Improving the effectiveness of foreign currency trading activity at quang trung branch, bank for investment and development of vietnam (bidv

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM šœ - BACHELOR’S THESIS IN FINANCE IMPROVING THE EFFECTIVENESS OF FOREIGN CURRENCY TRADING ACTIVITY AT QUANG TRUNG BRANCH, BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM (BIDV) STUDENT NAME : NGUYEN DANG HUNG CLASS : ADVANCED FINANCE INTAKE : 50 INTERNSHIP GUIDE : PHAM PHUONG THAO INSTRUCTOR : PH.D DANG NGOC DUC Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 Hanoi, 2012 ACKNOWLEDGEMENT Sincere acknowledgements to my instructor Ph.D Dang Ngoc Duc for his enlightening advice and guidance Heartfelt thanks to Ms Pham Phuong Thao-deputy manager of Planning department of Quang Trung branch, Bank for Investment and Development of Vietnam (BIDV) and staff of the branch for their enthusiastic support and help Last but not least, I would like to thank my family for continuous and unconditional encouragement and all my classmates from Advanced Finance Program Intake 50 for their assistance that help me accomplish this research I am sure there exist faults in this paper All suggestions and discussions are warmly welcomed Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 ABSTRACT Today, in the trend of opening, integrated economy, business operation of the banks has reached out across the regional and international scope Commercial banks now have the tendency to expand their business into many new modern banking operations in the market Along with traditional operations, foreign exchange business has been considered as a potential activity-diversifying source of income, generating profit and contributing to the growth of the banks In its integration of global economy, the Vietnam foreign exchange market has been establishing and improving to meet the development of the country Even though in its infancy, the Vietnam foreign exchange market have been doing very well every hour, every day, and attracted the attention of many investors The products and services on the foreign exchange market have also been gradually establishing and improving in both quantity and quality to meet the diverse needs of investors This paper, choosing Quang Trung branch, Bank for Investment and Development of Vietnam (BIDV) as the sample, investigates its effectiveness in trading foreign currency The author first goes through the theoretical foundation of the foreign currency trading activity and effectiveness of foreign currency trading activity of commercial banks in general, then, presents a group of criteria reflecting the effectiveness as well as pointing out significant factors affecting this activity Through the detailed analysis of foreign currency trading business at Quang Trung branch, this thesis reveals some achievements and existing limitations In the end, the writer proposes some feasible solutions for the branch and recommendations to the Government and the State Bank of Vietnam in order to enhance effectiveness of foreign currency trading of commercial banks Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 TABLE OF CONTENTS ACKNOWLEDGEMENT ABSTRACT TABLE OF CONTENTS ABBREVIATION LIST OF TABLES LIST OF FIGURES 3 CHAPTER I: INTRODUCTION 1.1 Rationale 1.2 Research questions: 1.3 Research objectives 1.4 Research methodology 1.5 Research scope 1.6 Structure 2 CHAPTER II: THEORY OF FOREIGN CURRENCY TRADING ACTIVITY AND EFFECTIVENESS OF FOREIGN CURRENCY TRADING ACTIVITY OF COMMERCIAL BANKS 2.2 Overview of foreign currency trading activity of commercial banks 2.2.1 Definition 2.2.2 Fundamental activities of banks in foreign currency trading 2.2.3 Characteristics of foreign currency trading activity 2.2.4 Types of transactions in foreign currency trading activity 2.3 Effectiveness of foreign currency trading activity in commercial banks 2.3.1 Definition 14 14 2.3.2 Criteria reflecting the effectiveness of foreign currency trading activity of commercial banks 15 2.3.2.1 The level of customers’ satisfaction 16 2.3.2.2 Total trading volume 16 Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 2.3.2.3 Profitability of foreign currency trading 2.3.2.4 The liquidity of currencies 2.3.2.5 A completion of forex products 17 17 18 2.3.3 Factors affecting the effectiveness of foreign currencies trading activity of commercial banks 18 2.3.3.1 Internal factors (Subjective factors) 18 2.3.3.2 External factors (Objective factors) 21 CHAPTER III: FOREIGN CURRENCY TRADING ACTIVITIES AT QUANG TRUNG BRANCH – CURRENT SITUATIONS AND SOLUTIONS 26 3.1 Overview of Quang Trung branch, BIDV 26 3.1.1 Establishment and development process 26 3.1.2 Scope of business activities 27 3.1.2.1 Mobilizing capital 27 3.1.2.2 Credit activities 28 3.1.2.3 Offering banking services 3.1.2.4 Other activities 3.1.3 Organizational structure 3.1.4 32 Business performance of Quang Trung branch in the period 2007-2011 3.1.4.1 Capital mobilization 32 3.1.4.2 Credit activities 3.1.4.3 Profitability 37 29 29 30 35 3.2 Current situation of foreign exchange trading activity at Quang Trung branch 40 3.2.1 Legal framework regulating foreign currency trading activity of Quang Trung branch …………………………………………………………………………………… 40 3.2.2 Current situation of foreign currency trading 42 3.2.3 Assessment the effectiveness of foreign currency trading activity at Quang Trung branch… 50 Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 CHAPTER IV: RECOMMENDATIONS TO IMPROVE EFFECTIVENESS OF FOREIGN CURRENCY TRADING ACTIVITY AT QUANG TRUNG BRANCH 55 4.1 Orientation to improve the foreign currency trading activity 55 4.2 Recommendation for the Government 56 4.2.1 Create a favorable environment for the development of foreign exchange market…… 57 4.2.2 Improve the international balance of payment 4.3 Recommendation for SBV 57 59 4.3.1 Implement a flexible foreign exchange rate policy 59 4.3.2 Increase the national foreign reserve 60 4.3.3 Revive the foreign exchange proprietary 60 4.3.4 62 Supplement and complete the regulations on the punishments of violations 4.4 Solutions for Quang Trung branch 62 4.4.1 Strongly develop the human factor 62 4.4.1.1 Plan recruitment and selecting process 4.4.1.2 Have employee retention program 63 4.4.1.3 Training and developing employees 63 4.4.2 Build a sound and effective customer strategy 4.4.3 Develop the derivative products 4.4.4 Diversify currencies in foreign exchange activities 66 CHAPTER V: CONCLUSION 63 64 65 68 REFERENCES 69 APPENDICES 70 Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 ABBREVIATION Dept Department BIDV Bank for Investment and Development of Vietnam SBV State Bank of Vietnam Forex Foreign exchange WTO World Trade Organization ADB Asian Development Bank Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 LIST OF TABLES Table 1.1: Growth in mobilizing capital 34 Table 1.2: Bad debt ratio 37 Table 1.3: Structure of outstanding loans 38 Table 1.4: Business performance 38 Table 1.5: Trading volume and structure 44 Table 1.6: Structure of buying foreign currency by types of customers 46 Table 1.7: Structure of selling foreign currency by types of customers 46 Table 1.8: Operational result of foreign currency trading activity 51 Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 LIST OF FIGURES Figure 1.1: Organizational structure 32 Figure 1.2: Growth in total outstanding loans 36 Figure 1.3: Growth in pre-tax profit 39 Figure 1.4: Provisions for credit losses of selected banks in 2011 40 Figure 1.5: Structure of buying activities by types of operations .41 Figure 1.6: Structure of selling activities by types of operations 50 Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 Supervisor: PhD Dang Ngoc Duc Nguyen Dang Hung – Advance Finance 50 ... 1: Theory of foreign currency trading activity and effectiveness of foreign currency trading activity of commercial banks Chapter 2: Current situation of foreign currency trading activity at Quang. .. aim of improving the effectiveness in trading foreign currency at Quang Trung branch, I selected research topic: ? ?Improving foreign currency trading activity at Quang Trung branch, Bank for Investment. .. II: THEORY OF FOREIGN CURRENCY TRADING ACTIVITY AND EFFECTIVENESS OF FOREIGN CURRENCY TRADING ACTIVITY OF COMMERCIAL BANKS 2.2 Overview of foreign currency trading activity of commercial banks