Current situation of retail banking at military bank

Thus, retail banking is a high competitive market amongbanks both domestic and foreign banks.The military bank sets up a strategy to be a MB group in 2015 and reforms structure modelwith

i TABLE OF CONTENTS LIST OF TABLES .iii LIST OF CHARTS .iii ACKNOWLEDGEMENTS iv CHAPTER 1: INTRODUCTION 1.1 Background and Relevance of the study 1.1.1 Background .1 1.1.2 Research objectives 1.1.3 The scope of the study .3 1.1.4 Research Questions 1.1.5 Research Methodology 1.2 Structure of study CHAPTER 2: RETAIL BANKING OPERATIONS OF COMMERCIAL BANKS 2.1 Commercial banks and retail banking of commercial bank 2.1.1 Commercial Banks 2.1.2 Commercial bank operations 2.2 Retail banking of commercial bank 2.2.1 The Concept of retail banking 2.2.2 The Services of Retail banking 2.2.2.1 Mobilizing capital 2.2.2.2 Lending activities .8 2.2.2.3 Other services 10 2.3 Factors affecting Retail Banking 11 2.3.1 Internal Factors 11 2.3.2 External Factors .13 CHAPTER 3: CURRENT SITUATION OF RETAIL BANKING AT MILITARY BANK 18 3.1 Overview of Military bank .18 3.1.1 Introduction 18 3.1.2 Major operations and achievements 21 3.2 Factors driving the development of retail banking at MB .28 3.2.1 Internal factors .28 i i 3.2.2 External factors .32 3.3 Situation of Retail banking activities at MB 34 3.3.1 Banking Capacity in supplying retail banking services 35 3.3.2 Products and Services 38 3.3.3 Customers and Market 43 3.3.4 Distribution network 45 3.4 Assessment of Retail banking at Military Bank 48 3.4.1 Achievements: .48 3.4.2 Constraints .51 3.4.3 Causes of constraints .54 CHAPTER 4: PROPOSED SOLUTION TO FURTHER DEVELOP RETAIL BANKING AT MB 56 4.1 Strategic orientation of MB in developing retail banking services 56 4.1.1 The economic – banking and financial trends .56 4.1.2 Strategic orientation of MB in developing retail banking services 57 4.2 Proposed solutions to further develop retail banking at MB 59 4.2.1 Improving management capacity 59 4.2.2 Diversifying and improving traditional Services and Products 64 4.2.3 Developing modern services and products 67 4.2.4 Developing Distribution channels 69 4.2.5 Developing Human Resource 73 4.2.6 Improving banking technology 77 CONCLUSION 80 BIBLIOGRAPHY 81 APPENDIX 82 LIST OF TABLES i i i Table 3.1: Total charter capital (2005- 2008) 21 Table 3.2: Total owned capital (2005- 2008) 22 Table 3.3: Total mobilized fund (2005- 2008) 23 Table 3.4: Total loans in a period (2004 – 2008) .24 Table 3.5: Loan Portfolio by industry sectors 25 Table 3.6: ROE, ROA of MB (2005- 2008) .27 Table 3.7: Total employees and branches of MB (2005- 2008) .27 Table 3.8: Human Resource Quantities in a period (2005 – 2008) 37 Table 3.9: Total funds mobilisation 39 Table 3.10: Total branch network in 2006 – 2008 46 LIST OF CHARTS Chart 3.1: Organization of MB 20 Chart 3.2: Total assets in a period (2005 – 2008) .24 Chart 3.3: Total profit before tax (2005- 2008) 26 Chart 3.4: Structure of retail banking loans .42 Chart 3.5: Structure of customers of Retail banking .44 i v ACKNOWLEDGEMENTS The preparation of this thesis has depended on the generous support, assistance of many people It is a great pleasure to offer my special thanks to them Firstly, I am very grateful to my supervisor Dr Nguyen Van Dinh whose insightful comments, suggestions and kindness that helped me a greater deal This thesis cannot completed without these valuable assistance My thanks are also given to my friends and teachers in Business School They have helped me so much during this course in Business School I am particularly grateful to my colleagues in Military Bank for their kindness, constructive suggestions for my thesis Lastly, I would like to thanks to the encouragement and tolerance of my friends, my family, especially my brother who contributed lots of valuable ideas that helped me completed this thesis Hanoi, December 2009 CHAPTER 1: INTRODUCTION I.1 Background and Relevance of the study I.1.1 Background In the economy, the bank is regarded as the most important financial organization The natural functions of bank are intermediate finance, creating payment means and middle payment Nowadays, banking industry has had the rapid development on banking services as well as power of customers and various segments Generally, the banks are also characterized kinds, including corporate banking and retail banking The corporate banking aims to provide services to large enterprises On the contrary, the retail banking considers individuals, small companies, and household as the main its customers In Vietnam, the banking industry has seen the powerful development since Vietnam has introduced “Doi Moi” in 1986 Thanks to fast economic growth (average ratio of 8% per year), the Vietnamese banking system has enlarged huge amount of bank and banking quality Recently, there have been 53 domestic banks, 34 branches of foreign banks in Vietnam Almost banks entry both corporate banking, retail banking, and have a universal policy to manage both of them Basically, it is necessary to build strategies to separate between corporate banking and retail banking because the customer segment of kind of banks are different in terms of power, demand, service… Each type needs a model and dissimilar management in order to satisfy its customers Under the fierce competition, especially when Vietnam has been official member of WTO, some banks in Vietnam found a new trend for them by building retail banking parallel with corporate banking At present, Almost banks attach special importance to retail banking because retail banking in Vietnam is expected to be a potential market with the growth of 30 to 40 percent during next 10 years Moreover, Personal income in Vietnam has been also rising thanks to stable economic growth, economic reforms of Vietnamese government and Vietnam has a young popular structure with a main large people are laborers (over 52 million people) Thus, retail banking is a high competitive market among banks both domestic and foreign banks The military bank sets up a strategy to be a MB group in 2015 and reforms structure model with a division between corporate banking and retail banking based on an assessment on future prospect of banking industry in Vietnam In this roadmap, MB focuses on developing retail banking, consolidating operation of retail and corporate banking and completing operational process and mechanism MB issued the regulation of operation mechanism for retail banking unit for these service division at branches as well as regulation on function and duties of its development department at head quarter The retail banking also issued lending processes to client, standardized credit dossier, other relevant and operational processes at one-stop transaction points MB also marketed its new products to individual customers such as securities investment, studying abroad… In fact, The Retail banking at MB has contributed more and more profit to total its profit and removed structure following the trend from reducing from ratio of corporate banking to increasing more ratio of retail banking in order to reduce high risk from customers of corporate banking The Retail banking has achieved some significant success in area of customers, credit growth, capital mobilization…However; retail banking occupies small percentage compared to corporate banking The retail banking is poor, no attachment to customers and no diversification to various segments On the other hand, Retail banking at MB also faces many difficulties and they block MB access deeply retail market, especially competitive challenges Almost domestic and foreign banks in Vietnam has jointed in retail market The competition will be fiercer after 2010 when Vietnam allow officially foreign bank to establish in Vietnam To resolve mentioned problems, MB must push strategies to expand retail banking and compete with other banks in Vietnam What are the appropriate strategies, which MB can apply? It is also research purpose of this thesis The study will research and offer some lesson and strategies for MB based on analyzing current situation and its competence I.1.2 Research objectives The objectives of the research are: - To study and summary theoretical issues of retail banking - To analyze current situation of Retail banking at MB - To analyze factors driving the development of Retail banking at MB - To propose solutions to develop Retail Banking at MB I.1.3 The scope of the study Studying Retail Banking at Military Joint Stock Bank with the specifies: - The time research is a period from 2004 – 2009 - The space scope: Researching factors that affect development of retail banking in whole system of MB The Retail Banking will be studied independently, the thesis does not consider the relation between Retail Banking and Corporate Banking in Military Bank I.1.4 Research Questions This thesis focuses on studying factors that driving the development of retail banking at Military Bank and proposes some solutions to further develop retail banking at Military Bank Thus, the thesis will try to answer the following central research questions: - What is retail banking how is it important to a commercial bank? - How is the retail banking operating at the MB, what are its strengths and weaknesses? - What are driving factors that affect development of retail banking at Military Bank? - What are solutions to develop retail banking at Military Bank? 1.1.5 Research Methodology This thesis mainly adopts compare methodology to analyze secondary data and interview methodology All secondary data collected will be compared to find all matters relating to retail banking Besides, with interview methodology, the thesis will have real data and we will have a new look about retail banking at Military Bank The interview methodology will be conducted with participation of specialists, customers, executive officers of Military Bank… 1.2 Structure of study Chapter 1: Introduction Chapter 2: Retail banking operations of commercial banks Chapter 3: Current situation of Retail Banking at Military Bank Chapter 4: Proposed solutions to further develop Retail Banking at Military Bank CHAPTER 2: RETAIL BANKING OPERATIONS OF COMMERCIAL BANKS 2.1 Commercial banks and retail banking of commercial bank 2.1.1 Commercial Banks - Definition “Commercial bank is a financial organization that operates in monetary market Commercial bank supplies main financial services for all sectors in the economy such as individuals, households, companies…” The services of commercial bank are lending to the economy, raising capital, delivery other payment means… 2.1.2 Commercial bank operations Commercial banks supply many services to the economy Some main operations of commercial bank are: - Fund Mobilization - Lending and investing activities - Supplying other services Fund Mobilization, fund mobilization is a traditional service of any bank The commercial bank mobilizes free capital from the economy, including individuals, organizations, companies… Fund mobilization is a basic activity for other activities of bank like lending and investing activities, supplying services Through mobilization activity, the bank can have enough fund to develop services, implement lending activities… The bank will keep profit from business activities to invest in developing technology With high technology, the bank can create more services for customers For the economy, through fund mobilization of banks, the government of countries can mobilize funds from all sectors to develop the economy as well as social programs Besides, with this mobilization any country can promote the economy and economic sectors (Individuals, households, companies…) through reasonable monetary policy Therefore, the government can implement many economic and social objectives from the commercial bank For each term of the economy, the government will have reasonable policy to adjust the economy as well as situation of society Lending and investing activities, this is main activity of any bank Lending and investing activities are understood as the bank use fund mobilization in order to lend for all sectors in the economy or invest in project of individuals, organizations or companies Lending and investing activities supplies for demands of objectives of customers like consumer, business development, automobile purchasing… This activity brings main profit for the bank Through lending activities and supplying services for customers, the bank gains profit from interest and fee of services With this profit, the bank will use to reinvest in business activities such as technology, branches, and services… to enhance position in banking market as well as develop business activities of bank At present, this activity is diversified and all banks focus on providing more lending and investing products to meet many demands of customers The bank often focuses on types of lending and investing activities: - Loan products for individuals, households - Loan products for organizations, companies Through fund mobilization, the bank uses this fund to lend and invest more projects of economic sectors Thanks to this activity, the bank receives much profit and this profit will be used to invest more other activities to invest more services and technology as well as business activities For the economy, through lending and investing activities of bank, all countries can develop the economy and approach many objectives in the society Besides, lending and investing activities help the government control economic development through many monetary policies and other many policies such as securities policies, real - estate policies… The government also implements many social objectives like improving living standard… Supplying other services, the bank also supplies more services to meet many demands of individuals; organizations … These products are ATM card, Visa card, western union, financial advice… These services contribute to product diversification of bank At present, many banks have competition in supplying these services Thus, the bank can earn much profit from providing these services The competition of many banks will help all banks