RESEARCH OBJECTIVE OF THE TOPIC
The objective of the topic is to analyze the reality of SHB in 2007 - 2009 and propose strategy for 2010 - 2015 with solutions to implement.
This capstone project report aims to analyze the general theory of banking business strategy by selecting a standard strategic management model It will assess the current state of SHB during the 2007-2009 period and propose a business strategy for SHB for 2010-2015, informed by the chosen model and the evaluation of the bank's actual circumstances.
SUBJECT AND SCOPE OF RESEARCH
Research subject
To make a research of actual issues arising during the formulation of business strategy of SHB.
Space scope: Saigon-Hanoi Joint Stock Commercial Bank (SHB).
Time scope: During the period 2007 - 2009
Research methodology
- Desk study: o To seek, collect, review and select theoretical documents applied for the assignment. o To seek, collect, analyze and evaluate documents and data of business environment.
To gather primary information, we directly solicit feedback from both staff and management to assess the business environment and evaluate the company's capabilities Additionally, we consult with knowledgeable experts to enhance our understanding and insights.
REPORT STRUCTURE
The report comprises of 3 chapters:
Chapter 1: Theoretic bases to formulate a business strategy.
Chapter 2: Actual business performance of Saigon-Hanoi Joint Stock Commercial Bank.
Chapter 3: Business strategy formulation for Saigon-Hanoi Joint Stock CommercialBank in the period 2010 - 2015.
OVERVIEW OF A BUSINESS STRATEGY
There are many definitions about “business strategy” However, we should review some definitions of business strategy by some scholars to withdraw some key characteristics of a business strategy.
According to Alain Threlart “Strategy is the art which the company uses to fight against competition and win success”
Strategy, as defined by Chandler (1962), involves setting essential long-term goals and objectives for a company, along with implementing a series of actions and allocating the necessary resources to achieve these aims.
According to Johnson and Scholes, business strategy is defined as the long-term direction and scope of an organization aimed at achieving competitive advantage This involves the allocation of resources in a dynamic environment to meet market demands and fulfill stakeholder expectations.
A company's strategy encompasses the comprehensive decisions and actions involved in resource allocation to achieve specific goals In a competitive landscape, the primary objective is to attain a superior strategic position compared to rivals.
In order to reach this, the Company must create the harmony of all actions to establish and maintain its competitiveness in long term
1.1.1.2 Basic characteristics of a business strategy
Business strategy defines basic targets and directions for the business of the company in each period of time.
The orientation characteristic of the business strategy is to ensure the company to develop continuously and soundly in a changing business environment.
A successful business strategy focuses on maximizing and optimizing the use of a company's resources both now and in the future By leveraging all available advantages and seizing opportunities, businesses can enhance their competitive position in the market.
Company’s business strategy formulation is an on-going process, it is oftern formulated for a long period of time (for 3, 5, 10 year).
Business strategy is always of forward-moving characteristics, to win in the business battlefield.
Depending on different points of views, there are different strategies depending on levels However, the most popular are the following 3 levels:
A company-level strategy focuses on establishing clear objectives and a broad organizational scope It outlines the necessary actions the company must undertake to achieve competitive advantages by selecting and managing a diverse range of business activities, allowing it to compete effectively in various sectors, products, and markets.
A business unit-level strategy encompasses the comprehensive commitments and actions that enable a company to achieve competitive advantages by leveraging its core competencies in targeted products and markets This strategy embodies the company’s conviction regarding the locations and methods through which it can outperform competitors Crucially, the essence of a business strategy lies in the deliberate selection of actions that differentiate the company from its rivals.
A functional strategy, also known as an operational strategy, is essential for effectively executing both business unit-level and company-level strategies by optimizing resources, processes, personnel, and necessary skills This strategy focuses on enhancing the efficiency of critical operations, including manufacturing, marketing, material management, and research and development (R&D).
1.1.3 Factors affecting the strategy of a Company.
Strategic management comprises of 4 stages:
The stages of strategy formulation are influenced by various factors categorized into internal and external environments Each environment contains elements that directly impact strategic decisions These factors are dynamic and interrelated, presenting both opportunities and risks for the company Consequently, evaluating the external environment is crucial for effective strategy formulation, enabling the company to capitalize on opportunities while mitigating potential risks.
Businesses encounter various opportunities and threats within a competitive landscape, shaped by a group of external elements These elements are categorized into two main groups: the macro environment and the micro environment.
The health and prosperity of an economy significantly impact businesses and industries It encompasses the nature and development of the economic environment in which companies operate Businesses, particularly banks, closely monitor economic factors through key variables such as GDP growth trends, inflation rates, base interest rates, credit system availability, disposable income levels, and consumer spending trends.
With a spreading and diversified space, technological changes affect many parts of the society For banking, technology may allow banks to provide the best modern banking services.
Social attitudes and cultural values serve as the foundation of society, influencing various aspects such as technology, politics, economics, and demographics As technology evolves, it brings both opportunities and challenges, reflecting the dynamic nature of social change.
Demographic Segments in the macro environment relate to population, age structure, geographic distribution, ethnic communities, and income distribution.
The bank must continuously assess new philosophies and policies impacting banking activities, including interest rate strategies, exchange rates, foreign exchange management, taxation, and debt management, as these factors significantly influence opportunities and threats in the financial landscape.
Including related global markets, current changing markets, important international political events, institutional characteristics and basic cultures on the global market
Harvard professor Michael E Porter introduced a framework that has gained traction among company strategists, outlining five key elements that shape competition within an industry These elements include the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the availability of substitute products, and the intensity of rivalry among existing competitors Understanding these factors is essential for businesses aiming to navigate and thrive in competitive markets.
(1) The emergence of new competitors:
New market entrants typically enhance their competitiveness by capturing market share, but they encounter several barriers during industry penetration These challenges include advantages held by established players in terms of scale and product differentiation, significant capital requirements, cost advantages, access to distribution channels, and compliance with specific government regulations.
Suppliers play a crucial role in influencing an industry by either increasing prices or decreasing the quality of goods and services In the banking sector, depositors serve as key suppliers, with their influence stemming from the volume of funds they deposit These depositors can assert their power by impacting pricing structures and fees within the bank.
PROCESS OF STRATEGY FORMATION
The process of strategy formulation varies across enterprises based on their individual perspectives This report adopts the SWOT analysis framework, which assesses strengths, weaknesses, opportunities, and threats The authors believe that this comprehensive approach ensures that strategic initiatives align effectively with the company's resources and external conditions, ultimately leading to optimal outcomes.
1.2.1 Strategy formulation process under the SWOT analysis methodology
A strategy is often perceived as the outcome of a meticulously planned process, typically influenced by senior management within a company Numerous models for strategy formulation have been developed by management and strategic scientists One widely recognized approach is SWOT analysis, which involves a four-step process for effective strategy formulation.
Step 1: Develop goals/ vision of the Company
To ensure future growth, the Company must clearly define its current business sector and identify potential opportunities Establishing a vision and mission is essential, which involves assessing current activities and exploring future business prospects This strategic approach aims to answer critical questions about the Company's direction and objectives.
"what is business sector that we are operating in" and "where is our industry’s position in the value network?"
Main strategic goals determine what the bank hopes to reach in the medium and long term To be meaningful, a goal should have four characteristics:
First, a goal is considered to be well-set if it's Specific and Measurable.
Second, a goal is considered to be well-set if it targets important issues (Attainable) Third, a well-set goal should be challenging but Realistic.
Forth, a well-set goal should be built within a certain period of time (Time-bound).
In this stage, the company must collect and assess data regarding both internal and external environments to pinpoint strengths, weaknesses, opportunities, and threats Additionally, this step involves recognizing potential interactions between internal and external factors that can impact the business.
Step three: Evaluate the best matching between opportunities and resources
This is the identification of appropriate strategies and the alignment of resources and ability of the Company with the environment where the Company is operating
Picture 1.1: The process of strategy formulation under SWOT
1.2.2 Tools to formulate a business strategy
1.2.2.1 External Factor Evaluation Matrix (Matrix EFE )
The Matrix EFE assesses external factors by summarizing critical opportunities and threats that impact the Company's operations This tool enables managers to evaluate the Company's responsiveness to these external influences, helping them determine whether each factor presents a favorable or challenging scenario for the business.
There are 5 steps to formulate an EFE Matrix:
- Step 1: Make a list of key opportunities and threats that affect business of the Company in its sector/industry
- Step 2: Assess the importance of each factor on a scale from 0.0 (not important) to 1.0 (very important) The importance level of each factor depends on the effect of
Building and developing a vision / mission of the
Considering all of the design
Assessment to determine the most appropriate opportunities and resources between
Step 4 that factor in the sector/industry that the Company is operating in Total importance level of all factors should equal to 1.
In Step 3, evaluate each factor by assigning a score between 1 and 4, reflecting the company's response level A score of 4 indicates an excellent response, 3 signifies an above-average response, 2 represents an average response, and 1 denotes a minimal response.
- Step 4: Multiply the importance level of each factor with its score to obtain total score of each factor.
- Step 5: Adding up scores of all factors to produce total score of the matrix
The evaluation matrix assigns a total score ranging from 1 to 4, independent of the number of factors considered A score of 4 indicates that the company is effectively addressing both opportunities and threats, while a score of 2.5 reflects an average response to these challenges.
1, the Company is responding weakly to opportunities and threats.
This matrix evaluates the competition of the Company with its competitors in the same sector, based on factors which affect the competitiveness of companies in the sector.
Competition picture matrix is conducted via 5 steps:
Step 1: Make a list of around 10 key factors affecting the competitiveness of companies in the sector.
Step 2: Assess the importance level of each factor on a scale from 0.0 (not important) to 1.0 (very important) Total importance level of all factors should equal to 1.
Step 3: Score from 1 to 4 for all factors Score of each factor depends on the capability of the Company with regards to that factor, in which 4 is good, 3 is above average, 2 is average and 1 is weak. score for each factor.
Step 5: Adding up scores of all factors to obtain total score of the matrix.
Evaluation: Compared total score of the Company with its competitors in the same sector to evaluate the competiveness of the Company
1.2.2.3 Internal Factor Evaluation Matrix (IFE Matrix)
IFE matrix is established in 5 steps:
- Step 1: make a list of internal factors that play decisive roles.
In Step 2, evaluate the significance of each factor on a scale from 0.0 to 1.0, ensuring that the total importance level across all factors sums to 1 This assessment should reflect the relevance of each factor to the company's operations, irrespective of whether they represent strengths or weaknesses.
In Step 3, evaluate each factor by assigning a score from 1 to 4, reflecting the internal characteristics of the company A score of 1 indicates the most significant weakness, while a score of 2 denotes a minor weakness Conversely, a score of 3 represents a minor strength, and a score of 4 signifies the greatest strength.
- Step 4: Multiplying the importance level of each factor with its score to obtain total score of each factor.
- Step 5: Adding up scores of all factors to obtain total score of the matrix
The evaluation matrix assigns a total score ranging from 1 to 4, independent of the number of factors considered A total score below 2.5 indicates internal weaknesses within the company, while a score above 2.5 signifies internal strengths.
1.2.2.4 Internal – External factor matrix (IE Matrix)
Putting the Company in 01 table with 09 cells This matrix is based on 02 aspects:
The IFE Matrix total score is represented on the X-axis, indicating the internal strength of a company A total score ranging from 1.0 to 1.99 signifies internal weakness, while a score between 2.0 and 2.99 reflects an average internal position Companies achieving a score from 3.0 to 4.0 demonstrate strong internal capabilities.
The EFE Matrix displays the total score on the Y-axis, indicating how well a company responds to external factors A score ranging from 1.0 to 1.99 signifies a weak response, while a score between 2.0 and 2.99 reflects an average response Conversely, a score from 3.0 to 4.0 indicates a strong response to external influences.
+ If the Company falls in green area (cell I, II, IV): the company should develop and grow.
+ If the Company falls in yellow area (cell III, V, VII): the company should maintain and sustain.
+ If the Company falls in red area (cell IV, VIII, IX: the company should reap or withdraw.
SWOT Matrix is a tool that combines four main elements: Opportunities (O), threats (T), strength (S), weakness (W) to form four types of strategies.
Opportunities encompass all favorable conditions within the operating environment that benefit the Company Significant sector trends often unveil new opportunities that have yet to be explored, while shifts in competition, legal frameworks, technological advancements, and evolving relationships with suppliers and customers further contribute to the Company's potential for growth and innovation.
Threats encompass various unfavorable conditions in the operating environment that can adversely affect the Company These include increased competition, a slowdown in market growth, heightened bargaining power of suppliers or customers, technological advancements, and evolving regulations, all of which pose potential risks to the Company's success.
* Strengths: Include resources or capacities that are manageable or available to the
Company, which can create an advantage compared to other competitors in meeting with customer’s needs.
* Weaknesses: are limitations or lack of resources or capacity of the company in relation to competitors, which create disadvantages for the company in meeting with customer needs.
The four types of strategies:
- SO Strategy: Using internal strengths of the Company to take opportunities of the external environment.
- WO Strategy: Overcoming internal weaknesses by taking opportunities from the external environment.
- ST Strategy: Use internal strengths of the Company to avoid or reduce threats from the external environment.
- WT Strategy: These are strategies to minimize internal weaknesses and avoid external threats.
Strategic Position and Action Evaluation Matrix (SPACE)
SPACE Matrix consists of 2 internal factors: Financial Strengths (FS) and Competitive Advantages (CA), 2 external factors: Environment Stability (ES) and Industry Strength (IS).
Steps to formulate a SPACE Matrix
Step 1: Make a list of factors showing (FS), (CA), (ES), and (IS).
Step 2: Valuing from 1 (worst) to 6 (best) for FS and IS, and from -1 (best) to -6 (worst) for ES and CA.
Step 3: Calculating average score of FS by adding values of factors, then dividing by the number of factors in FS Similarly, calculating average score for IS, ES and CA.
Step 4: Marking the average score of FS, IS, ES and CA on corresponding axis of the SPACE Matrix.
ROLE OF STRATEGY FORMULATION FOR THE COMPANY
Strategy plays a big role in business of a company:
- Business strategy helps the Company to identify its goals and directions as bases and guidelines for all business activities of the Company.
Strategy formulation is the first step in the entire strategic management process. Therefore the careful preparation for strategy formulation activities will ensure a smooth strategic management process.
Identifying the company's vision and mission is essential for effective strategy formulation, enabling strategists to assess the current business area, understand its operational methods, and outline future development goals.
The company can effectively identify and leverage business opportunities while proactively addressing market risks and threats By evaluating the external environment, it can make strategic decisions that align with changing conditions, ensuring a responsive approach to market dynamics.
- Contributes to improve the efficient use of resources, enhance the competitive position of the Company to ensure sustainable development of the Company.
By effectively managing internal elements, a company can identify essential resources, required skills, and core competencies that contribute to competitive advantages over its rivals Simultaneously, investing in addressing weaknesses is crucial for enhancing overall competitiveness.
- Strategies create a solid basis to propose policies and business decisions in accordance with the fluctuation of the market.
Collaborative analysis and decision-making enhance the company's strategic choices, ensuring that strategic decisions are well-informed and optimal for the organization's success.
Implementing an effective strategy enables the company to optimize resource and time allocation for identified opportunities, ultimately leading to significant savings Additionally, a well-crafted approach minimizes the need for corrections on erroneous or special decisions, enhancing overall operational efficiency.
Strategy formulation serves as a guiding "chart" for all activities and decisions within the strategic management process, enabling the company to shape its future and capitalize on market opportunities Chapter 2 will focus on the analysis of internal factors affecting Sai Gon - Ha Noi Joint Stock Commercial Bank, while Chapter 3 will discuss the identification and selection of effective business strategies.
ACTUAL BUSINESS PERFORMANCE OF SAIGON-HANOI
INTRODUCTION OF SAIGON-HANOI COMMERCIAL JOINT STOCK BANK (SHB)
2.1.1 History of establishment and development
On 13/11/1993: Nhon Ai Rural Commercial Joint Stock Bank (The forerunner of
Saigon – Hanoi Commercial Joint Stock Bank (SHB) was founded under banking license No 0041/NH/GP, granted by the Governor of the State Bank of Vietnam, and commenced official operations on December 12, 1993.
On 20/01/2006: the Governor of the State Bank of Vietnam signed Decision No.
In accordance with Decision 93/QĐ-NHNN, SHB transitioned from a Rural Joint Stock Commercial Bank to an Urban Commercial Joint Stock Bank, enabling it to fully engage in banking operations This transformation has enhanced SHB's financial capacity, diversified its banking services and products, and expanded its network, thereby boosting its competitiveness As a result, SHB emerged as the first urban commercial joint stock bank headquartered in Can Tho, establishing itself as a key player in the financial and monetary center of the Mekong River Delta.
On 22/7/2008: The State Bank of Vietnam signed a Decision approving the move of
On September 9, 2008, SHB inaugurated its new Head Office at 77 Tran Hung Dao, Hoan Kiem District, Hanoi This strategic relocation to Hanoi, the nation's economic, financial, and political hub, enhances SHB's opportunities for growth and strengthens its position in the industry The move signifies a pivotal milestone for SHB, marking the beginning of its transformation into a multi-functional financial holding group by 2015.
20/04/2009: 50 million of SHB’s public shares was officially listed on Hanoi Stock
Exchange with stock code “SHB”.
06/08/2009: Listing additional 150 million of SHB’s public shares on Hanoi Stock
After 16 years of establishment, development and growth, SHB constantly strives to provide customers with the best quality banking services and most professional service style With a determination to become a Vietnam leading modern retail bank, and to become a strong Financial - Industry - Real Estate Group Total transactions points of SHB as of 31/12/2009 is 95 points, including 01 headquarters,
In recent years, SHB has focused on diversifying its banking and financial offerings beyond traditional services like deposits and loans The bank has introduced a range of modern banking products and services, which can be categorized into three main groups.
Group 1: Liabilities such as payment deposits, savings deposits with and without maturities, inter-bank deposits
Group 2: Assets such as loans, guarantees, export documents discounting, foreign currency trading, trading in monetary markets (Spot, Forward, Option)
Group 3: Banking services such as packaged financial services for universities, businesses, payment for export and import, Phone Banking, Home Banking, SMS Banking
The Liabilities business helps to create funding for the Bank’s operations The Assets and Services businesses help to bring income to the bank.
BUSINESS PERFORMANCE
In 2009, Vietnam's economy experienced significant fluctuations, particularly in basic interest rates, exchange rates, and gold prices, which impacted banks' funding mobilization Despite stabilization earlier in the year, funding mobilization faced renewed challenges towards the end of 2009 Anticipating these difficulties, SHB proactively implemented flexible and appealing strategies to attract funding from both economic entities and individuals, leading to positive outcomes.
As of December 31, 2009, the total mobilized funding balance reached VND 24,647 billion, reflecting a significant increase of VND 12,878 billion, or 109.43%, compared to the end of 2008 Notably, the funds raised from economic entities and individuals amounted to VND 14,672 billion, which represents a growth of VND 5,164 billion, or 54.31%, over the same period.
Short-term funding constitutes over 90% of SHB's financial resources, indicating a significant lack of stability in its funding structure This reliance on short-term financing exposes SHB to liquidity shortages, making it challenging to grow and expand credit offerings To mitigate these risks, SHB must develop targeted plans and solutions to enhance its liquidity management.
Despite a slight increase, funding from economic entities and individuals remains low compared to SHB's scale, brand, and reputation, indicating that fund mobilization from these sources is still limited.
Despite the introduction of various fund mobilization products, they lack diversity and competitiveness compared to offerings from other banks Many of these products have failed to demonstrate effectiveness, resulting in continued low levels of mobilized funds.
Tellers currently possess limited expertise and skills, hindering their understanding of available products As a result, they struggle to effectively communicate the advantages of SHB products over competitors, making it difficult to guide customers in selecting the best options Additionally, the service attitude displayed by tellers falls short of customer expectations, failing to leave a positive impression.
SHB has yet to establish specific funds mobilization targets for each department and staff member, resulting in a lack of cross-selling initiatives between departments Consequently, the proactivity and marketing skills of tellers have not been sufficiently promoted.
As of December 31, 2009, the total outstanding loans amounted to VND 12,828.7 billion, reflecting a significant increase of VND 6,576.1 billion, or 105%, compared to the end of 2008 Short-term loans constituted 59% of the total, while medium and long-term loans made up 41%.
As of December 31, 2009, the total outstanding loans amounted to VND 2,630 billion, with VND 49.1 billion allocated for subsidized interest rates A total of 540 borrowers benefited from these subsidized interest rate loans.
Table 2.2 Loan breakdown by terms
SHB has used 88% of funding from economic entities and individuals to grow credits. This is an ideal ratio in ensuring the optimum use of funding.
Short-term loans have been declining over the years, while medium and long-term loans are on the rise To maintain a balance between funding and fund utilization, SHB has allocated nearly VND 4,000 billion of short-term funding for medium and long-term lending, which poses a liquidity risk for the bank.
SHB always makes loan classification as prescribed by the State Bank of Vietnam
(SBV) General and Specific provisions as of 31/12/2009 reached VND 104,669 billion (in 2008 this was VND 17,890 billion; in 2007 this was VND 6,616 billion).
SHB currently maintains a loan ratio exceeding 95% and a loan loss ratio below 2% However, these figures do not accurately represent the true state of overdue and non-performing loans within the bank This discrepancy arises because loan classification is conducted semi-automatically, allowing for certain loans to be rescheduled or have their terms extended without being categorized as lower quality loans according to regulatory standards.
SHB is facing a significant challenge with nearly VND 160 billion in loans categorized under the loan loss group Despite their efforts to recover these funds, it is increasingly likely that the bank will need to utilize provisions to offset this loss, which is expected to negatively impact SHB's financial strength.
Table 2.4: Some indicators related to foreign currency operations
Income from foreign currency trading 2.785 32.378 168.270
Cost for foreign currency business 318 6.355 115.783
Net income from foreign currency trading 2.467 26.023 52.487
Foreign currency trading activity has grown but not yet contributed much to the total income and profit of the bank.
SHB is launching debit card service branded SHB Solid Card with the connection protocol “Switch to Gateway”
SHB faces challenges in the card business, trailing behind competitors, which hampers its ability to penetrate and expand market share Although the number of issued cards has risen, the average balance per card account remains low, indicating inefficiency in this segment.
In 2009, there were 2,337 transactions, generating total revenues of USD 373.4 million, while net income from international payment services amounted to VND 13.2 billion However, the efficiency of international payment services remains low due to several factors.
Since its official launch of direct international payment services in late 2008, SHB has struggled to gain recognition among customers in this sector The bank has yet to implement effective strategies to attract international payment clients.
- The scope of correspondent banking relationship with other banks in the region and in the world is still limited; the position of SHB has not yet been enhanced.
- Cross-border payment service has not been launched.
- Human resource in international payment in branches is not enough, expertise and skills are still weak.
Operating principles
SHB is committed to continuous growth and efficient business practices, which enhance the bank's value and ensure sustainability By consistently improving its offerings, SHB maximizes benefits for shareholders and fosters trust among investors, ultimately contributing to a prosperous future for all stakeholders.
At SHB, our customers are at the heart of everything we do We are dedicated to delivering a professional and modern banking experience, ensuring that our services and products are diverse, convenient, friendly, and efficient Our commitment is to provide quick and effective solutions that meet the unique needs of each customer.
At SHB, we prioritize human resource development by fostering a vibrant and dynamic workforce Our young and active team thrives in a professional and trustworthy environment, where we celebrate creativity and solidarity We are committed to providing growth opportunities for all employees and recognize individual achievements, reinforcing our strong organizational culture.
Integrity and Transparency: SHB pays attention to regular risk management and internal control Increasing transparency and integrity in all operations in the whole system
Continuous renovation: SHB always sets out competition strategy, making difference, listening, learning, renovating, reforming and developing.
Brand values: SHB a modern multi-functional retail bank with reputation and position inside and outside the country SHB is: Solid partner, Flexible solution
Strategic business objectives
Target customers are small and medium enterprises, consumers and households. Target markets
- Major cities: Hanoi, Ho Chi Minh City, Da Nang, Can Tho and Hai Phong.
- Provinces and cities with high growth rates and crowded population: Quang Ninh, Vinh, Hue, Nha Trang, Vung Tau, Lang Son, Lao Cai.
- Industrial areas in big cities: Vinh Phuc, Hung Yen, Bac Ninh, Chu Lai, Binh Duong, Quy Nhon, Dong Nai.
- Bank scale: Total assets to reach VND 85,000 billion (equivalent to USD 5,312 million).
- Network: over 200 branches and transaction offices nationwide.;
- Technology: application of advanced and modern Bank management technology and banking services and products
- Affiliates and subsidiaries: Establishing new affiliates and subsidiaries such as financial leasing company, insurance company, debt trading company, real estate company
- Staff: Number of staffs to reach 1,500 people, trained in a systematic and professional way.
SHB aims to establish itself as a leading modern retail bank in Vietnam by leveraging its strengths and expertise The bank focuses on integrating advanced technology, skilled professionals, and a comprehensive national network to deliver valuable, well-packaged banking products and services at competitive prices By 2015, SHB aspires to evolve into a robust financial holding group that meets international standards.
SELECTION OF STRATEGIES FOR SHB IN THE PERIOD 2010 - 2015
From Strengths-Weaknesses (item 2.3.4.2), the Group has come up with the following SWOT matrix:
Table 3.1 Matrix of proposing strategies under SWOT
2 Stable financial situations, high capital adequacy ratios.
4 Strategic shareholders have strong financial capacity
1 Few products and services, product and service structure is not balanced.
2 A customer strategy is not yet in place.
3 Business efficiency is not very high, due to high operating expenses.
4 The scale and network of operations are not extensive.
5 Human resource has not yet met with integration requirements.
1 Stable political and legal environment.
2 Opportunity to joint venture and cooperate to expand market shares.
3 Opportunity to absorb technology transfer, learning management experience from foreign banks.
4 Number of newly established companies is increasing
+ Take advantage of brand name to expand network to increase domestic market share, especially in new emerging markets.
+ Use new technology and take advantage of R&D to launch more new SHB products and services to meet with customer’s increasing demand.
+ Have a customer strategy, targeting customers being strategic shareholders.
+ Joint venture, cooperate with foreign or local banks under the mutual benefit principle
+ Focus on market share development by penetrating new market segments, especially paying attention to Small and medium enterpries customers.
+ Take advantage of learning from risk management and corporate governance experience of foreign banks
+ Diversifying product portfolio, rationalizing costs for input-output products to meet with different demands of customers. products and services is increasing.
1 Competition in the banking industry
2 Changes in legal regulations, new
3 Competition in attracting talents becomes harder.
4 Increasing market risks due to the integration process
5 Customer’s requirements for banking product and service quality are increasing.
+ Making difference for SHB products based on brand name to increase SHB competitiveness over its competitors.
+ Doing research and analyzing changes in laws and Government policies to ensure safe and efficient development.
Leveraging advanced banking technology, we offer tailored banking services to key stakeholders such as the Vietnam Coal and Minerals Group, Vietnam Rubber Group, and T&T Group Our focus on research and development enables us to introduce innovative multi-facility products that effectively meet customer demands.
+ Seeking for new markets for banking services
+ Increasing competitiveness over competitors by increasing financial strengths, completing the organizational structure and enhancing management capacity and experience of the management team, especially high level managers.
+ Applying modern banking technology to develop banking services and products to best meet with customer’s needs
+ Expanding network to increase contacts with customers to raise market shares.
+ Having staff training programs to meet with integration requirements
Table 3.2 Strategic Position and Action Evaluation Matrix (SPAC E)
The financial strength of SHB is evident through its substantial chartered capital, bolstered by the strong financial backing of major shareholders Additionally, as a publicly listed company, SHB ensures transparency and credibility in its financial reporting, earning a commendable score of 4 in this aspect.
SHB ensures to meet with payment needs of customers, however the stability in funding structure is not very high This factor is scored at 5.
3 Prudential ratios 4 Capital adequacy ratios are maintained at reasonable level, scored at 4.
Currently SHB has 95 transaction points, the number of transaction points is not many, having not yet met with the actual requirements, scored -2.
Products and services are not diversified, not abundant, still very simple and uncompetitive, scored at -4.
3 Brand name -1 SHB has a strong brand name, scored at -1
The economy is recovering and developing, political stability, which facilitates companies in general and SHB in particular Very good, scored at -1.
The legal system in banking still lacks harmony, and is not yet consistent with international standards and practices Scored at -3
3 Inflation, exchange rate, interest rate -3
Despite the complexities surrounding inflation, exchange rates, and interest rates, the Government has made significant strides in stabilizing these economic factors while effectively managing inflation at a reasonable level.
Currently the industry barriers are very big, which helps to stop the emergence of new competitors, scored at -2.
1 Industry growth rate 6 The banking industry always has high growth rate, scored at 6.
2 Importance of the industry to the economy 6
Banking industry plays a very important role to the economy It is one of the industries to lead the development of the economy efficiently, scored at 6.
3.Capital scale of the industry 5 Banking industry has big scale of capital, scored at 5.
We have: FS + ES = 4,33 +(- 2,25) = 2,08 ; IS + CA = 5,66 + (- 2,33) = 3,33 Graphed on SPACE matrix, SHB’s strategies are within the attack area:
Picture 3.1: Strategies on the SPACE Matrix
SHB is strategically positioned as a financially strong entity with competitive advantages within a stable industry To capitalize on external opportunities while addressing internal weaknesses and mitigating external threats, SHB should implement targeted strategies such as market development, product development, and customer attraction.
By SWOT Matrix analysis, the Group has set out the following groups of SO strategies for SHB business:
- Development strategy group: Include the following sub-strategies:
+ Market development strategy: Take full use of brand name to expand network to increase domestic market shares, especially in new emerging markets
+ Product development strategy: Use new technology and R&D to launch more and more new and convenient products in SHB’s product range to meet with customer’s needs.
+ Customer development strategy, with focus given to strategic shareholders.
- Joint venture and cooperation with foreign banks or other domestic banks under the principle of mutual benefits
Strategy selection via QSPM Matrix for SO strategy group:
Joint venture and cooperation strategies
Total Attracti on score Total External factors
1 Stable legal and political environment 3 4 12 4 12
Stable legal and political environment helps to promote development and to increase joint venture and cooperation
2 Opportunities for joint venture and cooperation to expand market shares 1 3 3 4 4
Open up new development orientations, provide opportunities of joint venture and cooperation with foreign partners
3 Opportunities to absorb technology transfer; learn from management experience of foreign banks.
Joint venture and cooperation strategy better responds to this factor.
4 Number of newly established companies is increasing.
3 4 12 2 6 Development strategy better responds to this factor.
5 Demands for banking services and products 3 4 12 3 9 Development strategy better responds to this factor.
6 Competition in the industry 3 3 9 3 9 Both strategies respond fairly well.
7 Changes in legal regulations, new policies of the Government 3 3 9 2 6
Affecting the JV and cooperation strategy more strongly and unfavourably
8 Talent attraction becomes harder 2 3 6 3 6 Both strategies respond fairly well.
9 Market risks are increasing due to integration.
2 2 4 3 6 Joint venture and cooperation strategy is more attractive.
10 Customer’s requirements for product and service quality are increasing and changing.
3 3 9 2 6 Development strategy better responds to this factor.
3 4 12 3 9 Development strategy takes best us of this factor
2 Stable financial situation, high capital adequacy ratio
3 4 12 2 8 Focusing on development shall be more efficient.
Team 3 3 9 3 9 Both strategies respond fairly well.
Development strategy is more efficient than JV and cooperation strategy
5 Strategic shareholders have high financial capacity 3 3 9 2 6
Development strategy will take full advantages of strategic shareholders
6 Products and services are not many and structure is not balanced.
2 3 6 2 4 A development strategy is needed to meet with customer’s needs more efficiently
7 A customer strategy is not yet in place 2 3 6 2 4 A development strategy needs to be implemented
8 Operating expense 2 2 4 2 4 Both strategies respond fairly well.
9 Geographical scale and locations 2 3 6 2 4 A development strategy is needed to expand network
10 Human Resource has not yet been able to meet with integration requirements
Joint venture and cooperation strategy shall create opportunities for staffs to be trained and absorb knowledge from advanced economies.
Between 2010 and 2015, SHB should prioritize a development strategy model over a joint venture and cooperation strategy, as the development strategy has a higher attraction score of 162 compared to the 134 score of the joint venture and cooperation strategy.
3.1.4 Defining strategies for SHB in the period 2010 - 2015
Via SWOT and QSPM Matrixes, after evaluating strategies with higher attraction score, the Group proposes the following groups of strategies for SHB in the 2010 - 2015:
1 Strategy of market development and network expansion
Making use of brand name to expand network Seeking new markets for banking services and products.
Use new technology, R&D to launch more new and convenient products to meet with customer’s needs
Use new banking technology to provide packaged services to strategic shareholders (TKV, VRG).
4 Strategy of target customer Approaching Small and medium
5 Strategy of organizational structure and human resource development
Applying a modern organizational structure model, formulating human resource training programs, especially for middle and high level managers.
Increase financial capacity, using new technology and promote comprehensive cooperation and strategic partnership with major shareholders
Due to limited internal resources, SHB is unable to simultaneously implement all six strategic groups To achieve its goal of becoming a leading modern multi-functional retail bank in Vietnam, characterized by advanced technology, skilled professionals, and a comprehensive nationwide network, SHB must prioritize its strategic initiatives effectively.
“market development and network expansion” based on SHB’s following advantages:
In 2010, SHB, listed on the Hanoi Stock Exchange, aimed to enhance its financial strength by raising 1,500 billion dongs in chartered capital through additional share issuance and 1,500 billion dongs in convertible bonds, which would convert into shares in 2011, ultimately increasing its chartered capital to 5,000 billion dongs Of the 3,000 billion dongs in new chartered capital planned for 2010 and 2011, SHB intends to allocate 10%, or 300 billion dongs, for the establishment of new branches and transaction offices.
SHB boasts a dynamic team of young and enthusiastic staff, particularly in key leadership roles such as Heads and Deputy Heads of Departments at the Head Office These individuals oversee essential business areas including credit, accounting, payment, and internal control, and are eager to be rotated to new locations as needed by the bank This dedicated team plays a crucial role in establishing and maintaining the operations of new branches and transaction offices for the first 6 to 12 months, after which management responsibilities are transitioned to the respective Branch/Transaction Office managers.
Modern technology empowers SHB to expand rapidly by opening numerous branches and transaction offices With a centralized database, SHB enhances corporate governance and management, ensuring seamless business continuity.
- SHB’s brand name: SHB’s brand name is strongly recognized nation-wide, which helps SHB to expand markets in new cities and provinces efficiently.
SOLUTIONS TO IMPLIMENT SHB’S BUSINES STRATEGY IN THE PERIOD
In order to implement the 2010-2015 business strategy, SHB should take the following measures:
As explained in Chapter 1 and 2, owner’s equity plays an important role in activities of banks; it helps banks to increase their financial capacity under international standards
SHB has a chartered capital of VND 2,000 billion, positioning it among seven banks with capital ranging from VND 2,000 billion to VND 3,000 billion This places SHB above 16 banks with capital below VND 2,000 billion, while still being below 13 banks that have capital exceeding VND 3,000 billion.
Under the Credit Institution Law, a bank's exposure to a single customer cannot exceed 15% of its equity This limitation restricts banks with smaller equity from effectively expanding their credit and guarantee offerings, particularly when addressing the funding needs of large corporations and groups.
Therefore, in order to increase financial capacity, SHB can increase equity by the following solutions:
To enhance tier 1 capital, banks can issue additional shares to boost chartered capital, recover bad debts that have been risk-settled and moved off the balance sheet, and increase capital through profit distribution This strategy represents a long-term, sustainable solution for financial stability.
To enhance tier 2 capital, it is essential to issue bonds at competitive interest rates and to re-evaluate fixed assets, particularly real estate, for a swift and effective increase in tier 2 capital.
Focusing on credit risk provisioning is crucial for SHB, as it enables the bank to maintain capital, effectively manage problem loans, and establish a solid foundation for monetary trading.
- Seriously comply with SBV’s prudential and liquidity regulations in banking, establishing liquidity limits as tools to respond to liquidity problems; it is necessary to formulate a liquidity contingency plan.
The implementation timeline for the capital increase plan began in 2010, aiming to raise VND 1,500 billion through the issuance of additional shares and convertible bonds In 2011, VND 1,500 billion in convertible bonds was converted into shares, boosting the chartered capital to VND 5,000 billion The process continued in 2014 with another VND 1,500 billion raised through additional share issuance and convertible bonds Finally, in 2015, the conversion of VND 1,500 billion in convertible bonds further increased the chartered capital to VND 8,000 billion.
3.3.2 Complete and develop consistently the IT systems.
The IT system allows banks to bring high quality banking services and products to customers Therefore, SHB needs to:
To enhance customer service, the INTELLECT system will be fully implemented across all branches and transaction offices, facilitating better accessibility and information extraction By the end of 2011, the banking modernization project for the entire SHB system is set to be completed.
To enhance the effectiveness of systematic management within the banking sector, it is essential to modernize technical facilities, particularly in information technology This involves reforming management methodologies and providing staff with necessary training to leverage modernization programs fully Additionally, it is crucial to establish comprehensive regulations and procedures to mitigate operational risks while integrating advanced IT applications to streamline processes and improve overall efficiency.
SHB needs to expand its product portfolio by the following measures:
- Considering traditional products (credits and deposits) as development background for SHB
Conducting thorough research on market trends and customer needs is essential for businesses By being adaptable to different market segments, companies can tailor their products to meet the specific preferences of various customer types, whether categorized by income level or geographic location This strategic flexibility ensures that offerings align with the unique demands of each market, ultimately driving customer satisfaction and business success.
- Do research to issue products to connect to customers, especially strategic customers (such as Vinacomin, VRG, T&T Group ), who have big capital, advantages in export, services provided and customer base
- Diversify new products of high utility, in line with the general trend of modern banking, especially products based on modern IT platform such as Cards, Mobil - Banking, Internet - Banking
SHB needs to invest in the card issuance, management and payment systems, as well as develop card reception terminals.
Service quality has become a crucial factor in attracting customers in the banking sector In the past, customers were required to visit banks due to the simplicity of banking services However, as the banking industry has evolved into a highly competitive sector, banks must now proactively reach out to customers The rise of the stock and real estate markets, along with the introduction of high-quality products, has contributed to a decline in market shares for banks, particularly SHB This decline is primarily attributed to inadequate service quality that fails to meet customer expectations To enhance service quality, SHB must take strategic actions.
To foster a skilled and ethical workforce, it is essential to cultivate a team that embodies high responsibility, professionalism, and a customer-centric attitude Employees must recognize that "customers are vital to the bank's existence and growth." Banking staff play a crucial role in enhancing customer loyalty by providing unwavering support and building strong relationships with clients.
SHB should enhance its transaction processes to ensure they are more convenient and user-friendly, creating a comfortable experience for customers Additionally, the bank must focus on refining its fee structures, offering tailored pricing that prioritizes the diverse needs of various customer segments.
Complete the IT platform to ensure correctness, timeliness, and security of customers’ assets when they come to SHB.
Every branch and transaction office should have a dedicated team to professionally guide and assist customers, ensuring mutual benefits for both clients and SHB.
For banks, especially young banks, expansion of branch and transaction office network is the prerequisite to increase market shares in the hard competition in the banking market
SHB aims to become a leading multi-functional modern retail bank in Vietnam by leveraging advanced technology, a professional workforce, and a comprehensive nationwide network to offer valuable and competitively priced banking products and services To achieve this, network expansion is essential, and SHB must establish a broad presence while aligning with its financial capabilities, business strengths, and operational scale The bank plans to open level one branches and transaction offices to support strategic shareholders and target key economic areas such as Hue, Nha Trang, Vung Tau, Lang Son, and Lao Cai, as well as industrial zones in major cities like Vinh Phuc, Hung Yen, Bac Ninh, Chu Lai, Binh Duong, Quy Nhon, and Dong Nai By 2015, SHB aims to operate 50 branches and 300 transaction offices across the country.
3.3.6 Complete the organizational structure and increase human resource quality
By 2011, SHB aims to finalize its organizational structure based on the Group model at its Headquarters, focusing on simplicity and efficiency to facilitate smooth and secure operations.
- Increase quality of human resource: Formulate and implement staff training and re-training programs, planning the human resource teams in the whole SHB towards being neatly and efficient.
SOME RECOMENDATIONS
The State Bank of Vietnam (SBV) and the Government are crucial in managing the macro economy, making it essential to implement effective economic orientations alongside comprehensive monetary and fiscal policies for sustainable economic growth These strategies will significantly influence the business and development strategies of credit institutions.
The significance of the State Bank of Vietnam (SBV) and the Government has grown in response to the economy's increasing international integration As commitments to the World Trade Organization (WTO) take effect, heightened competition and the potential for business failures will contribute to economic instability.
To promote sustainable economic development and ensure fair competition among banks, particularly for SHB, it is essential for the State Bank of Vietnam (SBV) and the Government to implement specific measures.
First, to have a flexible monetary policy, to increase the efficiency of monetary policy via Open Market Operations (OMO), re-discounting, re-financing instruments
Combine closely monetary policy with fiscal policy, control all capital inflow into the economy, especially capital from the State budget and non-banking financial institutions
Second, to promote the role of the SBV in supervising and monitoring operations of credit institutions, ensuring safe and efficient banking business, avoiding unhealthy competition among credit institutions
To effectively transform the State Bank of Vietnam (SBV) into a true central bank, it is essential to expedite the development of its organizational structure This involves increasing the SBV's relative independence from the government, which will enhance the efficiency of its monetary policy Establishing clear roles and autonomy for the SBV in the formulation and management of monetary policy is crucial for achieving these objectives.
To enhance the legal framework and regulations governing the monetary market, it is essential to minimize overlaps among banking laws and regulations This will foster a consistent and stable banking legal environment, ensuring clarity and efficiency in financial operations.
Vietnamese commercial banks are experiencing significant growth in both quantity and quality amidst fierce competition In the era of integration and globalization, these banks encounter numerous opportunities alongside various challenges.
Between 2010 and 2015, the banking sector experienced a significant shift from domestic to international competition due to the pressures of global economic integration This transition necessitated that banks, including SHB, proactively prepare for integration and growth To thrive in this competitive landscape, SHB must implement timely adjustments and leverage its internal strengths while establishing appropriate strategies for successful integration within the broader economic environment.
Based on a Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis, six strategic business initiatives have been identified for SHB To effectively implement these strategies, SHB should prioritize solutions in human resource development, distribution network enhancement, marketing, technology upgrades, organizational restructuring, corporate culture establishment, and infrastructure development Given the dynamic nature of the business environment, it is crucial for SHB to continuously monitor and evaluate the effectiveness of these solutions, allowing for timely adjustments as necessary.