating in five areas o f the overall market including competitive pressures associated w ith the jockeying

among rival sellers, threats o f new entrants, sellers o f substitute products，supplier bargainingpower and buyer bargaining power.

In the book “ Crafting and Executing Strategy” (Thompson et al, 2007)，the way to use five force model was determined To build the picture o f competition in a given industry, it involves three steps First, identifying the specific competitive pressures associated w ith each

o f the five forces is required Second, the strong degree o f each force must be pointed out

T hird, determining whether the collective strength o f five forces is conducive to earn attractive profit is mentioned

Figure 6: Porter’s Five Force Model o f Competition

Competitive Competitive

pressures stemming from

pressures stemming from w- buyer -_ _ bargaining power and buyer-

C o m p o r te n W U

o r

OtHmr

► supplier ^ — bargaining end supplier-

for better market position, increased

•ales and

market-R « « o t ir o 췌 i collaboration eher«f end

competitive Ẳ

seller collaboration

In aggregate, all o f Porter’ s five elements play a significant role in determining the nature and intensity o f competition in any given industry Reviewing industry using this model is useful to point out whether the current strategies are compatible w ith its competitive environment.

An analysis o f customers is probably the valuable activity related to the industry environment This is because, although companies have a lot o f cost centres, they have only one revenue centre 一 the customers (John V iljoen and Susan Dann, 2003) The analysis should review each customer segmentation in order to clearly understand the characteristics and any change occurring to assess and m odify current strategies w ith the aim to meet customers’ needs and satisfactions

> Сom petitors A naiysis

A n analysis o f competitors enables companies to assess whether it can compete successfully

w itnin a given market w ith given profit opportunities N ot only must the strategy o f a company

be based on fu ll understanding o f the needs o f customers and potential customers, it must also

be compotitỉvoly defensible Strategic group mapping is a Iisefiil technique used to display the competitive positions that rival firms occupy in the industry “ A strategic group is a cluster o f industry rivals that have sim ilar competitive approaches and market positions” (Thompson et

al, 2007) This map reveals which companies are close competitors and which are distant competitors Generally speaking, the closer strategic groups are to each other on the map, the stronger the cross-group competitive rivalry tends to be Using strategic group mapping w ill be effective to review competitors and determine strategic actions that best compete w ithin strategic group

3.2 In te rn a l environm ent audit

Internal strengths and weaknesses are company’ s controllable activities that are peformed especially w ell or poorly They arise in management, finance, marketing, operations, human resources, and product development Identifying and evaluating organizational strengths and weaknesses in the ftjnctional areas o f a company is an essential strategic management activity Relative deficiency o r superiority is important information A company’ s strategy that is

considered to be well-conceived i f it satisfies two conditions First, it must be well-matched

w ith resources strengths and weaknesses Second, it aimed at capturing best market opportunities and erecting defenses again external threats to its well-being By performing internal audit using standard criteria in each functional areas to evaluate, companies w ill try to capitalize on internal strengths and improve on weaknesses

There are some important financial indicators in evaluating a bank which are extracted from LAC E Corporation，an international credit rating agency Basically, there are three main financial ratios groups which are asset quality ratios, liq u id ity ratios, and p ro fita bility ratios

Table 3: Key Financial Indicatỉ>rs in evaluating a bank

CAR

Loans growth

Le/ Total Loans

t Provision/ Pre-Provision Earnings

I o t l m П м п с Іа І tn d k rito r»

I

T o ta l A ftM t

Net Interest Margin (NIM) Cost/Income

Source: LAC E; Clyde et a l F inancial Statement A n a ly s is ^ edi Asset q u a lity assesses quality o f a bank’ s assets through non-performing loan (NPLs) ratio

Asset quality affects earnings through provisions to the loan loss or NPLs reserve An inadequate reserve w ill require additional provisions, which reduces earnings Poor asset quality can also affect earnings through reduced interest income

L iq u id ity ability o f a bank normally is expressed through loan to deposit ratio (LD R ) A high

LD R implies risk to a bankfs earnings and capital arising from its inability to meet obligations when they come due without incurring unacceptable losses Bank management must ensure that sufficient funds are available at a reasonable cost to meet potential demands from both fund providers and borrowers

P ro fita b ility ratios measure ability o f a bank to generate high or low profit which is calculated

by return on equity (ROE), return on asset (ROA), net interest margin (N IM ) and percentage o f cost incurring to total income ROA describes rate o f return a firm can earn on the assets that it had available during the year Meanwhile, ROE measures accounting return to common shareholders after subtracting all payments to providers o f capital senior to common shareholders (Clyde et al, 2004) Besides, N IM is a measure o f the difference between the interest income generated by bank and the amount o f interest paid out to their lenders The higher R OA, ROE, N IM , the better

This term is used to refer to the processes and activities that result in either the creation o f a physical products o r the provision o f an intangible service To assess the capability o f a bank

w ith regard to its operations, it is necessary to consider the effective use o f technology in operating activities, operating structure and the extension o f operation network (John Viljoen

& Susan Dann, 2003)

> H u m an R esou rce M an agem en t

Human resource management (H R M ) serves the key functions including recruitm ent selection, training and development, rewarding, compensation, career development and performance

appraisal (http://en.w ikipedia.om ) Therefore, assessing strengths and weaknesses o f H R M

should involve in performance o f H R M in these fonctions

Banking industry provides not only tangible products but also high level o f services to customers Achievement o f excellent service quality, satisfaction and hence customers loyalty requires not only traditional marketing, but also internal marketing and relationship management (Clyde et al, 2004) Traditional marketing refers to efforts o f organization to emphasize brand awareness to its customers through traditional marketing tools such as advertising, promotion, public relation Meanwhile, internal marketing describes the efforts

by the organization to train and motivate employees to serve internal as w ell as external customers It has been often said, in the context o f the service firms, i f firms are not serving

external customers, then firms are probably serving someone inside the organization who is dealing with the external customers As it costs more to attract new customers than to keep existing ones, relationship management plays a special role in retaining customers Therefore, a modem marketing service requires taking into consideration those three themes.

Figure 7: A framework for analyzing services marketing

Source: Clyde et al, 2004, Services M arketing, 3th edition

In detail, service marketing system fo r banking includes both backstage and frontstage activities as being modified in figure 8 Backstage includes management and administration, normally by using modem technology such as Corebanking system, it is o f little interest and invisible to customers W hile frontstage comprises o f activities to deliver services to customers through personnel or electronic equipments

Figare 8: Service M arketing System fo r Banking

P m o n dWordofMoMth

Other Contact Pointsỉm

Service Operation System Service Delivery System

custom ers

PbMe,Fmxf MallvWcbeltc,ctc

Backstage Frontsta^e

Source:Clyde et al Services M arketing,3th edition

As being depicted in the figure, service operation system for banking services include technology, service people at branches, A T M , or phone, mail and website Through sale persons, A T M , electronic tools, banking services are delivered to customers In addition to this, there are some other ways to contact customers such as via advertising, doing market research,

random exposures or word o f mouth This system associated w ith aforementioned framework

w ill be used to analyze marketing activities o f Techcombank

In addition, strategy evaluation is vital to an organization's well-being because it take corrective actions when real performance does not conform to targeted plan (Richard Rumei，2002) Evaluating strategy, therefore, can help organization correct errors happenning, therebylim it unwanted losses and boost firm ’ s ill tu re performance In another word, corrective actions

w ill place an organization in a better position to capitalize upon internal strengths; to take advantage o f key external opportunities, to avoid, reduce, o r tone down external threats, and to improve internal weaknesses

N o organization can escape change，thus strategists cannot escape having to revise strategies and implementation approaches sooner or later In short, this is a valuable activity to keep an organization on track toward achieving stated objectives to adapt successfully to changing circumstances Given the importance o f strategy evaluation to an organization, this thesis has made strong effort to deliver the strategy evaluation for Techcombank

Ш Я Ш Ш Ш ІШ Ш Ш Ш Ш В Я Я Ё Ё Ё Ё Ё Ё Ё Ё Ё Ё Ё Ё Ё Я Ё Ё Ш

Given the important financial intermediation role o f hanks in an economy, their high degree o f sensitivity to potential difficulties arising from ineffective corporate governance and the need

to safeguard deposits’ ftjnds, corporate governance for banking organization is o f great importance to the international financial system Chartered Financial Analyst Institute (CFA) defines corporate governance as “ the set o f internal controls, processes, and procedures by which firms are managed It defined the appropriate rights, roles, and responsibilities o f management, the board o f directors, and shareholders within the organization，， As its definition implies, corporate governance is obviously the firm ’ s checks and balances.

In 1999，the Organization for Economic Co-operation and Development (OECD) defined corporate governance as involving “ a set o f relationship between a company’ s management, its board, its shareholders, and other stakeholders，， From a banking industry perspective, corporate governance involves the manner in which the business and affairs o f banks are governed by their board o f directors (B O D ) and senior management, which affect how they

“ set corporate objectives, align corporate activities and behavior w ith the expectation that banks w ill operate in a safe a sound manner, an in compliance w ith applicable laws and regulations, and protect the interests o f depositors” (OECD, 1999)

A lso in this year, the Basel Committee published guidance to Assist banking supervisors in promoting the adoption o f corporate governance practices by banking organization in their countries This guidance drew from principles o f corporate governance that were published earlier by the OECD Prim arily, responsibilities fo r good corporate governance rest w ith BOD, senior management, and bank supervisors In addition, there are many others that can promote good corporate governance, including:

• “ Auditors ᅳ through a well-established and qualified audit profession, audit standard and communications to BOD, senior management, and supervisors;

• Professional risk advisory and consultants firm - through assisting banks in implementing sound corporate governance practices;

• Government - through laws, regulations, enforcements, and effective judicial framework;

• Credit rating agencies - through review and assessment o f the impact o f corporate governance practices on a bank’ s risk profile” (Basel Committee，1999)

This guidance also indicated that effective corporate governance practices are essential toachieve and maintain public trust and confidence in the banking system, which are critical to the proper functioning o f the banking sector and economy as the whole Poor corporate governance may contribute to bank failures, which can pose significant public costs and consequences due to their potential impact on any applicable deposit insurance system and the possibility o f broader macroeconomic implications Furthermore, poor corporate governance can trigger a bank run o r liquidity crisis In short, the enhancement o f corporate governance is increasing its importance in banking sector.

lo r h a ilk i111* in clu slnCompetition in banking industry is highly intense, in order to survive and w in in the market place, banks need to build up their own competitive advantages Regarding to this matter, Peter

S Rose, a lecturer in Texas A & M University, in his book named “ commercial bank management” published in 2000，pointed out five key success factors fo r bank to achieve higher financial performance They include technology, human resource, financial capacity, risk management and diversified products and services

> Technology

IT plays the key role in seperating the winners from the losers in banking industry, enables banks to charge higher fees and offer genuine services to their clients The development o f technology has made banking services become more quickly and convenient Furthermore, it is very important in risk management and support daily operating activities o f banks When the operations o f banks are becoming more complicated and more electronics-bascd, the application o f technology is necessary to manage the information systems effectively and to provide better services that bring more satisfaction to customers w ith shorten trading time, security and safety Clearly, innovate or evaporate, particularly in technology-driven businesses, nothing quite receds like success It is common that continued investment in high tech w ill result in effective operation for banks and help banks gain competitive advantage in market place

^ H 14m an Resource

Along w ith technology, human resource is a crucial input for banking development Owning professional, active, enthusiastic，and knowledgeable workforce is considered as the h a lf o f a bank’ s success Currently, Vietnamese banking industry is in the situation o f lacking qualified personnel A s a matter o f fact, educating and providing support for potential candidates since they are at university are catching attention o f many banks More importantly, attracting, developing, and maintaining talent employees which require careful planning and suitable policies challenge human resource department o f banks It is said that banks w ith higher skilled workforce w ill develop rapidly and in a sustainable manner

“ The a b ility to improve market share and network operation in a highly developed banking environment depends strongly on financial capacity” Currently, Vietnamese banking sector remains undercapitalized Banks generally display low capital relative to international standard Pursuant to S B V ’ s regulation, Capital Adequacy Ratio (CAR), the important criterion that is used to reflect bank’ s financial capacity, determine a b ility to liquidate fixed-term debt and to copc w ith risk, is at least Я°/о which is parallel w ith ВйкеІ I standard The average CAR o f

SOCBs jum ps from 7-9%, whereas that o f JSCBs is over 12% A t year end 2이 0，banks are compelled to register minimum chartered capital o f V N D 3 trillio n Therefore, the pressure to raise capital is strong at this tim e as m obilizing a b ility o f entire industry is weakened Banks

w ith weak financial o p a c ity need to improve to absorb unpredicted future loss and maintain market share to face solvency pressure in the event o f narrowing net interest margin and nsmg non-performing loan eroding their capital level i f they do not want to be out o f this fierce competition

^ Risk Management

Banking activities are very sensitive, related to a variety o f economic aspects, and affected by many subjective and objective elements such as economy, politics and society There is the trend that banks are attempting their efforts to widen operation network，introduce new products or services and aplly new technology These activities require synchronous strategic risk management in order to reduce unwanted risks Some common types o f risk are liquidity

risk, credit risk, interest rate risk，security trading and investment risk As banking industry evolves，banks w ill need to enhance their risk management functions, particularly in the area o f credit risk in order to ensure that credit expansion is properly captured and controlled in a volatile local economy A modem risk management model is the combination o f three elements which are employees from branches o f company as the foundation，risk management department and internal control department in order to find out potential negative trends and provide immediate solutions Besides, utilizing modem technology is also a good solution Especially, this factor is indispensable in the face o f current crisis in the w orld economy, o f the fierce increasingly competition in the business environment o f Vietnam as w ell as the mushrooming o f sophisticated financial products and services which may expose financial institutions to substantial risks.

> D ive rsifie d products a nd services

This is a very important factors fo r banks to gain competitive advantage The real situation o f Vietnamese banking industry is “ abundant banks, lack product” When foreign banks penetrate into domestic market and provide m ultiple services to customers w ith high quality，diversified products and services ¡8 becoming more and more important to domestic bank To compete

w ith foreign bank and other Vietnamese bank, continuous innovation o r product development

is required to meet the various сий отеге’ demands and attract more new customers

T o sum up, these KSFs are o f importance fo r Vietnamese banks since the country joins WTO

in order to enhance competitiveness and boost performance Many JSCBs take into consideration five KSFs in their long-term strategies as the means fo r achieving profit-

m axim izing in which A C B , STB and TCB are outstanding representatives proving development w ith high business results thanks to right investments in these elements

О ііір ://ш а п И ш т)п Ч п с с о т\ In aggregate, modem technology, qualified human resource,

strong financial o p a c ity , good risk management and product diversity are considered as the keys for future development o f Vietnamese banks

This research aims at evaluating strategies that Techcombank is implementing for period 2005-

2010 As mentioned in literature review, in order to assess whether the current strategies work

w ell o r not, it involves in analyzing external opportunities and threats, and judging internal strengths and weaknesses when applying current strategies Some key positions o f Techcombank were approached to point out evaluation for the thesis Given the fact that strategy is the very important asset o f any company, information from this source is limited However, along w ith all information collected from Techcombank information database and annual reports o f Vietnamese banking industry provided by prestigious people working in this sector, it is sufficient to work out evaluation The m ajority o f financial statements collected were audited by famous international auditing firm , KPM G Therefore, the creditability o f data

is reasonably high

y Question 1 : Is the current strategy fit w ith Techcombank’s situation?

グ Question 2: Is it necessary to m odify o r renew current strategies fo r long term period 2005-2이 0?

3 Data a iu il\s is

3.1 M odel specification

One o f the most effective ways to see whether the current strategies w ork well or not is to see the real performance o f implementing those strategies which are expressed clearly in financial results, normally the operating income As mentioned in literature review, there are five key factors for Vietnamese banks to achieve success They comprise o f technology, human