36 ANALYZING FINANCIAL STATEMENTS AT VIETCOMBANK; SITUATION AND SOLUTIONS

MINISTRY OF FINANCE ACADEMY OF FINANCE -�⧫� - Student : Thiều Quang Hưng Group : CQ55/51.01 GRADUATION THESIS TOPIC: “ANALYZING FINANCIAL STATEMENTS AT VIETCOMBANK; SITUATION AND SOLUTIONS” Major: English for Finance and Accounting Student code: 17522202010014 Supervisor: Tran Huong Giang (MA.) Hanoi – 2021 MINISTRY OF FINANCE ACADEMY OF FINANCE -�⧫� - Student : Thiều Quang Hưng Group : CQ55/51.01 GRADUATION THESIS TOPIC: “ANALYZING FINANCIAL STATEMENTS AT VIETCOMBANK; SITUATION AND SOLUTIONS” Major: English for Finance and Accounting Student code: 17522202010014 Supervisor: Hanoi – 2021 Tran Huong Giang (MA.) Academy Of Finance Graduation Thesis DECLARATION I declare that this undergraduate’s thesis “Analyzing finance statement in Vietcombank; Situation and Solution” is the result of individual study and self-experience research which is not replicated work The data and the material used in this thesis have clear sources and references to all the sources The result of this thesis is honest and derived from the actual situation of the organization Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis ABSTRACT The purpose of this thesis is to analyze the financial situation through the analysis of financial statements of Vietcombank In this thesis, we will learn about Vietcombank's business performance in the years from 2018 to 2020 to see what achievements they have achieved and how to develop direction At the same time, what difficulties did you encounter in the course of business operations, and how to overcome them? Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis ACKNOWLEDGEMENT In order to complete this undergraduate’s thesis, I owe many people many thanks for their supporting First, I would like to express my endless thanks and gratefulness to my supervisor MA Tran Huong Giang Her kindly support and continuous advice went through the process of completion of my thesis So far, I would like to thank all the lectures and staffs of Faculty of Foreign Languages – Academy of Finance for their teaching and supporting me to achieve knowledge and experience My special thanks to all staffs and management joint stock commercial bank for foreign trade of Viet Nam–Hoan Kiem sub-branch; for their kind assistance and support in providing me data and advice to complete the research Finally, I would like to express my special thanks to my parents for their endless love and motivation Thank you! Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis LIST OF FIGURES AND TABLES FIGURES Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis TABLE OF CONTENTS Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis INTRODUCTION Rationales: Vietnam's economy is in the stage of development and integration with the world economy with Vietnam becoming the 150th member of the World Trade Organization (WTO) With the trend of integration, the banking sector is always the backbone, one of the important industries with a long-term development and making significant contributions to the development of the national economy Vietnam is starting to commit to opening up, making the banking industry facing increasingly fierce competition, with many opportunities but also many challenges Facing such difficulties, it forces joint-stock commercial banks to proactively analyze strengths, weaknesses, opportunities and challenges to keep up with the changing environment In such conditions, the financial statements with the most integrated financial information are the means to provide useful information for all subjects in a competitive and developing market economy Financial statement analysis is the shortest way to approach the full picture of the financial situation of your own bank, see both the pros and cons as well as the causes of those weaknesses in order to have a correct business orientation in the future Over the past years, the Vietnamese commercial banking system has been interested in financial assessment and analysis in the business process However, the assessment and analysis of commercial banks are still weak and lacking reflected in the incomplete analytical methods, methods of review and assessment, and evaluation criteria of the financial status of banks This makes it difficult for bank administrators to manage, evaluate and make important decisions This greatly affects the development of the banking system in the future Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis Over the past 58 years of construction and development, Vietcombank has made important contributions to the stability and development of the country's economy, upholding its role as a major foreign bank, effectively serving economic development, while at the same time making an important impact on the regional and global financial community However, along with the immaturity of the financial and monetary market of Vietnam in general and the Bank for Foreign Trade in particular, compared to developed countries in the world, Vietcombank's financial statement analysis is also in in an early stage of development with many limitations For this reason, I decided to choose the topic: “Analyzing financial statements at Vietcombank; Situation and solutions” for my graduation thesis with the hope of contributing a small part of my effort to perfecting the analysis of financial statements at Vietcombank in particular and in the system of commercial banks in general Research purposes and missions: It can be said that the analysis of the report in general has helped administrators have a deeper insight into service performance, concretize into ‘talking numbers Thereby providing timely, and effective strategies At Vietcombank in particular, the analysis of the financial statements is a rewarding job and has clearly shown the importance in policy and strategy planning of the managers Regarding the advantages of analyzing financial statements in commercial banks, through research I have drawn some of the following characteristics: The analysis of financial statements has mentioned almost all the indicators on the financial statements such as growth of outstanding loans, capital mobilization,… many criteria have been analyzed in many directions and aspects Many banks are very strong in investing in information technology software systems, which help to automate many reports and the data, information, … Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis needed to be used for fast, complete and accurate analysis of financial statements At Vietcombank, the financial statements are fully analyzed due to the financial analysis department specializing in the analysis and evaluation Through the above advantages and disadvantages, I have drawn the research purposes and tasks of the topic: Firstly, researching this topic helps me systematize and clarify theoretical knowledge about analyzing financial statements of commercial banks Secondly, researching the topic helps me to analyze in depth the situation of financial at VCB in recent years Finally, researching this topic helps me propose some solutions to complete financial development in VCB Scope and object of study: The research object of the topic is financial statements and financial situation at Vietcombank The scope of the research topic is analysis of financial statements through criteria and contents of analysis of basic business operations of Vietcombank in the period from 2018 to 2020 Method of study: The thesis uses statistical methods, synthesis and analysis with a system of diagrams and tables to present theoretical and practical contents 10 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis this amount increased by 2,031,075 million VND, accounted for 8.57% of total income In 2020 this income reached 10,194,466 million VND, an increase of 19.9% compared to the previous year, and accounted for 12.28% total income Non-Interest income such as foreign exchange gain, net gain on securities, and other non-interest income This is a small income on the total income of only approximately 10% for consecutive years Specifically, in 2018 NonInterest income accounted for 10.27% of total income, 8.57% in 2019, and 8.26% in 2020 Although it is not much in the total income of the bank but this is also an income that shows the scale and diversity type of monetary activity at the bank 2.2.2.2 Expenses Analysis: Credit is a major business of the bank, so credit costs are an expense that always accounts for a large proportion of a bank's total operating expense Credit costs or Interest expenses is an amount used to improve credit quality at the bank In addition, in order for the bank to operate well and effectively, the bank also has to pay additional fees such as service charges, and other non-interest expenses By million VND 2018 Rati Money Interest expenses Service charges Non-interest expenses 41 Thiều Quang Hưng 2019 27,399,75 o 61.6 2020 Rati Money Rati Money 33,044,97 o 61.6 32,835,75 o 61.7 2 3,535,540 7.96 4,612,445 8.6 3,873,752 7.28 13,505,32 30.3 15,969,46 29.7 16,492,18 8 31 CQ55/51.01 Academy Of Finance Total Expense Graduation Thesis 44,440,61 100 53,626,88 100 53,201,69 Table 2.5: Analysis of the bank's expenses over years 100 Looking at the table above, we can see that the total expense had increased, in 2018 the total expense is 44,440,618 million VND By 2019 the total cost was 53,626,880 million VND, an increase of 20.67% compared to 2018, and in 2020 total expense reached 53,201,692 million VND We can see that the total expense of 2019 and 2020 increased significantly compared to 2018 The reason is that interest expense in these years increased at a high rate The Interest expenses is an expense that accounts for a large proportion of the total operating costs of the bank, specifically, in 2018 interest expenses was 27,399,757 million VND, by 2019 this cost reached 33,044,970 million VND, an incresed by 20.6% compared to 2018, in 2020 was 32,835,752 million VND, an decreased by 209,218 million VND ~ 0.63% compared to 2019 As we can see, Interest expense in 2019 and 2020 increased sharply compared to 2018 The reason is that in 2019, 2020 the bank's capital mobilization reached a high level, in the structure of mobilized capital, customer deposits in 2019 and 2020 increased more strongly than in 2018, this led to an increase in interest expenses In addition, the reason was that the bank increase deposit rates to retain old customers, attract new customers in the current tough market economy, so the exspense to pay for deposit was increasing Service charges is the cost for payment services, telecommunications services, and other services This is the amount the bank uses to pay for business services, which accounted for a small percentage of the total expense approximately 8% in years Non-interest expenses are mainly operating costs such as spending on social work, staff expenses, insurance payment costs, customer deposit guarantee We can see that non-interest expenses in 2019 and 2020 had increased more 42 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis strongly than in 2018 The reason was because in this period, bank was promoting the application of technology in banking services Therefore, the costs of developing information technology systems were strongly promoted 2.2.3 Profitability analysis: The ultimate goal of a business is to make a profit This is also an indicator to evaluate the quality of the bank's business The factors that have a decisive influence on a bank's profit are total income and total expenses However, the total annual income and total expenses always change, so it also makes the bank's profit fluctuate from year to year To see this change clearly, we now analyze the bank's profitability over the past years 43 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis By mililon VND Figure 2.3: Bank's profit over years (2018-2020) The data shows that the profit before tax of the bank tends to increase strongly over the years Specifically, in 2019 net profit reached 29,375,131 million VND, an increase 18.4% or 4,565,901 million VND In 2020 continues to increase by 3,082,764 million VND, equivalent to 10.4% compared to 2019 and reached 32,457,895 million VND In general, Vietcombank's business activities for consecutive years were always effective, earning high profits and tending to grow over the years The reason is that the bank always expands and improves credit quality, the efforts of the staff and employees try to seize the opportunity to expand the business scope in the current competitive environment However, the growth rate of 2020 is lower than that of 2019 due to the impact of the covid19 epidemic, but Vietcombank accompanies and shares difficulties with businesses across the country by maintaining reasonable interest rates, deploying many credit packages with preferential interest rates to stabilize the economy Through the above data, we also see that the income growth rate was always higher than the expense growth rate Thereby establishing a stable, safe and sustainable economic development foundation for the bank in the future 2.3 ACHIEVEMENTS AND LIMITATIONS WHEN ANALYZING VIETCOMBANK'S FINANCIAL STATEMENTS 2.3.1 Achievement: In 2020, the global outbreak of the COVID-19 pandemic had greatly affected all aspects of the economic and social life of the country, including the banking industry In that difficult context, responding to the call of the General Secretary, the President and the direction of the Government, the 44 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis State Bank, Vietcombank had made efforts, determination and successfully implemented the "double mission", while ensuring business continuity, safety and efficiency; at the same time, join hands with the whole country to drastically prevent and fight the epidemic and share and accompany businesses and customers to overcome difficulties, contributing to the rapid recovery, stability and economic and social development of the country Here are some achievements that Vietcombank had achieved: Successfully put into operation the new core banking system - Core Banking Signature, allowing diversification of products and services provided to customers, especially digital-based products and services, implemented many projects applying modern technology to improve operational and management capacity according to international practices Largest growing credit scale in the banking industry By the end of 2020, Vietcombank's credit balance reached 845,1128 billion VND, up 14% compared to 2019, completing 103.6% of the year plan The bank with the best credit quality with the lowest bad debt ratio in the market By the end of 2020, Vietcombank's bad debt ratio was only 0.62% This result continues to recognize Vietcombank as the credit institution with the lowest bad debt ratio and the best asset quality among credit institutions in Vietnam Maintaining a superior bank position in terms of business performance: Total assets exceeded 1.3 million billion VND, up 8.3% compared to 2019 Market mobilized capital reached 1,228,614 billion VND, up 10.9% compared to 2019, reaching 104.6% of the 2020 plan Net profit from business activities reached over 32 trillion VND in 2020, continues to hold the top position as the most efficient bank Vietcombank brand is recognized and appreciated with many prestigious awards and titles both inside and outside country 2.3.2 Limitations: 45 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis Besides the positive results achieved, the bank still has some limitations as follows: 2.3.2.1 Limitations in mobilized capital The Bank has not focused on increasing credit and deposit accounts at other credit institutions because at this time Vietcombank mainly focuses on capital mobilization as well as credit to customers, specifically, it accounted for more than 80% of total mobilized capital, although these operations bring the highest profits, but besides, they also bring very high risks if the bank itself is not well managed and used The efficiency of using mobilized capital is still low because the bank was too focused on credit investment Cause: Credit to customers is a major source of capital mobilization of all commercial banks This is the main source of capital for the bank to business Therefore, all banks, including Vietcombank, always focus on credit investment attract customers and businesses to deposit money 2.3.2.2 Limitations in income The Bank had not diversified its income sources, its main source of income is from interest income and foreign exchange business, specifically, it accounted for more than 80% of total income Non-interest income had not been focused on, accounting for nearly 20% of total income This shows that the bank's business still has many potential risks in the current economic era, and if credit risk occurs, the bank will face immediate risk Cause: Because credit is the main activity of all commercial banks, including Vietcombank, it is inevitable that the profit from credit always accounts for a high percentage Also, Vietcombank's seniority and operational thickness are not comparable to that of state banks Besides, the maturity in the capacity of 46 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis the managers is still in the process of being perfected because it is in the restructuring phase 2.3.2.3 Limitations on credit risk As a bank, credit risk is inevitable Despite being the best risk manager bank, risks can still occur because the bank's main source of income is from credit activities Cause: Most enterprises have small capital, working capital mainly relies on bank credit The infrastructure and production equipment are weak, the consumption market is not stable, and the capacity to manage business activities is still limited The financial situation is not really strong, so a part of customers is still hesitant to repay the bank, leading to a high rate of overdue debt The level of common ground is still not high, so the awareness of doing business is still limited, the efficiency in management is not high, making it difficult for the bank to supervise and urge customers to repay 2.3.2.4 Other limitations: Limtation in technology, human resources, management information The severe impact of the Covid-19 epidemic on the entire economy in general and the banking industry in particular The bank is also heavily influenced by the impact of the domestic and foreign economy 47 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis CHAPTER 3: MEASURES TO IMPROVE THE FINANCIAL SITUATION AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE 3.1 THE DIRECTION OF THE COMPANY'S ACTIVITIES IN THE FUTURE The world economy is forecasted to recover strongly in 2021, with global GDP growth forecast to reach 6% However, the emergence of new SARCOV2 virus variants may slow growth recovery In addition, geopolitical instability and big-country competition are forecast to continue deeply, and climate change will be complicated Implementing Resolution 01 of the Government and Directive 01 of the State Bank, Vietcombank sets out the motto of action "Transformation, Efficiency, and Sustainability" and the guiding concept of "Responsibility - Action Creativity"; continue to focus on implementing strategic breakthroughs and focuses, aiming to innovate the growth model in depth, restructure operations, improve labor productivity, and ensure sustainable growth In which strategic breakthroughs are: Promote customer development, product development Complete mechanism and policy system Enhance the quality of human resources, attention to digital banking capacity Complete and upgrade it system, accelerate development of digital banking products Innovation model of growth and transform business activities And focuses are: Credit growth at an appropriate level associated with effective and sustainable credit restructuring Increase the proportion of non-credit income, focusing on income from services, focusing on capital investment and business activities Restructure the portfolio of capital sources towards increasing efficiency Some key tasks in 2021 are: 48 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis Continue to implement tasks and solutions to prevent epidemics and support customers affected by the Covid-19 epidemic under the direction of the Government and the Prime Minister Credit growth is associated with safe, effective and sustainable restructuring orientation Promote e-banking service activities, expand non-interest income Growth in capital mobilization towards sustainable efficiency Improve profitability of capital business and investment banking Strengthening credit quality control 3.2 SOLUTION TO IMPROVE THE FINANCIAL SITUATION The banking sector in general and the banking credit business in particular is one of the industries that contain many risk factors In recent years, Vietcombank has achieved many remarkable achievements, thanks to the correct leadership of the Board of Directors and the efforts of the entire staff, the bank has continuously grown and created strong position in the market But besides that, there are still some limitations that need to be overcome to improve the business situation Through the analysis of the bank's financial statements, I would like to propose some basic measures to improve business activities of the company: 3.2.1 Solutions to improve mobilized capital: Focus on developing new products, specialized products, specific to customer segments, and investment banking products Building and implementing payment services on the basis of modern technology in key areas such as collection and payment services with social insurance and state treasury; collection of public transport tolls, non-stop traffic tolls, health care, education Developing digitized products/services/platforms with high technology content, encouraging customers to transfer transactions on digital banking channels Some difficulties in implementation: 49 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis The shortage of human resources is inevitable The number of customers that can apply is still not much 3.2.2 Solution to improve income: Credit growth is associated with safe, effective and sustainable restructuring orientation Focus on developing new customers with solid financial potential Restructuring credit portfolio towards increasing the proportion of outstanding balance to customers of Group A (Growth group), gradually reduce the proportion of outstanding balance to customers of Group B (Maintenance group), quick withdrawal and reduction of outstanding balance of Groups C and D (Withdrawal groups) Focus on short-term credit growth in both wholesale and retail, focus on large FDI credit growth with low credit risk and overall service utilization potential, credit for Midcom and major customers in the South region Continue to expand retail credit loans, credit through transaction offices Promote e-banking service activities, expand non-interest income Accelerate the implementation of digitization of banking services Focus on designing and implementing products and services towards improving customer experience and user experience Expand the scale of new e-banking customers, e-commerce business customers, improve customer retention rate using e-banking services Efforts should be made to expand transactions with customers with large import-export payment turnover, customers who have transactions with export processing zones/enterprises in the value chain of large FDI customers Increase sales of non-credit services, chain sales, cross-sell products, cash flow management Improve the efficiency of expenses management of the whole bank, manage and closely monitor the implementation of budget plans, reduce regular operating costs, control the ratio of expenses / income Growth in capital mobilization towards sustainable efficiency The bank must regulate the growth rate of capital mobilization in accordance with the use of 50 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis capital Increasing the scale of cheap deposits through developing electronic payments for businesses, increasing the number of personal accounts and customers using payment services, investment banking services, etc Some difficulties in implementation: Requires good management capacity, highly qualified human resources, especially those with high information technology expertise Need a lot of attention and help from other businesses and state banks 3.2.3 Solutions for credit risk management: Strengthen internal inspection and audit, and closely monitor the results of the implementation of remote inspection, audit, and supervision recommendations for branches of the Vietcombank system Continue to withdraw credit for risky industries, customers without collateral, customers with potential risks, customers that not bring overall benefits to Vietcombank Regularly review debts, develop debt recovery plans and promptly apply necessary solutions Implement retail credit portfolio management by advanced methods Develop work plans and processing progress for each bad debt, assign specific tasks to each officer Thoroughly comply with the provisions of the law and Vietcombank's regulations on credit extension, prevent moral hazard, strictly handle violations Upgrade operational risk management, especially in the context of the Covid19 epidemic 3.2.4 Other’s solutions Strengthen infrastructure capacity to meet business requirements; ensure safety, security and confidentiality for the IT system; cooperate with Fintech to build Vietcombank ecosystem Consolidate the organizational model, functions and tasks of the units at the Head Office and Branches in order to focus on management and 51 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis administration according to operational blocks Established and put into operation the VCB Asset Valuation Center and centralized debt management Prioritize the allocation of sales personnel, personnel to adapt to digital banking; continue to reform the wage mechanism associated with business efficiency and labor productivity Improve the quality of scientific research, initiative and innovation throughout the system, serving the implementation of development strategy and promoting business activities of Vietcombank Improve the efficiency of expenses management of the whole bank, manage and closely monitor the implementation of budget plans, reduce regular operating costs, control the ratio of expenses / income Consolidate the headquarters and working facilities according to the approved plan, effectively serving business activities Deployment and implementation of social work to share difficulties with the locality, assist in overcoming and mitigating consequences caused by natural disasters, prioritizing education and health 3.3 RECOMMENDATIONS For the Bank: Banks must diversify income sources, gradually increase non-interest income sources such as income from non-credit services Banks must develop stronger forms of payment by card in the country With a developed economy, non-cash payment methods are increasingly popular and the government has a policy of developing non-cash payment methods, this problem is considered a very potential field Banks must have a really safe source of liquid assets to minimize liquidity risks For the problem of bad debt, the bank must have a policy to assign appropriate tasks to credit officers so that the credit officers can appraise loan projects appropriately, with supervision conditions, monitor and evaluate 52 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis whether their customers use their capital for a purpose From there, it is possible to limit bad debts and urge customers to pay their debts on time Banks must create favorable conditions for bank staff to study abroad to improve their qualifications, so that in the future there will be staff with deep professional qualifications to be able to compete with rival banks Banks must apply the best technical advances in business, as well as in staff management For head office: Strengthen the inspection and control of branch banks Regularly organize emulation and commendation for branch banks as well as individuals who successfully complete the assigned targets 53 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis For State Bank: The State Bank should strengthen monitoring, inspection and supervision of the activities of commercial banks, making timely adjustments, contributing to creating healthy competition among banks in the area The State Bank should create more open conditions for commercial banks in doing business For example, it is possible to widen the range of interest rate fluctuations during the day, reduce the reserve requirement, etc The State Bank and the Government should not regulate too much on capital mobilization and operation of commercial banks 3.4 CONCLUSION In general, business activities at Vietcombank are efficient and of good quality In addition to the ability to operate sensitively in competition, it knows how to target individual customers, small and medium-sized businesses, know how to organize and adjust lending interest rates, and the lending process in an appropriate and scientific way Adapting to the business environment, Vietcomcombank has gradually improved its competitiveness, promoted its own name and position in the local credit system, and has always been at the forefront of commercial banks 54 Thiều Quang Hưng CQ55/51.01 Academy Of Finance Graduation Thesis REFERENCES 1) Dr Nguyen Minh Kieu (2010), Corporate Finance, Publishing House – 2) Thong Ke Dr Nguyen Van Don, Commercial Banking Operations, Publishing 3) 4) House – National University of Ho Chi Minh City Figures and documents provided by Vietcombank Websites: https://portal.vietcombank.com.vn/, http://tuoitre.vn/ 5) http://vnexpress.net/ Graduation thesis of previous courses 55 Thiều Quang Hưng , CQ55/51.01 ... senior managers Financial statements provide major economic and financial information to evaluate the situation and results of production and business activities, the financial status of commercial... the financial statements Notes to the financial statements: Notes to financial statements are reports intended to explain verbally and by data some economic - financial indicators that have not... 1.1 OVERVIEW OF FINANCE STATEMENT AND ANALYSIS OF FINANCIAL STATEMENTS 1.1.1 Overview of finance statement: 1.1.1.1 Concept of financial statements: The financial statements system includes special