Based on the combination of financial indicators from many aspects in CAMELS model including capital, asset, management, earnings and sensitivity to market risk will show the strengths t
The importance of study
The banking system serves as a crucial intermediary in the economy, linking borrowers and savers while facilitating money flow and capital transfer, which is essential for promoting a market economy In Vietnam, where the financial system is predominantly banking-based, fluctuations within this sector can significantly impact the nation's economic development The rise of international economic integration has created numerous opportunities for Vietnam, but it also presents potential risks, including increased competition among banks due to foreign investments The period from 2020 to 2022 was particularly challenging, as the Covid-19 pandemic disrupted global economies, leading to business bankruptcies, including in Vietnam To expedite economic recovery, the Vietnamese government sought solutions to support businesses and workers, with banks playing a vital role in mobilizing capital and savings for business activities, underscoring the banking sector's importance in driving economic growth.
To navigate current challenges, commercial banks must implement strategies to enhance their performance and improve the management skills of their Board of Directors (BOD) This underscores the critical need for thorough analysis and evaluation of bank performance Such assessments enable the identification of potential risks within the banking system and individual banks, providing a solid foundation for the BOD to establish realistic business goals and formulate policies aimed at minimizing risks Ultimately, this approach enhances financial capacity and strengthens the bank's competitiveness and market position.
The banking sector poses significant risks due to its involvement with various subjects and industries, which can greatly impact economic development when banks face difficulties Consequently, numerous models have been developed globally to assess bank performance Among these, the CAMELS framework is widely recognized as a key method for analyzing the financial soundness of banks (Roman & Sargu).
The CAMELS model, which evaluates banks based on capital, asset quality, management, earnings, and market risk sensitivity, highlights both the strengths and limitations of banking activities Over its 30 years of operation, ACB has consistently enhanced its performance, particularly after the State Bank of Vietnam permitted the bank to implement Circular 41/2016/NHNN, aligning its Capital Adequacy Ratio (CAR) with Basel II standards in 2019 To adapt to the fluctuating Vietnamese economic landscape, ACB must diligently monitor its operations and anticipate potential risks Recognizing the critical importance of performance analysis, this thesis focuses on "Applying the CAMELS Model in Analyzing Bank Performance at ACB Joint Stock Commercial Bank," aiming to identify solutions for improving ACB's business efficiency.
Literature review
Evaluating bank performance is crucial for assessing management effectiveness, a focus not only in Vietnam but globally Various studies utilize the CAMELS model to analyze the performance of commercial banks, highlighting its significance in financial evaluations.
Ongore and Kusa (2013) explored the "Determinants of Financial Performance of Commercial Banks in Kenya" utilizing the CAMEL model to assess bank performance Their study, which analyzed data from 37 commercial banks in Kenya through a regression model, revealed that capital adequacy, asset quality, and management efficiency significantly influence the performance of these banks Notably, while capital adequacy and management efficiency exhibited a positive relationship with bank performance, asset quality demonstrated a negative correlation Additionally, the study found that the impact of liquidity on bank performance was relatively weak.
A study by K.G Ping and S Kusairi (2020) on the analysis of CAMEL components and commercial bank performance revealed findings consistent with Ongore and Kusa (2013) The research, which spanned from 2013 to 2017 and included data from 21 banks across 10 developed countries, utilized quantitative analysis and panel data to examine the relationship between Return on Assets (ROA) and CAMEL indicators The authors concluded that capital adequacy and earnings positively influenced bank performance, whereas asset quality, management efficiency, and liquidity had a negative impact Additionally, Srinivas and Saroja (2013) conducted a comparative analysis of HDFC Bank and ICICI Bank using the CAMELS model, finding no significant difference in their financial performance, although they noted that ICICI Bank was less competitive than HDFC Bank.
A study conducted by Golam Mohiuddin in 2014 analyzed the financial performance of Sonali Bank and AB Bank in Bangladesh from 2009 to 2013 using the CAMEL model, revealing reasonable performance despite differences in key ratios such as Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity, with an emphasis on the importance of liquidity Similarly, Ahsan's 2016 research on three Islamic banks from 2007 to 2014 confirmed strong financial performance across all CAMEL components Further, a 2021 study by Islam et al evaluated 13 private commercial banks from 2016 to 2018, demonstrating that the average capital adequacy ratio exceeded the standards set by Bangladesh Bank The findings suggest that while banks are performing well, Bangladesh Bank must closely monitor financial adequacy to address weaknesses and mitigate potential losses from increasing bad debts, ultimately enhancing the banking system's performance.
The study by Thisaranga and Ariyasena (2021) examines the impact of the CAMEL model on the performance of commercial listed banks in Sri Lanka from 2014 to 2019 Utilizing a regression analysis with five independent variables based on the CAMELS framework and bank size as a control variable, the research evaluates both accounting-based and market-based performance Accounting-based performance is assessed through the Return on Equity (ROE) ratio, while market-based performance is measured using Tobin’s Q Ratio The findings indicate that, in terms of market-based performance, capital adequacy, asset quality, and liquidity have a positive significant impact, whereas management efficiency and earnings show a negative correlation For accounting-based performance, earnings and liquidity positively influence outcomes, while management efficiency, capital adequacy, and asset quality exhibit a negative effect.
Kulshrestha and Srivastava (2022) utilized the CAMELS model to assess the financial performance of 14 highly capitalized banks in India, covering both public and private sectors from 2011 to 2018 Their analysis indicated a significant relationship between the CAMELS components and the banks' performance, demonstrating that private banks outperformed public banks This finding aligns with Purohit and Bothra's (2018) research, which also highlighted the superior financial performance of private sector banks compared to their public counterparts.
Parvesh Kumar Aspal (2016) examined the "CAMELS rating model for evaluating financial performance in the banking sector," presenting a theoretical framework consisting of six components However, the study highlighted limitations of the CAMELS model, particularly its inadequate coverage of credit risks Consequently, the author concluded that the CAMELS model may not be the most comprehensive or effective tool for analyzing bank performance.
Uyen Dang (2011) highlighted the CAMELS rating system in her research "The CAMELS Rating System in Banking Supervision" as an essential tool for assessing the safety and soundness of banks, thereby reducing the risks of bank failures She posed the question, “Why does the CAMELS rating system play a crucial role in banking supervision?” through a case study of AIA, identifying both the advantages and disadvantages of the CAMELS system for the institution In this context, the CAMELS rating serves as a private evaluation framework for AIA's investment analysis rather than a tool used by regulatory bodies Additionally, the study demonstrated how the CAMELS model can effectively assess bank performance and safety, aiding AIA in making informed investment decisions Furthermore, the CAMELS model is utilized to evaluate the profitability of commercial banks by ranking them based on six criteria, providing the Board of Directors with insights into the financial health of the institutions.
A study conducted in 2016 analyzed data from 30 commercial banks in Vietnam over a six-year period from 2008 to 2014, utilizing a quantitative research method and panel data with both cross-sectional and temporal observations through Fixed Effects Model (FEM) The findings revealed that shareholders' equity, cash, and deposits significantly influence the profitability of Vietnamese commercial banks.
Pham Thuy Tu and Dao Le Kieu Oanh (2019) conducted a study on 31 Vietnamese commercial banks over a nine-year period from 2010 to 2018, analyzing the influence of competitiveness on financial stability within the framework of the CPTPP The research utilized the CAMELS model alongside the IMF's standard indexes, including the Lerner index for competitiveness and the Z-score for assessing financial stability By employing regression analysis and descriptive statistics, the authors evaluated the financial stability of the banks and provided recommendations for enhancing their performance.
In their 2020 study, Anh Huu Nguyen et al examined the impact of the CAMEL model on the financial performance of 31 Vietnamese commercial banks from 2013 to 2018 Utilizing a Fixed Effects Model (FEM), the researchers analyzed four CAMEL components—capital adequacy, asset quality, management, and liquidity—as independent variables, while Return on Assets (ROA) and Return on Equity (ROE) served as indicators of financial performance, with Net Interest Margin (NIM) as the dependent variable The findings confirmed that the performance of Vietnamese commercial banks is significantly influenced by the CAMEL parameters, leading to the conclusion that capital adequacy, asset quality, liquidity, and management efficiency play crucial roles in enhancing their financial performance.
Nguyen and Dang (2020) conducted a study using dynamic panel regression and the CAMELS model to analyze the factors influencing loan growth in 31 Vietnamese commercial banks from 2007 to 2019 Their findings indicate that banks with substantial capital, higher profits, and competitive advantages are more likely to experience growth in lending activities Additionally, a positive correlation exists between asset quality and loan growth Conversely, banks facing high credit risk tend to limit their lending capabilities, while poorly managed banks often engage in aggressive lending practices, reflecting moral hazard issues within the Vietnamese banking sector Furthermore, the study highlights that bank loan growth is positively associated with liquidity, as banks sensitive to interest rates may restrict lending due to concerns over potential adverse changes in interest rates.
Nguyen Kim Quoc Trung (2021) conducted a study titled “Determinants of Bank Performance in Vietnamese Commercial Banks: An Application of the CAMELS Model,” analyzing data from 2009 to 2020 The research utilized the CAMELS model as a benchmark for assessing bank performance, employing quantitative regression methods and the System Generalised Method of Moments (SGMM) It examined 10 independent variables, including CAMELS components and macroeconomic factors such as inflation rate and GDP growth, while Tobin's Q ratio served as the dependent variable for measuring bank performance The findings indicated that capital adequacy ratio, management, earnings, liquidity, and macroeconomic variables positively influence bank performance, whereas asset quality and sensitivity negatively impact it.
“relationship between ownership type and banks’ performance, implying that state owned banks must improve and increase their soundness”
Tran Minh Hieu and Nguyen Phuong Linh (2022) conducted a study on the performance and soundness of Vietcombank from 2015, utilizing the CAMELS model in conjunction with Basel II standards and regulations set by the State Bank of Vietnam (SBV).
In 2020, a qualitative research study was conducted to evaluate the performance of financial indicators over different periods The findings revealed that capital, asset management, earnings, and liquidity effectively reflect the level of safety in accordance with the regulations set by the State Bank of Vietnam (SBV).
Research purposes
The thesis establishes a foundational theoretical framework for evaluating the performance of commercial banks using the CAMELS model, while also identifying key factors influencing their business operations Additionally, it highlights both the strengths and weaknesses associated with the application of the CAMELS model in this context.
The CAMELS model was utilized to assess ACB's banking performance over a three-year period from 2020 to 2022 This analysis highlights both the achievements ACB has made and the existing limitations in its operations.
Third, propose solutions and recommendations to improve bank performance, thus increasing profitability of ACB in the coming time.
Object and scope of study
Object of study: Bank performance of ACB joint-stock commercial bank
Scope of study: The thesis focuses on a three-period from 2020 – 2022 of ACB joint-stock commercial bank.
Research methods
This thesis primarily employs qualitative research methods, but to thoroughly analyze and objectively evaluate the performance of ACB Bank, it also incorporates additional research methodologies.
The study utilizes secondary data sourced from the financial statements and annual reports of ACB Commercial Joint Stock Bank for the years 2020 to 2022 This comparative analysis aims to provide insights into the bank's performance by evaluating growth or decline during specific periods Additionally, to benchmark ACB's performance, the research includes a comparison with two similarly sized banks, MB Bank and VP Bank.
Dupont Analysis: This method is applied to interpret the results of ROE or ROA ratios, which represent bank profitability By analyzing the components that make up
The ROE and ROA ratios are essential indicators of a bank's performance, offering a clear perspective on its financial health This analysis examines the bank's ROE trends over the years, identifying factors that contribute to its growth or decline By understanding these dynamics, we can make informed predictions about the future trajectory of ROE.
Structure of study
The structure of thesis consists of 3 chapters and focuses on the following issues:
THEORETICAL FRAMEWORK ABOUT ANALYSIS OF BANK
Overview of analysis bank performance in commercial bank
1.1.1 Definition of analysis bank performance in commercial banks
According to the Law on Credit Institutions (2010), a commercial bank is defined as an entity authorized to engage in various banking and business activities aimed at profit generation Chenini Hajer and Jarboui Anis (2016) describe bank performance as the ability to meet set objectives efficiently and cost-effectively while utilizing available resources This concept implies that bank performance involves leveraging resources to achieve goals, supported by specific indicators that reflect the bank's current status and its capability to meet desired outcomes Similarly, Ferrouhi and El Mehdi (2018) emphasize that a bank's performance is fundamentally linked to its ability to generate sustainable profitability.
The banking sector is often viewed as more susceptible to risk compared to other industries, making it essential to evaluate bank performance through a comprehensive lens This assessment should not only focus on maximizing profits and minimizing costs but also prioritize risk reduction to ensure the bank's stability By comparing opportunities and risks alongside business investment costs and outcomes, we can effectively gauge bank performance, highlighting both economic viability and social benefits.
Bank performance analysis is crucial for the effective management of commercial banks, as it evaluates operational activities and identifies potential opportunities for growth This process involves data collection and analysis based on each bank's specific standards, enabling the Board of Directors (BOD) to understand both strengths and potential risks in banking operations By recognizing these factors, the BOD can implement strategies to mitigate risks and enhance overall efficiency Consequently, bank performance analysis serves as a vital tool for the BOD to monitor operational conditions and develop optimal business strategies.
1.1.2 Basis for evaluating bank performance in commercial banks
Evaluating the performance of commercial banks is essential for both bank administrators and stakeholders, as it serves as a vital information channel Effective assessment methods are employed to gauge bank performance, utilizing data from various sources to inform decision-making.
Financial statements, comprising the balance sheet, cash flow statement, and income statement, provide a comprehensive overview of a bank's financial position, operational activities, and cash flow These reports are essential for the Board of Directors, regulatory agencies, and investors, aiding them in making informed investment decisions.
A bank management report is a comprehensive document that evaluates the bank's performance, designed to meet the needs of managers and administrators This report provides insights into the current status of the bank's business activities, enabling effective resource utilization and efficient business operations.
The bank is required to generate a statistical report for the State Bank of Vietnam (SBV) to support effective monetary management This report encompasses essential data on capital mobilization, credit balances, interest rates, payment and treasury operations, foreign exchange activities, investment initiatives, and the oversight and safety measures within banking operations.
In addition to data gathered from newspapers, the bank's management board can obtain reliable information from external sources such as the State Bank of Vietnam (SBV) and the General Statistics Office (GSO), as well as from international organizations like the World Bank (WB) and the International Monetary Fund (IMF).
1.1.3 Methods of evaluating business performance in commercial banks
The traditional analytical method evaluates bank performance primarily through financial indicators derived from financial statements, focusing on the analysis of financial ratios categorized into three distinct groups.
Profitability analysis involves key indicators such as Return on Equity (ROE), Return on Assets (ROA), Net Interest Margin (NIM), and Net Non-Interest Margin (NNIM) A deeper understanding of ROE can be achieved through the Dupont analysis, which breaks ROE down into three components: Net Profit Margin (NPM), Asset Utilization (AU), and financial leverage This approach allows for the evaluation of which component most significantly influences changes in ROE.
Commercial banks enhance their operational efficiency and maximize profits by automating processes and minimizing staff involvement This income-cost analysis is demonstrated through key metrics, including the operating expense ratio, earnings base, and the growth rates of both income and expenses.
Commercial banks prioritize profitability while managing various financial risks, including credit risk, liquidity risk, interest rate risk, and foreign exchange risk Key indicators of these risks are the bad debt ratio, interest-sensitive assets and liabilities, loan ratio, and leverage.
1.1.3.2 Modern analytical methods: a PEARL model:
The PEARLS model is specifically tailored for small-sized financial institutions to effectively monitor their financial performance Recognized as a crucial tool in supervisory activities, this model evaluates, warns, and ranks these institutions using a comprehensive set of financial metrics derived from balance sheets, along with closely related evaluation criteria.
R – Rate of Return and Costs
The PEARLS model is particularly effective for analyzing financial statement information from various financial institutions in Vietnam, as it is primarily based on balance sheet criteria Each criterion within the model aligns with distinct standard levels, enabling executive boards to identify appropriate solutions tailored to their specific needs.
The PEARLS model relies solely on quantitative indicators, which limits its objectivity by excluding qualitative measures Additionally, its dependence on balance sheet data for performance evaluation raises concerns about reliability, as financial figures can be easily manipulated In contrast, the CAMELS model offers a more comprehensive approach to assessing financial performance.
APPLYING CAMELS MODEL TO EVALUATE ACB’S BANK
Overview of ACB joint stock commercial bank
2.1.1 History and development of ACB commercial bank a Founding:
Asia Commercial Joint Stock Bank (ACB) was established on April 14, 1993, under license No 032/bank-GP issued by the State Bank of Vietnam (SBV), and received an additional license from the People's Committee of Ho Chi Minh City on May 13, 1993 ACB commenced operations on June 4, 1993, with its headquarters located at 442 Nguyen Thi Minh Khai Street, Ward 5, District 3, Ho Chi Minh City, Vietnam.
Established as one of Vietnam's pioneering joint stock commercial banks during the nation's shift to a market economy, ACB has achieved significant historical milestones throughout its growth journey.
- In 1993-1995: this is the foundation stage of ACB, so it mainly focuses on individual customers and SMEs in the private sector
- In 1996-2000: ACB approached modern banking and becoming the first bank issuing international credit cards, modernizing banking information technology, restructuring HO divided into sales and support department, established ACBS
- In 2001-2005: ACB implemented the second phase of the information technology modernization program; Standard Chartered Bank signed a comprehensive technical support agreement, becoming a strategic shareholder of ACB
- In 2006-2010: By October 2006, ACB was listed on the HNX Along with that, ACB developed the operating network and building a standard data center
Between 2011 and 2015, a data center was established and put into operation, adhering to international standards Despite facing challenges in 2012 due to an incident involving the former Vice Chairman of the Board of Directors, ACB has successfully navigated these difficulties and has gradually recovered and redeveloped.
- In 2016-2020: ACB continues to improve its processes, policies and risk management limits to be in line with SBV's current regulations By 2020, ACB will move from HNX to HOSE
In 2021-2022, ACB received approval from the State Bank of Vietnam (SBV) to increase its charter capital to 33,774 billion dong The bank is also focused on digital transformation and the implementation of technology in its operations, which enhances efficiency by reducing the need for human resources and minimizing transaction times Additionally, ACB's capital adequacy and liquidity risk management practices align with Basel III standards.
2.1.2 Organizational structure of ACB commercial bank
As of the end of 2022, ACB operates 1 head office and 384 branches and transaction offices across Vietnam, with a strategic focus on key markets including Ho Chi Minh City, the Southeast region, Hanoi, and the Mekong Delta Notably, Ho Chi Minh City remains ACB's primary area of operation, housing 137 branches and transaction offices.
Figure 2.1: Organizational structure in ACB joint stock commercial bank
SOLUTIONS AND RECOMMENDATIONS TO IMPROVE
Development orientation of ACB commercial bank
After being establised, ACB has determined to become "the leading retail bank in Vietnam", so customers segment of ACB is mostly individuals as well as SMEs
ACB's development strategy prioritizes a customer-centered approach, emphasizing both traditional and digital banking By innovating and modernizing all facets of its operations, ACB aims to stay competitive with regional and global banking advancements.
To effectively expand business operations, it is essential to focus on retail banking as the core, while selectively developing wholesale services tailored to industries and sectors that can enhance the customer value chain This strategic approach ensures that growth initiatives are aligned with areas that promise significant value creation.
Strengthen financial capacity, ensure business safety, strengthen governance capacity, apply international standards towards the goal of becoming the best profitable bank
Developing human resource through professional training and recruitment measures as well as attracting resources from abroad
In 2022, while many global economies encountered significant challenges, Vietnam's economy demonstrated a robust recovery, marked by stable macroeconomic conditions and controlled inflation The management of monetary policy effectively balanced the promotion of economic growth with inflation control and exchange rate stabilization, significantly influencing the operations of commercial banks, including ACB.
By the end of 2022, ACB successfully met its objectives, achieving significant total asset growth while maintaining a high net income and adhering to the safety limits and ratios set by the State Bank of Vietnam (SBV).
Key financial and credit goals in 2023:
- Total assets increased by 10%, estimated at 668.788 billion VND
- Customer deposits increased by 8,01%, estimated at VND 496.411 billion
- Total loans increased by 9,7%, estimated at 453.836 billion VND
- Net income reached about VND 20.058 billion
- NPL ratio is less than 2%
Medium and long-term development strategy:
- Sustainable growth to meet shareholder expectations, deliver a good customer experience, improve bank performance (in terms of asset quality, cost management, human resources, profitability); creating a work environment
ACB enhances its credibility through strong corporate governance, ensuring that governance, control, and management functions prioritize the interests of both shareholders and stakeholders This commitment fosters a workplace culture where employees uphold core values, reinforcing the organization's integrity and trustworthiness.
- Transforming the organization to suit the changes in ACB's strategy, State management policy as well as technology development.
Solutions to improve ACB bank’s performance
3.2.1 Solutions to improve capital adequacy
Despite a decrease in leverage from 2020 to 2022, ACB's levels remain elevated compared to similarly sized banks Consequently, enhancing ACB's capital base is crucial, as a rise in equity not only boosts the CAR ratio and permits the SBV to expand credit but also diminishes financial leverage by reducing reliance on creditors ACB can achieve this increase in equity through various sources.
To enhance core capital while minimizing capital costs and preventing stock dilution, banks should focus on increasing capital from retained earnings However, this approach can lead to fluctuations in profits and may limit dividend payments to shareholders A high retention ratio often results in a lower dividend payout, which can dissuade investors who prioritize income from their investments Therefore, it is essential for banks to strike a balance in the proportion of profits retained, aligning the interests of both the bank and its shareholders to significantly improve core capital.
Issuing additional common or preferred shares is a common strategy for joint stock commercial banks to mobilize capital This approach enhances the bank's financial autonomy but comes with issuance costs and can dilute existing shareholders' ownership, ultimately reducing earnings per share.
ACB must focus on increasing its CASA (Current Account Savings Account) ratio, which has been declining for over three years Enhancing the CASA proportion will boost the bank's liquidity and optimize capital costs, ultimately improving its Net Interest Margin (NIM) To achieve this, ACB should diversify and modernize its product offerings, ensuring they meet customer needs and remain competitive in the market Additionally, the development of digital services like ACB One for individuals and ACB One Biz for businesses, along with upgraded technology and payment systems linked to e-wallets, can facilitate fast and secure transactions Implementing fee incentives and cashback programs will further enhance customer satisfaction and loyalty, contributing to a stable source of savings deposits.
To enhance its financial stability, the bank should actively seek foreign partnerships to attract investment capital and funds from issuing securities This strategy will diversify its capital sources, minimizing reliance on a single funding stream and ultimately reducing both risks and capital costs for ACB.
3.2.2 Solutions to improve asset quality
To enhance credit growth, ACB should diversify its credit product offerings to cater to various customer segments, allowing for significant improvements in the bank's performance By creating unique products with distinct characteristics, tailored interest rates, and terms, ACB can differentiate itself from competitors while maintaining preferential options for priority and loyal customers This approach fosters strong customer relationships, building trust and encouraging clients to explore additional products, ultimately broadening ACB's potential customer base Furthermore, expanding partnerships with consumer entities will help promote ACB's credit products, making them more accessible to customers.
In the post-Covid recovery phase, ACB should focus on enhancing lending for individual consumer loans, as rising shopping and consumption demands present significant opportunities This strategic move is likely to boost credit growth and profitability, especially considering that ACB's loan growth has only reached 15%.
ACB's loan terms are significantly shorter than those of its competitors, currently sitting at three years, which presents a higher risk profile To enhance customer ratings and improve risk assessment, ACB is leveraging technology during the evaluation process Additionally, ACB should consider revising its credit policies to relax standards while ensuring that borrowers remain creditworthy and capable of meeting their financial obligations Presently, ACB's asset appraisal process is notably stringent, reflecting a conservative risk appetite; for instance, it typically appraises mortgage assets below their actual market value and accepts only real estate as collateral, unlike competitors such as MBB and VPB, which also accept vehicles and other assets.
To effectively manage the NPL ratio, ACB must enforce strict controls throughout the loan lifecycle Despite maintaining a low NPL ratio of under 1%, the increasing scale of loans necessitates diligent debt classification and appropriate provisions to uphold loan quality Banks should enhance supervision before, during, and after the lending process to mitigate credit risks The credit appraisal quality is crucial for the success of individual loans and the overall loan portfolio Continuous credit supervision is essential to ensure that customers use capital as stipulated in the credit contract, allowing for timely intervention against potential fraud Additionally, ACB can aid in loan recovery by offering extensions to customers as the economy gradually rebounds from the pandemic, alongside measures to reduce overdue and bad debts.
3.2.3 Developing and improving the quality of human resources
ACB must focus on reducing operating costs, particularly as labor expenses have risen significantly While cutting labor costs is not viable due to its impact on employee productivity and quality, the bank can streamline its workforce by eliminating inefficient positions while retaining skilled staff Implementing policies to cut unnecessary and internal expenses is another effective strategy for cost reduction Additionally, investing in advanced technology can enhance product quality and further lower labor costs, ultimately helping the bank minimize operational expenses.
Human resources are crucial for the growth of ACB, necessitating a focus on training experienced staff across all positions through targeted programs and knowledge contests Special emphasis should be placed on enhancing the professional qualifications of credit officers and appraisers ACB should also promote continuous learning by encouraging employees to pursue training both domestically and abroad, with select officers given opportunities to study internationally Participation in seminars should be encouraged to facilitate knowledge exchange regarding professional practices and banking products Furthermore, creating a supportive working environment is essential for maximizing employee potential, boosting productivity, and ultimately increasing profitability and team cohesion within the bank.
Improving employee responsibility and ethics is crucial for banks, as some credit officers may manipulate customer credit scores to meet targets or neglect post-disbursement monitoring To address this, banks should implement strict and objective credit scoring policies Weak moral standards among staff can lead to errors in credit appraisal and decision-making, increasing risks for the bank ACB should foster a fair corporate culture with appropriate welfare and compensation to reduce moral hazards and establish robust internal supervision to deter misconduct while encouraging ethical behavior This approach will effectively minimize bad debts and overdue accounts.
To enhance the growth of Net Interest Margin (NIM), ACB must focus on maximizing interest income while minimizing interest expenses Despite efforts, the bank's interest expenses remain elevated due to prevailing economic conditions and a lack of effective cost-reduction strategies To address this, ACB should seek affordable capital sources to lower input costs, such as fostering the growth of demand deposits and reducing reliance on loans from the State Bank of Vietnam (SBV) Additionally, diversifying the income structure by increasing non-interest income (NNII), particularly from service activities, will mitigate risks associated with credit dependence ACB should prioritize improving product quality and developing popular offerings while phasing out high-risk, inefficient products Furthermore, promoting cross-selling through off-balance sheet activities, such as offering insurance when customers open letters of credit, can significantly boost the bank's revenue.
The current investment asset management policy is underperforming, as the Return on Assets (ROA) only meets the target but remains low compared to industry standards To address this issue, the bank must realign its investment portfolio to better reflect market conditions and avoid inefficient, excessive investments Consequently, ACB should prioritize enhancing its analysis department to boost the effectiveness of its investment strategies.
3.2.5 Solutions to improve risk management
ACB must develop a robust measurement system to evaluate various risks affecting its banking performance and estimate their potential impacts on operations, ultimately aiming to reduce negative effects on the bank.
Recommendations
In 2022, Vietnam's economy demonstrated robust recovery amid global challenges and soaring inflation, which prompted countries to tighten monetary policies The Vietnamese Government's commitment to revitalizing the economy post-Covid-19 was evident, showcasing significant efforts to foster economic development and resilience in the face of adversity.
To foster economic recovery post-Covid-19, the Government must prioritize the establishment of a stable economic environment, which is crucial for the functioning of all sectors, including commercial banks Collaboration between the government and state agencies is essential to implement measures that ensure political and economic stability Furthermore, a flexible approach to integrating fiscal and monetary policies is necessary to stabilize economic growth and control inflation Ultimately, a robust economic recovery will serve as a catalyst for the effective and secure development of the banking sector.
To ensure the effective operation of the banking system, particularly during periods of increasing economic integration, it is crucial to establish a favorable and stable legal environment Inconsistent or unstable policy frameworks can negatively impact the business activities of banks, highlighting the need for a reliable regulatory system.
The government must implement supportive policies for businesses, such as reducing corporate income tax (CIT) and providing capital support, with a particular focus on small and medium-sized enterprises (SMEs) and the private sector, as these sectors have been significantly impacted by the pandemic This approach will facilitate quicker recovery for businesses and enhance their access to bank capital, ultimately boosting credit for commercial banks Additionally, the government should prioritize the development of a robust and integrated information technology infrastructure, as leveraging technology in operations is crucial for economic growth By innovating and enhancing technological infrastructure, the government can also improve the quality of human resources in the banking industry.
3.3.2 For the State bank of Vietnam:
Vietnam is among the first countries to enter the post-Covid-19 phase, resulting in a significant increase in money circulation within its economy In response, the State Bank of Vietnam (SBV) must adopt a flexible monetary policy to stabilize interest rates and maintain low inflation Recently, to address macroeconomic instability and rising deposit rates, the SBV implemented regulations on ceiling deposit and lending rates for priority sectors As the economy stabilizes, the SBV should reevaluate the operating mechanisms of financial instruments to prevent negative impacts on commercial banks Additionally, it is crucial for the SBV to stabilize the currency and foreign exchange markets, ensuring a stable exchange rate that supports import-export businesses and the private sector while still allowing banks to remain profitable.
To enhance the application process for commercial banks, it is essential to systematize the legal documents of the State Bank of Vietnam (SBV) to prevent overlaps Additionally, the formulation of regulations must be thoughtfully evaluated to ensure they align with practical realities, avoiding the pitfalls of being purely theoretical and impractical.
To support SMEs, the State Bank of Vietnam (SBV) should maintain policies that extend debt repayment periods and lower lending interest rates Even businesses not directly impacted can face challenges when partners struggle to sell goods, resulting in slow cash flow and delayed bank loan payments, which in turn increases interest costs These measures will enhance businesses' ability to repay debts, reduce overdue debts, and lower the bad debt ratio, ultimately minimizing credit risk provisions.
ACB, thereby minimizing the negatively affect the bank's income
To enhance the effectiveness of credit support policies in the post-epidemic period, the SBV must establish a comprehensive framework that guides commercial banks in creating diverse credit packages This initiative will enable businesses to access interest rate support packages more swiftly, facilitating their recovery and growth.
The State Bank of Vietnam (SBV) must conduct a thorough inspection of debt restructuring practices and require commercial banks to provide detailed reports on the volume, limits, and reasons for extensions This approach will ensure that the support policy remains objective, transparent, and effectively targets the intended beneficiaries.
An analysis of ACB's performance from 2020 to 2022, based on the CAMELS model, provides valuable insights into the bank's operational efficiency Chapter 3 of the thesis outlines specific recommendations and solutions aimed at the Government, the State Bank of Vietnam (SBV), and ACB to address current limitations and enhance the overall performance of ACB and the banking system as a whole.
The CAMELS model has been utilized to thoroughly analyze and evaluate the performance of ACB Commercial Joint Stock Bank from 2020 to 2022, highlighting key strengths and identifying areas for improvement As the economy gradually recovers and competition intensifies among domestic and foreign banks, ACB must enhance its capabilities to stay competitive With strong leadership and dedicated employees, the bank is poised to meet its growth targets while managing risks effectively However, a conservative risk appetite has limited ACB's ability to fully leverage its potential, necessitating innovative management strategies to enhance performance To achieve its goal of becoming "Vietnam's leading retail bank," ACB should focus on credit and deposit growth, optimize its investment portfolio, strengthen risk management, and advance its technology for more professional and automated business models The analysis and recommendations provided can guide ACB in developing better management policies and improving overall performance.
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