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1 CHAPTER 1: DISSERTATION INTRODUCTION 1.1 Rationale of the topic 1.1.1 The necessity of research In recent years, the world financial market has had many changes, derivatives instruments become more and more important and it is a necessary tools for investors and businesses This is enormous improvements in financial market, it successfully provides efficient tools for risk management and at the same time, it is a tool to make profit for investors and businesses in financial market In today market, commercial banks always want to reduce the risks, increase the efficiency of business operation, build up its reputation and strengthen its competitiveness in world market With the current economic globalization trend, the commercial banks could get many benefits from economic integration opportunities, but they also have to face quite a lot of risks The development of derivatives instruments – one of methods to manage and reduce the risks and optimize profitability is essential and it always receives attention among The State Bank of Vietnam and Commercial banks Besides, with the broadly integration level of commercial banks, the development of this modern derivatives is inevitable since this financial instruments become more popular and grow faster, total market value increases continuously over the years Coming from the essentials of current situation, the topic: “Develop financial derivatives transactions at the commercial banks in Vietnam” is chosen This research will look into factors that have impact on development of derivatives transaction, it also evaluate impact level of factors, and from that make recommendations and solutions to develop derivatives transactions at commercial banks in Vietnam, to help commercial bank to integrate deeply in derivatives market and in world financial market, to diversify its products and services, to reduce risks, to increase competitiveness and to increase the business operation effectively in commercial banks 1.1.2 The purpose of research Use qualitative and quantitative analysis methods to analyze elements affecting development of derivatives transaction at Vietnamese commercial banks during research period, evaluate the results and limitations as well as to determine the causes of limitations Based on the theoretical and practical research, the dissertation provides proposals, solutions and conditions to develop derivatives transactions at Vietnamese commercial banks 1.1.3 Subject and scope of research 1.1.3.1 Subject of research: The dissertation focus its research on derivatives transactions, derivatives transactions at Vietnamese commercial banks, key elements affecting developments of derivative transactions at commercial banks in Vietnam 1.1.3.2 Scope of research Area: Commercial banks: VCB, BIDV, Vietinbank, ACB, Techcombank, Eximbank, Sacombank, SCB Period: The project collected and used data during 10 years period from 2006-2015 1.2 Overview of related research projects 1.2.1 Foreign research projects The publication ”What motivates banks to use derivatives: Evidence from Taiwan” (Yung-Ming Shiu and associates, 2005) researched banks in Twain for the period from 1998 to 2005 about factors affecting usage of derivatives and effect of derivatives to bank’s potential risks concluded: there are positive connection between usage level of derivative transaction with each bank’s characters, bank size, ability to issue preferred shares, currency risk , however, there is negative between usage level of derivative instruments with bank’s revenue diversification The research of (Katie Hundman, 1998) about ”An Analysis of the Determinants of Financial Derivative used by commercial banks ” with research model Derivative Volume = C+α Exposure to Interest Rate Risk+α Non-Current Loans + α Loan-Loss Allowance + α Profit + α Bank Size + α Capital to Assets + α GDP + ε indicated that derivatives value depends on interest rate risk, non-current loan, Loan – Loss Allowance, bank size, GDP (Ibrahima Kassory Fofana, 2001)[59] stated that the development of derivatives in developing countries that is having major change in production, price, exchange rates, interest rates is necessary and he also recommended some solutions to develop derivative market such as: increase connections between banks, establish a comprehensive regulatory framework; create accounting system thoroughly and a center to control and regulate derivatives is needed A research about factors that have effect on use of derivatives instruments by (Alat Afza and Atia Alam – 2011) in businesses in Pakistan indicated the correlation between use of derivatives instruments and total assets, import-export value, exchange rate, interest rates, ownership management and foreign exchange rate In addition, other factors such as transparency, legislative environment, regulation and management from state bank are also important parts influencing countries’ derivatives markets This was found out and publicly stated in research: ”Derivatives – Renovation of basic finance”(Viral and associates, 2009) 1.2.2 Research projects in Vietnam There are some research projects about derivatives transactions in Vietnam such as: Derivatives transactions study - Ho Thuy Ai, 2007) – analyzed use of foreign exchanges derivatives instruments to hedge foreign exchange risk, Discussion about development of derivatives instruments in foreign exchange markets in Vietnam, (Dinh Thi Thanh Long, 2014) mentioned current situation of foreign exchanges derivatives instruments in VN Besides, there are also studies about financial derivatives transactions in VN, Việt Bảo, 2007 research studied current development of derivatives in VN, Nguyen Thi Mai Chi, 2014 analyzed derivatives activities situation at commercial banks in VN (VCB, BIDV, Vietinbank) and from her research, realizing requirements needed to develop derivatives instruments, the disadvantages of commercial banks over foreign banks and recommended solutions to develop derivatives market in VN 1.3 Gap in researches Some of prior researches focused on analyzing a specific derivative instrument of a particular underling asset but have not yet researched financial derivatives as a whole Some other studies examined in depth derivatives roles to revenue, risk of banks but not yet considered whether it necessary to develop derivatives or not and if it is, which factors have effect on development of those transactions Some researches analyzed development of derivatives which focused on particular bank but have not yet examined on a broader area which is overall banking system in one country The lack of research mentioned above will be the study area of this dissertation, through examining factors influencing development of derivatives at commercial banks in VN to propose solutions for development of derivatives transactions at banks in VN in near future 1.4 Research questions Management question: Which factors affects the development of derivatives transaction at commercial banks? Research questions: (1) What is the development of derivatives transactions at commercial banks? Which indicators measure size of development?(2)Objective factors (How economic environment, legislatives system, regulatory framework for derivatives, customers, competitors would have impact on development of derivatives transactions in banks in VN.) (3) Subjective factors belonging to banks (How technology, reputation, business strategy etc have effect on development of derivatives transactions in banks in VN) 1.5 Research methods 1.5.1 Data collection methods To collect data for research purpose, author used both types of data which are primary data and secondary data 1.5.1.1: Secondary data: Annual financial reports of commercial banks in VN, data from annualy reports of State bank of VN 1.5.1.2 Primary data Author conducted a survey and interviews to collect answers and opinions from 350 surveys The survey content is to examine level of agreement from survey participants about factors affecting developments of derivatives transactions at commercial banks in VN 1.5.2 Analyzing and data collection methods 1.5.2.1 Secondary data collection and analysis method: Financial report of banks, Financial reports of State bank of VN 1.5.2.2 Primary data collection and analysis method: Descriptive statistics method and Inferential statistic method; A tau-equivalent reliability measurement model Cronbach’s Alpha; Exploratory Factor Analysis Method; Analysis of variance (ANOVA); Regression analysis models 1.6 Research contribution: The dissertation builds research model to analysis impact factors on derivatives transactions value in correlation with other factors (banks size, liability, liquidity, changes in currency exchange rates, changes in interest rates) and factors affects development of derivatives transactions in commercial banks in VN Through analyzing the results, the study clarify elements have influences on the derivatives transactions and based on that proposing solutions for development of derivatives transactions at Vietnamese commercial banks CHAPTER 2: THEORETICAL FOUNDATION FOR DERIVATIVES TRANSACTIONS AND DEVELOPMENT OF DERIVATIVES TRANSACTIONS AT BANKS 2.1 Theoretical foundation about derivatives transactions 2.1.1 History and development of derivatives transactions The very first derivatives instrument was traced back to ancient Greece and used first time by Thales – a Greek philosopher in ancient Greek philosophy, later in mid-17th century, option contracts officially were traded with Tulip bulbs products The earliest recognized futures trading exchange is the Dojima Rice Exchange, established in 1730 in Japan In 1848, a first official commodity futures trading exchange was created in Chicago, United States It is the Chicago Board of Trade (CBOT), the oldest organized future market still operating in the world In 1975, the Chicago Board of Trade introduced the first interest rate futures contracts, based on underlying asset which are recourse loan of the Government National Mortgage Association or Ginne Mae (GNMA) In 1977, The Chicago Board of Trade Building was designated a Chicago Landmark and officially used as trading exchange In December, 2007 The Bank for International Settlements reported “the derivatives contracts trading on exchanges increases 27%, reach $681 trillion” And at the end of 4th quarter 2013, volume of derivatives transactions on whole wide world reached $1,200 trillion, double after years 2.1.2 Derivatives definition 2.1.2.1 Definitions of derivatives and financial derivatives Derivatives instruments include commodity derivatives and financial derivatives Commodity derivatives are derivatives transaction in which the underlying assets are commodity (agricultural products, oil products, gas, metals…) Financial derivatives are derivatives transactions in which the underlying assets are financial assets (interest rates, foreign exchanges rate, security and stocks market indexes…) Financial derivatives instruments are financial instruments whose value is derived from the value or performance of the underlying financial instruments such as stocks index, currencies, interest rates… 2.1.2.2 Definition of financial derivatives transaction: Derivatives transaction is a contractual agreement between two or more parties Derivatives can be used for a number of purposes, including insuring against price movements (hedging), risk management and seeking profit (speculator) most common types of derivative contracts include: Forwards, Swaps, Options and Futures with underlying assets are financial assets 2.1.3 Financial derivatives market 2.1.3.1 Financial derivatives market classification: Official Exchange; Over the counter (off-exchange) 2.1.3.2 Characteristics financial derivatives market: Big transactions volumes; more flexible than other markets; Diversified products; Affected heavily by price movements of underlying assets; Diversified participants of parties and investors; High risk potential 2.1.3.3 Functions and Roles of financial derivative market a Functions: Risk management of price movements; Speculate and make profit through price difference if the value of the underlying asset moves the way they expect; Predict value and price of underlying asset in future; Stabilize the price; Shift the risk from the buyer to the seller and as such are very effective risk management tools; Improve the liquidity of the underlying assets b Roles: To economy as a whole; To businesses; To banks 2.1.3.4 Parties and Purposes of trading financial derivatives transactions: There are parties in derivatives market: Hedger, Speculator, Arbitrage 2.1.4 Classification of financial derivatives transactions 2.1.4.1 Forward: A forward contract is a customized contract between two entities, where settlement to buy and sell a specific underlying asset takes place on a specific date in the future at today’s pre-agreed price 2.1.4.2 Future: A futures contract is an agreement between two parties to buy or sell a specific underlying asset of standardized quantity and quality in a certain time at a certain price with delivery and payment occurring at a specific future date 2.1.4.3 Swaps: A swap contracts are agreements between two parties to exchange cash flows in the future according to a prearranged formula The two commonly used Swaps are: Interest Rate Swaps and Currency Swaps 2.1.4.4 Option: An option is a contract which gives the buyer (the owner) the right, but not the obligation, to buy or sell a given quantity of the underlying asset or instrument, at a specified strike price on or before a given future date 2.2 Development of derivatives transactions at commercial banks 2.2.1 Definition of developing derivatives transactions at commercial banks Developing derivatives transactions at commercial banks means the banks increase transactions volumes, increase number of types of financial derivatives instruments and improve quality and accessibility of financial derivatives in order to obtain and reach its business operation’s goals and objectives: reduce risk and operation cost, increase profit and improve the competitiveness of banks in market during specific period 2.2.2 Indicators to evaluate the development of derivatives transactions of commercial banks 2.2.2.1 Quantitative indicators a Growth rate in number of derivatives instruments and the diversification of derivatives transactions b Increase in number of clients and components of business parties c Derivatives transactions volumes and growth rate of derivatives transactions d Investment cost for derivatives transactions e Profit from derivatives transactions 2.2.2.2 Qualitative indicators: Quality of derivatives transactions; The comprehensives of products CHAPTER 3: CURRENT SITUATION OF DERIVATIVES TRANSACTIONS AT VIETNAMESE COMMERCIAL BANKS 10 3.1 Fundamental issues about Vietnamese commercial banks 3.2 Current development of derivatives transactions at commercial banks in Vietnam 3.2.1 Current situation of derivatives transactions at commercial banks in Vietnam Derivatives transactions have been used at many commercial banks in Vietnam Some complex derivatives transactions have appeared, however the volumes is very limited Table 3.1: Original Contract value and Book value of derivatives transactions of Vietnamese commercial banks (Vietnamese Dong in billions) Source: Annual report and Financial report of Vietnamese commercial banks 3.2.1.2 Future contract: Foreign exchange futures contract have not been carried out in Vietnam yet Commercial banks are allowed to use commodity futures contracts with underlying products are: coffee, tea, soybeans; rubber…However, banks only have role as an intermediary party helping businesses and companies to execute commodity future contracts in foreign exchanges 3.2.1.3 Swap contract: Swap market was founded in 1998 along with the establishment of forward market, however, swap transactions were only traded between State Bank and commercial banks or traded on Inter-bank market in order to cover the temporary deficit in liquidity of commercial banks Swap contracts values at banks have been increased over the years which demonstrates that this type of derivative contracts is also necessary to banks Table 3.3: Swap contracts value at Vietnamese commercial banks (Vietnamese Dong in Millions) 2014 2013 Bank Contract Value Vietin bank BIDV VCB ACB Tech Exim SCB Sacom Book Value Contract Value 2015 Book Value Contract Value Book Value 8,374,922.0 164,374.0 7,651,242.0 415,778.0 9,103,168.0 117,892.0 13,098,911.0 20,119,071.0 2,597,230.0 17,053,803.0 16,544,733.0 31,115,061.0 7,907,407.0 161,393.0 136,725.0 150.0 -73,157.0 7,190.0 6,056.0 957.0 10,732,848.0 16,339,721.0 4,858,394.0 43,174,940.0 15,789,397.0 18,430,275.0 15,674,364.0 232,369.0 -75,278.0 21,307.0 -18,409.0 13,435.0 -133,018.0 2,499.0 11,542,855.0 16,728,377.0 4,658,335.0 37,071,259.0 19,752,170.0 18,118,086.0 23,992,268.0 254,192.0 628.0 42,256.0 -85,891.0 30,797.0 295,339.0 3,982.0 Source: Annual report of Vietnamese commercial banks 3.2.1.1 Forward contract Table 3.2: Forward contract value at Vietnamese commercial banks (Vietnamese Dong in millions) Bank Vietinbank BIDV VCB ACB Techcombank Eximbank SCB Sacombank Tổng 2013 Contract Book Value Value 436,213.0 78,808.0 2,998,980.0 78,808.0 10,817,048.0 77,742.0 450,959.0 -4,080.0 8,760,283.0 32,717.0 11,847,527.0 -4,237.0 29,530,417.0 13,143.0 771,607.0 594.0 65,613,034.0 273,495.0 2014 Contract Book Value Value 1,562,008.0 428,012.0 2,808,169.0 7,166.0 8,168,235.0 -128,457.0 769,174.0 4,264.0 17,133,993.0 -131,411.0 6,155,514.0 6,482.0 8,196,872.0 -135,448.0 1,022,485.0 1,023.0 45,816,450.0 51,631.0 2015 Contract Book Value Value 1,089,623.0 23,589.0 3,272,145.0 152,937.0 7,784,153.0 -88,571.0 157,743.0 -1,739.0 14,453,007.0 -73,730.0 3,809,583.0 29,012.0 3,809,707.0 -27,260.0 5,711,963.0 3,982.0 40,087,924.0 254,192.0 Bank Vietinbank BIDV VCB ACB Techcombank Eximbank SCB Sacombank Tổng 2013 Contract Value 7,938,709.0 10,099,931.0 9,302,023.0 2,146,271.0 8,293,520.0 4,697,206.0 1,584,644.0 4,012,984.0 48,075,288.0 Book Value 82,585.0 82,585.0 58,983.0 4,230.0 -105,874 11,427.0 -7,087.0 363.0 127,212.0 2014 Contract Book Value Value 6,089,234.0 -12,234.0 7,924,679.0 225,203.0 8,171,486.0 53,179.0 1,887,542.0 10,157.0 26,040,947.0 113,002.0 9,633,883.0 6,953.0 10,233,403.0 2,430.0 12,353,596.0 1,476.0 82,334,770.0 400,166.0 2015 Contract Book Value Value 8,013,545.0 94,303.0 8,270,710.0 101,255.0 8,944,224.0 89,199.0 2,545,303.0 49,342.0 22,618,252.0 -12,161.0 15,942,587.0 1,785.0 14,308,379.0 322,599.0 15,982,023.0 0.0 96,625,023.0 646,322.0 Source: Annual report of Vietnamese commercial banks 3.2.1.4 Option Contract Option contract transactions was first applied in Vietnam are currency option contracts starting from 2004 in accordance with regulation code 1452/2004/QĐ-NHNN Currently, foreign exchange options are not as popular as other foreign exchange derivatives transactions in Vietnam Table 3.4: Currency Options Value at ACB and Sacombank (Vietnamese Dong in Millions) Bank ACB Sacombank 2013 Contract Book Value Value 443,497.0 -8,326.0 3,122,816.0 - 2014 Contract Book Value Value 2,201,678.0 6,886.0 2,298,283.0 - 2015 Contract Book Value Value 1,955,289.0 2,298,282.0 - Source: Annual report of Vietnamese commercial banks 11 12 3.2.2 Profit from derivatives transactions of Vietnamese commercial banks Profit from derivatives transactions counts only less than 8% of total profit in most of banks This indicates that the banks have not sufficiently paid attention to derivatives transactions as well as companies have not had enough information and knowledge about those derivatives transactions 3.2.3 Model of factors affecting derivatives transactions value at commercial banks 3.2.3.1 Researches on factors affecting derivatives transactions value at commercial banks 3.2.3.2 Research model and hypotheses are not multiple linear correlation The results of analysis models have been shown that all fours factors have high reliability with more than 95% (P>/z/ < 0.005) Linear regression equation based on analysis results as follow: LN(TRD) = - 4.0320 + (- 5.3566)LIQ + 1.1294 SIZE + 10.4373 abs(EXR) + 3.7113 abs(IRT) Among 04 independent variables of models: Foreign exchange rates fluctuations variable has the most impact on derivatives transactions value, followed by liquidity variable, interest rates fluctuations variable and lastly bank size factor Liquidity variable is the only element that have negative correlation with derivatives transactions value, three other variables (bank size, foreign exchange rates, interest rates) have positive correlation with derivatives transactions value 3.2.4 Evaluate current situation of derivatives transactions at Vietnamese commercial banks 3.2.4.1 Achievements: Popularizing and making derivatives accessible to domestic companies; Increase competitiveness between banks; Encourage development of banking operations; Prevent potential risks for commercial banks and companies as well as stabilize the economy 3.2.4.2 Difficulties and reasons a Difficulties: Parties participating into derivatives market is little; value of derivatives contract is still small; derivatives products have not yet fully emerged in VN b Reasons: Have not had official derivatives exchange; Derivatives products are still quite new for Vietnamese companies and have not yet established reputation on international market; Lack of sophisticated investors that understand advantages of derivatives instruments as well as techniques used in derivatives market; incomplete regulatory framework; Inefficiencies in advertising; complicated transactions conditions and high cost Bank size + Bank liquidity Exchange rates fluctuations Interest rate fluctuations Derivatives transactions value + + Graph 3.1: Model of factors affecting derivatives transactions value at commercial banks 3.2.3.3 Analysis results of factors affecting derivatives transactions value at commercial banks Dissertation uses technique in regression analysis model in order to analyze relationship and impact of variables such as: Bank size, Bank’s liquidity, Interest rate fluctuations, Exchange rates fluctuations to derivatives transactions value at Vietnamese commercial banks during period 2006-2015 Correlation coefficient factor represents the relationship between two random independent variables is low and Variance inflation factor – VIF are very small (< 10) shows that those independent variables not have strong relationship, therefore there 13 14 3.3 Experiences from development of derivatives transactions in some foreign banks and lessons for Vietnamese commercial banks 3.3.1 Overview of world derivatives market At the end of 4th quarter, 2015, total derivatives transactions volumes traded on exchange worldwide reached $1,400 trillion, double after years, transaction value of global derivatives market is more than 10 times the size of bonds and stocks market Table 3.28: Derivatives transactions trading value of banks worldwide (Classified according to type of contract) (US Dollars in billions) accessibility to international transactions products, providing requirements for electronic connection and e-commerce 24/24 (possibility of using GLOBEX system and Project A as references) From Indian market, we would realize that technology is one of major factors in development of OTC derivatives market especially when transactions requires using complicated technology and completely through electronic system The necessity of Ecommerce trading which is established over the whole country and need to be facilitated for development Market value Change 2012 Futures & 146,229 Forwards 573,931 Swaps Options 128,643 56,862 Credit Derivatives Total 905,664 2013 +/- % Change 2014 157,217 10,988 7.5% 168,829 +/11,612 % Change 2015 7.4% 172,744 +/- % 3,915 2.3% Total value China has achieved certain success in rapidly transition from experiment to developing comprehensively derivatives transactions 667,619 at all its commercial banks Especially, the regulatory law allows 611,175 37,244 6.5% 543,675 -67,500 -11.0% 580,881 37,206 6.8% 2,279,406 143,135 14,492 11.3% 133,238 -9,897 -6.9% 137,520 4,282 3.2% 547,131 60,546 3,684 6.5% 54,865 -5,681 -9.4% 51,389 -3,476 -6.3% 221,665 using derivatives instruments for three different purposes (Hedging, 972,074 66,410 7.3% 900,607 -71,467 -7.4% 942,536 41,929 4.7% 3,715,824 Source: OCC’s Quarterly Report on Bank Trading and Derivatives Activities 3.3.2 Experiences from development of financial derivatives transactions in some foreign banks in the world - Experiences from development of derivatives transactions in US banks - Experiences from development of derivatives transactions in Chinese banks - Experiences from development of derivatives transactions in Indian banks 3.3.3 Lessons for Vietnamese banks Through high standardized US derivatives market, we would recognize that to develop a well establish derivatives markets, we need to focus on development of exchanges, official trading centers specialized for derivatives instruments as well as for other underlying assets such as stocks, commodity, gold…Among of important requirements for development of exchanges are: modern information technology, updating information continuously, Speculation, and Arbitrage) but not limited to hedging only CHAPTER 4: RESEARCH MODEL AND EMPIRICAL RESULTS 4.1 Determinants of derivatives development of Vietnamese commercial banks 4.1.1 Existing Empirical studies on Determinants of Banking Derivatives Development In this part, we review some different existing studies on Determinants of Banking Derivatives Development The results from empirical experiments suggested different factors as the determinants of Banking Derivatives Development Those determinants were categorized into internal factors (commercial bank characteristics) and external factors 4.1.2 Research Model and Research Hypotheses 15 16 about the important of each factor that impacts on derivatives Policy and Legal Framework External Factors Economic Environment development of Vietnamese commercial banks The questionnaire was initially designed with 33 questions + corresponding to 33 factors (variables) that maybe impact on + 4.1.4 Data Collection + survey at least 150 respondents to obtain the efficient analysis The derivatives development of Vietnamese commercial banks With 33 variables are used in the research, the author needs to Customers Competitors Human Resource Derivatives + Development + in Commercial Financial Resource + Technology + Banks forms on http://docs.google.com and use of some paper forms for face-to-face interview The author sent 350 questionare forms in total and collected 220 forms from the respondents 4.2 Regression Result of Vietnamese Commercial Banks’s derivatives development Model 4.2.1 Statistical hypothesis testing result Table 4.4: Descriptive Statistics of Vietnamese commercial Internal Factors quantitative research method uses online survey technique by Google Reputation, Trademark Information system, Accounting, Risk management + + + Business Strategy of Commercial Bank 4.1.3 Formal questionnaire design The 5-point linkert scale ranging from 'strongly disagree' to 'strongly agree' was chosen to measure the respondents' opinion PTGDPSS1 PTGDPSS2 PTGDPSS3 Banks’ derivative development Descriptive Statistics N Minimum Maximum Mean 220 4.46 220 4.37 220 4.58 Std Deviation 543 646 603 Source: Author’s Survey data From descriptive analysis results in table 4.4 above, means of all determinants are within range of 4.37 to 4.58 with 5-point Linkert scale, this result also indicates most of people agree with the author’s opinions of Vietnamese commercial banks’ derivative development situation 17 18 4.2.2 Determinants of Vietnamese commercial Banks’ derivatives 0.000), the significance level is small enough to reject the null development hypothesis Therefore, the sample satisfies factor analysis Using the Extraction Method Principal Component Analysis, 4.2.2.1 Descriptive Statistics: The result of descriptive statistics (See the Appendix 1) show Rotation Method Varimax with Kaiser Normalization, the exploratory that all 33 factors are high value: larger than points with 5-point factor analysis of independent variables is showed in Appendix And Linkert scale Besides, the standard deviations are small which from the Rotated component matrix in Appendix 5, the insignificant reflecting most of the respondents have same assesments on factors are omitted are CS2, CQ7, MTKT4 Finally, the model includes determinants of banking derivative development main variables: CS, MTKTA, MTKTB, KH, DTCT, CQA, CQB - Exploratory Factor Analysis of dependent variable: 4.2.2.2 Scale Reliability: All the scales have high Cronbach’s Alpha Reliability Coefficient (min = 0.647 and max = 0.892) and all the observable variables have correlation coefficient – with total correlation values are larger than 0.3 Within internal factors group, CQ1 variable has correlation value smaller than 0.3, therefore the author eliminated it from model and reevaluated reliability of remaining variables from CQ3 to CQ10 and reached the above result table .623 214.015 000 See the Table 4.7, the KMO = 0.623 (> 0.5) and the Bartlett’s Test is significant (sig = 0.000) indicate that the dependent variable data is consistent with factor analysis And the factor 4.2.2.3 Exploratory Factor Analysis analysis is illustrated in Appendix - Exploratory Factor Analysis of independent variables: Table 4.6: KMO & Bartlett’s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Approx Chi-Square Bartlett's Test of Sphericity df Sig Table 4.7: KMO and Bartlett’s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Approx Chi-Square Bartlett's Test of Sphericity df Sig 4.2.3 Empirical Model 850 4093.992 496 000 The model is built based on the existing studies and the result of exploratory factor analysis above As discussion in literature review part, Vietnamese commercial banks’ derivative development is impacted by five main factors: Policy and Legal Framework, Economic The KMO measures the sampling adequacy (which determines environment, Customers, Competitors and internal factors of if the responses given with the sample are adequate or not) which commercial bank themselves And the exploratory factor analysis gives should be close than 0.5 for a satisfactory factor analysis to proceed us main variables: CS, MTKTA, MTKTB, KH, DTCT, CQA, CQB Table 4.6 presents that the KMO measure is 0.850 (> 0.5) From the Therefore, the multiple linear regression model is described as below: same table, we can see that the Bartlett’s Test is significant (sig = PTGDPS = β0 + β1CS + β2KH + β3MTKTA + β4CQA + β5MTKTB + β6CQB + β7DTCT 19 4.2.4 Variables correlation 4.2.8 The regression result and empirical analysis Table 4.10 Correlation Matrix PTGDPS CS KH MTKTA CQA MTKTB CQB DTCT 20 PTGDPS CS KH MTKTA CQA MTKTB CQB DTCT 664** 521** 444** 784** 506** 507** 644** 598** 454** 613** 573** 375** 451** 538** 402** 622** 442** 461** 604** 637** 393** 608** 423** 487** 568** 500** 452** 523** ** Correlation is significant at the 0.01 level (2-tailed) Table 4.14: The regression Result Explanatory Coef Standardized Std.Error T value Variables (Beta) Coefficients Constant -0.70 0.195 -0.362 CS 0.272 0.038 0.297 7.249 MTKTA 0.400 0.048 0.421 8.403 MTKTB 0.117 0.036 0.134 3.222 CQB 0.141 0.052 0.122 2.719 DTCT 0.115 0.043 0.119 2.689 Dependent Variable: PTGDPS; *: significant at percent P>|t| (Sig.) 0.718 0.000* 0.000* 0.001* 0.007* 0.008* Toleran ce VIF 0.693 0.462 0.671 0.573 0.594 1.444 2.163 1.491 1.745 1.683 See the Table 4.14, all the Tolerances are smaller than and Correlation between Derivatives the Collinearity diagnostics with VIF (Variance inflation factor) of development (PTGDPS) and Independent variables are relatively high all independent variables are smaller than 10, therefore, the problem 4.2.5 Variables selection and Regression Model of multi-collinearity can be ignored in this research The simple coefficients of The multiple linear regression technique will be employed to Empirical Analysis: The result indicates that all of the examine the effects of internal and external determinants as regression coefficients are statistically significant at 99 per cent level explanatory variables on commercial banks’ derivatives development of confidence and more importantly, all have expected signs We as dependent variables The regression equation is presented below: have the regression equation as below: PTGDPS = β0 + β1CS + β3MTKTA + β5MTKTB + β6CQB + β7DTCT 4.2.6 Assessing Goodness-of-Fit of the Regression Model PTGDPS = -0.07 + 0.272CS + 0.400MTKTA + 0.117MTKTB + 0.141CQB + 0.115DTCT The Adjusted R2 (adjusted R- Squared) value equals 0.746, Regarding the important level of factors used in equation: by which means that 74.46% of the variance in the PTGDPS variable evaluating standardized coefficients values from large to small, it is explaining collectively with five independent variables (MTKTA, shown that economic environmental factors have the most impact, CS, DTCT, MTKTB, CQB) The adjusted R- Squared value also followed by policy and legal framework factors, come after are measures the strength of the relationship between the model and the internal factors of banks themselves and finally competitors’ factors data, this model fits the data at 74.46% Overall the model performed fairly well with all five independent 4.2.7 Test the Accuracy of the Regression Model variables being significant Any change in any factors will have The ANOVA test gave the Sig value = 0.000 so we can reject the null impact on development of derivatives transaction at Vietnamese hypothesis, this also means the factors are independent or the interaction commercial banks effect does not exist and the regression Model is accordant at 74.6% 21 22 CHAPTER 5: SOME RECOMMENDATIONS FOR - Build the information system that is always up to date the domestic DEVELOPING DERIVATIVES TRANSACTIONS IN and international derivative markets and facilitates decision making VIETNAMESE COMMERCIAL BANKS - Have the inter-bank electronic payment system, electronic clearing system 5.1 Conditions for developing derivative transactions in - Have the large data storage and analysis system and are always up to date - Have intelligent software to support commercial banks’ Vietnamese commercial banks 5.1.1 Macro conditions derivative transactions Using DerivaGem software to calculate 5.1.1.1 Legal condition: Law on financial instruments markets; the advertising cost and build up derivative products of banks law and regulation of financial institutions 5.1.3 Customer condition - It is necessary for corporations and other business entities to understand the structure of a risk management process including: (1) Identify risks, (2) Distinguish between risk management and speculation, (3) Assess the cost of risk management - Staffs are needed to be trained well on derivatives They can realize the exchange rate risk, Interest rate risk to suggest the corporation’s leader use derivatives to hedge the risks - The corporation’s leaders play the important role in risk management 5.1.1.2 Market condition a The commodity market: Improve the commodity market with trade liberalization b The financial market: Financial systems need to meet certain specific requirements to create favorable conditions for development of financial derivatives instruments and market 5.1.1.3 Infrastructure Condition: Derivatives are one of the three main categories of financial instruments, the modern products of financial system Therefore, we need a modern physical and technological infrastructure for developing of Vietnamese commercial Banks’ derivatives transactions 5.1.2 Commercial bank condition 5.1.2.1 Operation processes and procedures ensure giving customers lower transaction cost, fast and convenience 5.1.2.2 Bank’s staffs: Staffs must be trained well, are professional and have good knowledge about financial derivatives instruments and market such as: fully understanding types of derivatives instruments, how to conduct transactions, evaluation techniques, related risks and market rules and regulation…etc 5.1.2.3 Technology and using derivatives to hedge risks 5.2 Recommendations for developing Vietnamese commercial banks’ derivative transactions 5.2.1 Recommendations for Government The Government should pay more attention to improve the quality of growth; ensure macro-economic stability and transparency, especially financial and monetary policies The Government should create regulatory reforms aiming at a clear, concise, transparent legal framework and complete physical and technological infrastructure for derivatives market development, including official exchange for derivatives trading, clearing and settlement; disclosure and monitoring at stock exchanges; securities depositories and market members; compatibility with basic derivatives products and preparing necessary conditions for an operational market 23 24 Establish a derivatives committee which operate similarly as Firstly, based on the comprehensive research and theoretical State Securities Commission Standardize financial derivatives foundation on derivatives, through researching the international transactions and derivatives instruments traded on the exchange derivatives market, the commercial banks’ derivatives development in Vietnam Government also should have an outward-looking some countries which have similar economic conditions to Vietnam, the policy of consulting with international partners when formulating research studied the overall situation of Vietnamese commercial banks’ derivatives regulations in the future derivatives The author used volume of derivative transactions, cost of 5.2.2 Recommendations for State Bank of Vietnam derivative transactions and profit from derivative transactions to 5.2.2.1 Improve the exchange rate management mechanism analyze And the analysis showed that derivative transactions volume 5.2.2.2 Improve Interest Policy and the profit from derivative transactions were too small 5.2.2.3 Improve the a legal framework for derivatives market Secondly, the regression model was built based on both development theoretical and specific situation in Vietnam, the choice of the 5.2.2.4 Other Recommendations variables is also influenced by the availability of data Therefore, the 5.2.3 Recommendations for Commercial Banks final regression model analyze the factors that impact on Vietnamese Bank’s leaders should be consistent in their opinion about Banks’ derivative transactions volume is presented: LN(TRD) = - derivatives Cannot just because of risks in derivatives transactions 4.0320 + (- 5.3566) LIQ + 1.1294 SIZE + 10.4373 abs(EXR) + that prevent banks from using, providing, and developing derivatives 3.7113 abs(IRT) transactions The attitude of bank’s managers play an important role, Thirdly, the research investigated the determinants of determining the success or failure of development of derivatives banking derivative development and built the expected regression transaction at Vietnamese commercial banks Commercial Banks models was described as below: should diversify derivative products; modernize the banking technology; promote derivative products to customers; train the staffs to become professionals in derivatives, develop the internal control system Focus on international banking operations CONCLUSION PTGDPS = -0.07 + 0.272CS + 0.400MTKTA + 0.117MTKTB + 0.141CQB + 0.115DTCT Finally, from analyzing the overall situation of Vietnamese commercial banks’ derivatives, studying the regression result and empirical analysis, the author pointed out the results and limitations The overall purpose of the research is to investigate which as well as to determine the causes of limitations and from that the factors could significantly drive the Vietnamese commercial Banks’ author suggested some recommendations to develop the derivative derivatives development And the results of the analysis provide transactions in Vietnamese Commercial Banks some conclusions as follows: