What is a commercial bank present your understanding of the commercial banking system in vietnam what needs to be done to make the banking system more efficient

1.1 Denification 1.2 Feature of commercial bank 1.3 Role of commercial bank 1.4 Operation of commercial bank CHAPTER 2: Vietnam commercial bank system... Commercial banks are permitted b

Ministry of Education & Training

Ho Chi Minh City University of Economics and Finance

UNIVERSITY OF ECONOMICS & FINANCE

SIMINAR REPORT

Lecture: MsC Tang Mỹ Sang Subject: Financial and Monetary Theory Class code: BO!

Date: 20/6/2022 Topic: What is a commercial bank? Present your understanding the commercial banking system

in Vietnam? What needs to be done to make the banking system more efficient?

Student group: Group 3 Member: + Nguyễn Thị Bích Ngọc

+ Phan Thị Hồng Duyên + Võ Phạm Phương Thảo + Trương Thị Ngọc Kiều + Võ Duy Tùng

TABLE OF CONTENT PREFACE

CHAPTER 1: What is a commercial bank?

1.1 Denification

1.2 Feature of commercial bank

1.3 Role of commercial bank

1.4 Operation of commercial bank

CHAPTER 2: Vietnam commercial bank system

2.1 State

2.2 Join stock

2.3 Joint Venture

2.4 Bank with 100% foreign capital

CHAPTER 3: Status of commercial banks in Vietnam

3.1 NPLs — Non Performing Loans

3.2 Liquidity of commercial bank

3.3 SWOT analysis

3.4 Solution

TASK COMPLETION RATE OF GROUP 3 MEMBERS

ee DH

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PREFACE

In the market economy, a bank is a special type of enterprise with an intangible product that does not exist in physical form like normal businesses Competition is understood as

a process in which businesses struggle, compete with each other, find all ways to satisfy the maximum needs of customers, thereby achieving their main economic goals such as profit, market share and business position Thus, competition is conducted by the subject with the ultimate aim of maximizing benefits, for businesses it is profit, for consumers it

is the satisfaction of needs brought about by product consumption

To better understand banks, especially commercial banks Group of 3 of us have done the topic: “What is a commercial bank? Present your understanding of the commercial banking system in Vietnam? What needs to be done to make the banking system more efficient?”

1 What is commercial bank?

1.1 Definition:

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A commercial bank is a bank that deals in money for profit Commercial banks mainly and regularly receive deposits from customers to provide credit and perform discounting and as a means of payment As a_ business organization, commercial banks' operations are based on the economic accounting regime with the aim of making a profit Commercial banks are permitted by law to conduct a wide range of banking business operations, such as: receiving term and demand deposits; performing discount operations; payment services; raising capital by issuing debt certificates

1.2 Feature of commercial banks:

- Monetary

- Service

- High risk

- Chain reaction

1.3 Roles of commercial banks:

- Multiple deposit creation role: is an important function, clearly reflecting the nature of commercial banks and distinguishing it from other banks With the goal of seeking profit, the general invisible bank performs the function of creating money for the economy through its operations Acting

on two other functions of commercial banks, namely credit function and payment function Through the credit intermediary function, banks use the mobilized capital to borrow Then, that money is put back into the economy through the purchase of goods, while those with account balances continue

to consume it through card payments,

š With this function, the commercial banking system has increased the total means

of payment in the economy, meeting the payment and payment needs of the society

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- Intermediate role: The credit intermediary function is considered to act as a bridge between those with excess capital and those in need of capital With this function, commercial banks both play the role of receiving deposits and acting as lenders, enjoying the profit that is the difference between deposit interest rates and lending rates, contributing to benefits for banks related parties (depositors and borrowers, etc.)

- Payment role: The payment function helps customers to make payments by deducting money from the customer's deposit or debit account when the customer purchases goods and services, or for the customer to collect a deposit from the sale of goods , services and other revenues Provide customers with many payment methods such as checks, payment orders, collection orders, withdrawal cards, payment cards, credit cards, according to customer's needs

1.4 Operations of commercial banks:

- On balance sheet: are considered an asset or a liability of a company and can affect a business's financial overview

- Asset: Everything a company owns, including cash, accounts receivable (money a company is going to receive, see below), property and goods

¢ Establish reserves

* Provider credit:

© Loan: lend currency for their customers

© Discount: banks buy valuables before the due date o Financial Leasing: banks lease assets for their customers o Factoring: banks buy debt or invoice from their customers o Overdraft: customers can draw more money than their account holds

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© Guarantee: banks perform customer’s obligations in the case

of defant

¢ Investments:

o Directly investments

© Indirectly investments

- Liabilities: is owner’s equity business Including: Charter capital, financial reserve fund, investment fund for business development, retained profit

* Deposit: the most important feature It’s from demand deposit (now), saving deposit: individual and household (saving book), time deposit: individual and corporation (contract)

* Borrowing: may borrow from home and foreign (BIDV - Bank for Investment and Development of Vietnam, Vietcombank, ) * Received capital: ODA - Official Development Assistant

¢ Other: money in transit, remittance

- Off balance sheet: is a term for assets or liabilities that do not appear on a company's balance sheet Although they are not recognized on the balance sheet, they are still assets and liabilities of the company Off-balance sheet items are usually those that are not directly owned or obliged by the company

2 Vietnam commercial bank system’:

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JOINT STOCK

COMERCIAL BANK -

BANK WITH 100%

FOREIGN CAPITAL

2.1 State

- Currently, there are more than 50 private banks in Vietnam that are growing rapidly and growing stronger In the context that the country is integrating more and more deeply, the system of State commercial banks in Vietnam effectively supports the implementation of the Government's monetary policy to serve the common interests of society, helping to stabilize the economy macroeconomic stability, control inflation and ensure the country's social security

- State commercial banks are commercial banks that are allowed to open 100% of their capital from the state budget Currently, the banks in the State

banks’ include:

¢ Agribank - Vietnam Bank for Agriculture and Rural Development

* GP Bank - Global Petro Sole Member Limited Commercial Bank

* Ocean Commercial One Member Limited Liability Bank

* Construction Commercial One Member Limited Liability Bank

Agribank is one of the banks most familiar to the people with 7 credit programs and policies for flying under credit policies for agricultural and rural development

AGRIBANK

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Agribank is still attracting the choice of many investors, businesses and individuals

2.2 Join Stock

- Jomt-stock commercial banks with capital contribution of more than 50% by the State A bank established in the form of shares with capital contributed

by two or more individuals or corporations by shares Of which, up to 50%

is the State capital in that bank Prominent banks are:

* Vietinbank - Vietnam Joint Stock Commercial Bank of Industry and Trade

¢ BIDV - Jomt Stock Commercial Bank for Investment and Development

of Vietnam

¢ VCB - Joint Stock Commercial Bank for Foreign Trade of Vietnam °

ACB - Asia Commercial Joint Stock Bank *

Vieinbank is a_ state-owned commercial bank established after Agribank and Vietcombank because it

(D is separate from the State bank of Vietnam and plays

industry

Initially, Vietcombank was just a bank with products mainly serving the external economy, but now it has become a multipurpose bank, operating m many fields,

serving all customers with a full range of services Vietcombank is currently the only bank in Vietnam with a representative office

in the US and many subsidiaries abroad

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2.3 Joint Venture

- Joint-venture commercial bank is a commercial bank established in Vietnam, with capital contribution of a Vietnamese party (including one or more Vietnamese banks) and a foreign party (including one or more foreign banks)

on a joint venture contract basis A joint venture commercial bank established

in the form of a limited liability company with two or more members, being a Vietnamese legal entity, and having its head office in Vietnam.*

2.4 Bank with 100% foreign capital

- According to Clause 6, Article 7 of Decree No 22/2006/ND-CP:

“Bank with 100% foreign capital” means a bank established in Vietnam with 100% of its charter capital owned by foreign countries; in which there must be

a foreign bank owning more than 50% of charter capital (parent bank) Bank with 100% foreign capital is established in the form of a limited lability company, is a Vietnamese legal entity, and has its head office in Vietnam.” - The bank with 100% foreign capital are:

* HSBC - Hongkong Shanghai Bank Vietnam Limited

* SHBVN - Shinhan Bank Vietnam Limited

* SBCVL - Standard Chartered Bank Vietnam Limited

* Public Bank Vietnam °

4 According to Clause 6, Article 7 of Decree No 22/2006/ND-CP

5_According to Clause 6, Article 7 of Decree No 22/2006/ND-CP

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3 Status of commercial banks in Vietnam

3.1 NPLs - Non-Performing Loans

COMMERCIAL GOODS: The risk that the borrower does not have the

ability to repay or not to repay on time The result is the emergence of bad loans (NPLs)

Impact of bad debt on commercial banks:

The first is to lose a small amount of capital, increase operating costs such

as risk prevention costs

Second: interrupt the loan cycle of the bank

Third : the increase in bad debt causes the bank to lose capital, lose high liquidity, lose confidence in customers, and the crisis of not being able to pay customers is the main reason for the bank's bankruptcy

Fourth: reducing the financial capacity of commercial banks, the ability to generate low profits from bad debtors in many quarters will accumulate into huge debts

Fifth : bad debt will affect the economy, indirectly affect the organic relationship between the bank - customer - the economy because it affects the business activities of the customer, and at the same time reduces the development of the financial sector economy

REALITY

Bad debt increases:

At the end of the first quarter of 2022, the banking system continued to achieve many positive results when most of the members recorded increased profits, even increasing many times over the same period However, our statistics from the financial statements of the first quarter of

2022 of 27 banks show that, as of March 31, 2021, the total bad debt on the balance sheet of 27 banks is nearly 109.7 trillion VND, up 10.6% compared

to the beginning of the year

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In which, OCB is the bank with the fastest growing bad debt, up 70% compared to the beginning of the year, to 2,293 billion VND In which, bad debt mainly increased in group 4 debt, with an increase of 2.4 times to 698 billion VND Group 5 debt, which is likely to lose capital, also increased

by 38% to VND 1,011 billion and accounted for 44% of total bad debt Vietcombank also witnessed a sharp increase in the number of bad debts in the past period, with an increase of 36.8%, to VND 8,372 billion This is also the bank with the highest increase in bad debt, in absolute terms (VND 2,251 billion) However, like TPBank, Vietcombank's bad debt ratio is still low at 0.81%

Accordingly, the pressure of banks to make provisions is increasing Our statistics show that provisioning of 27 banks increased by VND 9,620 billion in the first 3 months, or 6.4%, to VND 159.2 trillion.’

3.2 Liquidity of commercial banks:

- Liquidity of a commercial bank is seen as the ability to meet the immediate needs

of the commercial bank's money (such as withdrawing deposits and disbursing committed credits, paying operating expenses, or needs to be paid in other currency )

AWN Therefore, liquidity risk is a type of risk when the bank is not able to supply an adequate amount of cash for immediate liquidity needs or supply enough but at a high cost

- REALITY

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* In October 2019: the liquidity ratio of the banking system was in an abundant state The interbank interest rate was lower than the bill rate many

times and fell below the 2% threshold.*

* The excess liquidity in the banking system in October came from two main reasons:

© Vietnam has a large balance of payments surplus due to trade surplus, increased FDI inflows, increased capital contribution, and share purchase

o The slow disbursement of public investment capital causes the state treasury's money deposited at commercial banks to maintain a large balance

- In 2020: Due to the impact of the Covid-19 epidemic, production and business activities were halted As a result, credit growth in the first quarter of 2020 was only 0.68%, the lowest increase in the past 6 years Therefore, in recent times, banks are experiencing excess liquidity, causing state banks to continuously suck money out of the system However, after that, the liquidity

of the commercial banking system has stabilized, the deposit and lending interest rates have not changed and are expected to continue to stay low in the second quarter of 2020 liquidity of commercial banks is still quite abundant.’

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