OVERVIEW OF MOBILIZING RESIDENTS’ CAPITAL
Overview of commercial banks
Commercial banks serve as financial institutions that engage directly with businesses, economic organizations, and individuals They accept deposits and savings, utilizing these funds to offer loans, discounts, and various payment services Their role is crucial in facilitating banking services as outlined in the Banking Act of the Republic.
In 1941, France defined commercial banks as institutions that accept deposits from the public, utilizing these funds for lending, discounting, and facilitating payments These banks play a crucial role in the financial system by managing public money according to state regulations.
The State Bank of Vietnam (SBV) defines commercial banks as currency trading organizations that operate regularly, primarily accepting customer deposits These banks are responsible for repaying these deposits and utilizing the funds for lending, discounting, and facilitating payment transactions.
The Law on Credit Institutions No 47/2010/QH12, enacted by the National Assembly on June 16, 2010, defines a bank as a type of credit institution authorized to conduct all banking activities as per this legislation Banks are categorized based on their nature and operational objectives, which include commercial banks, policy banks, and cooperative banks.
Commercial banks are all types of banks that are carried out all banking operations and other business activities under the provisions of this Law and aiming at profit target”
Commercial banks play a crucial role as intermediary financial institutions in the economy They efficiently gather and distribute capital, enabling them to provide loans to both economic organizations and individuals This process supports socio-economic development by facilitating access to necessary funding.
Through the concepts and defines of commercial banks, it can be commented that:
Commercial bank is a type of corporation, because it is established to do business and the purpose of itsoperation is for profit
Operations of commercial banks include currency trading and banking services
Besides structural similarities and final financial goals, commercial banks are different from other businesses Such as:
Business scope: Banking business is money, credit, and banking services
In the banking sector, external capital mobilization serves as the primary source of funding, with the bank's own capital constituting a relatively small fraction of the overall business capital.
The Bank's total assets are primarily composed of financial assets, which include bonds, negotiable instruments, stocks, debt agreements, and other valuable papers, while fixed and current assets represent a smaller portion of the overall asset structure.
Business activities of commercial banks are under the control of the
The operations of commercial banks are significantly influenced by the policies of the Central Bank or State Bank, particularly during periods of monetary tightening aimed at controlling inflation When the Central Bank implements such policies, it restricts the ability of commercial banks to expand their business activities Conversely, when the Central Bank adopts more lenient measures, it allows for growth and expansion within the commercial banking sector.
In essence, a commercial bank serves as a vital intermediary, bridging the gap between capital surplus entities, such as individuals with disposable income and enterprises with excess funds, and capital deficit entities, thereby facilitating the efficient allocation of resources.
To effectively operate and expand their market reach, commercial banks establish branches in specific locations to attract customers and provide essential banking services Each branch must meet certain standards set by the regulations of its country, including operational scale, employee count, and service offerings The operations of these branches are governed by the requirements of the head office, which maintains control and accountability for their activities.
The branch is a dependent unit of commercial bank, has its own recognition, carries out business activities in accordance with regulations of commercial banks
In Vietnam, to set up a new branch, there are some specific requirements:
- Safety ratios in banking operation withinrecent three years has been ensured as regulations of the State Bank;
The information system satisfies the needs for online management in commercial banks, supported by internal regulations that govern transaction offices and branches These regulations ensure safe and effective operations in compliance with the latest legal standards.
After one year from the date of opening, commercial banks can open transaction offices and branches if following conditions are satisfied:
Last year's results for opening new transaction offices and branches were favorable, with safety ratios in banking operations maintained Debts were properly classified, and risk provisions were adequately established in accordance with current regulations.
- Having an effective management, executive and internal audit systems;
- Having an internal inspection and control system according to the regulations of the State Bank;
- Having an information system satisfied the requirements of online management of commercial banks; strictly follow statistical reporting regimeof the
- There are official internal regulations (in writing form) to manage transaction offices and branches to ensure safe and efficient operation in accordance with recent laws;
- Not being sanctioned by the Bank Inspectorate for a total of thirty million
VND or more within one year up to the time of requesting for a new transaction office or branch;
The evolution of commercial banks has led to significant changes in their operations compared to the early days of banking Today, the commercial banking system has diversified into various financial institutions that offer a wide range of banking services to meet modern business demands and navigate intense competition While traditional banking functions remain essential, this article will explore the diverse services that banks provide to support the economy.
Foreign exchange trading is one of the primary services offered by banks, involving the exchange of various currencies for another This service is crucial for international tourists, as it allows them to convert their money while traveling in a foreign country Banks earn fees and spreads from these transactions, making currency exchange a vital aspect of their operations.
Additionally, at the same time, commercial banks also carry out capital mobilization, foreign currency loans, and more importantly, international payment for international trade activities
As mentioned above, in order to have capital for business activities, commercial banks must mobilize from various subjects in the economy
Commercial banks are authorized to accept deposits from residents, businesses, economic entities, and professional social organizations, offering competitive interest rates When customers deposit money, the bank opens an account, facilitating convenient transactions and account management.
Mobilized capital of commercial banks
Mobilized capital of commercial banks is the monetary value mobilized by commercial banks in the market through deposits, loans and other capital sources
Parts of mobilized capital make sense to decide the ability of each commercial bank to operate
In this research, the financial resources mobilizing from the community is defined as the total amount of financial contribution from individuals, households, and enterprises
1.2.2 The role of mobilized capital
Determining the solvency of commercialbank:
The higher the bank's solvency, the greater the bank's available capital
The solvency of a bank is closely linked to its overall capital and available capital A strong capital base enables the bank to expand its operations, engage in competitive activities, and enhance its reputation and market position.
Determining the scale of credit operations and other business activities of commercial bank:
The capital of a bank plays a crucial role in determining its capacity to expand or restrict credit availability Smaller banks typically engage in limited business activities, offer fewer investment options, and have lower lending volumes, which hampers their ability to attract capital from economic organizations and individuals This limitation often results in an inability to satisfy the loan demands of enterprises, leading to customer loss and missed business opportunities In contrast, larger banks benefit from abundant capital, enabling them to meet the capital needs of various businesses and expand their credit relationships across multiple markets.
Determines the competitiveness of banks
The scale, professional qualifications, and technical facilities of a bank are essential factors in attracting capital A larger capital capacity enables banks to enhance credit relationships with various economic sectors, allowing for greater size and volume of loans This capacity also empowers banks to be proactive in managing borrowing timelines and durations, as well as setting competitive interest rates for their customers.
Large banks' substantial capital enables the effective utilization of additional funding sources, enhancing their financial capacity for diverse market activities This allows banks to not only provide loans but also to engage in joint ventures, leasing services, debt buying and selling (factoring), and stock market trading.
The forms of capital mobilization applied by commercial banking systems often include:
In terms of capital mobilization object
Commercial banks effectively mobilize idle funds from residents through savings accounts, payments, and investments, with deposits from the population making up a significant portion of their capital This funding source is characterized by high stability, primarily medium to long-term commitments, and low transaction costs, making it advantageous for banks Additionally, the reliability of these deposits allows for better planning in operational and capital mobilization strategies, contributing to overall financial stability.
Social organizations and professional entities typically do not deposit funds in banks for savings but rather for operational needs Banks can enhance capital mobilization by advising these organizations on suitable deposit instruments and agreements tailored to their business cycles, in accordance with legal regulations Additionally, some state-owned enterprises (SOEs) are restricted from making direct deposits and instead utilize entrusted investments to manage their capital.
Commercial banks can mobilize capital from the inter-bank market and other credit institutions primarily during temporary shortages in customer payments or when they need to meet reserve requirements set by the State Bank However, this funding source is typically low in proportion, lacks stability, and often comes with high interest rates, leading banks to use it sparingly.
Savings deposits serve as a primary source of capital for banks, significantly contributing to their overall operating capital By analyzing the bank's current performance, economic development indicators, and future capital demands, commercial banks can implement effective capital mobilization strategies These strategies often involve competitive interest rates designed to attract customers, encouraging them to deposit their funds for various purposes based on their individual needs and the diverse portfolio options offered by the banks.
Performance deposits are funds deposited by customers for their current accounts, primarily catering to their regular payment and daily consumption needs While these deposits are not stable, commercial banks can strategically utilize a portion of this source, adhering to legal guidelines and accounting for fluctuations in this type of deposit.
Entrusted investment deposits are a popular choice for both individual and organizational clients who possess substantial funds but lack the time or information to invest effectively These customers seek to earn higher returns on their capital rather than settling for low savings interest rates By entering into agreements with investment banks, they can manage their investments more efficiently Furthermore, some businesses that are restricted from depositing savings in banks often opt for investment trusts to optimize their financial positions.
The capital mobilization policy is crucial for any bank, as it encompasses all aspects of the bank's operations and business A bank's success hinges on its ability to attract customers, and this article focuses specifically on the capital mobilization strategies of commercial banks These strategies evolve over time, influenced by the socio-economic context, the bank's capital, and its actual needs throughout the year, including seasonal variations within the banking industry.
Interest represents the cost of borrowing money for a specific duration, which borrowers pay to lenders Consequently, interest rates are closely linked to the financial resources that commercial banks utilize.
Throughout the history of the banking industry, interest rates have played a crucial role in capital generation by mobilizing funds from the economy While interest rates may vary over time, banks consistently offer competitive rates to attract and retain customers, ensuring both loyalty from existing clients and the acquisition of new ones.
- Policy to expand network by branches
Expanding the bank's network is crucial for enhancing capital mobilization and achieving performance goals, fostering customer trust and security Despite the widespread adoption of utility services by banks, network expansion remains vital Strategic decision-makers must consider geographical positioning, ensuring branches and transaction offices are located in densely populated urban and industrial areas to optimize banking activities and capital mobilization Conversely, while economically challenged regions may yield lower immediate returns, banks should still engage in these markets to build relationships and gradually expand their presence.
- Policies on expanding relations with credit institutions, commercial banks, individuals and social organizations
Establishing strong relationships with organizations, individuals, and businesses enables commercial banks to develop effective strategic plans and accurately predict cash flow These close connections allow banks to prioritize customer needs and offer tailored incentives, ultimately fostering loyalty and enhancing customer satisfaction.
Mobilizing capital from residents
Capital mobilization from residents’ accounts for a small proportion of commercial banks' capital, but it is an annual growth target of commercial banks
Therefore, commercial banks often find solutions to maintain and attract capital mobilized from residents
The large-scale mobilization of residents' deposits plays a crucial role in the economy, as it represents the temporary savings set aside by individuals for future needs This significant capital source enables commercial banks to reinvest and influences their overall mobilization costs The cost of capital acquired from residents is a key factor that commercial banks consider when determining lending interest rates, highlighting its importance in the financial ecosystem.
Residential deposits serve as the most stable source of funding for commercial banks, influencing reserve ratios and lending rates Unlike capital mobilized from other credit institutions and socio-economic organizations, which can be volatile due to ongoing cash flow movements in the economy, residential deposits provide a reliable and predictable financial base Additionally, the high cost of equity ownership makes it less effective for banks to rely on it for lending In contrast, when residents deposit their money in commercial banks, they typically aim to accumulate wealth over time, allowing banks to effectively plan and forecast cash flow trends.
Capital sourced from the public serves as a vital long-term funding base for commercial banks, enabling them to offer medium and long-term loans This reliance on public deposits is influenced by the consistent behavior of individuals when depositing or lending money to banks In contrast, funds acquired from the State Bank and socio-economic organizations are typically short-term, as these entities frequently utilize their capital.
For society: Mobilizing residential deposits increase savings and reduce spending, create jobs for workers, increase production and business, save issuance costs and cash circulation for the society
For residents: Increasing income for the people through interest income, difference in buying and selling valuable papers, income from gifts from the form of savings
Increasing the capital of commercial banks serves as a crucial buffer for their business activities, transforming residents from mere subjects into valuable customers This shift enhances the effectiveness of commercial banks' operations, ultimately leading to improved business outcomes.
A savings deposit refers to the money placed into a savings account, documented on a savings card, and eligible for interest as per the savings organization's regulations, while also being protected under deposit insurance laws These savings are intended for individuals to set aside funds for future needs, with the intention of earning interest during the temporary deposit period at banks.
Savings deposits serve as a crucial capital source for banks, primarily facilitating loans across various economic sectors The primary objective of these deposits is to generate interest from the accumulated funds rather than being utilized for transactions.
Savings deposits are categorized according to different terms:time-deposit account and demand-deposit account
A time deposit account is a flexible savings option that allows customers to deposit or withdraw funds without a set withdrawal agreement While customers can access their savings at any time, they do not receive the same payment services as personal account holders Typically, non-term savings customers do not have specific future spending needs but seek to benefit from interest during the account's maturity Although time deposits are not classified as long-term capital sources, they provide banks with a cost-effective and relatively stable capital option Consequently, banks often offer higher interest rates for time deposits compared to standard payment deposits.
The most disadvantage oftime-deposits are the volatility.Therefore the bank cannot use all this savings for its programs
Term savings deposit (demand-deposit accounts)
Term deposits are a type of bank savings based on an agreement regarding the term, interest rate, and payment method Customers can only withdraw funds when the deposit matures, although banks may allow early withdrawals at lower interest rates, often equivalent to demand deposits For banks, term deposits provide a stable source of capital for lending activities The primary goal for depositors is to maximize profitability, making the interest rate a crucial factor To cater to various customer needs, banks offer regular term savings deposits, where interest is paid at specified intervals.
Banks can incentivize savings by offering bonus interest rates, encouraging individuals to deposit their funds They provide various savings deposit terms, such as 1, 3, or 6 months, allowing customers to select the option that best suits their needs Typically, longer terms come with higher interest rates, and deposits can be classified based on currency type, including both local and foreign currency savings.
Savings deposit in local currency
In Vietnam, banks actively mobilize savings deposits in Vietnamese Dong through diverse methods to fulfill various objectives For commercial banks, deposits in VND represent a significant portion of their funding, effectively supporting the demand for capital utilization.
Savings deposits in foreign currencies
In addition to attracting VND savings deposits, the bank actively gathers savings in foreign currencies, which significantly contributes to its overall operations The conversion of these foreign currency deposits into VND represents a substantial portion of the bank's financial activities.
The mobilization of foreign currency deposits by banks aims to fulfill international payment requirements and facilitate foreign currency trading for both customers and the banks themselves Presently, the majority of these foreign currency savings are held in USD or EUR.
Commercial banks utilize residential deposits through personal payment accounts, which allow users full access to their funds for withdrawals at counters or ATMs These accounts facilitate payments via the bank, provided customers adhere to the bank's regulations The bank ensures liquidity for requested transactions, denying payments only when they exceed the account balance or involve illegal documentation Deposits in personal accounts serve as a low-cost funding source for banks, as customers often forgo higher interest rates for the convenience of liquid assets Furthermore, personal accounts promote the growth of payment operations within banks, contributing to a decrease in cash usage throughout the economy.
The bank aims to diversify its revenue structure and banking services by collecting fees from this activity However, the reliance on this fund presents challenges due to its low stability and dependence on business characteristics and customer credit, leading to reduced activity in utilizing this capital.
1.3.4 Assessing activities of mobilizing residential capital of commercial banks
Capital mobilized from the population constitutes a significant portion of the total funds raised by commercial banks, serving as a stable source of financing This residential capital is crucial for banks, as it is primarily utilized for lending and investment activities that generate profits Consequently, the effective mobilization of this capital directly influences the overall business performance of banks.
Therefore, banks always focus on controlling the amount of capital mobilized from the population
ACTUAL SITUATION OF MOBILIZING RESIDENTAL
Overview of Vietnam Joint Stock Commercial Bank for Investment and
2.1.1 Overview of Vietnam Joint Stock Commercial Bank for Investment and
BIDV was founded on 26 April 1957 under the initial name of Bank for
Construction of Vietnam, then renamed Bank for Investment and Construction of
Vietnam (1981 - 1990), Bank for Investment and Development of Vietnam (1990 -
2012), and Joint Stock Commercial Bank for Investment and Development of
Joint Stock Commercial Bank for Investment and Development of Vietnam -
Eastern HanoiBranch is a branch of Vietnam Joint Stock Commercial Bank for
Investment and Development, established in 1967 with the name of Dong Anh
Branch 4 The Dong Anh Branch 4was initially a branch of Hanoi Construction
Bank (old), with only 10 employees at the beginning
The function of the branch was to carry out the allocation and lending management of works within the two districts of Hanoi: Dong Anh and Soc Son In
1983, it was split into Dong Anh Investment and Construction Department and Soc
Son Bank Branch In 1987, it became the Dong Anh Investment and Construction
Bank Branch Until 1990, the branch changed its name to Dong Anh Bank for
The Investment and Development branch, a key division of the Bank for Investment and Development of Hanoi, specializes in currency, credit, and banking services Its core operations encompass accepting deposits, extending credit, and offering payment services to meet the financial needs of its clients.
On November 28th, 2008, with the approval of BIDV Vietnam, Dong Anh
Branch changed its name to Eastern Hanoi branch – a branch ofInvestment and
Development Bank under the decision of no.983/QD-HĐQT This had affirmed the broader operation and its new position in the area
On May 1st, 2012, the Board of Directors of Vietnam Joint Stock
Commercial Bank for Investment and Development issued the Decision No 30/QD-
HDQT on the establishment of branches and transactions under Vietnam Joint Stock
Commercial Bank for Investment and Development Accordingly, Vietnam Bank for Investment and Development –Eastern Hanoi branch became Vietnam Joint
The Eastern Hanoi branch of the Stock Commercial Bank for Investment and Development officially operates as a Joint Stock Commercial Bank, registered under certificate code 0100150619086, reflecting its fifth amendment.
Vietnam Joint Stock Commercial Bank for Investment & Development –
Eastern Hanoi Branch is an active branch of BIDV Bank in the eastern area of Hanoi, this is a state-owned enterprise and functions as a commercial bank with following services:
• Card services: ATM cards, international credit cards
• Loans: Short-term, medium-term and long-term, import and export financing, consumer loans
• Payment for import and export
• Savings, deposits of economic organizations
• Insurance: Property insurance, damage insurance, construction and installation insurance, fire and explosion insurance, motor vehicle insurance with a large scope of operation and reasonable cost
On November 30, 2016, the Board of Directors of the Vietnam Joint Stock Commercial Bank for Investment and Development approved Decision No 3166/QD-BIDV, which outlines the organizational model of the Branch and establishes regulations regarding the primary functions and responsibilities of its Departments and Divisions.
Transaction Offices, Branch At the request of Eastern Hanoi Branch, approving the organizational apparatus of Eastern Hanoi Branchincludes departmentsas illustrated in Figure 2.1:
Figure 2.1: Organization chart of Eastern Hanoi branch
The organizational structure of Eastern Hanoi Branch includes departments with the main tasks:
Corporate Department 1 Corporate Department 2 Corporate Department 3 Personal Department Corporation Transaction Office Personal Transaction Office Treasury & Service Department Financial Department
Credit management Department Risk management Department
Phu Lo Transaction Office Lien Ha Transaction Office
Duc Tu Transaction Office Soc Son Transaction Office
- Board of Directors: including 1 director and 3 deputy directors This is the highest leadership, directly manage all activities of the Branch in general and departments
+) Main tasks of the Corporate Department:
- Marketing services and developing business customer relationships;
- Trade finance operations and perform other duties as required by the
+) Main tasks of the Personal Department:
- Sales of retail banking products and services
- Perform other duties as required by the Branch Director
+) Main tasks of Customer Transaction Offices:
- Directly manage accounts and transactions with customers
To effectively prevent money laundering in emerging transactions, it is essential to adhere to state regulations and BIDV guidelines This involves the timely detection, reporting, and management of transactions that exhibit suspicious signals, particularly in urgent situations.
- Perform post-inspection for all accounting transaction activities at
+) Main tasks of Treasury and Service Department:
Manage warehouse operations and oversee fund import/export activities while ensuring the safety of treasury and monetary security Take full responsibility for safeguarding the assets of both BIDV branches and customers.
+) Transaction Office: is the authorized representative of the Branch to carry out: Transaction Office is a book-keeping unit under the Branch, operating in the
Under the guidance of the Branch Manager, the Hanoi area is responsible for overseeing key operations, including mobilizing savings capital, providing lending services to individual customers, facilitating current payment services within the locality, and managing deposit accounts for legal entities.
There are close relationships among departments at Eastern Hanoi Branch
The departments collaborate effectively to ensure a seamless and organized implementation of activities, functioning like interconnected links in a chain within the Branch's internal processes.
Independent departments, while conducting their own operations, remain interconnected to function cohesively as a unified entity within the branch Despite transaction offices being dispersed across various locations, their activities are consistently linked to other departments and the branch, ensuring efficient and swift operations.
Since its inception, the Eastern Hanoi branch has experienced consistent growth and profitability by continually adapting to the evolving economic landscape To thrive in the competitive market, the branch has developed a strategic approach to integrate and compete with both domestic and international banks in Hanoi By aligning its operations with industry trends and regularly restructuring to meet specific business objectives, the branch has maintained flexibility in its monetary and credit policies This adaptability has established a solid reputation and trust among customers, ensuring effective business operations Over recent years, the Eastern Hanoi branch has emerged as a key player within BIDV, successfully fulfilling its responsibilities and contributing significantly to the overall achievements of the BIDV system.
Eastern Hanoi branchare illustrated in Table 2.1
Table 2.1 Business operation of BIDV - the Eastern Hanoi branch in 2015 – 2018
6 Net income from services (exclude currency trading and derivatives) 47.39 72.42 25.03 52.82% 70.82 -1.6 -2.21% 88.4
10 Net income from card service 2.49 3.1 0.61 24.50% 13.73 10.63 342.90% 18
15 Bad debt ratio from retails 2.36% 3.04% 2.18% 1%
Between 2015 and 2018, the branch consistently demonstrated profitable business results, with pre-tax profits rising each year In 2015, earnings before tax (EBT) were VND 135.5 billion, which increased by 33.02% to VND 180.24 billion in 2016 The upward trend continued in 2017, with profits reaching VND 232.3 billion, a 28.8% increase from the previous year Projections for 2018 indicate a further rise to VND 307.7 billion, reflecting the branch's successful expansion and high efficiency in its core business activities.
Between 2005 and 2015, the Branch's credit balance surged nearly 11 times, achieving an impressive average annual growth rate of 28% Although credit growth has continued to align with planned targets since 2015, it has experienced a decline, averaging 17% annually.
The Branch's credit operations align with the strategic direction set by the Head Office, focusing on both large enterprise clients and the growth of small and medium-sized enterprises (SMEs) and new retail customers Currently, debts from these customer segments represent 58% of the Branch's total debts, highlighting the commitment to diversifying and strengthening its client base.
The Branch maintains a strong emphasis on credit quality, ensuring rigorous control measures are in place Notably, the ratio of bad debts and overdue debts has significantly decreased from over 22% in 2005 to just 1.15% in 2018, surpassing the overall system's targets.
(