Restructuring banking system a case study of vietnam,

STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty - - GRADUATION THESIS RESTRUCTURING BANKING SYSTEM – A CASE STUDY OF VIETNAM Lecturer : Tran Thi Hai Ly (M.A) Student :Nguyen Quynh Mai Class : K14 – ATCD Student Code : 14A7510149 Hanoi, May 2015 Graduation Thesis Banking Academy ACKNOWLEDGEMENTS After about years of studying in specialized financial and linguistic conditions at Banking Academy, I have been given oppotunity to review and dig deeper my theoretical understanding into practise This graduation thesis is one of the most essential foundations for me to perform my effort, and paves the way to make it come into fruition thanks to the ceaseless devotion of lecturers at this university I am greatly indebted to those who succored me to achieve this graduation thesis First, the very profound thanks are reserved for all of my lecturers in Banking Academy, especially those of Foreign Language Faculty with their invaluable lessons and motivation as well In particular, I would like to express my sincere gratitude to my instructor, Mrs Tran Thi Hai Ly, who has poured thorough assistance, and useful recommendations whenever I am in difficulties I would like to send my wholehearted thanks to my family and my friends for the encouragement and inspiration they provided me during my process Without their tremendous support, I believe that this thesis will forever uncompleted Hanoi, 20thMay 2015 Student Nguyen Quynh Mai Nguyen Quynh Mai –K14 ATCD Page i Graduation Thesis Banking Academy ABTRACTS The primary aims of this graduation thesis are to systematize restructuring commercial banks theories, analyze the situation of restructuring of commercial banks in Vietnam from 2008 to 2014 and propose measures to promote restructuring of Vietnam banking system in the upcoming years With a purpose of achieving goals above, the author has synthesized the literature review for restructuring banking system through commercial banks classification; restructuring concept; the reasons for restructuring; its advantages and disadvantages Moreover, various international experiences of restructuring banking system in America and some Asia countries also are discussed which have drawn priceless lessons in the process of restructuring for Vietnam conditions On the basis of such theoretical framework, graduation thesis generates the formation and development of Vietnam banking system along with operations of Vietnam commercial banks Subsequently, the thesis focuses on analyzing and assessing the restructuring process of Vietnam commercial banks through four aspects including financial restructuring, operational restructuring, administrative restructuring and ownership restructuring In the final step, the writer gives out two groups of recommendations to accelerate the process of restructuring Vietnam commercial banks However, sadly enough, restructuring banking system in Vietnam is a extremely extensive issue that a graduation thesis is fail to cover all related-problems due to the lack of data, massive workload and limited time Nguyen Quynh Mai –K14 ATCD Page ii Graduation Thesis Banking Academy TABLE OF CONTENT Supplementary cover Acknowledgements Table of content List of tables and charts List of abbreviations Table of Contents I – INTRODUCTION 1.1 Motivations to the research 1.2 Scope of the study and limitations 1.3 Structure of the study 1.4 Research methodology 1.4.1 Research methods and instruments 1.4.2 Research participants 1.4.3 Data collecting procedure II – THEORETICAL FRAMEWORK ABOUT BANKING SYSTEM RESTRUCTURING 2.1 Restructuring banking system 2.1.1 Definition of restructuring banking system 2.1.2 Types of restructuring banking system 2.1.3 Reasons for restructuring banking system 11 2.1.4 Advantages of restructuring process 13 2.1.5 Risks and difficulties 14 2.2 International experiences 15 2.2.1 Cases of Asian countries 15 2.2.2 Case of America 19 Nguyen Quynh Mai –K14 ATCD Page iii Graduation Thesis 2.2.3 Banking Academy Lessons drawn 20 III – RESTRUCTURING BANKING SYSTEM – CASE OF VIETNAM 23 3.1 Reasons for the restructuring of banking system in Vietnam 23 3.1.1 Economic context 23 3.1.2 Performance of banks and financial institutions 24 3.2 The restructuring of banking system in Vietnam 30 3.2.1 Purposes 30 3.2.2 Process 31 3.2.3 Achievements 37 3.3 Evaluation 38 3.3.1 Limitations 38 3.3.2 Reasons leading to constraints 39 IV – RECOMMENDATIONS 42 4.1 To State Bank of Vietnam 42 4.1.1 Enhancing managing role 42 4.1.2 Completely equtizing SCBs 42 4.1.3 Adjusting foreign ownership restriction 42 4.1.4 Supplementing financial laws 43 4.2 To commercial banks 43 4.2.1 Solving liquidity risk 43 4.2.2 Recapitalizing equity 44 4.2.3 Focusing on technology and human resources 44 CONCLUSIONS REFERENCES APPENDICES Nguyen Quynh Mai –K14 ATCD Page iv Graduation Thesis Banking Academy LIST OF TABLES AND CHARTS Figure 3.1 Organizational model of Vietnam commercial banks 36 Graph 3.1 The growth rate of outstanding loans in Vietnam banking system from 2008 to 2014 27 Graph 3.2 EBT of some Vietnam commercial banks in 2014 29 Graph 3.3 Percentage of operating profits in Vietnam CBs from 2008 to 2014 30 Table 2.1 Restructuring banking system of some ASEAN nations 18 Table 2.2 Lehman’s balance sheet before bankruptcy 19 Table 3.1 The number of banks in Vietnam from 2008 to 2014 24 Table 3.2 Charter capital of Vietnam commercial banks from 2008 to 2014 25 Table 3.3 CAR of typical CBs in Vietnam from 2008 to 2014 26 Table 3.4 Foreign strategic shareholders participated in Vietnam banking system from 2008 to 2014 32 Table 3.5 Some prominent M&A deals from 2008 to 2013 34 Nguyen Quynh Mai –K14 ATCD Page v Graduation Thesis Banking Academy TABLE OF ABBREVIATIONS ATM Automatic Teller Machine CAR Capital Adequacy Ratio AMC Asset Management Corporation CB Commercial Banks CPI Consumer Price Index DIC Deposit Insurance Corporation IBRA IR JSB Indonesian Bank Restructuring Authority Interest Rate Joint-Stock Commercial Bank M&A Merger and Acquisition NPL Non-performing Loan SCB State-Owned Commercial Bank SME Small and Medium Enterprise SOE State-Owned Enterprise SBV State Bank of Vietnam USD United States Dollar VND Vietnam Dong WTO World Trade Organization Nguyen Quynh Mai –K14 ATCD Page vi Graduation Thesis Banking Academy CHAPTER I – INTRODUCTION 1.1 Motivations to the research Over the past 20 years, Vietnam banking system has completed its tasks outstandingly and always played an important role of being the lifeline of national economy In other words, it is considered to be an indispensible factor affecting all activities of the society as it generates capital resources for the national development The glorious socio-economic achievements Vietnam has gained along with greater role and position of Vietnam in international market are stunningly attributed to the banking sector Also for its importance, banking operations are very sensitive and easily trigger serious influence to the economy if under-standard condition is created The opening offinancial and banking market is an inevitable tendency under the context of international integration, especially since Vietnam joined the WTO which has brought a lot of opportunities and challenges for Vietnam banking system Commercial banks in Vietnam have to confront more intensive competition with foreign banks from the developed financial areas such as the United States, Europe, Singapore, Japan are more affected by the volatility of international financial markets The financial crisis and global economic downturn which lasted from 2008 have still left their consequences in many countries until now One of the main culprits derived from the weakness of the banking system which then forced the nations to pay more attention and re-evaluate all activities of commercial banks The restructuring of the banking system has become widespread and urgent in each separated country to ensure that banks can adapt to brand new requirements in the volatile situation of the world’s economy In Vietnam, when the stock market has not developed yet, the banking system seemed to be the only one who was responsible for the burden of capital Therefore, keeping the system stable and profitable requires more effort than ever So far, social statistics have shown that Vietnam economy and banking system, to a certain extent, have overcome the financial crisis However, its consequences still left behind some instability problems in the banking sector, namely: the liquidity difficulties, increasing bad debts, limitations in controlling capacity, poor services and products, primarily profit from credit operations whose risks affect the systematic safety and so on In addition, crossownership issues and banking network which are growing at a high speed with large number Nguyen Quynh Mai –K14 ATCD Page Graduation Thesis Banking Academy but low quality also negatively affect banking system and monetary market negatively Therefore, if there is no timely intervention, potential risks may arise and lead to systematic instability To stabilize and improve the economy efffectively and sustainably, the 11th Plenum III (October, 2011) has emphasized the need for restructuring the economy in which the restructuring of the banking system and financial institutions is one of three key domains This is a vital strategy illustrating determination of government to reform the economy and to hinder negative effects of the world economic crisis Rooted from recognizing the importance of restructuring banking system and the desire to come up with useful solutions to the successful process of restructuring Vietnam banking system, the writer chose the topic: "Restructuring banking system – A case study of Vietnam "for the graduation thesis Equally important, the author hold onto the hope of adjoining and offering the most complete view on restructuring Vietnam banking system within the period 2008 - 2014 so as to build up a reliable knowledge foundation for researches of the similar topic in the future Impressively, by clarifying the forms of restructuring as well as pointing out the valuable lessons of international experience, the thesis puts forward practical and comprehensive proposals which may generate stunning contributions to the success of the restructuring process 1.2 Scope of the study and limitations Due to limited time as well as the writer’s restricted knowledge and experience, the study can hardly cover all specific issues involved in restructuring banking system Moreover, there are various governmental policies which have just come into effect As a result, the evaluations on their influences and effeciency are far from comprehensive Additionally, along with the unforeseeable movements in the financial market, the updated collection and estimation of data may confront with obstacles Consequently, this thesis only discusses the restructuring of commercial bank system in Vietnam within the period from 2008 to 2014; suggests some recommendations and offers oppotunities for further studies 1.3 Structure of the study Apart from acknowledgements, abstract, table of content, list of abbreviations, list of charts and tables, list of references and conclusion, the chief content of graduation thesis includes 04 chapters as follows: Nguyen Quynh Mai –K14 ATCD Page Graduation Thesis Banking Academy Chapter 1: Introduction This chapter gives a general background of the study in cluding the motivations to the research and the problem statement Accordingly, difficulties and limitations arising in doing the research are also mentioned clearly Chapter 2: Theoretical framework about restructuring banking system This is an essential part which reviews literally on the entire content involved in the topic Issues stated in chapter include: selectively generalized and systematized basic information about commercial banks and restructuring banking system Based on that, author straightened out the causes of restructuring the banking system and some international experiences in order to generate lessons for the case of Vietnam Chapter 3: Restructuring banking system – The case of Vietnam By virtue of reliable and updated sources of data, the thesis analyzes operational condition of Vietnam's commercial banks as well as the restructuring banking system between 2008 and 2014 before identifying achievements, constraints and the causes of the limitations in the process of restructuring the system of commercial banks in Vietnam All of these will be obvious foundation for the solution to restructure Vietnam banking system Chapter 4: Recommendations With a view of enhancing Vietnam commercial banks in the future and restructuring the banking system as a governmental strategy, the thesis proposes groups of solutions to help the process of restructuring the banking system Vietnam achieve positive results 1.4 Research methodology 1.4.1 Research methods and instruments The study is based on a variety of methods such as statistics, description, comparison, synthesis, logic, theoretical and practical combination Bar charts, line graphs, pie charts and historical figures are used to illustrate and determine the pattern of changes in particular events 1.4.2 Research participants The list of subjects for this study are as follows: State Bank of Vietnam, state-owned commercial banks, 35 joint-stock commercial banks (JSCBs), foreign banks and jointventured banks The writer uses data and documents collected from these banks because Nguyen Quynh Mai –K14 ATCD Page Graduation Thesis Banking Academy HDBank into a single one called HDBank with the purpose of improving the operational quality After being acquired by DOJI, TienPhongBank, a weak bank to carry out restructure, developed again with the credit growth rate standing at 15%, 28% and bad debt being below 5%  Operational restructuring -Products and services Vietnam CBs have been constantly researching and making new products to further meet the needs of the economy Previously, their tasks mainly performed through making loan and receiving deposit; nevertheless, now the system has various activities on the service side including wholesale and retail banking, commercial financing, underwriting, forex trading, payments, money transfering, issuance of credit card, traveler's checks, securities, insurance and financial leasing Vietnam banks have recognized the importance of focusing on developing non-credit banking services, invested in products with cutting-edge technology and have procured certain achievements This was reflected in the increasing percentage of profit from noncredit services on total income of banks such as Vietcombank, BIDV, Sacombank, Techcombank, etc The most prevalent services were recently recorded as cards and cardrelated convenient services, internet banking, home banking and SMS banking Besides, banks are conducting business in foreign currencies, gold, securities in order to purchase shares in other fields - Human resources Since enhancing staff’s level is extremely appriciated, right from recruitment process, banks offer specific standards with openness, transparency and consistency Besides, the numerous policies related to workers as wages, bonuses, further learning or promotion are based on the individual performance, and therefore, employees should voluntarily make effort by themselves At CBs now, qualified personnel with university degree or higher tends to become pervasive - Organizational model Most organizational model of commercial banks in Vietnam have been classified and allocated into operating, supportive and managing departments Typically, the organizational model generally is depicted as follows: Nguyen Quynh Mai –K14 ATCD Page 35 Graduation Thesis Banking Academy HEADQUARTER Operation Center and Branches Transaction Offices Managing Committee Specialized Department Savings Funds Figure 3.1 Organizational model of Vietnam commercial banks  Administrative restructuring During the recession and global financial crisis, Vietnam banking system is struggling with the selection, filter and narrow of administrative personnel as well as chief executives As a result, administrative and monitoring staff was put under pressure in planning strategy and running business On the other hand, bad debts which have been on a rise in recent years has forced many banks to allocate great labor for collecting and handling overdue debts In fact, several banks whose lax administration as led to the immense loss of capital have to bid farewell to senior employees at Habubank, for example Even in many cases, when it came to the purposive intension to violate the regulations for sake of individual benefit, it was compulsory to trigger criminological treatment The acquired banks, apparently, was required to change the majority of Board of Director’s members such as Sacombank, VietCapitalBnak, SGB and Habubank, etc When implementing M&A, a certain number of banks have enhanced, added, selected or simplified their human resources regarded to administration In many JSBs, the founding shareholders are often the major shareholders, and therefore, hold absolute controlling rights, not only in strategic issues and direction but also in important decisions within the authority of the Board of Directors  Ownership restructuring From 2008 to now, ownership structure in Vietnam banking system has shifted dramatically First, four out of the five SCBs (including Vietcombank, Vietinbank, BIDV and MHB) Nguyen Quynh Mai –K14 ATCD Page 36 Graduation Thesis Banking Academy conducted equitization and officially operated under multi-ownership model Currently, SBV holds about 77.11%, 80.30%, 95.76%, 68.1% of stocks in these banks respectively and remains being the dominator in all aspects Although the multi-ownership model has just been applied so far,it does perform its advantages which far outstrip the single model with regards to dynamism, efficiency and coherence of the owners’ responsibilities However, the fact that government being both owner and supervisor of SCBs will lead to the less effective supervisory framework Raising a tremendous amount of capital within a very short time coupled with the opening of financial markets have been a culprit of multi-side or cross-ownership between banks and enterprises or among CBs Actually, cross-ownership occurring between SCBs and JSBs represented the most prevalent and obvious performance Accordingly, four SCBs (VCB, Vietinbank, Agribank, BIDV) occupied large proportion of stake and become a strategic shareholders of many JSBs Notably, VCB owned 11% of MB, 8.2% of Eximbank, 4.7% of OCB, 5.3% of Saigonbank Besides, Agribank currently owns 15% of Maritime Bank (indirectly through Agriseco), 11% of Saigonbank In fact, cross-ownership is quite beneficial to a certain extent To specify, cross-ownership between enterprises and banks can help businesses ensure stable funding from banks whose shares they are holding Additionally, cross-ownership among banks enables them to exploit mutual advantages of branch network, non-credit services, technology transfer, and support each other in terms of liquidity However, paradoxically, there are some negative effects are attributed from cross-ownership: - Banks make loans depended on relationship without undertaking thorough evaluation and careful monitoring on loans , and consequently, bad debts arise Cross-ownership among banks generates unnecessary costs and risks systematically, increases unreal capital because liquidity problems may entail domino effect 3.2.3 Achievements  Financial aspect Generally speaking, achievements of restructuring banking system were the most prominent in aspects of monetary policy In reality, there were numerous positive evidences including rapidly declining IR, stable forex market, higher reserved requirements, controllable gold market and so on In addition, most of solutions to difficulties were carried out drastically in coordination with measures on taxes and fees Fortunately, it can be said that commercial Nguyen Quynh Mai –K14 ATCD Page 37 Graduation Thesis Banking Academy banking system has been exempt from the verge of collapse in early 2012 Small-scale CBs, impressively, not only improved their liquidity and relatively balanced the capital, but also made full effort to handle bad debts by intrinsic abilities Eventually, the availability of capital for the economy was broadened in a stable direction; managing and financial capacity rocketed coupled with more transparent information being released  Impacts on other fields A comprehensive view is that the economy consists of areas which have close relationship with each other: manufactory sector, governmental sector, foreign sector and financialbanking sector, banks As can be seen, public investment, SOEs and banks are entities of the economy and close, dialectic and objective relationship according to the cycle of the economy Therefore, they must be bound and dependent much on each other during their performances Accordingly, the restructuring of banking system paved the way to promote the rest restructuring processes, and eventually created consistency Some positive results have been clearly expressed such as: - Banks concentrated on providing medium-term funds to imperative and important projects in order to immune from scattered and inefficient investment At the same time, banks are also stepping up social investment with a large proportion - Banks were also sources of financial support for the processing and manufacturing industries, facilitated these businesses develop sustainably and more rapidly Specialized education in banking and finance major must be more serious and quality-oriented to better the outcome human resoures and reduce unemployment - 3.3 Evaluation 3.3.1 Limitations Four years of restructuring has noticed irrefutable achievements; nevertheless, there were numerous constraints which should vitally be take into account First of all, after being restructured, the equity of Vietnam commercial banks remained quite modest although it went up dramatically and satisfied the minimum legal CAR The insignificant amount of equity inhibited banks to cope with risks caused by uncertainties in financial markets and reduced their competitiveness with other banks within the Southeast Nguyen Quynh Mai –K14 ATCD Page 38 Graduation Thesis Banking Academy Asian nations and over the world Moreover, higher bad debts were unsolved rootedlydue to chronic difficulties from the habits of traditional customers and the economy itself Second, organizational and operational structure were on the slow move with cumbrous processes To specify, the distributions of branches, transaction offices or even employees were unreasonable and sophisticated Then, it was inevitable that the requirements of an effective operating model was not met, which resulted in lower administrative capacity Hardly can the Board of Directors in CBs manage such chaotic departments themselves, let alone the general control of SBV Third, the untreated cross-ownership between CBs obscured bad debts It was believed that NPLs would keep climbing exponently unless the cross-ownership was totally eliminated Fourth, the issue of cost was worth considering since sources and the exact amount of money earmarked for restructuring have not been clarified In fact, implicit expenses such as compensation for customers, asset revaluating fees or expenditure of retraining staff were not calculated transparently Last but not least, technological infrastructure has failed to fulfill the demands of international banking model yet In particular, ATM services still lacked the coordination and compatibility among banks along with the existence of hackers, online fraud or confidentiality invasion In brief, many limitations have been found behind the enforcement of restructuring Vietnam banking system The most important feature lies in that government and banks are advised to go hand-in-hand to deal with each challenge 3.3.2 Reasons leading to constraints Prior to making suggestions , it had better to dig deeper into causes of the listed limitations above Two groups of reasons are established as below: Initially, with regards to the legal and the macro basis, it can easily be seen that governmental regulations were still ambiguous and contained many gaps without specific guidelines In addition, paradoxically, loosing monetary policy which was implemented in the long run conversely led to negative side-effects Despite more prosperous developments, the frozen real-estate market saw little difference while manufacturing business continued to face with difficulties Also, due to the instability of both domestic and international financial markets, mobilizing funds and seeking for high-profile investors to participate in the restructuring were in unfavorable situation Nguyen Quynh Mai –K14 ATCD Page 39 Graduation Thesis Banking Academy Another catalyst stemmed from people’s underestimation of discipline, regulations and safety in banking activities Actually, some senior employees had intension to embezzlement through making use of legal gaps Furthermore, the supervision of the SBV was mostly just for tracking and monitoring individual banks, but not the whole system Thus, systematic risk maintained while liquidity crisis possibly happened at any time Besides, in terms of Vietnam CBs themselves, they were not in active position and make full efforts to self-restructure and self-complete for development as all of them relied on governmental actions More seriously, NPLs of CBs has not been identified, calculated and analyzed comprehensively It can hardly find a bank which strictly obeyed the rules on lending and security of credit activities In addition, qualifications and competence of both leaders and employees were restrained, particularly in acquiring new things Particularly, incentives, compensation and current financial strength which should be deeper invested were under average standard, leading to insignificant ability to attract talented employees Lastly, the banks show no effort in launching new products and services or in finding their own directions in doing business It was vitally essential for Vietnam commercial banks to follow business trends of the modern banking world, which contained the development of non-credit services along with reducing dependence on credit ones Conclusion Applying the theoretical framework built in previous chapter, in chapter III, the thesis summarizes operational situation of Vietnam commercial banks in aspects of: charter capital and capital adequacy ratio, condition and results of business activities in Vietnam commercial banks from 2008 to 2014 Subsequently, it concentrates on analyzing, assessing the current performance of restructuring banking system in Vietnam In particular, four main content have been mentioned, namely: financial restructuring, operational restructuring, administrative restructuring and ownership restructuring When it comes to an overview of results achieved in the restructuring process, various measures have been implemented and the operations of commercial banks are boosted in all aspects Restructuring banking system of the whole country is such a long-term process that Nguyen Quynh Mai –K14 ATCD Page 40 Graduation Thesis Banking Academy there still are existing limitations Accordingly, the thesis has identified five constraints and two groups of their causes in the restructuring of Vietnam banking system The achieved results in Chapter III are the practical scientific basis for the recommendations which will be discussed in Chapter IV Nguyen Quynh Mai –K14 ATCD Page 41 Graduation Thesis Banking Academy CHAPTER IV – RECOMMENDATIONS On the basis of analyzing the current problems involved in the process, orientation and order of restructuring Vietnam banking system, combined with the lesson of international experiences, the author proposes two main groups of measures: (i) SBV-related solutions (ii) CBs-related solutions 4.1 To State Bank of Vietnam 4.1.1 Enhancing managing role SBV had better to require all banks to actively review and evaluate the real situation, and build plans for comprehensive organizational and operational restructuring which focuses on strengthening the financial capacity, ensuring sufficient equity to cover its own risks and satisfying capital adequacy ratio Simultaneously, the ideas of urging the NPLs solvency and closely monitoring the process of selling and handling bad debt among banks and asset management companies also play an indispensible role under the Vietnam NPLs solvency scheme approved by the Prime Minister 4.1.2 Completely equitizing SCBs Equitization of SCBs should be continued by gradually reducing the proportion of stateownership in equitizied banks (Vietcombank, BIDV, Vietinbank and MHB) Only after the Government reduces its percentage of ownership in these banks can they become more independent and self-responsible Instead, that amount of capital can be reserved for investment in other industries When the Government constitutes for 100% of Agribank’s equity, this will make way for dependent habit or even remaining the system of budget subsidies Inevitably, banks’ performances turn to be inefficient In fact, many cases of embezzlement and appropriating governmental property, ironically, did result in distrust of society 4.1.3 Adjusting foreign ownership restriction Gradually increasing the proportion of foreign stake in domestic commercial banks can encourage greater investment by foreign investors, especially by highly-reputed international financial institutions These international financial institutions, with their experiences and Nguyen Quynh Mai –K14 ATCD Page 42 Graduation Thesis Banking Academy resources consisting of human, risk management, product development and access to international capital market), will be the driving factor pushing Vietnam banking system up Because of existing weaknesses in many aspects, expanding "Room" for foreign investors needs to be made careful, about 5% per time Then, it is vitally necessary to monitor the movements and assess the results of the earlier expands in within around years 4.1.4 Supplementing financial laws Current regulations, in spite of mentioning M&A, have not standardized its accurate concept which is still not unified among laws Enterprise Law regards M&A as forms of reorganizing businesses; Investment Law sees it as a form of direct investment while Securities Law defined M&A as a form of indirect investment That is why the modified Enterprise Law must be the most indispensible legal basis for M&A activities with clearer and more specific rules than existing ones Adding the term “cross-ownership” should be encouraged to enhance transparency and ensure compliance with international practises Moreover, clarification of personal income tax also is a matter of controversy, particularly in tax declarations as well as penalties for violations of personal income tax evasion 4.2 To commercial banks 4.2.1 Solving liquidity risk The increasingly higher bad debt will threaten the financial capacity and operations of Vietnam commercial banks in general That is why the initial task for Vietnam banking system is contingent on accurately evaluating the real situation of overdue debts, bad debts at the CBs themselves According to loan classification, CBs must be proactive in dealing with risks of banking activities in accordance with governmental regulations Several appropriate remedies suggested in the NPLs solvency of CBs in the future are: - Initially heighten the provisions for bad debts despite reduced profits or losses Doing this will help banks have the sufficient resources to handle bad debts Have reasonable policies with regards to salaries, bonuses and incentives Minimize unnecessary costs to support the increase in the provision for credit risk Nguyen Quynh Mai –K14 ATCD Page 43 Graduation Thesis Banking Academy - Collect debt with discount : This is a way to reduce the receivables from customers, - and discount rate is decided by agreement between the bank and customersbut usually in favor of the customer to encourage customers to pay off the debts Convert overdue debt, bad debt into stake associated with corporate restructuring (only used for customers who have the viability and potential development in the bank’s perspective) - Sell bad debts to professional factory companies as the fastest solution 4.2.2 Recapitalizing equity In order to help the process of recapitalization come onto fruition, each separated CB must apply specific measures appropriate to their banks Following are a number of specific measures to recapitalize Vietnam CBs proposed by the writer : - CBs should initiatively propose with SBV about the plan to increase charter capital in case of state-owned bank which is not equitization; or issue shares in cases of stateowned banks which hold dominant shares and JSBs - Vietnam CBs need to change their thinking as well as awareness of M&A; volunteer to implement M&A to improve competitiveness and extend the scale of their own equity 4.2.3 Focusing on technology and human resources  Technological application All data of baking activities should be gathered in the central database which means all changes will be updated online immediately Connecting speed and links among branches of the same system or among CBs network ought to be in higher quality to avoid incidents such as overload, network jams in the rush hour of transactions - With the existing and traditional products, the banks need to simplify the process of - providing services, equip more with transactions facilities such as more ATMs put in residential areas, periodically maintain machineries, promptly check their conditions to repair on time like embolism, running out of money, suspending, etc Along with the unstoppable development of telecommunications, online banking services are prone to thrive dramatically and generate significant profits for banks such as home-banking, mobile-banking, internet-banking services and so on which meet the increasing demands of customers Nguyen Quynh Mai –K14 ATCD Page 44 Graduation Thesis Banking Academy  Labour recruitment CBs are suggested to forecast the needs of human resources for each branch as accurately as possible Moreover, creating recruitment policy and procedure thoroughly to detect, select talents and attract qualified staff  Training and retraining staff There should be major programs and staff training plans with cutting-edge technological application Besides, short-term courses and advanced training programs should be designed regularly with the participations of top-notch experts to provide preliminary staff with updated knowledge including basic skills and foreign languages (especially English) Conclusion In Chapter IV, the author offers some recommendations to accelerate the process of restructuring commercial banking system in Vietnam In detail, two groups of suggestions have been proposed including recommendations for SBV and for commercial banks As can be seen, restructuring Vietnam banking system not only requires a huge amount of human resources coupled with the coordination of authorities but also demands the independent and active movement of commercial banks themselves Thus, the most noticeable solution for SBV is to continually equitize SCBs (especially Agribank) in a comprehensive way Meanwhile, among recommendations for the commercial banks in Vietnam, method of recapitalizing through M&A is prioritized Nguyen Quynh Mai –K14 ATCD Page 45 Graduation Thesis Banking Academy CONCLUSIONS The situation of Vietnam banking system from 2008 to 2014 was the combination of duple difficulties including instability and inefficiency The former was partly attributed from increasing NPLs and low CAR while the latter stemmed from capital imbalance, lax regulations and weak administration In brief, Government was alerted to give birth to a reforming program as a tool for avoiding serious consequences Accordingly, systematic restructuring banking system must be a long-term process which faces uncountable challenges As a result, it demands for drastic intervention and financial aid of Government As international experiences indicated that thorough evaluation on NPLs coupled with stricter laws would be principal factors, SBV is supposed to reveal its managing and assessing roles to obtain the customers’ belief and revive banks as well Simultaneously, from commercial banks’ perspectives, not only external resources but also internal ones should come into being to help banks undergo the restructuring process successfully Taking human resources as a telling example, by virtue of high-profile staff or consultants who possess a reservoir of financial knowledge, banks can call in for them to get advices or any projection about economic fluctuations Besides, it is far from easy to offer any certain suggestion for Vietnam restructuring banking system due to the unpredictability of both domestic and global market movements More importantly, it is pursuing the chief purposes of restructuring that Vietnam banking system must set apparent orientation and obvious determination Thus, the most head-splitting problem lies in that there should be flexible and judicious policies based on pragmatic situation but not any impractical theory Nguyen Quynh Mai –K14 ATCD Page 46 Graduation Thesis Banking Academy REFERENCES M.A Tran Dinh Cung and M.A Luu Minh Duc (2007), M&A interms of corporating administration, theories, international experiences and realistic condition in Vietnam Retrieved fromhttp://www.vjol.info/index.php/QLK/article/viewFile/5448/5168 Vietnam M&A activity review 2009(19th Jan,2010) Published by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP (PwC) Retrieved from http://www.hkbav.org/pdf/2010_01_19_PwC_Vietnamese_MA_2009_activity_report_EN.p df Patrick A Gaughan (2007), Mergers, acquisitions, and corporate restructurings 4th Edition, published by John Wiley & Sons, Inc Retrieved from http://www.books.mec.biz/tmp/books/GBLT467T1OVL1V5PIM22.pdf Banking Survey of KPMG (2013) Retrieved from https://www.kpmg.com/VN/en/IssuesAndInsights/ArticlesPublications/Documents/Advisory /Vietnam%20Banking%20Survey%202013%20-%20VN.pdf Assoc.Prof.Dr Nguyen Hong Son, Rector of VNU University of Economics and Business (21stDec, 2011) International Symposium: "Restructuring banking system: international experience and implications for Vietnam Banking Industry Report of VPBS (September 2014) Retrieved from https://www.vpbs.com.vn/ViewReports.aspx?CategoryID=2 Investment and Securities Newspaper (5th May, 2014) An overview of Vietnam Banking sector Sameer Goyal (December 2011) Banking sector restructuring - lessons from international experiences” World Bank; Dr Can Van Luc (2011) Banking restructuring experiences from South East Asia countries, Bank for Investment and Development; 10 https://www.techcombank.com.vn/khach-hang-uu-tien/tin-tuc/tin-tuc-thitruong/buc-tranh-sat-nhap-va-tai-co-cau-ngan-hang-tai-viet-nam 11 Hoan Tran & Thuan Nguyen (2011) Which direction used for restructuring Vietnam banking system?, Working Paper, Stox Plus, 2011 Retrieved from https://www.stoxplus.com/download.asp?id=2814 Nguyen Quynh Mai – ATCD K14 Page Graduation Thesis Banking Academy APPEDICES Unit: Billion VND Graph Profit After Tax and Charter capital of Sacombank, Techcombank and VPBank over the last decade 700 600 500 400 BIDV 300 MHB 200 100 2014 2013 2012 2011 2010 Graph2 Total assets of BIDV and MHB before M&A Nguyen Quynh Mai – ATCD K14 Page Graduation Thesis Banking Academy Total Non-performing loans in Vietnam banking system 2013 0% 24% Others 17% 59% BIDV + VCB + Vietinbank Agribank Nguyen Quynh Mai – ATCD K14 Page