Khóa luận tốt nghiệp: A study on some factors affecting competitiveness in capital raising activities of a state-owned bank branch in the north of yen bai from 2021 to 2022

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FACULTY OF FOREIGN LANGUAGESDEPARTMENT OF BUSINESS ENGLISH

TRAN LAM KHANH LINH

A STUDY ON SOME FACTORS AFFECTING

COMPETITIVENESS IN CAPITAL RAISING ACTIVITIESOF A STATE-OWNED BANK BRANCH IN THE NORTH OF

YEN BAI FROM 2021 TO 2022

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Tran Lam Khanh Linh — 11205894 — Business English 62C

NATIONAL ECONOMICS UNIVERSITYFACULTY OF FOREIGN LANGUAGESDEPARTMENT OF BUSINESS ENGLISH

TRAN LAM KHANH LINH

A STUDY ON SOME FACTORS AFFECTING

COMPETITIVENESS IN CAPITAL RAISING ACTIVITIESOF A STATE-OWNED BANK BRANCH IN THE NORTH OF

YEN BAI FROM 2021 TO 2022

Supervisor: Ass Prof Dr Pham Thi Thanh Thuy

Hanoi, April 2023

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First, I am deeply grateful to Ass Prof Dr Pham Thị Thanh Thuy for providingme with the precious opportunity and giving me valuable suggestions and informationon how to conduct this report It is an honor for me to work under her guidance I would

also like to thank her for her friendship and empathy.

Secondly, I would like to express my gratitude to my dear instructor Thanks totheir acceptance and understanding, I could better understand the business and identifythe issues the Agribank branch in the North of Yen Bai has been facing.

Finally, I would like to thank all my colleagues in the Agribank branch in the

North of Yen Bai for their assistance and their advice.

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EXECUTIVE SUMMARY

This study focuses on factors affecting competition in capital mobilizationactivities of the Agribank branch in the North of Yen Bai The study was conductedbased on a survey database with 186 customers who have a deposit relationship withthe Agribank branch in the North of Yen Bai The research results showed that onlyfour factors affected the choice of customers to use capital mobilization services ofcommercial banks, including reliability, responsiveness, facility material, and empathylevel The level of empathy is the most important factor, followed by facilities,reliability, and responsiveness Since then, the study has proposed some solutions toimprove the competitiveness in capital mobilization activities of the Agribank branchin the North of Yen Bai.

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MB bankOLS

Automated Teller Machine

Bank For Investment and Development ofVietnam

Gross Domestic ProductInformation Technology

Military Commercial Joint Stock BankOrdinary Least Squares Regression

Sai Gon Joint Stock Commercial BankShort Message Service

Statistical Package for the Social Sciences

Joint Stock Commercial Bank for Foreign Tradeof Vietnam

Vietnam Joint Stock Commercial Bank for

Industry and Trade

World Trade Organization

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LIST OF TABLES

Table 1.1 The Growth of Capital in 2020-2021 - - 5 555 *++£++vExeseeeserereee 18

Table 1.2 The Growth of Capital in 2021-2022 - - 5+ + *++*EE+veEEseeerserersee 19

Table 3.1 The number of Questions - 4 5 1211931 11911 119 hư 45

Table 3.2 Range interval (1V1SIOIN - -. - c1 1n HH gen Hkt 47Table 4.1 Information about the survey participants' opinion on External factor -

Table 4.5 Information about the survey participants' opinion on External factor

-Psychology and habits Of CUSOTT€TS - 5 2 1199111318991 19 11 91119 1v rệt 55Table 4.6 Descriptive statistics of outcomes in External factor — Psychology and

habits Of CUStOMETS - 2 62333333531133111 11811 1E SE 5555555 kg 56Table 4.7 Information about the survey parficipanfs' opinion on Internal factor -

Reliability 0 cece + 57Table 4.8 Descriptive statistics of outcomes in Internal factor — Reliability 58Table 4.9 Information about the survey participants’ opinion on Internal factor -

RESPONSIVENESS «0.00 eeeeeeesceeenceeseesscecescecsseessaeeesceceeecsaeessaecesaecseeseaeessaeseeeceeeseneeseaeensae® 1Table 4.10 Descriptive statistics of outcomes in Internal factor — Responsiveness 2Table 4.11 Information about the survey participants’ opinion on Internal factor -

SELVICE CAPACIY 0n 3533 3Table 4.12 Descriptive statistics of outcomes in Internal factor — Service capacity 4Table 4.13 Information about the survey participants’ opinion on Internal factor -

Empathy level eee e 5

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Table 4.14 Descriptive statistics of outcomes in Internal factor — Empathy level 6Table 4.15 Information about the survey participants’ opinion on Internal factor -

Physical facilities 2077 344 5 7Table 4.16 Descriptive statistics of outcomes in Internal factor — Physical facilities 8Table 4.17 The outcome of Cronbach's alpha statistics 555555 <+++<>++ss2 10Table 4.18 The outcome of EFA analysis’ statistics - S5 St ssseerseerrseree 11Table 4.19 The outcome of EFA analysis’ statistics c:cccceseeseeseeseeeseeeseeseeeteeeeees 12Table 4.20 The outcome of Regression analysis’ Staf1SfICS 555 s+cscsee 14

Table 4.21 The outcome of Regression analysis’ stafISfICS 55 55s ++<<s++ss2 14Table 4.22 The outcome of Regression analysis’ statISfICS - 5555 ss+<<ss++ss2 15

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000i) 1ã 12Research ODJ€C{IV€S -. c2 HH HH nh 13Research Questions G G13 19311211 9101993019010 HH ket 13Scope of the research 0n ằ 13

Significance Of the SUỦy - - s9 TH ng HH HH 14

Organization Of the SfUỆY c1 112311111111 111 111 11 111 11H HH Hy 14

CHAPTER I INTRODUCTION ABOUT THE AGRIBANK BRANCH IN THE

9) 00509)5045)8:7 1011 3531 16

1.1 Overview of the Agribank branch in the North of Yen Bai - s5 161.1.1 Overview o0 0e 161.1.2 Business results of the Agribank branch in the North of Yen Bai for the

period Of 202 1-2222 - - - + 112119301 93019910 19 101 01H Hà 171.1.2.1 Achievement 1 ‹43 17

1.1.2.2 Limitations of capital raising ACtiVities -ccSĂcss+sssvessees 21

1.1.2.3 Reasons for the limitations 0.0 ele eee o- 5 + 3112 9v vn ng 22

CHAPTER II LITERATURE REVIEW LnSnnH* HH ng HH ng Hy 24

2.1 Basic activities of a commercial banIK s- «+ set 242.1.1 Definition of commercial bank 200 ec eeceeccsssceceeecceeeceseseceeeeeaeeeaeeeeeeaeeeaes 242.2 Capital raising activities of commercial banIk - - s5 «+ x+sx++xeseeeerees 26

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2.2.1 The role of capital in the banking DUSINESS - -«+++ss+++s>++ss2 27

2.2.1.1 Banks coordinate all corporate activity on the basis of capital 272.2.1.2 The size of the bank's lending activity and other activities is determined

D200 272.2.1.3 The bank's solvency, competitiveness, and reputation are all influenced

by Capital oo 28

2.2.2 Capital raising o9) 010 282.2.3 Types of capital raising of commercial bankS - + -s«+++ss>++s+2 302.2.3.1 Owner's Equity Ă c1 TH HH HH ket 302.2.3.2 Debt CapIfaÌL c 1111 TH TH HH HH ket 30

2.2.4 Criteria for evaluation capital raising aCfIVI{I©S sssss+sscessses 36

J9) ìi i92 06 362.2.4.2 Qualitative CTIẨCT18S - 0331111210111 11199 11v ng 1v tre 382.3 Factors affecting the competitiveness of capital raising activities of commercial

2.3.1 External factors hố 39VENN P.02 ii n6 392.3.1.2 SOCIO-ECONOMIC €TIVITOTIT€II - G- 5 561231133 E91 E11 krskessk 402.3.1.3 Psychology and habits of CUStOMETS - 555555 << £ssvssseess 402.3.2 Internal factors - 5k 1H HH HH HH nh 41

PVC) 10a 422.3.2.2 R€SDOTISIV€TISS - Á SH TH TH TH HH kh 422.3.2.3 S€TVIC€ CAPACIEY 0 eesceesccesteceseeeeneeesneeeeecesceesseeeneceseeceaeeceaeeneaeseeeeessaes 432.3.2.4 Empathy Ï@VeÌL - - ó5 + 1111919 TH HH ket 432.3.2.5 Physical facilities 43

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P090) 500 0n 44

CHAPTER HI METHODOLUOOŸY - 5 5 1H HH ng nàn trệt 45

3.1 Research mmetOdS - - - + s13 90 930 9 ng ng HH HH nhà 453.1.1 Data collection methods - - 5 11+ E211 2 1 21 ng ng nh 45

CHAPTER IV A STUDY ON FACTORS AFFECTING COMPETITIVENESS IN

CAPITAL RAISING ACTIVITIES OF A STATE-OWNED BANK BRANCH IN

THE NORTH OF YEN BÀI FROM 2021 TO 2022 5c eee tee tee re 50

4.1 Analysis of factors affecting competition in capital raising activities of the

Agribank branch in the North of Yen Bai based on data collected from the

8I191510i10117577 .Ẽ:- 504.2 Cronbach's alpha coefficient analysis - «ch ns set 10

4.3 EPA analÏS1S - LH TH TT HH HH TH 11

4.4 Regression analysis .ccccccsccssscesseeeseceeeceseeeeseeeeseeeeaecescecsseeseseeseaeceseecnseeesseeeees 14

4.5 Recommendations 1 164.5.1 For Reliability of the Agribank branch in the North of Yen Bai 16

4.5.1.1 Enhancing the reputation of the branch - «+ +-ss+++sx++sex+sss2 16

4.5.1.2 Organizing customer appreciation PrOgramMs « -« «<< «<2 16

4.5.1.3 Conducting the marketing DTOBTAI - 555 *+++s+sse+seeessess 174.5.1.4 Building the customer’s strategy eee eecseeeeseceeceeceseeseeseeseeseeseeneens 174.5.2 For Responsiveness of the Agribank branch in the North of Yen Bai 18

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4.5.3 For Empathy Level of the Agribank branch in the North of Yen Bai 19

4.5.4 For Physical Facilities the Agribank branch in the North of Yen Bai 204.5.4.1 Upgrading and maintaining IT systems s55 +<< +2 20

4.5.4.2 Improve the working environment at the transaction office 21

4.5.4.3 Expanding the network of transaction OfÍÍIC€S « «<< c+s«2 21

CHAPTER V: CONCLUSION o.oo ceccssecssecseesseessecssecseesseessecseesseesseeaeeseesseesseesnees 235.1 Summary of findings 235.2 Limitations Of Study G - SH ST TH ng HH 235.3 Suggestions for further SfUCÏIGS - - c 131121119111 9111 H1 vn ng vn ng 243585545010 S1 25

SURVEY QUESFTIONS HH HH HH HH HH HH HH HH nhà 29

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In the current market economy, the portal of the Ministry of Finance stated that

state-owned banking institutions are the most critical link in the development of

Vietnam In order to meet the requirements set forth, under the leadership of the State

Bank of Vietnam, the state-owned banking system has made remarkable progress:Being the locomotive for economic development in general and responding well tobanking operations in particular.

According to the announcement on the official website of the State Bank, of thecurrent challenging economy, state-owned banks such as Vietinbank, BIDV,Vietcombank, and Agribank need to focus more on capital mobilization to help solidifythe financial foundation for banks Without early funding and improving financialcapacity, banks cannot well play the role of the central pillar of the main fundingchannel for the economy The capital level of this year is substantially different fromprevious years, particularly given the modest rise in capital mobilization When

compared to the start of the year, the capital mobilization rate has grown by around4.6%, which is only about 1/3 the growth rate of credit (according to Industry and Tradenewspaper) This situation poses a challenge to the very high capital utilization ratio ofthe banking system, as well as concerns about the liquidity of the banking systembecause only money can mobilize to lend to the economy Therefore, improving thecapital mobilization capacity effectively and sustainably is an essential issue to improve

the financial efficiency of the bank.

Therefore, after the internship at the Agribank branch in the North of Yen Bai,the researcher concludes that to improve operational efficiency, improvecompetitiveness, and make the financial situation healthy, it is necessary to studytheoretical issues and analyze as well as evaluate the situation; thereby the researchercan offer solutions to increasing effectiveness of capital raising activities at the

Agribank branch in the North of Yen Bai is a matter of practical significance in the

current situation.

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From the above comments, the researcher has chosen the research topic: "AStudy on Factors Affecting Competitiveness in Capital Raising Activities of a State-

owned Bank branch in the North of Yen Bai from 2021 to 2022."

Research objectives

The aims of this work are:

(1) General theoretical study on capital raising activities of the Agribank branchin the North of Yen Bai.

(2) Briefly introduce the business situation of the Agribank branch in the Northof Yen Bai in the period of 2021 - 2022.

(3) Survey to collect data and analysis this data.

(4) On that basis, propose solutions to increase capital raising most effectively atthis branch.

Research questions

Question 1: What are some factors affecting competitiveness in capital raisingactivities of the Agribank branch in the North of Yen Bai in the period of 2021 - 2022?Question 2: How much do these factors affect competitiveness in capital raisingactivities of the Agribank branch in the North of Yen Bai in the period of 2021 - 2022?Question 3: What are some suggestions for promoting the competitiveness incapital raising activities of the Agribank branch in the North of Yen Bai?

Scope of the research

(1) Some factors affecting the competitiveness of capital raising activities of the

Agribank branch in the North of Yen Bai.

(2) Research scope: Capital raising activities of the Agribank branch in the North

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Significance of the study

After joining the WTO, Vietnam's commercial banking system has made

positive changes in quality and quantity, has more development opportunities, andconfronts fierce global competition In the face of such competition, Vietnamese bankshave no choice but to find suitable policies to attract customers and improvecompetitiveness to capture market share, in which competition over raised capital isalso taking place fiercely Because capital is the central and most crucial factor ofcommercial banks, at the same time, it is also a decisive factor to all activities ofeconomic activities in general and commercial banks In particular, the Agribank branchin the North of Yen Bai was officially upgraded to a type I branched in 2019 However,as a young bank branch in the new competitive environment, the branch has hadparticular successes If it does not increase capital raising, maintaining its position andcontinuing to develop will be challenging Stemming from recognizing the critical roleof raised capital, in recent years, the Agribank branch in the North of Yen Bai has hadlong-term capital attraction plans It has achieved encouraging results, although thereare still common difficulties in capital raising activities Therefore, improving theefficiency of capital raising is a matter of great interest to the Agribank branch in theNorth of Yen Bai shortly.

Organization of the study

The research will use quantitative methods to measure, rank, and classify modelsand draw general conclusions The survey will take place online via the internet Toincrease its affection in answering questions, the testing process uses the Google Formtool, which collects opinions from survey participants by rating the scale from 1 to 5.The survey consists of forty-three questions (including survey participant information).The survey subjects are at least 100 people who have deposit relations with the Agribankbranch in the North of Yen Bai The survey aims to assess the influence of groups offactors on customers when choosing capital raising services of the Agribank branch inthe North of Yen Bai From there, it can conclude which factors will affect thecompetitiveness and their influence on the capital raising activities of the Agribank

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branch in the North of Yen Bai After collecting the survey results, the researcher willuse SPSS software to analyze the influence of each factor on the competitiveness of thecapital raising activities of the Agribank branch in the North of Yen Bai.

The research will also use the method of collecting data from internships Thecollected data is quoted from the actual business results report of the Agribank branch

in the North of Yen Bai for 2021 and 2022 The purpose of data collection is to discover

the problems that the capital raising activities at the Agribank branch in Yen Bai arefacing From there, the researcher determined what factors affect the competitivenessof capital raising activities at the Agribank branch in the North of Yen Bai.

Finally, the researcher will conduct direct interviews with finance and bankingexperts to assess the influence of the factors and offer suitable solutions for the Agribank

branch in the North of Yen Bai The interview will have five questions, including the

expert's personal information, the expert's assessment of the collected survey results aswell as the influence of the selected factors The interviewees included two experts,including a lecturer at National Economics University and a manager of the Agribank

branch in the North of Yen Bai.

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CHAPTER I: INTRODUCTION ABOUT THE AGRIBANK BRANCH IN THENORTH OF YEN BAI

1.1 Overview of the Agribank branch in the North of Yen Bai1.1.1 Overview of Agribank

Agribank is the name of the Vietnam Bank for Agriculture and Rural

Development, which was formed by Ministerial Decree No 53-HDBT on March 26,1988 (now the Government) During the course of 33 years of building and growth,Agribank has consistently reaffirmed its place and function as one of the top commercialbanks in Vietnam, going through each development phase with names linked withvarious missions assuming the lead in carrying out monetary policy, aiding inmacroeconomic stability, reducing inflation, promoting growth, constantly assisting inthe development of agriculture, farmers, and rural areas, and making numerous positivecontributions to the process of economic restructuring, new rural construction, andsocial security assurance.

In the early stages of operation with a low starting point, total assets were lessthan 1,500 billion VND; total capital was 1,056 billion VND, of which mobilized capitalaccounts for 42%; total outstanding loans were 1,126 billion VND; and the bad debtratio was over 10%; customers were state-owned enterprises and cooperatives, themajority of which are losing money, merging, dissolving, self-disbanding, and more.Following 33 years of development and expansion, Agribank is currently the largeststate-owned commercial bank in Vietnam and the only commercial bank where theState owns 100% of the charter capital Agribank, which has almost 40,000 employees,has nearly 2,300 branches and transaction offices in all areas and is the sole commercialbank present in 9 out of 13 island districts By the end of 2021, Agribank's total assetswill be VND 1.68 trillion; its capital sources will be VND 1.58 trillion; and its totaloutstanding loans to the economy will be VND 1.31 trillion, with the majority of theseloans - nearly 70% of them - going to finance agriculture, farmers, and rural

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Agribank has received several accolades from international organizations andhas been ranked among Vietnam's Top 10 Most Prominent Businesses Agribank washonored to receive the First-class Labor Medal, the highest honor bestowed by the Partyand the State of Vietnam to collectives for exemplary contributions, especially on the30th anniversary of its founding on March 26, 2018 Labor had a significant role in thenation's building, with great accomplishments promoting the economic growth offarmers, rural areas, and agriculture during the reconstruction era.

Agribank's current priorities include successfully completing the second phaseof restructuring linked to speeding the implementation of the Agribank equitizationplan, and successfully implementing the Business Plan for the 2016-2020 term with aview to 2030 The Prime Minister's Decision states that it continues to hold its positionand play a crucial role in the agricultural and rural finance markets, actively supportingthe socioeconomic growth of the nation.

1.1.2 Business results of the Agribank branch in the North of Yen Bai for the periodof 2021-2022

1.1.2.1 Achievements

In 2021, the country's economy faced unprecedented difficulties and challengesdue to the impact of the 4th wave of the Covid-19 pandemic (starting from April 27,2021), such as GDP quarter II/2021 -6.17% (quarter with negative GDP growth for thefirst time since 2000); GDP growth in 2021 is 2.58% lower than 2020 (2.91%) and thelowest increase in the recent decade Along with the general difficulties of the wholeindustry, business activities in 2021 of the Agribank branch in the North of Yen Bai

will be significantly affected but still ensure stability However, all indicators have

growth and completion into 5/5 of planned targets.

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Table 1.1 The Growth of Capital in 2020-2021

THE GROWTH OF CAPITAL IN 2020-2021

st | on

0% a © 0%

T1 T2 T3 T4 T5 T6 T7 T8 19 T10 T11 T12

meee Growth of Capital in 2019 gees § Growth of Capital in 2020

Growth of Residental Deposit in 2019 “= = Growth of Residental Deposit in 2020

Source: Summary report on business activities of the Agribank branch in the North of

Yen BaiThe total raised capital (including USD converted to VND, excluding long-termbonds, deposits with the State Treasury, and deposits with credit institutions) as ofDecember 31, 2021, reached VND 4,267.5 billion, an increase of VND 743.9 billion,1.e., 21.1% compared to the beginning of the year; reaching 240.4% of the growth plan,reaching 111.1% of the 2021 plan Residential deposits reached VND 3,961.4 billion,an increase of VND 568.8 billion, up 16.8% compared to the beginning of the year Allbranches have exceeded the 2021 plan assigned by the Agribank branch in the North ofYen Bai The total raised capital in 2021 will reach VND 3,893.6 billion, 101.6% of theaverage capital source plan in 2021 assigned by the Head Office The average money

per employee in 2021 will reach VND 21.6 billion per staff, an increase of VND 2

billion/team compared to 2020 As of December 31, 2021, there were 90,616 related customers, increasing 14,194 customers meant 18.6% compared to the

deposit-beginning of the year The number of customers who are individuals and households

was 89,482, an increase of 14,100 customers (up 18.7%) compared to the beginning ofthe year; customers are socio-economic organizations (socio-economic organizations)

1,134 customers, an increase of 194 customers (up 20.6%) compared to the beginningof the year Three branches with deposit customers increased higher than the average ofthe whole branch, including the Yen Binh branch (up 3,715 customers, up 19%), Van

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Yen branch (up 5,048 customers, up 23%), and Luc Yen branch (up 4,013 customers),increasing 20%); deposit-related customers at Head Office increased lower than theaverage of the whole branch (up 1,418 customers, up 9% compared to the beginning ofthe year).

Table 1.2 The Growth of Capital in 2021-2022

Hel T2 T3 T4 T§ T6 T7 T8 T9 TI0 TII TI2

——te Growth ofCapital in 2021 ——z— Growth ofCapital in 2022

m——<— = Growth ofResidental capital in 2021 =» Awe Growth of Residental capital in 2022

Source: Summary report on business activities of the Agribank branch in the North ofYen BaiIn 2022, our country's economy-society took place because the world economy

is facing significant challenges, rapid and unpredictable fluctuations, and high

instability, and inflation has risen to the highest level for decades, forcing countries totighten monetary policy However, in the past year, our economy has had a strongrecovery, the macro-economy is stable, inflation is under control, and monetary andfiscal policies are managed proactively, flexibly, and effectively The improvedbusiness investment environment positively contributes to socio-economic recoveryand development, creating the trust and support of the people and the businesscommunity.

In Yen Bai province, with the efforts and efforts of the branches, localities, andbusiness community, the consensus and support of the people, the province's socio-economic in 2022 has achieved positive results: The total value of products in the

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province (GRDP) reached 21,323 billion VND, up 8.62%, the highest in the last fiveyears; Total retail sales of goods and services for social consumption reached VND23,825 billion, exceeding 1.38% of the plan; State budget revenue reached 4,686 billionVND, exceeding 81.1% compared to the central estimate; Realized investment capitalin the area reached 19,249 billion VND, exceeding 1.31% of the plan Along with thedevelopment of the whole industry, the business activities in 2022 of the Agribankbranch in the North of Yen Bai have achieved favorable results All targets have

increased, completing 5/5 of the planned targets, and revenue income and employees'

lives are improved.

As of December 31, 2022, total capital reached VND 4,762 billion, an increaseof VND 500.3 billion, 11.7% compared to the beginning of the year, achieving 102.5%of the year plan, reaching 129.5% of the growth plan in 2022 Branches with highergrowth rates than the average of the whole branch include Head Office (up 18.1%) andYen Binh branch (up 14.0%); the remaining branches: Van Yen branch increased by5.0%, Luc Yen branch increased by 5.7% Two branches meet and exceed the plan in

2022: Head Office (109%) and Yen Binh (103.4%) The remaining branches did not

meet the plan: the Van Yen branch (96%) and the Luc Yen branch (94.8%) However,the market share of local currency capital (as of December 31, 2022) reached 17.8% oftotal local currency funds mobilized in the area, down 0.7% compared to 2021.

Capital mobilization has applied synchronously and flexibly capital mobilizationsolutions (implementation of certificates of deposit issuance, bonus savings program,deposit growth emulation campaigns, and more), so total mobilized capital hasincreased compared to the beginning of the year despite the fierce competition at capitalmobilization in the area Demand capital still maintained growth and increased steadilyin the quarters The current account savings account ratio was maintained stably andincreased slightly compared to the beginning of the year, contributing to reducingcapital mobilization costs, and improving business efficiency, in line with Agribank'sorientation and the trend of the banking industry Although accounting for a smallproportion of total capital, online savings accounts will continue to grow strongly in2022 (up 2.3 times compared to the beginning of the year), showing the current trendof using products and services Customers increasingly favor modern conveniences.

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Following the direction of Agribank, the branch flexibly applied competitive interestrates under regulations to ensure the maintenance and growth of capital Over-fulfilling

the plan of issuing bonds to the public in 2022, contributing to the goal of ensuring the

capital adequacy ratio under regulations of the whole system The average mobilizedcapital/staff continued to increase The number of customers with a bank depositrelationship continued to increase compared to the beginning of the year, which is a

favorable condition for cross-selling products, services, loans, and more to customers.1.1.2.2 Limitations of capital raising activities

In addition to the achieved results, the business activities of the Agribank branch

in the North of Yen Bai in 2020 also revealed many shortcomings and limitations First,

the capital structure according to deposit balance reveals some limits: The whole branchhas 15 customers with credits of more than 10 billion VND (accounting for 0.02% ofcustomers with deposit relationships), but the balance of VND 447.3 billion, accountingfor 10.5% of total capital This situation leads to risks when customers withdraw money,especially in fierce competition Next, from 2021, according to the Head Office'sregulations, long-term bond deposits are not included in the target of locally mobilizedcapital, leading to disadvantages and more difficulties for branches in raising activities.Capital because a significant portion of bond deposits are transferred from savingsdeposits After that, Agribank's deposit interest rate fell to the lowest level in recentyears (Agribank's highest VND deposit rate was 5.5%/year), lower than the depositinterest rate of credit institutions in the world locality At the same time, the record priceof gold, stock prices, and digital currencies harmed capital raising activities Finally,deposits from economic organizations, although growing well compared to thebeginning of the year, only increased at the Head Office, in which some institutionalcustomers will withdraw capital in 2022 to implement projects according to the planwill affect the total wealth Deposits with a term of 12 - 24 months increased mainly atthe Head Office, affecting the capital structure at the Head Office, thereby increasinginput interest rates and reducing the interest rate difference at the Head Office.

Similar to 2021, the business activities of the Agribank branch in the North ofYen Bai in 2022 still reveal many shortcomings and limitations: First, the deposit

interest rate under Agribank's management has not been adjusted in time, leading to the

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branches have difficulty in mobilizing capital, reducing competitiveness with othercredit institutions in the area In the second half of 2022, the competition for capital

mobilization took place fiercely, and the branch's capital was greatly affected Next, the

capital structure shifted from capital with a term of fewer than 12 months to a term of

12 months or more, leading to an increase in the average deposit interest rate compared

to the previous year This shift is evident at Head Office, high input interest rates reduceinterest rate differentials Finally, Internet Banking, bill payment, automatic collection,and utilities have not met customers' needs Commercial banks operating in the area allhave promotions, discounts, free services, improved technology with many utilities, and

more, leading to difficulties in customer retention.1.1.2.3 Reasons for the limitations

After discovering the limitations, managers of the Agribank branch in the Northof Yen Bai evaluated the causes of these limitations and listed these limitations in thebranch's annual business summary report.

(1) The first cause is an external cause:

2021-2022 is a period of economic recession due to the influence of the Covid

wave and the stagnation in our country's trade with major economies, especially China.This situation has adversely affected personal income and revenue at businesses,thereby causing individuals and companies to not pay attention to capital mobilizationactivities of the Agribank branch in the North of Yen Bai.

(2) The second causes are the internal causes:

First, internal inspection and control in 2020 have not yet reached the planned

schedule due to the implementation of Covid-19 disease prevention and managementunder the direction of specialized agencies, so it has delayed the branch's testing time.It is this restriction that leads to the second restriction, the interest rate differential in2020-2021 reduced at all branches, especially at Head Office and in highly competitivelocations The interest rate is forecasted to decrease as lending rates remain low tocompete to retain customers and support customers’ different difficulties due to theCovid-19 epidemic Third, some errors, and errors discovered after inspection,inspection, and self-inspection at some type II branches and transaction offices have not

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been taken care of or rectified seriously and promptly, so errors have been discoveredthrough many inspections and tests but continue to recur.

The fourth cause is remedial and post-inspection work at some type II branchesthat have not been focused on Some existing content and the recommendations of theinspection teams over the years have not been taken care of right away, so far, have notbeen fixed, or the errors that arise have repeated phenomena Fifth, some tellers andcredit officers’ transactional style and service attitude are unprofessional, not meetingthe requirements of tasks in the current competitive environment The phenomenoncauses difficulties when customers ask for loans, especially in transaction offices andcommunes far from the center Friday, some ATMs equipped since 2011 have beendepreciated and often broken, and service providers to repair and maintain ATMs aresometimes not timely, affecting customer service provision row.

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CHAPTER IT: LITERATURE REVIEW

2.1 Basic activities of a commercial bank2.1.1 Definition of commercial bank

Bank is a financial intermediary that raises idle capital in the society and uses

the money itself to lend it to individuals and organizations; it is infrequent that alldepositors come to collect the debt simultaneously, which is the basic principle toensure the operation of the bank.

A commercial bank is a type of credit organization that performs the twofunctions that make up the foundation of a bank: capital raising and capital lending.Commercial banks serve as a link between people and businesses Commercial banksoperate by trading in the commodity "capital - money," paying lower interest rates oncapital raises than on loans; the difference between those interest rates is the commercialbank's profit Commercial banks' operations meet the capital requirements of all societal

groups, including all ages, professions, and business models.

A commercial bank is an enterprise dealing in money, a financial intermediary

that borrows to lend Through the above simple definition, commercial banks haveshown themselves as significant business, but it is a type of financial service business.

The major elements of the Banking Act of 1933 defined a commercial bank as afinancial entity that offers its clients services, including loans, certificates of deposits,savings bank accounts, bank overdrafts, and more, following the United States

Constitution These organizations generate revenue by making loans to people andcollecting interest on those debts.

The French Banking Act (1941) also defines: "Commercial banks are enterprises

or establishments whose regular occupation is the receipt of money from the public inthe form of deposits, or in other forms and use those resources for themselves in theirdiscounting, crediting, and financing transactions."

In Vietnam, according to Article 20 of the revised Law on Credit Institutions

issued on June 15, 2010: "Banking activities are monetary business activities and

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banking services with the regular content of receiving deposits, and use this money toprovide credit and provide payment services."

Also, a commercial bank is permitted to engage in all banking operations andother commercial activities per the rules to generate profits, as stated in Clause 3, Article4 of the Law on Credit Institutions of 2010.

"Bank is a type of credit institution entitled to conduct all banking activities andother related business activities such as receiving deposits, using deposits to providecredit, and providing payment services."

"According to the nature and operational objectives, the types of banks includecommercial, development, investment, policy, cooperative, and other types of banks."

Thus, there are many different concepts about commercial banks, but allconcepts are based on bank activities and services to customers.

What are the characteristics of commercial banks? How is a commercial bankdifferent from another business enterprise?

The essential characteristics of commercial banks are financial intermediariesand products are financial services, so they are changeable, easy to imitate, and notcopyrighted.

According to National Economics University's Monetary Theory textbook,commercial banks have seven characteristics First, the commercial bank performs allbanking services Second, the capital source of commercial banks is highly liquid(deposits), so commercial banks' activities are preeminent in the money market Third,the commercial bank is always under strict control of the law because bankingoperations always have many potential risks To conduct currency trading, the first thingis that the trader himself must have significant capital in the business therefore,commercial banks' capital is vital in maintaining daily operations and demonstrating thebank's long-term development ability Commercial banks are the public's top savingsplace - incredibly personal and household savings The loss of these funds in the eventof a bank failure will become a disaster for many individuals and families However,most savers lack financial expertise and the information to assess accurately Therefore,it is the responsibility of regulators to gather and evaluate the information necessary todetermine the actual financial position of a bank to protect depositors Fourth,

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commercial banks require a high degree of specialization, professionalism, andcentralization in operations Fifth, commercial banks must have a vast network ofbranches and high-tech facilities Sixth, the bank's staff must be professional andfriendly with customers Managers must be highly competent in dealing with potentialproblems quickly before they harm the bank Seventh, trading in the monetary field isa susceptible business, affected by many economic, political, social, psychological,cultural, and traditional factors Each of these factors has its characteristics Even themost minor change has a very immediate and significant impact on the general businessenvironment For example, even a false rumor can cause a huge shock, even threateningthe existence of the entire system of credit institutions A weak commercial bank withlow drilling capacity can also burden many economic organizations and people in the

Because the operation of commercial banks is tied to every topic and every areaof socio-economic activity, all commercial banks must exercise caution in order toprevent the operation of their institutions from increasing the danger of a systemiccollapse All nations’ central banks keep a close eye on this market and offer an earlywarning system to reduce dangers Reality taught us important lessons when the centralbank ignored negative market trends, leading to the collapse of the financial-monetary

market and the collapse of the whole economy, including the national economy.

2.2 Capital raising activities of commercial bank

In the process of economic development of each country, raising capital isalways essential and plays a decisive role in long-term and stable development becauseexternal aid, whether it is loan support or foreign investment, is also temporary Overtime, the financial-monetary crises of countries in the region and the world have provedimpossible They should not wholly expect rapid and solid growth and developmentthanks to external capital to actively expand capital mobilization from within the

The experience of some developed countries since the 2007 - 2008 economicrecession (massive collapse of the banking system, credit starvation, stock devaluation,and large-scale currency devaluation in the US and many Europe countries) shows that

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to stabilize the currency and especially in the current conditions in our country, the taskof controlling inflation is an urgent requirement; the State must use synchronous

economical solutions in financial-monetary, in which increasing capital raising from the

people through the commercial banking system is a pretty compelling solution The factshows that an economy develops stably and sustainably when the primary source of

money for investment must be from people's and the economy's savings.

2.2.1 The role of capital in the banking business

2.2.1.1 Banks coordinate all corporate activity on the basis of capital

Before a bank can raise its initial deposits, it needs capital to get a license to formand run A new bank needs early funding to purchase property, construct infrastructure,outfit offices, and hire staff According to the characteristics of banking activities,capital is the primary tool for doing business and the main focus of commercial banks'operations A bank is a business that transacts certain commodities on the stock marketand money market (short-term capital market) (long-term capital market) Banks withcommercial prowess are traditional banks As a result, it may be argued that a bank's

business cycle begins with a capital The bank must periodically manage capital growth

throughout company operations in addition to the required starting capital.

2.2.1.2 The size of the bank's lending activity and other activities is determined bycapital

The growth or decrease in the volume of credit is determined by the bank'scapital Little banks often have fewer diverse investment and credit products than bigger

banks, and their lending scope and volume are also less Little banks are restricted in a

specific sense, but mainly in the community, whereas central banks can lend in theregional, even domestic, and worldwide markets Moreover, small banks' inability torespond quickly to changes in market interest rates is a factor in their inability to drawinvestment capital from all segments of society and the economy Public confidence isincreased through the money, which also reassures creditors of a bank's financial

stability and borrowers that the bank can satisfy their credit demands even in

challenging circumstances when the economy is struggling.

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2.2.1.3 The bank's solvency, competitiveness, and reputation are all influenced bycapital.

Undoubtedly, banks need a solid reputation to remain in business and continueto grow The bank's readiness to compensate clients must be the first indication of thisreputation The size of the bank's capital reserves increases with the institution'ssolvency Consequently, disregarding other variables, the bank's solvency is inverselyrelated to its total capital and accessible capital With significant financial potential, thebank may grow operations and engage in actual competitive actions to uphold itsreputation in the market and increase its renown Capital provides the resourcesnecessary to expand and create new programs, buildings, and modes of service delivery.A bank requires more capital as it expands to fuel expansion and take the risks involvedin offering new services With the extra funds, the bank can improve customer service,grow its corporate office, and open new branch locations to stay up with market trends.To ensure that a bank's expansion can be sustainable, steady, and long-lasting, capitalis considered a way of controlling it.

2.2.2 Capital raising policy

The bank's capital raising strategy may be viewed as a set of tools, techniques,

and initiatives designed to entice people and businesses to make deposits into the bank

based on mutually beneficial terms For the capital raising policy to be effective, banksoften set goals in capital raising and consider influencing factors The bank's capitalraising policy includes the following principal contents: Customer policy, interest rate

policy, product and service policy, and network expansion policy.

According to the common point of view, customer policy includes a system ofviews, guidelines, orientations, and action plans to apply to customers, ensuring benefitsfor both the Bank and the customers The bank uses customer policy as the foundationto make regulations for each activity and mission following the general orientation andto meet the customer development goals A typical customer system is developed,precise instructions for the decision-making process are defined, and decisions on whichactions are feasible and which are not being prompted by the customer policy, which

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also assists the bank in selecting the appropriate clients to service For customers,customer policy will help with safety, convenience, accuracy, saving time, and bringingthe highest customer satisfaction.

For interest rate policy, the credit interest rate is the percentage between theamount of credit interest (interest) earned and the total loan amount for a given unit oftime (month or year) Credit interest rate is a variable that is extremely sensitive toeconomic fluctuations When transitioning to a market economy, all countries apply theinterest rate liberalization mechanism With this mechanism, commercial banks, whenconducting credit transactions (capital mobilization and credit extension), need to adjustinterest rates flexibly and promptly to limit credit rates, terms, and structures interestrate risk arises However, commercial banks still need to follow the regulations of theState bank on interest rates to keep the economy stable In addition, based on specificsituations, the state bank will, in written form, request one or a group of commercialbanks to increase or decrease interest rates on their services.

In actuality, "service" and "product" are distinct ideas Yet, for commercialbanks, the services that banks use as a part of their operation represent a benefit thatdoes not exist in the form of written information about finances The "services" and"products" of banks will thus be referred to as banking services or banking goods andservices within the context of the research The qualities, features, and applications ofbanking goods and services can be categorized as those developed by banks to meet the

unique demands and preferences of clients in the financial market Compared to othercorporate organizations in the economy, the bank now offers and will continue to offerthe most varied portfolio of financial services, particularly in the areas of credit, savings,and payment services The success of a bank rests on its capacity to recognize andsuccessfully provide the financial services that society requires.

Branch network development is thought to entail scaling up branches, alteringbranch organization, and improving productivity and service levels Banks now place a

strong emphasis on growing their networks, delivering the best possible customer

service, and developing brand awareness all while managing costs and profits.

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2.2.3 Types of capital raising of commercial banks2.2.3.1 Owner's Equity

Owner's equity provides financial capacity for growth, expansion, and scope ofoperations and for developing new products and services of commercial banks The

owner's equity of a commercial bank has the following components:

The capital contribution is the source contributed by the bankers - in the form of buyingshares:

(1) Common stock is measured at the par value of the total number of commonshares outstanding This type of stock gives owners a variable income depending on theboard of directors’ decision on the dividend payment level.

(2) Preferred stock: it has a value determined by the par value of the total numberof current preferred shares This stock can be permanent or only last for a specific time,and it guarantees the payment of a fixed rate of income.

Capital contribution = Total number ofshares issued x Par value ofSharesSurplus equity represents the market price of shares above the par value thatshareholders pay to the bank.

Accumulated Earnings and Profits: the portion of a bank's profits that is kept inthe company rather than being distributed as dividends Although technically held bythe shareholders, this portion is "capitalized" to increase the amount of equity Owner'sequity serves as a reliable and expanding source of funding for the running of the bank.Owner's equity of the bank makes up a modest fraction of overall company capital(often between 8% and 10%), but it is important since it serves as the foundation forother sources of capital for the bank while also establishing the bank's first reputation.The scale of the bank's activities is determined by owner's equity; more precisely, equityserves as the foundation for calculating the bank's ceiling on capital raising Also,authorities use it as a criterion to establish safety ratios for the banking industry.

2.2.3.2 Debt capital

As a bank performs credit, payment, and other business activities on behalf ofeconomic organizations and individuals in society, it mobilizes their financial resources,which it then uses as a source of credit capital for businesses.

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Because of the nature of loan capital, assets are owned in several ways Withoutownership, the bank just has the right to utilize it It is in charge of timely principle andinterest payments (term deposit) or capital withdrawals when necessary (term deposit).Debt capital is essential to all of the commercial banks' business operations Due to theerratic nature of debt capital, the bank is required to reserve a portion of it in order to

maintain solvency.

Capital includes:

(1) Capital raised from deposits:

Banks raise by providing different types of deposits with different terms and

interest payment methods for customers Each deposit mobilization tool that the bankoffers has its characteristics to meet the diverse needs of customers in saving andpayment Customers claim that deposits made by residents, deposits made by economic

groups, and other deposits are included in the deposit capital of commercial banks.

Deposits of economic organizations: In their production and commercialoperations, economic organizations frequently have a portion of temporarily idle

capital, including money for investment, development, or depreciation that has been

deducted but has not yet been used In order to ensure the safety and profitability oftheir capital, they can deposit them in a bank In addition, economic organizations oftenhave transactions to buy and sell goods with many different partners, and paymentthrough banks is safe and timely Typically, economic organizations deposit money intobanks in demand deposits and time deposits.

(i) Demand deposit is a currency that customers can withdraw at any time, andthe bank must satisfy that demand This type is usually used for paymentpurposes Although demand deposit withdrawals and deposits can be made atany time, there is always a difference in time and quantity between depositingand withdrawing, so the bank always has a demand deposit balance, and the bankcan use it to lend In general, demand deposits have low-interest rates Therefore,this capital helps the bank to lower the cost of capital purchase and improve thecompetitiveness in business.

(ii) Term deposit is the currency in which the customer and the bank agree onthe withdrawal time In principle, customers can only withdraw this amount

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when the deposit matures However, to attract this currency and improvecompetitiveness, the bank will allow customers to withdraw money before thematurity date but only enjoy the demand interest rate or the correspondinginterest rate according to a particular type of term This type of capital is stable,and the bank is proactive in using capital.

Residential deposits are a part of people's income deposited in banks for thepurpose of saving, making profits and making payments Residential deposits includesavings and demand deposits:

(1) Savings: For a long time, savings deposits have been considered commercial

banks’ oldest capital mobilization tools Funds mobilized from savings accountsusually account for a considerable proportion of bank deposits Savings deposits

include the following types: Demand, term, and long-term.

(ii) Demand savings: Actually, this is a standard savings deposit The accountholder can withdraw at any time without notice for this amount However, thisaccount balance is usually not large but has an advantage over transactiondeposits because it is less volatile Therefore, commercial banks often pay higherinterest rates than payment deposits for this type of deposit That is the conditionfor commercial banks to mobilize this capital quickly.

(iii) Term savings: This type of savings is quite familiar in Vietnam Commercialbanks in Vietnam usually mobilize savings with terms from 1 month to 24

months In principle, once a customer has deposited money into this account,

they cannot withdraw (both principal and interest) unless the deposit has expired.To increase competition in attracting deposits, some commercial banks stillallow customers to withdraw before maturity (customers are entitled to aninterest rate on demand savings for the time they deposit).

(iv) Long-term savings: This type of savings is prevalent in some industrializedcountries to attract idle money for a long time Compared with other types ofsavings, for this loan, the account holder can deposit money into the account atany time with an unlimited amount but only withdraw when it is due Banks needto take advantage of this type of savings to create a highly stable source of capitalfor their medium and long-term credit granting activities.

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(v) Demand deposit is a deposit that the depositor can withdraw and use at anytime, and the bank must satisfy the customer's demand Demand deposits havinglow or zero interest rates includes two types Payment deposit: every individualwho needs to pay through the bank will go to the bank to open a payment depositaccount and deposit money in the bank to meet the payment needs and otherrelated utilities Pure demand deposit: this is a deposit for asset safety, not forpayment service, and when needed, customers can withdraw to the bank tospend Like the above case, the bank must satisfy the customer's requirementswhen they need to withdraw money and are only allowed to use the account whenit has ensured the ability to pay.

(vi) Residential deposits are characterized by dispersion but on a large scale, andthis source always accounts for a large proportion of the total mobilized capitalof the bank In order to effectively exploit this source, banks always diversifyforms of mobilization: deposit raising at counters, online deposit raising, deposit

at multi-function ATMs, and more.

Additional deposits include those made by social groups, the state treasury, andother financial entities These sources of capital make up a very tiny fraction of theoverall capital, which is mostly used for payment.

(2) Loans in the interbank market:

Commercial banks always have a temporary situation of excess and lack ofcapital when conducting business activities They can mobilize capital but have not yetlent it out It may also be due to customers withdrawing money ahead of time while theloan capital has not yet completed the withdrawal due date Commercial banks borrowmoney on the interbank market when there is a shortage of capital Banks with excessreserves due to an unexpected increase in deposits or a decrease in lending may be

commercial banks that are short of reserves, lacking capital to ensure solvency, andmore to seek higher interest rates in the interbank market to make a profit However,the disadvantage of this source of capital is the excessive cost of capital raising becausethe borrowing banks have to pay high-interest rates, and commercial banks with excesscapital often do not want to lend, especially competitor banks.

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(3) Capital in the capital market:

Besides the above borrowing methods, commercial banks also borrow in thecapital market, such as issuing certificates of deposit, bonds, promissory notes, and

Issuing these types of securities helps the bank to obtain medium and long-term

capital because the bank only uses a part of short-term capital from deposits to meetdemand and expand medium and long-term loans Besides, the bank can actively issuein terms of the deposit amount, term, and interest rate, so the bank can actively calculate

the financial plan for the bank In general, issuing valuable papers provides a stable

source of capital with relatively low costs, which is an advantage of banks However,commercial banks have to pay higher interest rates than deposit interest rates in raisingcapital by issuing certificates of deposit and bank bonds This transaction is onlyconducted when the bank is short of capital and the owner's and deposit mobilizationcapital are insufficient Thus, when mobilizing capital in these forms, banks must baseon the output to decide on the volume of mobilized capital, interest rate and term, and

mobilization method This capital can only raise for a certain period; when the expected

amount of capital has raised, banks will stop raising promissory notes and bonds.(4) Loans from the State Bank:

In the end, the bank will borrow from the Central Bank; it is not always possibleto borrow from the Central Bank and is always subject to the strict control of the central

Depending on the purpose and form of borrowing, loans from the Central Bankdivide into types: (i) supplementary short-term loans, (ii) loans for payment, and (iii)loans for refinancing.

Commercial banks can request for additional short-term loans as a way toincrease their short-term capital Commercial banks are only permitted to have theircredit limit in this type of loan within the credit limit set by the bank.

Loans for payment: Commercial banks borrow money from the central bank tocover temporary payment shortfalls between banks (the loan term is usually short).

Refinancing: Based on important documentation, the central bank may extendcredit to commercial banks These papers must be of a high standard and meet the

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criteria for being legitimate, secure, and lawful Rediscounting loans and secured loansare two types of refinancing.

(i) Rediscount lending: The central bank receives valuable documents that

commercial banks have discounted before to perform the same operations ascommercial banks have done However, the rediscount lending to commercial bankshas been limited to the allowable limit (rediscount limit) to implement the State'smonetary policy.

(11) Secured lending is a form of commercial banks bringing valuable documentsto the central bank to secure loans Based on the total face value of valuabledocuments as security, the Central Bank will lend at a specific rate depending onthe management of the State.

The central bank loan is the relationship between commercial banks and the

central bank in regulating monetary policy When the central bank uses open markettools and buys and sells short-term bills and bonds, the commercial banking system issubject to strict control by the central bank.

2.2.3.3 Other capital

In the process of intermediary payment, commercial banks also create paymentcapital: capital on the account, opening letters of credit, checking deposit accounts,blockade amounts accepted by the Commercial bank drafts, and deposits to open Lettersof Credit Funds deducted from this account entered the pending account should beconsidered temporarily idle.

Commercial banks also attract significant capital through agency operations incollecting or paying for customers, acting as agents for other credit institutions, andreceiving and transferring capital to customers or an investment project Because themoney distribution is carried out according to the work progress, the bank cantemporarily use the account balance for business.

Through entrusting services such as loan entrustment, investment entrustment,

allocation entrustment, disbursement entrustment, and more, create a source of trust atthe bank In addition, there are other debts, such as unpaid taxes, unpaid wages, andmore Banks can use them temporarily.

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2.2.4 Criteria for evaluation capital raising activities2.2.4.1 Quantitative criterias

(1) Criteria to evaluate the scale and structure of raised capital:Debt capital

Owner's equity

(Source: he Commercial Banks textbook of National Economics University)This criteria reflects the ability to raise debt capital per dollar of equity Unlikemany types of businesses, the bank’s capital usually accounts for a small proportion ofthe total capital, and debt capital is the primary source of capital of the bank.Specifically, in the capital structure, equity accounts for about 10% of total capital, anddebt capital accounts for about 90% of total capital.

Total deposit

Total raised debt capital

(Source: the Commercial Banks textbook of National Economics University)It reflects the proportion of deposits in total raised debt capital.

Short — term depositsTotal deposit

(Source: the Commercial Banks textbook of National Economics University)Or

(Source: the Commercial Banks textbook of National Economics University)

This is the criteria in terms of capital raising This criteria shows the proportionof short-term and long-term sources in total deposits The bonus rate in short-termdeposits will be larger than the proportion of long-term deposits However, it isnecessary to make a reasonable balance to ensure liquidity for the bank.

Total loans

Total raised capital

(Source: the Commercial Banks textbook of National Economics University)It shows the ratio of outstanding loans to total raised capital The increase ordecrease of this expenditure will affect the credit quality and liquidity of the bank.

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However, how to increase charter capital, and to what scale is it effective? This problemis not always straightforward, especially for commercial banks in developing countries

which are in transition The critical issue is that capital increase must be accompanied

by increased governance capacity to take advantage of economies of scale If thisrequirement cannot be met, the capital increase will most likely lead to a decrease in

efficiency and weaken the competitiveness of commercial banks themselves.(2) Indicator of capital raising costs:

Total interest payableAverage interest rate = ——— —_.

9 Total deposits and loans

(Source: the Commercial Banks textbook of National Economics University)This is the most widely used method This method focuses on the compositestructure of capital sources that the bank has raised in the past and considers the interestrate the bank must pay for each deposit From determining the average interest cost, thebank must earn a profit margin from loans and investments to cover the cost of paying

interest on raised capital.

(3) Marginal cost of raising capital:

Increased interest expenseMarginal cost = ———————

9 Increased total raised capital

(Source: the Commercial Banks textbook of National Economics University)The advantage of the average cost method is simple, but it only looks too muchto consider the minimum cost and profit margin realized by the bank Meanwhile, bankmanagers still need to look to the future with the decisions of today and tomorrow The

marginal method of capital raising is intended to overcome the disadvantages of the

average cost of interest method.

Marginal cost is a bank's cost for an additional unit of capital raised This formulais applied when the cost of raising capital of one type of capital is used when the bankdecides which type of capital to raise Once the marginal expense ratio has beendetermined, the bank can compare it with the expected additional income it hopes to

receive from using this newly raised money This capital expansion is carried out until

the additional costs equal the additional income and the total profit is maximized When

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a decline in profitability occurs, the bank must look for other sources of money withlower costs, find higher-return loans and investments, or both.

2.2.4.2 Qualitative criterias

In addition to the above quantitative criteria, the researcher also must considerqualitative criteria such as the quality and utility of the service, the ability to integratewith other services, the flexibility of products and services, and more.

(1) Customer satisfaction:

Customers are a prerequisite for the bank's existence and development The keyto success in competition is to maintain and continuously improve service quality bymeeting customers’ needs in the best way Therefore, evaluating the quality of bankingservices needs to be based on the perceptions and desires of customers There are fivefundamental aspects for banks to build a basis for assessing service quality through theperceived level of customers.

(i) Reliability

(ii) Assurance(11) Tangibles

(iv) Empathy

(v) Responsiveness

The above evaluation factors cover all stages related to the service provisionprocess Some factors show the professional qualifications of the bank staff, to theperson that depends on the skills, service attitude as well as polite behavior of the serviceprovider However, many factors are not directly related to the provision of services,such as the arrangement of the transaction place, the technology used by the bank, theproduct delivery process, the product itself, and more This situation tells the truth thatthe quality of banking services depends on many stages, involving many people indifferent job positions All these factors combined are not outside the purpose to bestmeet the needs and expectations of customers.

(2) Diversity in fundraising:

The more diversified, versatile, flexible, and convenient the forms of capitalraised offered by the bank, the greater the ability to attract investment capital from theeconomy However, the diversity of forms of mobilization that the bank offers depends38

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significantly on the regional economic characteristics and the bank's ability Therefore,the bank needs to choose whether the deposit form is appropriate and which method isthe most effective.

(3) Ensuring the safety of raised capital:

Capital raising is a highly active field with the initiative right of credit

institutions However, the advantages of capital raising activities of credit institutionsare still under the management of the state With such diversified forms, it has partlycreated stability, quality of capital, and timely response to payment capacity In each ofthese forms, the law also sets out specific requirements and conditions that areappropriate in order to preserve capital mobilization sources best.

2.3 Factors affecting the competitiveness of capital raising activities of commercialbanks

2.3.1 External factors

2.3.1.1 Legal environment

According to Nguyen's (2017) study, the legislative framework significantlyregulates the capital raising operations of commercial banks Laws with direct effectslike those on state banks, credit institutions, and others are frequently seen by the public.These rules also govern the deposit and usage of deposit accounts, the ratio of the bank'scapital mobilization to its capital, and other things Several pieces of legislation, like

the Investment Law, have an indirect impact on banking operations Commercial banks

or foreign investors are not permitted to accept deposits or make loans by increasing ordecreasing interest rates; instead, they must rely on the interest rates established by theState Bank and are limited to moving within the State Bank's permissible rate range.Thus, the legal environment is an objective issue that has a substantial influence on howcommercial banks raise capital To maintain safety and boost consumer confidence, the

State's rules include the operating goals of commercial banks Moreover, Byusa (2016)

investigated the elements influencing Rwanda, an African nation, to mobilize itsnational bank capital From 2010 to 2014, he employed qualitative methods to gathersurvey data at five commercial banks, where he then concentrated on researching both

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internal and external variables, such as the legal environment Yet, the study's findingseliminated this component from the top five most important variables.

2.3.1.2 Socio-economic environment

Similar to the legal environment, Byusa (2016) also studied the socio-economic

environment but later assessed that this factor is not among the five factors that havethe most decisive influence on the capital mobilization activities of commercial banks.However, research by Nguyen (2015) has shown that the socio-economic environmentis essential when considering commercial banks' capital raising activities The researchpaper mentioned that the national and international socio-economic situation also

significantly affects the bank's capital raising process Commercial banks’ capital

generation is a factor in determining whether the economy is expanding or contracting.The growth and decline of capital raised outside of the bank always show clearly anyeconomic changes The development of production and the expansion of the economyimproves the circumstances for accumulation, which benefits commercial banks' abilityto attract capital On the other hand, when the economy is in a slump, inflation rises,fewer individuals deposit money in banks than usual and it is challenging to raisecapital In particular, the study on the factors affecting the deposit mobilization of CBEbanks in Ethiopia of Ebebe (2016) mentioned the inflation factor as a representative of

the socio-economic environment.

2.3.1.3 Psychology and habits of customers

The bank's customers include those with capital deposited and those using such

capital There are many studies that have studied this factor, for example, Nguyen(2009) "Factors affecting the decision to save money and the number of deposits inbanks: The case of Saigon Joint Stock Commercial Bank branch in Can Tho", Nguyen(2015), "Factors affecting the intention to deposit personal savings at Saigon ThuongTin bank", Tran (2019), "Factors affecting credit capital mobilization - A case study incommercial banks in Tay Ninh province", and more The aforementioned studies allconfirm that earnings affect the potential capital that the bank can raise in the future Inaddition, psychological factors affecting volatility affect money sources The customer'sbelief in the future stabilizes the number of deposits and withdrawals If customers feel

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