INTRODUCTION
Rationale of study
For over twenty years, Vietnam's economy has undergone significant industrialization and modernization, achieving notable success During this period, commercial banks have played a vital role in fostering economic development, serving as essential financial intermediaries that ensure stability and efficiency By attracting idle funds from surplus entities and providing loans to those in need, commercial banks have emerged as a key funding source for the economy Additionally, they offer a range of services, including payment and guarantee services, to support businesses in their operations.
Commercial banks rely heavily on capital to conduct their operations efficiently, making effective fund mobilization a top priority Vietnam Prosperity Joint-Stock Commercial Bank (VP Bank), one of the earliest established banks in Vietnam, has consistently focused on enhancing its mobilization services to attract customers and optimize fund acquisition Notably, the Thang Long branch of VP Bank stands out due to its advantageous position in Hanoi and the new brand recognition system, which further aids its efforts in fund mobilization.
The recent economic downturn in Vietnam has significantly impacted the banking sector, leading to challenges in fund mobilization Many Vietnamese enterprises have gone bankrupt, resulting in a substantial decrease in bank funds as they struggle to repay loans Additionally, customer fears regarding money devaluation have exacerbated the capital shortage at commercial banks The competitive landscape has intensified following Vietnam's signing of the TPP, further complicating fund mobilization for all commercial banks, including VP Bank and its Thang Long branch If these negative trends in capital mobilization continue, they could adversely affect the overall operations of the bank.
The Thang Long branch of VP Bank must promptly assess its fund mobilization practices to identify effective solutions for existing challenges and enhance overall efficiency This evaluation will be the focus of my graduation thesis, titled “Fund Mobilization at VP Bank – Thang Long Branch from 2013 to 2015.”
Research objectives
The thesis aims at clarifying the following objectives:
The first objective of research is to analyze the reality of mobilizing fund at VP bank- Thang Long branch over the period 2013-2015 basing on its financial indicators
Secondly, to evaluate the achievements and limitations in terms of fund mobilization that VP bank- Thang Long branch
The final purpose is to propose some solutions and recommendations to enhance the efficiency of fund mobilization at Thang Long branch in the upcoming years.
Research questions
After the research is completed, the following questions will be fully answered:
What is the real situation of fund mobilization at VP bank- Thang Long branch in the period from 2013 to 2015?
What are the problems of capital mobilization at Thang Long branch?
What can VP bank- Thang Long branch do to promote the efficiency of fund mobilization?
Scope of the study
This thesis focuses on the actual fund mobilization situation at the Thang Long branch, utilizing data gathered from 2013 to 2015 Consequently, the evaluations and recommendations provided are relevant and applicable specifically to the years 2013 through 2015.
Research methodology
This thesis evaluates the challenges in fund mobilization theory and practice, utilizing a theoretical framework and employing statistical methods, analysis, synthesis, and comparison to address the issues faced at the Thang Long branch.
Thesis structure
The thesis is divided into 4 main chapters:
Chapter 2: Overview of fund mobilization and efficiency of fund mobilization Chapter 3: The reality of fund mobilization at VP bank – Thang Long branch between 2013 and 2015
Chapter 4: Some solutions and recommendations to enhance the efficiency of fund mobilization at VP bank- Thang Long branch.
OVERVIEW OF FUND MOBILIZATION AND EFFICIENCY
Fund mobilization in commercial banks
Fund mobilization in commercial banks involves raising idle capital from individuals and organizations through cash deposits, securities, and loans from other financial institutions or the central bank, as defined by Rose and Hudgins (2008) Effective implementation of fund mobilization strategies is crucial for commercial banks to enhance their capital generation for lending purposes, ultimately leading to greater success, according to the Government of India Planning Commission (2007).
Banks generate profit by lending money at higher interest rates than their borrowing costs, highlighting the crucial role of capital in their operations The effectiveness of fund mobilization reflects public trust in banks, influencing their income, liquidity management, and competitive edge.
Effective fund mobilization strategies are crucial for commercial banks, as capital serves as the lifeblood for maintaining daily operations and expenses The scale of capital directly influences profitability, with larger banks typically providing a broader range of loan services and more attractive lending policies than their smaller counterparts A robust capital base enhances credit limits and the size of loans, allowing banks to generate more income through lending interests and fees Adequate capital also protects banks from uninsured risks and supports effective liquidation management Additionally, substantial funding enables banks to engage in diverse financial market activities, such as securities trading, insurance, financial leasing, and advisory services, significantly boosting their competitive edge and reputation within the banking industry.
Capital is a crucial element in the daily operations of a commercial bank, as it not only showcases the bank's productivity but also highlights the effectiveness of its liquidity management Furthermore, a bank's ability to mobilize capital plays a significant role in enhancing its public reputation and competitive edge in the financial sector.
1.3 Classification of fund mobilization in commercial banks
1.3.1 Based on the nature of fund mobilization
Under Decree 49/2000/ND-CP, Article 3, commercial banks are authorized to mobilize funds through various methods, including accepting deposits from individuals, organizations, and other credit institutions in the form of demand and time deposits They can also issue deposit certificates and bonds, with prior approval from the State Bank Governor, to attract capital from domestic and international sources Additionally, banks may borrow from other credit institutions in Vietnam and abroad, as well as obtain short-term loans from the State Bank as outlined in the Law on the State Bank of Vietnam In summary, banks primarily utilize two channels for capital mobilization: deposit sources and non-deposit sources.
Deposits are fundamental to understanding the role of banking firms in the economy, as highlighted by Rose and Hudgins (2008) The ability of banks to attract both transaction (checkable) and savings deposits is a crucial indicator of their public acceptance These deposits serve as the primary source of funds for loans, driving profits and growth for depository institutions Consequently, a higher volume of deposits enables banks to enhance their capital through effective funds mobilization strategies However, the variety of deposit services available can often be overwhelming for customers There are primarily two types of deposits: transaction deposits, which are used for payments, and non-transaction deposits.
Transaction deposit services enable banks to raise capital at a low cost while ensuring immediate access to funds for customers and authorized third parties These deposits encompass both noninterest-bearing accounts, which offer payment services, fund safety, and transaction recordkeeping, and interest-bearing accounts that provide the same benefits along with interest payments to depositors.
Non-interest bearing demand deposits are commonly maintained by individuals, businesses, and governments, with explicit interest payments generally prohibited in most countries While regulations do not restrict banks from imposing minimum balance requirements or transaction fees, corporate customers favor these accounts for their operational convenience These deposits, often substantial in size, can represent volatile funding sources for banks.
Interest-bearing demand deposits are favored by individuals and certain organizations for transaction purposes, similar to non-interest-bearing accounts Often referred to as "savings accounts" in various countries, these deposits allow users to store their earnings for routine and other payments, although they tend to be volatile These accounts typically offer a low interest rate, which is often regulated by financial authorities in many countries.
A negotiable order of withdrawal (NOW) account is a type of interest-bearing demand deposit that allows the offering financial institution to require advance notice from the customer before any fund withdrawals.
2008, p.388) Because this notice requirement is rarely exercised, the NOW can be used just like a checking (transaction) account to pay for purchases of goods and services
Money Market Deposit Accounts (MMDAs) are short-maturity deposits that can last from a few days to several months, with competitive interest rates designed to attract customers These accounts allow up to six preauthorized drafts monthly, but limit check withdrawals to three While personal withdrawals are generally unlimited, service providers may impose restrictions on amounts and frequency MMDAs can be held by both individuals and businesses, and due to their lower withdrawal likelihood and exemption from reserve requirements, banks typically offer higher interest rates on MMDAs compared to Negotiable Order of Withdrawal (NOW) accounts.
Super NOWs (SNOWs) are a unique type of interest-bearing transaction deposit that combines features of negotiable order of withdrawal (NOW) accounts and money market accounts Authorized around the same time as money market deposit accounts (MMDAs), SNOWs are exclusively available to individuals and nonprofit institutions Unlike MMDAs, there are no regulatory limits on the number of checks that can be written from a SNOW account However, financial institutions typically offer lower yields on SNOWs compared to MMDAs due to the higher frequency of drafts by customers.
Savings deposits are intended to attract funds from customers looking to save for future expenses or financial emergencies, as noted by Rose and Hudgins (2008, p.389) These deposits typically offer higher interest rates compared to transaction deposits Despite the higher interest costs, savings deposits are generally less expensive to process and manage.
This type of fund mobilization is characterized by high security but also incurs significant costs Commercial banks actively utilize savings deposits to provide long-term loans and invest in promising projects for profit Currently, savings deposits are divided into two main categories: time savings deposits and demand savings deposits.
Time savings deposits, or term deposits, are fixed-term investment accounts where funds are locked in for a set duration, typically from a few months to several years These deposits offer a guaranteed interest rate throughout the investment period, with longer terms generally yielding higher rates Compared to standard savings accounts, term deposits provide more attractive interest rates, making them a beneficial option for savers looking to maximize their returns.
Efficiency of fund mobilization
The efficiency of funds mobilization measures the relationship between the total capital raised and the associated costs of acquiring that capital, as well as the proportion of utilized capital to the total mobilized capital over a specific period, typically one year.
Indeed, to evaluate the efficiency of fund mobilization, we need to consider not only the scale of mobilized funds but also the benefits received on overhead costs
2.2 Criteria to evaluate efficiency of fund mobilization
Volume of fund mobilization is stated as total amount of money that commercial bank mobilize in a certain period of time
Effective capital mobilization is crucial for commercial banks to meet their lending needs and support economic growth Banks must attract sufficient capital to lend to deficit entities, with the scale of mobilized funds reflecting the bank's overall capital size A larger capital base enables banks to expand their operations, enhance their competitiveness, and build trust with clients Typically, mobilized capital represents the largest portion of a bank's total capital, and banks aim to increase their fund mobilization rates to boost profitability The ratio of mobilized funds to chartered capital serves as a key indicator of a bank's fundraising capability, with a higher ratio indicating safer financial activities.
The cost of fund mobilization refers to the total expenses incurred for acquiring capital over a specific period, encompassing both interest and non-interest costs This expense is a crucial component of the lending interest rate, highlighting the financial implications of borrowing.
Depositors seek high interest rates on their deposits, while borrowers prefer loans with low interest rates Banks act as intermediaries, aiming to balance the interests of both parties while also ensuring their own profitability To achieve this, banks must source funds with the lowest possible mobilization costs and then lend that capital at competitive market interest rates.
To enhance the effectiveness of banks' fund mobilization strategies, it is essential to diversify interest rates in alignment with various forms of capital mobilization Implementing appropriate interest rate policies allows banks to reduce costs while simultaneously securing their capital plans Additionally, managing non-interest costs is crucial for optimizing overall financial performance.
In addition to interest rates, raising capital involves various costs, including salaries for bank staff, depreciation, advertising, and management expenses Notably, the funds sourced from deposits are subject to legal reserve requirements, which represent non-earning assets Consequently, higher reserve requirements lead to increased non-profitable funds, ultimately raising the cost of fund mobilization.
Although they account for a relatively small proportion, savings also contribute to reduce the cost of fund mobilization c Methods to measuring the cost of funds
According to Rose and Hudgins in "Bank Management and Financial Services" (2008, p 425), there are two primary methods for measuring the cost of funds at commercial banks: the pooled-funds cost approach and the marginal cost approach.
The pooled-funds cost approach emphasizes that the overall funding costs of a depository institution are more significant than the individual costs of each deposit type It focuses on the weighted average cost of all funding sources, highlighting the importance of considering the collective financial impact rather than isolating specific deposit costs.
Weighted average cost of funds
K: Fund from source k i k : Interest and non-interest fund-raising cost rate
A: Total funds raised r k : Reserve requirement ratio
The pooled-funds cost approach enables managers to assess the impact of changes in deposit terms, such as interest rates, fees, and minimum balance requirements By experimenting with various deposit options, managers can estimate how these modifications affect overall funding costs for different deposit plans.
The marginal cost approach is used to set deposit rates
Additional funds raised = Total funds raised at new rate - Total funds raised at old rate
2.2.3 Relationship between fund mobilization and utilization
The compatibility between mobilizing and utilizing funds is a growing concern for commercial banks, as maturity mismatches can significantly threaten their liquidity When banks rely heavily on short-term borrowing from individuals and other lending institutions, particularly through demand deposits or money market borrowings, they face increased risks to their financial stability.
The change in total cost can be calculated by subtracting the product of the old interest rate and total funds raised at that rate from the product of the new interest rate and total funds raised at the new rate When banks provide long-term credit to borrowers, they often encounter a maturity mismatch, where the maturity dates of loans do not align with the maturity dates of customer deposits Consequently, banks may need to resort to higher-cost borrowing from sources like the interbank market to fulfill immediate deposit withdrawal demands.
In addition to maturity mismatches, banks often face challenges related to capital scale mismatches When commercial banks focus solely on mobilizing capital without securing investment sources or making loans, they risk incurring losses due to interest payments on idle funds Conversely, failing to meet the growing capital demands within the economy can lead to missed profit opportunities Therefore, it is essential for commercial banks to consider expected capital demands as a basis for raising funds To address this, banks should develop strategic plans to accurately estimate their funding needs for future periods.
2.3 Factors affecting efficiency of fund mobilization
Commercial banks, as credit institutions engaged in money trading and payment services, operate under the regulations set forth by the 2010 Law on Credit Institutions, the Law on the State Bank of Vietnam, and taxation laws These legal frameworks govern all aspects of commercial banking activities.
To effectively implement its monetary policy, the State Bank of Vietnam can acquire commercial banks to adhere to regulations, including interest rate ceilings and floors, as well as reserve requirement ratios.
The operating activities of commercial banks in general and its fund mobilization in particular cannot escape from the business environment, especially the social economic environment
Economic indicators such as growth rate, income, unemployment, and inflation significantly influence banks' operations, particularly in fund mobilization and capital utilization A growing economy and increased production lead to greater public capital accumulation, allowing banks to effectively mobilize funds Conversely, economic downturns and high inflation can shrink banks' investments, creating challenges in capital generation.
REAL SITUATION OF FUNDS MOBILIZATION AT VP BANK- THANG LONG BRANCH OVER THE PERIOD 2013-2015
Overview of VP bank and Thang Long branch
Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), established on August 12, 1993, under business license No 0042/NH-GP, has a 99-year operational period Between 1994 and 1996, VPBank experienced significant growth, achieving a remarkable equity rate of return of 36% in both 1995 and 1996, while ensuring credit quality and effectively operating various services However, the bank encountered challenges due to the Asian economic crisis, fierce competition among commercial banks, and some internal missteps.
From 1997 to 2001, VPBank experienced a crucial phase of consolidation and development, laying the groundwork for future explosive growth With strong support from the Government and the State Bank of Vietnam, the bank effectively addressed its challenges, creating a momentum for sustainable development.
In 2006, VPBank entered a strategic partnership with OCBC Bank of Singapore, which became the major shareholder in VPBank This year also marked VPBank's expansion, as it established two new subsidiaries: VPBank Assets Management Company Limited (ACM) and VPBank Securities Company.
VPBank has established itself as a leader in banking technology in Vietnam by acquiring the advanced Core Banking – T24 software from Temenos, Switzerland In 2007, the bank further strengthened its technological capabilities by launching the first chip card in the Vietnamese market, showcasing its commitment to innovation.
VPBank was approved to raise charter capital to VND 2,117 billion by the State Bank of Vietnam in 2008, which resulted an increase in OCBC Bank‟s shares at VPBank to 15%
In 2011, VPBank experienced significant success, achieving impressive business performance with a pre-tax profit of VND 1,065 billion The bank also increased its charter capital to VND 5,050 billion and expanded its network to nearly 200 transaction offices across the country, highlighting its growth in personnel management and overall development.
Over the past years, VPBank has won numerous prizes and awards such as
VPBank has consistently earned prestigious accolades, including the "Enterprises for Community" award, the "Vietnam Strong Brand Name" award, and recognition as one of the Top 100 Trusted Services in 2011, along with the "International Settlement Bank" award from the Bank of New York and Citibank for five consecutive years These honors reflect the trust and support from customers and society, boosting VPBank's confidence for future growth Over its 22 years of operation, VPBank has significantly increased its charter capital to VND 8,056 billion, expanded its network to over 208 transaction points, and grown its workforce to more than 12,400 employees.
VP Bank, a key member of Vietnam's G12 banking group, is committed to enhancing its reputation as a dynamic institution with robust financial capabilities and a strong sense of community responsibility To realize this vision, the bank has adopted an aggressive growth strategy for 2012-2017, supported by McKinsey, a leading global consulting firm This strategy emphasizes organic growth within targeted customer segments, rapid development of foundational systems to meet growth demands, and proactive market opportunity monitoring.
In order to satisfy the need of customers, on 21th October 2005, VP bank officially launched the 28th transaction of VP - Thang Long branch, in Building M3 - M4,
No 91 Nguyen Chi Thanh, Hanoi VP Thang Long branch is the first branch in Hanoi was operated with the brand identity system of VP Bank
The Thang Long branch of VP Bank primarily operates in the thriving Cau Giay District, a market rich with potential This strategic presence has significantly enhanced VP Bank's business performance while also facilitating a shift in the economic structure, thereby fostering comprehensive and sustainable socio-economic development in the region.
Since its inception, VP Bank Thanh Long has expanded its trading networks and diversified its business offerings in currency and credit, while enhancing its capital sources The branch prioritizes the professional development of its staff, focusing on improving both knowledge and skills, and aims to stabilize and enhance the living conditions of its employees Modernization of facilities, particularly in information technology, is underway to better support business operations Consistently profitable since its establishment, the branch has seen annual revenue growth, contributing significantly to state budgets and building trust with its customers.
Diagram 1: Structural organization of Thang Long branch
(Source: Regulations of VP bank- Thang Long branch)
The diagram illustrates the structural organization of VP Bank's Thang Long branch, highlighting that the board of directors occupies the highest position in the hierarchy Below them, the secondary power is divided into two main divisions: customer service and business support.
Board of Directors comprises the director, two deputy directors Director is the head of the management apparatus, responsible for legislation on business activities of the branch
The Customer Service Office provides a comprehensive range of banking services, including budget management, property services, payment solutions, and foreign transactions It focuses on managing interest rates, controlling costs, and implementing variable cost services while adhering to customer policies.
Counters treasury implements revenue-expenditure, cash counting, export norms accurate cash balance, according to safety regulations and implementation of remittances to the State budget according to law
The trading desk makes direct transactions requested by customers such as making deposits, withdrawals, etc
The Planning and Business Department conducts market research and develops business plans while implementing interest rate policies and capital mobilization strategies It also manages foreign exchange and capital balance to ensure that funds are utilized effectively and efficiently.
The Finance and Accounting Department oversees the financial and accounting operations of the branch, including asset and liability management, fixed asset oversight, and documentation of accounting information It also plays a key role in fund management and is responsible for periodic financial analysis—monthly, quarterly, and annually—along with the fiscal year-end finalization processes This ensures accurate and balanced financial data for the branch.
Administrative organizationdepartment advises the Director of the organization in staffing arrangements and implementation of policies by law on the responsibility and authority of the employee
1.3 Main business activities and achievements
Fund mobilization is a crucial activity for commercial banks, serving as their primary task The greater the capital mobilized, the more opportunities for bank development and enhanced economic influence It is essential that capital mobilization aligns with its utilization to prevent mismatches in fund maturity and scale.
Thang Long Branch has prioritized fund mobilization through diverse strategies and solutions, including a flexible interest rate policy to enhance its fundraising capabilities The branch has also actively promoted domestic capital mobilization in various forms, effectively tapping into the capital potential across all customer segments in the economy Initiatives such as issuing certificates of deposit (CDs), treasury notes with advance interest payments, and offering various personal accounts have contributed to this effort As a result, the mobilized funds at VP Bank, particularly at Thang Long Branch, have consistently increased over the years.
Table 1: Mobilized fund at Thang Long branch between 2013 and 2015
Source: Statistics of Thang Long branch 2013-2015
The real situation of fund mobilization at Thang Long branch over period 2013-2015
Total operating income Total operating expenseTotal profit before tax
Figure 2: Scale of fund mobilization at Thang Long branch 2013-2015
Source: Statistics of Thang Long branch in 2013-2015
From 2013 to 2015, the Thang Long branch experienced a remarkable 58% increase in total mobilized capital, highlighting its success in fund mobilization The branch's strategic expansion of its operational network, enhancement of service quality, and effective marketing initiatives contributed to this growth Additionally, the challenging socio-economic landscape, influenced by the global economic crisis, made traditional investment avenues like the stock and real estate markets less appealing due to higher risks Consequently, many residents turned to bank deposits as a safer and more attractive investment option, further boosting the branch's capital mobilization efforts.
Total mobilized capital mobilization activity of commercial banks in general and Thang Long branch in particular; hence, had more opportunities to develop
As markets mature, competition among banks intensifies, leading to fluctuations in mobilized fund growth at the Thang Long branch In 2014, total mobilized funds rose by 318.62 billion VND, reflecting a significant increase of 35.92% compared to 2013 However, this growth rate diminished in 2015, with an increase of only 204.43 billion VND, or 16.96%.
2.2.1 Based on the sources of capital
According to the Law on Credit Institutions, capital raising activities encompass various methods such as accepting deposits, issuing securities, receiving funding, and managing investments entrusted by the Government, the State Bank, and international credit institutions Additionally, these activities include obtaining loans from state banks, domestic credit institutions, and foreign entities.
As a branch representative for VP bank, the capital of Thang Long branch can be also mobilized from the following sources:
Deposits from customers: This fund source accounts for the largest proportion in the mobilized fund as well as the bank's total capital
Borrowings from other credit institutions occur in the interbank market, while the issuance of valuable papers is conducted periodically to meet the business needs of the branch, with approval from the board of VP Bank.
Table 3: Structure of fund mobilization based on the sources of capital
2 Borrowings from other credit institutions 102.61 205.38 138.78
Source: Statistics of Thang Long branch in 2013-2015
Between 2013 and 2015, there was a noticeable increase in the total capital mobilized, particularly by the Thang Long branch, which saw annual growth in funds from various sources The only exception to this trend was a minor decrease in borrowings from other credit institutions between 2014 and 2015.
Customer deposits are the primary source of funding, accounting for over 72% of total mobilized capital Additionally, there has been a steady increase in customer deposits, with a notable rise of 55.4% when comparing the year 2015 to the present.
2013) This presented that deposit products of Thang Long branch attracted customers and they increasingly believed in its reputation
In addition to customer deposits, borrowings from other credit institutions and the issuance of valuable papers accounted for nearly 20% of total funds mobilized, showing an increase in 2015 compared to 2013 While these wholesale funds tend to be more expensive than retail funds, diversifying funding sources is essential for the branch, as relying solely on customer deposits can lead to disadvantages in certain situations.
2.2.2 Based on terms of fund mobilization
Based on terms of fund mobilization, fund of Thang Long branch will include the short term capital, the medium and long term capital
Figure 3: Structure of fund mobilization based on terms
Source: Statistics of Thang Long branch in 2013-2015
Short term capital Medium & long term capitalTotal mobilized capital
The chart demonstrates the fund mobilization structure by terms at the Thang Long branch, revealing that medium and long-term capital comprised nearly 60% of the total mobilized funds Notably, this category of capital exhibited a significant upward trend from 2013 to 2015, increasing from 513.9 billion VND at the beginning of the period to 833.57 billion VND by 2015.
The branch achieved positive results in fund mobilization, with medium and long-term capital remaining stable This stability provided favorable conditions for making long-term loans and investments However, given the high proportion of this capital within the total mobilized funds, the branch must fully leverage these resources to generate profit, as the cost of medium and long-term funds exceeds that of short-term funds.
Besides medium and long term capital, the short term fund also constituted about 40% in total fund and increased sharply by 54% from 373.11 billion to 576.49 billion over the reporting period
2.2.3 Based on types of customer
Mobilized funds can be categorized into three main types based on customer classification: funds sourced from residents, funds obtained from enterprises and social organizations, and funds acquired from other banks and credit institutions.
Figure 4: Structure of fund mobilization based on types of customer
Source: Statistics of Thang Long branch in 2013-2015
ResidentsEnterprises and social organizationsOther banks and credit institutions
From 2013 to 2015, funds from residents consistently represented the largest share of the Thang Long branch's total capital, accounting for approximately 65% The capital mobilization from residents increased significantly, reaching 924.15 billion VND in 2015, which is a 60.4% rise compared to 2013 Additionally, funds from enterprises and other credit institutions grew by 56% and 58%, respectively These results indicate that the Thang Long branch is gradually earning public trust, reflecting a growing confidence in the bank as a secure investment option compared to alternatives such as securities, real estate, and gold.
To enhance financial stability, the branch must diversify its mobilization products to increase funding from enterprises and other credit institutions, as over-reliance on retail funds can lead to challenges For instance, a rise in individual deposit interest rates in the market can significantly elevate the cost of fund mobilization for the branch.
2.2.4 Based on the types of currency
In terms of currencies, the fund mobilization at Thang Long branch can be divided in two types: fund mobilization in domestic currency and foreign currency
Figure 5: Structure of fund mobilization based on currencies
Source: Statistics of Thang Long branch in 2013-2015
In Domestic Currency In Foreign Currency
The Thang Long branch consistently achieved over 85% of its total capital mobilization in domestic currency Despite an increase in mobilization from 793.87 billion VND to 1,286.83 billion VND, the average growth rates experienced a decline during this period.
In 2015, the growth rate of capital in domestic currency declined to 22.67%, down from 32.14% in 2014, primarily due to fluctuations in the domestic economy The slower increase in the Consumer Price Index (CPI) in 2015 compared to 2014 restricted the ability to mobilize deposits from domestic customers.
In 2014, the branch successfully mobilized 156.6 billion VND in foreign currency capital, marking a significant 68.12% increase from 93.15 billion VND in 2013, driven by a rise in foreign direct investments (FDIs) in the Vietnamese market This influx of FDIs provided the branch with enhanced opportunities to raise foreign currency funds However, in 2015, the devaluation of the USD led to a 21.31% decline in USD deposits, totaling 33.37 billion VND compared to the previous year.
2014 In addition, the decline was also caused by the fact that in 2015 the branch took more concentration on domestic customers rather than foreign ones
2.3 The efficiency of fund mobilization
2.3.1 Loan to deposit ratio (LDR)
Table 4: Loan to deposit ratio of Thang Long branch between 2013 and 2015
Source: Statistics of Thang Long branch in 2013-2015
Evaluation to the fund mobilization at VP bank- Thang Long branch
In general, Thang Long branch has obtained many encouraging results in capital mobilization over the period 2013-2015
In recent years, effective marketing strategies have significantly enhanced the reputation of both the branch and the VP Bank brand in the minds of customers The branch consistently delivers high levels of customer satisfaction through excellent service quality, a professional staff, and a dedicated service attitude.
Thang Long branch prioritizes building strong relationships with loyal and VIP customers while actively seeking new and potential clients to boost transaction volume The branch is committed to implementing tailored policies for individual customers and consistently monitors market changes, such as interest rates and new service offerings, to enhance its competitive edge in capital mobilization.
The Thang Long branch of VP Bank in Hanoi's western area has consistently achieved a high growth rate in mobilized funds, earning its reputation as a focal branch To enhance fund mobilization, the branch has expanded its saving deposit options and introduced various terms with different interest payment methods to attract customers Additionally, it has sought capital from domestic financial institutions and issued special bonds and debentures This effective capital mobilization not only fulfilled the branch's business capital needs but also allowed for the transfer of idle funds to other branches Consequently, the capital utilization coefficient has steadily increased, demonstrating the branch's effective use of mobilized funds.
Over the years, customer deposits at VP Bank, particularly at the Thang Long branch, have steadily increased, consistently representing the largest share of total mobilized funds This growth signifies the trust and positive impression the bank has established among its customers Additionally, the diverse range of deposit products offered effectively caters to the varying needs of clients.
TL branch has launched a range of innovative savings products designed to meet diverse customer needs The Prosperity Savings account features floating interest rates, catering to customers during fluctuating market conditions Accumulative Savings allows for effective fund accumulation for future financial goals The Over-one-month Flexible Savings product provides both high interest rates and exceptional flexibility Lastly, Online Savings enables customers to deposit funds conveniently from anywhere, anytime, through the Internet, eliminating the need to visit transaction offices.
Over the past three years, the Thang Long branch has experienced a significant increase in short-term capital, leading to reduced fund mobilization costs This growth can be attributed to the development of transaction deposits, which have been continuously enhanced with additional benefits Each customer account now includes flexible services such as an SMS account management system and E-banking services, resulting in a substantial rise in capital mobilized from transaction deposits during this period.
In recent years, the share of mobilizing costs in the total mobilized funds has decreased, allowing the branch to provide more competitive lending interest rates for its customers and improve its competitive capacity.
Besides these achievements, funds mobilization of branch had some drawbacks need improved in order to enhance capital mobilization efficiency and maximize business profit
The first downside is the unstable growth rate of mobilized capital Although mobilized capital have increased over the years, the growth rate decreased in 2015
It demonstrates the instability of capital which can lead to difficulties in lending activity
To enhance fundraising strategies, it is essential to diversify the funding structure Currently, short-term deposits constitute a small fraction of total mobilized resources, as the branch predominantly relies on customer deposits In contrast, significant funds have been raised from the interbank market, although this source is both unstable and costly due to high mobilization expenses Additionally, the issuance of securities has been limited to credit institutions, leading to a waste of idle funds from residents Furthermore, deposits in foreign currency remain low and are on a decline.
2015 This situation will affect the branch‟s business activities relating to foreign currency such as the L/C issuance, payment for import-export activities of their customers
Moreover, the products of the branch were not really plentiful and diverse
Despite the introduction of new and supplementary products by the branch, their features remain limited Additionally, there is a noticeable lack of high-tech and unique products that could enhance the branch's competitive edge.
The branch faces significant challenges due to limitations in infrastructure and information technology, which hinder efficient payment services Customers often experience lengthy login times and high registration fees, making transactions cumbersome Additionally, the focus on the number of opened cards rather than activated ones leads to inefficiencies Issues with defective machines further complicate banking transactions, as they may swallow cards and result in unsuccessful transactions while still charging the customer's account.
Vietnam's economic and social environment has faced significant volatility in recent years, negatively impacting banks The slow economic growth rate has led many businesses to reduce operations, resulting in decreased demand for banking services Additionally, fluctuations in the financial and monetary markets have contributed to a declining growth rate in deposits.
Non-cash payment methods in Vietnam remain underdeveloped, as the majority of the population still prefers cash transactions In fact, cash payments constitute 30% of wholesale transactions and a staggering 95% in retail The limited familiarity with retail banking services, particularly card payment options, contributes to this trend, resulting in a low volume of funds mobilized from transaction and short-term deposits.
A significant challenge in mobilizing funds is the inadequate dissemination of information regarding new banking products and services Many customers, particularly elderly individuals and farmers, are often unaware of the features, regulations, and their rights and obligations related to these offerings This lack of information leads to hesitation in exploring, accessing, and utilizing banking products effectively.
The fourth cause is the fierce competition between domestic and foreign banks
The integration and liberalization of Vietnam's banking sector have intensified competition for commercial banks, particularly from foreign institutions This heightened competition poses a risk of decreasing market share in fund mobilization Many large enterprises and expatriates in Vietnam prefer the services of foreign banks like ANZ, Citibank, and HSBC, which are perceived to offer superior management expertise and advanced technology compared to their Vietnamese counterparts.
Vietnam's telecommunications infrastructure is outdated and insufficient to support comprehensive social development, affecting equipment quality and cost The reliance of modern banking products on telecommunications networks highlights the issue, as service disruptions and delays often stem from the inconsistent quality of these communication systems.
SOLUTIONS TO ENHANCE THE EFFICIENCY
S OLUTIONS TO ENHANCE THE EFFICIENCY OF FUND MOBILIZATION FOR VP
1.1 Improving and diversifying the products of fund mobilization
The Thang Long branch of VP Bank is prioritizing the diversification of deposit products to attract more customers and enhance capital mobilization To achieve this, the branch is rapidly conducting customer research to develop new personal banking products that cater to the increasingly diverse needs of its clientele.
To achieve capital growth and mitigate risks, the VP Bank – Thang Long branch should focus on customer expansion and division as a key strategy Currently, the branch has diversified its offerings for personal, small and medium enterprises, and corporate clients However, to improve its competitive edge and better meet customer needs, the bank should further segment its customer base into more specific groups Tailoring banking products and services to the unique characteristics of each segment is essential For instance, implementing attractive policies and interest rates for universities and companies to facilitate tuition and salary payments through bank accounts can effectively enhance capital growth.
1.1.3 Creating new modern and convenient deposit products
The branch should introduce modern deposit products like E-savings accounts, My Dream accounts, payroll accounts, and women's accounts, successfully implemented by banks such as Citibank and ANZ These innovations will enhance customer engagement and deliver valuable services, positioning the bank for growth and connection with its clientele.
1.2 Concentrating on Internet and Electronic Banking System
The branch should focus on advanced technological offerings like iBanking, SMS banking, e-Banking, and Mobile Banking to differentiate itself in the competitive banking market Ensuring smooth and secure operations through a highly encrypted banking system is essential for protecting customer information and transactions Additionally, the user interface must be intuitive and accessible to a diverse customer base.
The evolving role of ATMs is driven by financial institutions' desire to enhance services while minimizing operational costs By effectively investing in ATM management strategies, customer experience can be significantly improved, leading to an increase in electronic transactions at branches.
To enhance the performance of its ATM system, VP Bank – Thang Long branch should prioritize increasing the number of ATM kiosks in strategically selected locations.
In the competitive landscape of ATMs, location is crucial, with customers favoring branches that offer a dense network of ATM kiosks for convenience in money transfers and withdrawals To enhance electronic transaction volumes, branches should strategically increase the number of ATMs in high-traffic areas such as markets, hospitals, and schools Additionally, regular maintenance and upgrades of ATM hardware and operating systems are essential for optimal performance and customer satisfaction.
The banking industry is increasingly concerned about the risks posed by lags and hacking to ATM systems, making regular maintenance and upgrades of hardware and operating systems essential for ensuring productivity and stability Enhancing the convenience and security of electronic banking systems not only fosters customer trust but also drives the registration of new accounts and boosts daily transaction volumes Additionally, ensuring that each ATM kiosk is adequately stocked with cash is crucial for maintaining customer satisfaction and operational efficiency.
Many bank ATMs frequently run out of cash, especially during holidays, leading to customer dissatisfaction and damaging the bank's reputation To maintain customer satisfaction and uphold the bank's image, it is essential to ensure that each ATM kiosk is stocked with adequate cash.
1.3 Expanding and developing consumption credits have to be highlighted
To enhance the appeal of the bank's products and services, it is essential to prioritize the expansion and development of consumption credits Implementing promotional programs that provide enticing gifts and discounts for both new customers and those who frequently use credit will significantly attract a wider audience.
Customer satisfaction is crucial for attracting more clients and enhancing the branch's reputation To achieve this, it is essential to research and comprehend customer needs and preferences By integrating this knowledge with its creative abilities and expertise, the branch can deliver services that effectively meet customer expectations.
To enhance customer satisfaction and loyalty, the branch should focus on building long-term relationships with customers, expanding its network to reach a broader audience, and refining service styles and procedures for a more comfortable experience Additionally, implementing regular promotional and appreciation programs will strengthen the connection between the branch and its clientele.
To enhance customer satisfaction and loyalty, it is essential for branch staff to undergo regular training that improves their professional qualifications and adaptability to new technical challenges Additionally, incorporating emotional intelligence in the workplace fosters a friendly and professional service style, effectively positioning the branch's image in the market.
1.5 Highly concentrating on human resource policies
In a competitive landscape, the success of commercial banks hinges on their workforce, making strategic human resource development essential for branches This involves appointing qualified staff to meet both immediate and long-term banking needs, while also infusing the team with dynamic new talent Additionally, leveraging modern information technology is crucial for effective human resource management, enhancing staff productivity, and fostering a culture that respects and nurtures talent Emphasizing ongoing training and skill enhancement is vital for maintaining a competitive edge and ensuring a customer-focused approach Furthermore, innovative retention policies, including improved wages and welfare schemes, are necessary to boost employee motivation and productivity Lastly, attractive remuneration packages and promotion opportunities are key to attracting and retaining skilled professionals within the bank.
1.6 Promoting extensively the marketing programs
To enhance fund mobilization and address capital requirements for lending and investment, the branch must prioritize market research Gaining insights into customer needs is crucial for establishing effective fund mobilization policies and interest rates, while also enabling the expansion of diverse services that cater to society's evolving demands Additionally, the early identification of emerging societal needs can provide the branch with a competitive edge in attracting customers.
Recommendations for the Government and the State Bank of Vietnam
The macro-economic environment, one of the most essential factors effecting to commercial bank‟s operations can be developed and stabilized by intervention of Government
To enhance the banking sector, it is essential to establish a comprehensive legal framework that clearly defines the operational scope of commercial banks Additionally, relevant laws must be refined and clearly articulated The government should implement strict measures to address negative incidents, thereby promoting transparency and integrity in banking activities, which will ultimately bolster public trust in the banking system.
The government should implement effective campaigns to encourage residents to shift their savings from gold, foreign currency, and cash to bank deposits This transition will not only enhance the banking sector but also foster economic growth for the country.
Thirdly, monetary and financial policies must be come out promptly to stabilize the economy With public‟s greater trustworthiness in healthy economy, commercial banks will have more opportunities to develop
Finally, Vietnamese Government should take close attention to expand international relationship so that banks at Vietnam can have the opportunity to take advantage the support of international monetary organizations
2.2 Recommendations for the State Bank of Vietnam
2.2.1 Improving the legal system and policies relating to banking activities
The recently updated Law on Credit Institutions introduces new regulations that align with current economic conditions and provide a supportive legal framework for credit institutions However, ambiguities remain regarding bank equity and capital mobilization To ensure equitable operations within the sector, ongoing review and amendments to the Law and related regulations are essential Additionally, the State Bank of Vietnam (SBV) should focus on implementing common tools to strengthen monetary policy control, rather than directly influencing interest rates, which can lead to adverse effects on investment.
To promote a stable legal environment for banking development, it is essential to issue financial documents in a more systematic manner, thereby ensuring effective management of all monetary and credit operations.
2.2.2 Concentrating on interest rate policy
Interest rates play a crucial role for commercial banks in attracting capital from individuals, businesses, and other credit institutions Effective interest rate policies are contingent upon a stable monetary environment and minimal price volatility These policies should be grounded in practical science and tailored to the socio-economic conditions of each period Additionally, the State Bank of Vietnam (SBV) must implement measures to maintain a narrow range of interest rates for capital mobilization, ensuring that any fluctuations are driven by positive economic factors rather than negative competition among local banks.
2.2.3 Taking measures to stabilize exchange rate
Rapid fluctuations in exchange rates, combined with lowered foreign interest rates and high domestic interest rates, hinder significant growth in domestic capital mobilization Enterprises with high loan demands favor domestic currency, intensifying pressure on the market and exacerbating the shortage of VND In response to these exchange rate fluctuations, commercial banks are striving to optimize their foreign exchange positions.
Many organizations and individuals are hesitant to raise VND until the government implements policies to stabilize the exchange rate A stable exchange rate encourages greater mobilization of VND capital without increasing interest rates.
2.2.4 Improving and developing the capital market
The effective formation and development of capital are crucial for advancing the commodity market A well-established capital market facilitates capital raising through the issuance of valuable securities, serving as a connection between capital providers and those in need This process consolidates smaller, isolated funds into larger pools, enabling more efficient investments and contributing significantly to national development.
2.2.5 Implementing effectively the inspecting and checking assignments
The SBV must effectively execute its management responsibilities while strengthening inspection and oversight activities It is essential to promptly address and rectify illegal actions that result in the loss of state and public funds.
Effectively managing credit institutions with strict discipline is crucial for enhancing the banking system's reputation in the market Additionally, the State Bank of Vietnam (SBV) must implement measures to address unfair interest rate competition among banks, thereby improving the overall quality of competition in the monetary market.
Banks are essential to international economic integration and the modernization of countries, serving as critical financial intermediaries that fulfill the capital demands of the economy Vietnamese commercial banks, particularly the Thang Long branch, prioritize fund mobilization as a key activity Over recent years, Thang Long branch has focused on enhancing capital mobilization efficiency, leading to notable achievements The branch has implemented diverse marketing strategies to attract customers, address their needs, improve service quality, and upgrade technological systems Consequently, the scale of mobilized funds has seen significant growth from 2013 onwards.
In 2015, the Thang Long branch emerged as the key player for VP Bank in fund mobilization, successfully raising over 70 percent of the total deposits at a lower cost compared to other sources This reduction in mobilization costs enabled the branch to provide competitive lending interest rates to customers Consequently, these advantages enhance Thang Long's competitiveness in the market and further promote its capital mobilization efforts.
The Thang Long branch has encountered significant challenges in fund mobilization due to economic downturns and heightened competition within the banking sector during the integration period Between 2013 and 2015, the branch experienced unstable growth rates in fund mobilization Additionally, there is a pressing need to diversify the capital structure, as the majority of mobilized funds consist of savings and long-term deposits, while transaction and short-term deposits represent only a small fraction of the total Furthermore, the branch's mobilizing products lack diversity, primarily focusing on deposit forms.
To address current challenges, the Thang Long branch must swiftly identify solutions with the support of the Government and State Bank to enhance fund mobilization efficiency Key strategies include diversifying the product portfolio and expanding services to meet the evolving needs of customers Additionally, the branch should focus on strengthening its internet and electronic banking systems, leveraging high technology to boost competitiveness during this integration period Finally, improving the quality of human resources is essential for enhancing the bank's image among customers.
With the collective efforts of all staff members and the guidance of our wise leaders, the Thang Long branch is poised for significant success in business overall, particularly in capital raising activities.