BANKING ACADEMY BANKING FACULTY --- GRADUATION THESIS TOPIC: APPLY CAMELS MODEL TO EVALUATE FINANCIAL CAPACITY OF VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK BANK Name of student :
Problem statement and reasons for writings
The global integration process has significantly driven the development of the banking system, particularly in Vietnam, where commercial banks faced numerous challenges from 2020 to 2022 due to the pandemic and international political tensions As essential pillars of the economy, these banks needed to ensure their stability during the outbreak and in the critical post-pandemic recovery phase A comprehensive analysis of the factors affecting the financial capacity of commercial banks is vital, as it not only aids bank leaders in making informed decisions but also provides investors and customers with valuable insights into the banks' real situations.
Vietnam International Commercial Joint Stock Bank (VIB), a prominent joint-stock commercial bank in Vietnam, has dedicated 27 years to understanding and meeting customer demands Despite achieving remarkable milestones, the bank faced significant challenges during the pandemic and the subsequent new normal, which hindered its long-term goal of becoming the leading retail bank in Vietnam by quality and scale To navigate these challenges, it is essential to conduct research evaluating VIB's financial capacity from 2020 to 2022, identifying potential risks for the future This assessment will enable VIB's leadership to devise appropriate strategies to enhance the bank's operations.
Given the practical necessity and critical significance of the topic, combined with the theoretical foundation acquired in school and insights gained during my internship at VIB, I have chosen to focus on the application of the CAMELS model.
2 analyze and evaluate the financial capacity of Vietnam International Commercial Joint Stock Bank (VIB)” to be my graduation paper topic.
Literature reviews
Chakraborty et al (2015) did a study about: “Financial Performance
The analysis of Islamic Banks in Bangladesh, focusing on Islami Bank Bangladesh Limited (IBBL), utilized hypothesis testing and regression analysis to evaluate the relationship between net profit (dependent variable) and key independent variables such as deposits, loans, and investments The findings indicate that the Islamic banking system exhibits lower profitability efficiency compared to conventional banks, primarily due to its adherence to Islamic Sharia principles.
In his 2016 study titled "Towards Increasing the Financial Performance: An Application of CAMEL Model in Banking Sector in the Context of Sri Lanka," Rauf evaluated the financial performance of banks in Sri Lanka The findings revealed that private banks outperformed their counterparts across all indicators of the CAMEL model However, it is noteworthy that the study did not include the 'S' component, which represents sensitivity to market risk, in its analysis.
Nguyen Thi Minh Hue (2012) has done research about “Assessing
Vietnamese banking system based on some Financial Soundness Indicators” The research is based on the calculation results of some financial soundness indicators of
In Vietnam, 34 commercial banks are advocating for policies aimed at enhancing the sustainability of the banking system However, the study faces limitations due to outdated data and the absence of crucial financial ratios such as Net Interest Margin (NIM) and Net Non-Interest Margin (NNIM), along with essential criteria related to management and sensitivity.
Phan Thi Hang Nga (2013) did a study about “Năng lực tài chính của các
The study on Vietnamese commercial banks identifies a financial capacity model influenced by 13 key factors, including equity scale, financial leverage, and the minimum capital adequacy ratio These findings highlight the critical elements that shape the financial health of commercial banks in Vietnam.
Between 2003 and 2012, the financial capacity of commercial banks in Vietnam fell short of the standards set by the CAMELS model, as indicated by key metrics such as outstanding loans to total assets, non-performing loans to total outstanding loans, return on assets (ROA), return on equity (ROE), net interest margin (NIM), cost-to-income ratio (CIR), liquidity assets ratio, total outstanding loans to total deposits, and short-term liquidity ratio Previous studies highlighted limitations, including the use of outdated data and insufficient analysis of critical factors such as management and sensitivity.
Nguyen Nam Anh (2022) published a study titled “Improving Financial Capacity of Commercial Banks: A Case Study at Joint Stock Commercial Bank for Foreign Trade of Vietnam,” which evaluates the financial capacity of VCB, a state-owned commercial bank in Vietnam The findings reveal that VCB excels in profitability, asset quality, and liquidity, but faces challenges related to capital, income, and market share when compared to other state-owned commercial banks in the country.
Recent studies lack diversity and may contain outdated data, making them inapplicable to current circumstances Notably, there is a lack of domestic research analyzing the financial capacity of Vietnam International Commercial Joint Stock Bank (VIB) using the CAMELS model for the period of 2020 to 2022 Therefore, I have chosen to focus on the topic: “Applying the CAMELS Model to Analyze and Evaluate the Financial Capacity of Vietnam International Commercial Joint Stock Bank (VIB).”
Objectives of the study
- General objective: Applying CAMELS model in the analysis of financial capacity of Vietnam International Commercial Joint Stock Bank (VIB)
+ Provide a theoretical background about the financial capacity of commercial banks, as well as the criteria to approach using CAMELS model
This article utilizes the CAMELS model to evaluate the financial performance of Vietnam International Commercial Joint Stock Bank (VIB) in recent years, offering valuable insights for both the bank's management and potential investors.
+ Propose solutions, suggestions in order to increase the financial capacity of the bank, and overcome the drawbacks.
Subject of the study
The financial capacity of Vietnam International Commercial Joint Stock Bank (VIB)
Scope of the study
- Space: Vietnam International Commercial Joint Stock Bank (VIB)
- Time: The period of 3 years from 2020 to 2022
Methodology
The main method applied to analyze VIB ‘s performance is CAMELS model with criteria belonging to 6 fields: Capital Adequacy (C), Asset Quality (A), Management (M), Earning (E), Liquidity (L), Sensitivity to Market Risk (S)
To calculate the necessary criteria, the author gathers information from Audited Consolidated Financial Statements, Basel II capital adequacy ratio disclosures as per circular no 41/2016/TT-NHNN, and Annual Reports of VIB from 2020 to 2022 Utilizing this data, the author categorizes it into six fields, subsequently calculating the criteria and employing traditional methods for a clearer analysis of fluctuations and scope.
Comparative method: Apply comparison in vertical and horizontal ways in a 3-year period to see the change in criteria through years Then, assessment can be made as positive or negative
The CAMELS model employs specific criteria, rates, and ratios for each field to effectively assess performance and identify potential issues By analyzing these ratios in relation to international standards and domestic regulations, one can derive accurate insights into the financial health of an institution.
The Dupont method is primarily utilized to analyze a bank's Return on Equity (ROE) and Return on Assets (ROA) ratios By examining the components of these ratios, this method offers a precise understanding of ROE and ROA, which are crucial indicators of a bank's financial performance.
Thesis structure
Besides the introduction, conclusion and references, the content of the thesis is divided 3 parts:
THEORETICAL BASIS ON THE ANALYSIS OF FINANCIAL
Overview of the financial capacity of commercial banks
1.1.1 Concept of financial capacity of commercial bank
A business's competitive advantage is crucial for its stability in the market As noted by Hoang Ngoc Hai (2013), the competitiveness of commercial banks stems from their ability to maintain and enhance existing advantages, thereby strengthening market share, boosting profitability, and ensuring resilience against adverse business environment fluctuations He identifies five key components of commercial bank competitiveness, with financial capacity being the most significant factor influencing bank performance.
In her 2013 work, Phan Thi Hang Nga defines the financial capacity of Vietnamese commercial banks as "the ability of banks to carry out and develop business activities in a timely and effective manner." However, this definition remains broad, lacking clarity on the sources of commercial banks' finances and the metrics for evaluating the effectiveness of their business operations.
In the research topic "Improving the Financial Capacity of Joint Stock Commercial Banks in Vietnam Today," author La Thi Lam defines the financial capacity of commercial banks as their ability to generate and utilize capital to effectively meet the demands of their business activities and achieve set objectives This definition emphasizes that the financial challenges faced by banks stem from their capital creation processes, which are essential for responding to business needs Additionally, La Thi Lam differentiates her perspective by highlighting that the use of financial resources extends beyond merely facilitating business operations, as noted by author Phan Thi Hang Nga, to encompass achieving broader goals established by the banks themselves.
The financial capacity of commercial banks refers to their ability to generate and utilize capital effectively to achieve their business objectives and strategies This definition emphasizes the importance of profit generation and long-term risk management, reflecting a comprehensive understanding of the processes involved in defining this concept It integrates insights from various definitions and considers the unique characteristics of commercial banks.
1.1.2 Factors affecting the financial capacity of commercial banks
Demography is the scientific study of populations, focusing on key aspects like size, distribution, age, gender, and occupational race These demographic factors play a crucial role for banks in developing effective business strategies, including decisions on branch locations and the design of tailored products for specific customer segments Additionally, understanding the political and regulatory environment is essential for navigating the complexities of the banking industry.
Government policies and legal frameworks significantly impact the economy and the banking system's operations A stable government, along with a synchronized and comprehensive regulatory system, fosters a secure environment for banks to conduct domestic and international transactions, ultimately enhancing their business performance.
The economic environment significantly influences the performance of commercial banks, with key indicators including GDP, GNP, BOP, CPI, inflation rates, and interest rates Changes in this environment present both challenges and opportunities for banking operations Additionally, the social and cultural environment plays a crucial role in shaping the banking landscape.
Cultural integration and exchange can drive significant changes; however, a deep understanding of local cultures and societies enables banks to effectively strategize and create tailored products and services for specific regions.
The rapid advancement of science and technology in areas such as machinery, equipment, and telecommunications is driving banks to swiftly adopt these innovations This proactive approach not only helps banks gain a competitive edge but also reduces operational costs and enhances revenue by improving the user experience Additionally, these developments are essential for fostering a sustainable natural environment.
Natural disasters and epidemics significantly influence the economy and, in turn, the policies and operations of banking systems A prime example is the Covid-19 pandemic, which has profoundly affected global economies by disrupting imports and exports, leading to strict controls and reduced growth rates across many countries, ultimately impacting the operations of individual banks.
The internal factors significantly influencing a bank's business performance include financial capacity, management skills, staff qualifications, and the ability to adapt to market fluctuations A bank that excels in these areas can maintain stable operations, attract more customers, and enhance its growth rate Additionally, the effectiveness of the bank's support units plays a crucial role in its overall success.
Banks rely on support units to guarantee activities like marketing, technical means, and transportation, which they cannot ensure independently This collaboration allows banks to operate smoothly and consistently, ultimately enhancing their business efficiency and benefiting customers.
The bank's microenvironment is crucial, as it primarily relies on mobilizing capital from customers for its funding Its revenue largely stems from credit activities, acting as an intermediary that connects capital owners with those in need within the economy Understanding customer needs, preferences, habits, and behaviors is essential for effective service delivery.
9 information about customers is the key for a bank or any business to build a right business strategy, improve business efficiency d) Competitors (Potential, Existed)
Commercial banks face competition not only from domestic rivals but also from foreign banks and credit institutions The ongoing struggle for market share necessitates a deep understanding of competitors, enabling banks to proactively develop strategies and enhance their organizational structure As the saying goes, "One hundred battles, one hundred wins."
ANALYZING FINANCIAL CAPACITY OF VIETNAM
Overview of VIB
Table 2.1 General information about VIB
Full name of bank VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK
Headquarter Sailing Tower, 111A Pasteur, Ben Nghe Ward, District 1, Ho Chi
Website www.vib.com.vn
Branches scale VIB have 1 headquarter and 177 branches and 1 subsidiary company(VIB AMC), operate in key 28 Vietnamese cities/provinces across the country with about 10,200 employees, served around 4.5 millions customers (2022)
Other information - In 2022, VIB ranked 10th in TOP 10 biggest banks in terms of total assets, total equity, and total charter capital
- By 31/12/2022, VIB’s charter capital reached over 21,076 billion VND, total assets was more than 343,000 billion VND and total equity equal to 32,651 billion VND
Source: Annual Report of VIB in 2022 and https://www.vib.com.vn/
VIB, one of Vietnam's largest and oldest commercial banks, has experienced nearly 27 years of sustainable growth despite economic challenges Following a decade-long transformation, VIB has established itself as a leading bank known for its strong financial capacity and commitment to social responsibility, reinforcing its reputation in the banking sector.
To get to success today, VIB has gone through a lot of difficulties with constant effort over time:
In the year of 1996, the bank was established with starting charter capital equal to 50 billion VND and only 23 employees
In 2009, VIB entered a strategic partnership with the Commonwealth Bank of Australia (CBA), leading to an increase in charter capital to 3,000 billion VND This collaboration initiated a five-year Business Development Strategy focused on rebranding, spanning from 2009 to 2013.
In 2010, the Commonwealth Bank of Australia (CBA) became a strategic shareholder of VIB, acquiring a 15% ownership stake and boosting charter capital to 4000 billion VND With over 100 years of banking experience, CBA is recognized as a leading retail commercial bank in Australia and globally This partnership marked a significant milestone for VIB, enabling the bank to implement successful long-term business strategies, particularly in enhancing customer service quality to meet international standards.
After 1 year of cooperation, on 20 November 2011, CBA completed investing 1,150 billion VND more into VIB, with purposes of strengthening the core capital ground, increasing capital adequacy ratio, opening business opportunities and operation scale for VIB
In 2014, VIB was ranked by Moody's Investors Service (MIS) as one of two banks that had the highest financial strength index among commercial banks in Vietnam
From 2016 to 2018, VIB's shares were traded on the UPCoM centralized transaction market In September 2017, CBA successfully transitioned all operations from its Ho Chi Minh City branch to VIB Additionally, VIB became the first joint-stock commercial bank in Vietnam to meet the standards for implementing BASEL II, as outlined in Circular No 41/2016/TT-NHNN.
In 2019, VIB achieved a significant milestone by becoming the first Vietnamese bank to fulfill all three pillars of BASEL II, in accordance with Circular No 41/TT-NHNN and Circular 13/2018/TT-NHNN, which include Capital Adequacy Ratio (CAR), Internal Capital Adequacy Assessment Process (ICAAP), and Information Disclosure standards The following year, VIB marked its presence in the financial market by officially listing nearly 1 billion shares on the Ho Chi Minh Stock Exchange (HOSE).
25 and became one of the first banks in Vietnam taking the trial experiment in applying BASEL III liquidity risk management standards
In 2022, VIB increased the charter capital to 21,076 billion VND and VIB stock was in VN30 - TOP 30 stocks that have highest market capital and liquidity value on HOSE
VIB, a leader in business reorganization, is enhancing its capital management and utilization while expanding its network and product offerings through various distribution channels This strategic focus aims to deliver comprehensive financial solutions tailored to target customers and improve service quality for an exceptional customer experience.
Figure 2.1 Organizational structure of VIB in 2022
Sources: Annual Report of VIB in 2022
From 2020 to 2022, the organizational structure of VIB has remained largely unchanged At the top is the General Meeting of Shareholders, which holds the highest authority over the bank's operations as per legal regulations and VIB's internal rules Below this is the Board of Directors, responsible for decision-making and representing VIB, except for matters reserved for the General Meeting of Shareholders The Board also bears primary responsibility for the bank's business outcomes and risk management, overseeing the CEO and the Executive Board of Directors.
The Board of Directors of VIB comprises five members elected by the General Meeting of Shareholders, serving a four-year term The members appointed to VIB's Board during the 2019-2022 period were selected as follows.
Table 2.2 Members of The Board of Directors of VIB from 2019 - 2022
Mr Dang Khac Vy Chairman
Mr Dang Van Son Vice Chairman
Mr Han Ngoc Vu Member
Mr Do Xuan Hoang Member
Mr Nguyen Viet Cuong Independent Member
Source: Annual Report of VIB in 2022
VPBank's organizational structure includes various departments supported by a network of branches and transaction offices in local areas, which collectively enhance operational efficiency and contribute to the bank's rapid stabilization and growth.
Table 2.3 Visions, missions and values of VIB
Visions To be the most innovative and customer-centric bank of
Missions For customers Superior in providing creative solutions in order to satisfy the highest demand of the customers
For employees Form an effective culture, entrepreneur spirit and effective working environment
For shareholders Bring attractive and sustainable values for the shareholders
For society Actively contribute to community development
Sources: Annual Report of VIB in 2022
2.1.4 Overview of the business of VIB in the period of 2020-2022
The author uses PEST to evaluate how the external factors affect VIB’s operation PEST has 3 main factors: Political, Economic, Society, and Technology
On June 16, 2010, the National Assembly of Vietnam enacted the Law on Credit Institutions No 47/2010/QH12, which came into effect on January 1, 2011, in accordance with the Constitution of the Socialist Republic of Vietnam This law mandates that all activities of commercial banks must adhere to its provisions.
The State Bank of Vietnam (SBV) has introduced several important regulations concerning financial research, including Circulars No 41/2016/TT-NHNN, No 52/2018/TT-NHNN, No 22/2019/TT-NHNN, and No 11/2021/TT-NHNN VIB utilizes Circular No 41/2016/TT-NHNN for calculating the Capital Adequacy Ratio (CAR) and adheres to Circular No 22/2019/TT-NHNN for other safety ratios.
In response to the COVID-19 pandemic that began in early 2020, many individuals struggled to meet their bank debt obligations Recognizing the economic and social challenges, the State Bank of Vietnam (SBV) issued Circular No 01/2020/TT/NHNN and Circular No 03/2021/TT-NHNN, which directed commercial banks to restructure and reschedule debts, maintain debt classifications, and reduce fees and interest rates for affected customers VIB has been at the forefront of implementing these measures, fully adopting Circular No 01/2020/TT/NHNN from its announcement until May 17th.
2021 Then, after May 17th 2021, VIB applied Circular No.03/2021/TT-NHNN and No.14/2021/TT-NHNN to support the people suffering difficulties in COVID-19
In 2020, the COVID-19 pandemic and the devastating floods in Central Vietnam significantly impacted the economy In response, the State Bank of Vietnam (SBV) implemented various credit solutions, including an expansion of the credit room, to support the banking sector and help commercial banks meet their growth objectives Among these banks, VIB benefited from substantial credit easing measures.
The outstanding loans saw a significant increase, supported by a collective effort across the system, with a growth rate of 12.7% This growth contributed 2.91% to the country's GDP, marking it as one of the highest growth rates globally, ranging from 8.5% to 12.5%.
Analyzing financial capacity of VIB by CAMELS model
This section will analyze VIB's financial capacity using the CAMELS model, employing both vertical and horizontal comparison methodologies For the horizontal comparison, VIB will be evaluated alongside two comparable joint-stock commercial banks, Asia Commercial Joint Stock Bank (ACB) and Tien Phong Commercial Joint Stock Bank (TPB) These banks were selected due to their similarities in size, business model, and overall status within the banking system, as all three are leading retail commercial banks in Vietnam.
Table 2.7 Owners’ equity scale and the components of VIB from 2020 - 2022
Reserves 1,253 -51.68% 1,787 42.62% 2,518 40.91% Retained Earnings 5,626 253.84% 6,971 23.91% 9,055 29.90% Owner’s equity 17,973 33.84% 24,290 35.15% 32,651 34.42%
Sources: Financial Statements of VIB 2020 - 2022 and Author’s own calculation
VIB’s total equity scale in the period from 2020 - 2022 increased rapidly The growth rate was from 34% to 35% on average per year
Figure 2.5 Owner’s equity structure of VIB from 2020 - 2022
Sources: Financial Statements of VIB 2020 - 2022 and Author’s own calculation
As we can easily see in the chart, the charter capital of VIB from 2020 - 2022 always accounted for the biggest portion in the total equity In the 3 years from 2020-
In 2022, the bank rapidly increased its capital to support investment projects in technology systems, networks, and credit extension, ensuring compliance with the capital adequacy ratio mandated by law Additionally, the implementation of the Employee Stock Ownership Plan (ESOP) aims to cultivate and retain a skilled workforce, enhancing the bank's operational efficiency and business performance.
Reserves and Retained Earnings significantly contribute to owners' equity, showing substantial growth over the years Notably, Retained Earnings surged nearly 30% in 2022 compared to 2021, indicating sustainable growth driven by increased undistributed profits This growth allows VIB to operate more flexibly, providing a robust equity base that acts as a safeguard against potential risks, ensuring the bank's safety The remarkable rise in Retained Earnings in 2020, exceeding 200% compared to 2019, set a strong foundation for the ongoing development of this vital component of owners' equity.
36 next years’s growth were no longer that high like 2020, they were still high and stable, with an increasing trend over years
The capital adequacy ratio (CAR) calculated under the BASEL II standard is typically lower than that determined by Circular No 41/2016/TT-NHNN, as BASEL II includes a broader range of risk-adjusted assets Consequently, if VIB's CAR complies with BASEL II requirements, it will also satisfy the criteria set forth by the Vietnam State Bank's Circular No 41/2016/TT-NHNN.
Figure 2.6 Capital adequacy ratio (BASEL II standard) of VIB and other joint- stock commercial banks
*Joint-stock commercial banks (Group of banks applied Circular 41/2016/TT-NHNN) Sources: Annual Report of VIB, ACB, TPB and Annual Report of SBV 2020 - 2022
Between 2020 and 2022, VIB maintained a Capital Adequacy Ratio (CAR) exceeding 9.5%, significantly above the State Bank of Vietnam's standard of 8% This robust growth positioned VIB among the top commercial banks in Vietnam, reflecting a strong capital safety that supports its business operations While VIB's CAR was lower than two comparable banks during 2020-2021, indicating a reduced risk coverage, it improved in 2022 by surpassing TPBank and matching ACB's CAR.
37 a result of the continuous effort of VIB to increase the core capital, to get a higher growth rate of core capital than risk-weighted assets
Table 2.8 Capital Adequacy Level of VIB
Unit: billion VND 2019 Growth rate 2019-2020
Sources: Author’s own calculation and Basel II capital adequacy ratio disclosure pursuant to the circular no.41/2016/TT-NHNN of VIB from 2019 - 2021
VIB not only boasts a high Capital Adequacy Ratio (CAR) but also maintains an impressive Tier-1 CAR of 9.85%, which is 2.46 times the BASEL II standard of 4% As a leader in adopting international banking standards, VIB takes pride in being the first commercial bank in Vietnam to fully implement all three pillars of BASEL II.
On November 28, 2018, VIB was authorized to implement Circular No 41/2016/TT-NHNN, aligning with BASEL II requirements The bank has published all relevant circulars regarding capital adequacy, providing essential ratios for investment and management assessments, including Tier-1 capital, Tier-2 capital, deductions, and total risk-weighted assets This information serves as a foundation for a deeper analysis of the factors contributing to VIB's rapid growth in Capital Adequacy Ratio (CAR).
The rapid increase in VIB's Capital Adequacy Ratio (CAR) and Tier-1 CAR can be attributed to significant growth in Tier-1 and core capital, which rose by 35.54% and 44.71% respectively between 2020 and 2021 In contrast, the growth rate of total risk-weighted assets was only 24.95% Notably, the core capital surged by 6,387 billion VND in 2021, significantly enhancing the Common Equity Tier 1 (CET1) capital, which exceeded the minimum required capital of 19,785 billion VND for that year.
Table 2.9 Financial Leverage Ratio of VIB from 2020 - 2022
Source: Financial statements of VIB 2020 - 2022 and author’s own calculation
VIB has experienced a consistent increase in leverage over the years, with total assets and equity growth remaining robust even during the COVID-19 pandemic Notably, from 2021 to 2022, the leverage ratio rose significantly from 7.85 to 9.52, driven by a higher growth rate of assets compared to equity This growth is largely attributed to the rapid increase in liabilities, primarily from deposits, reflecting the trust of Vietnamese citizens in VIB While the financial leverage ratio remains at a safe level for a commercial bank, it suggests that VIB has not fully optimized its leverage potential By leveraging more effectively, VIB could enhance profitability, although this would also introduce liquidity risks related to customer withdrawals in the future.
Figure 2.7 Financial Leverage Ratio of VIB, ACB, TPB from 2020 – 2022
Source: Financial statements of VIB, ACB, TPB 2020 - 2022 and author’s own calculation
In comparison to similarly sized banks ACB and TPB, VIB has consistently maintained a lower financial leverage over the past three years This indicates that ACB and TPB have effectively utilized financial leverage, albeit with increased risk However, in 2022, VIB experienced significant growth in its leverage ratio, nearly matching that of its competitors This strategic move positions VIB to harness financial leverage more effectively, aiming for enhanced business results in the coming years.
Table 2.10 Asset structure of VIB from 2020 - 2022
Cash, gold and silver, precious stones
Placements at and loans to other credit institutions
Loans, advances and finance leases to customers
Capital contribution and other long-term investments
Source: Financial statements of VIB 2020 - 2022 and author’s own calculation
Despite fluctuations in individual asset items, the overall proportions remained stable Highly liquid assets, including cash, gold, silver, precious stones, and balances with the State Bank of Vietnam, were kept at moderate levels to ensure VIB's short-term liquidity The bank's asset size has shown consistent growth, increasing from 244,676 billion VND in 2020 to 342,799 billion VND in 2022, reflecting a 40% rise over two years Additionally, VIB has focused on maintaining a high proportion of earning assets, exceeding 95% of its total assets, to enhance the asset utility ratio (AU).
Figure 2.8 Customer loans (without Provision for loan losses)
Sources: Balance Sheet of VIB 2020 - 2022 + Author’s own calculation
Between 2020 and 2022, loans to customers represented the largest segment of VIB's asset structure, consistently accounting for over 64% of the bank's total assets and driving the majority of its profits.
The growth rate of customer loans (excluding provisions) at VIB has shown a declining trend over time In 2020, the rates peaked during the initial phase of the new business transformation, highlighting the effectiveness of the transformation efforts.
Despite the challenges posed by the COVID-19 pandemic, VIB demonstrated remarkable resilience with a growth rate of 15% in 2022, outpacing many similarly sized commercial banks This growth can be attributed to VIB's strategic focus on individuals, households, and SMEs, particularly in the car loan sector, where it holds the largest market share in Vietnam This targeted approach has effectively sustained a robust customer loan growth rate, driving strong overall credit growth for the bank.
Figure 2.9 Customer loans growth (without Provision for loan losses) of VIB,
Sources: Annual Reports of VIB, ACB, TPB (2020 - 2022) b) Placements at and loans to other credit institutions
Over the past three years, "Placements at and loans to other credit institutions" have significantly increased, positioning it as the second-largest component of VIB's asset structure This upward trend indicates VIB's growing engagement in the interbank market Additionally, VIB has focused on maintaining its liquidity, evidenced by a gradual decrease in its balances with the State Bank of Vietnam.
STRATEGIC ORIENTATION AND PROPOSED SOLUTIONS
The strategic orientation of the bank in the next years
3.1.1 Long-term orientation (second phase of the 10-year transformation)
After five successful years of transformation, VIB has established a solid foundation for remarkable growth across various metrics The bank aims to achieve significant long-term goals by the conclusion of this journey.
By 2026, the company aims to achieve a customer base of 10 million individuals, maintain a compound annual growth rate (CAGR) of 30% per year, and significantly enhance market capitalization to ensure robust growth for shareholders.
In order to get to the targets, VIB had setted 7 strategic orientation for 2022 -
(2) Innovative and personalized solutions for customers and partners
(4) Developing the human capital in VIB
(6) Leading in the application of international standards
(7) Strong risk management and compliance
In 2023, VIB has established a short-term business plan aligned with their expectations and current market realities, aiming for a 25% growth rate in both assets and credits, 26.2% in funding, and a 15.3% increase in profit after taxes Consistent with previous years and the requirements set by the State Bank of Vietnam (SBV), VIB also targets a bad debt rate of less than 3%.
Table 2.29 Business plan for 2023 of VIB
Units: billion VND Plan 2023 % Growth compared to 2022
Sources: Annual Report of VIB 2022
This plan aligns with VIB's strategic direction, effectively motivating employees to perform at their best while ensuring sustainability for the bank during challenging economic conditions.
Solutions
From the limitations found above, there are some solutions will be propose to solve the weakness, and enhance the financial capacity of Vietnam International Commercial Joint Stock Bank:
Despite VIB's Capital Adequacy Ratio (CAR) consistently meeting State Bank of Vietnam (SBV) standards, it remains crucial for VIB to focus on this area The most effective strategy for enhancing VIB's CAR is to boost its core capital, achievable through two primary methods.
To enhance retained earnings, VIB can utilize this funding source without incurring additional capital costs, ensuring safety However, this strategy may impact the dividend ratio, potentially undermining shareholder trust In 2022, VIB's planned dividend distribution of 35% was notably high compared to other commercial banks Consequently, it is crucial for VIB to meticulously calculate a balanced proportion of retained earnings to retain, thereby strengthening its equity.
In 2022, VIB approved a plan to raise its charter capital to 25,368 billion VND, reflecting a 20.36% increase from the previous level While issuing more shares can effectively boost capital, it also introduces costs and potential dilution for existing shareholders Therefore, VIB must devise a strategy that carefully balances shareholder interests with the associated expenses.
Besides, VIB also needs to increase the funding, especially the current deposit
VIB's focus on increasing its CASA (Current Account Savings Account) capital is set to optimize capital costs, reduce interest expenses, and enhance Net Interest Income By prioritizing the development of digital products, VIB aims to improve customer experiences, particularly targeting young customers who actively seek modern banking solutions like payment services Additionally, VIB's successful marketing strategy, exemplified by its sponsorship of the popular TV show "The Masked Singer" in 2022, has significantly elevated the bank's brand visibility and trust among potential customers.
VIB is actively seeking foreign investors to enhance its capital diversification strategy By broadening its capital sources, the bank aims to reduce reliance on a single funding stream, thereby mitigating potential risks associated with financial disruptions.
VIB should focus on adjusting its credit structure by reducing long-term loans and increasing short-term loans This can be achieved by developing a portfolio of short-term products tailored to specific customer segments Additionally, the bank must train its employees to understand this strategic orientation, enabling them to efficiently deliver these products to customers.
Secondly , VIB should balance the credit growth in terms of scale and in terms of quality
To address overdue and bad debts, banks must first identify the underlying reasons for these issues and evaluate any signs of potential recovery They should categorize the debts into two groups: those with a chance of recovery and those without For debts deemed recoverable, banks can offer support to customers by extending payment periods or waiving fees and interest, in accordance with SBV regulations Close supervision of loan usage and the likelihood of repayment is crucial to safeguard the bank's interests Conversely, for debts with no recovery potential, a different strategy must be employed.
The bank must promptly inform customers about their debt situation to facilitate necessary preparations regarding documentation and mindset Following this, the bank will conduct a thorough review of the debts, assess collateral, and manage documentation with relevant authorities Customer cooperation is essential throughout this process to ensure a smooth resolution.
To mitigate potential overdue bad debts, VIB must enhance its oversight of credit activities by thoroughly inspecting all stages of the credit process—before, during, and after borrowing This proactive approach will enable the timely identification of risks and the implementation of necessary measures Additionally, VIB should conduct regular checks to ensure that customers are utilizing funds for their intended purposes, requiring staff reports to maintain safety and integrity while allowing for immediate action in case of violations Recognizing that many credit risks arise from employee qualifications and ethics, VIB's leadership should prioritize training programs to enhance the professional skills and ethical standards of credit officers and appraisal staff, as the success of VIB relies on having a competent workforce.
VIB should enhance its infrastructure and automate electronic products to facilitate online transactions Streamlining administrative procedures will ensure safety and efficiency for customers, fostering positive perceptions of the bank's offerings Regular customer satisfaction surveys—conducted through assessment machines at transaction counters or via online channels—will provide valuable feedback By leveraging customer insights, the bank can develop tailored products that align with future demands Ultimately, customer satisfaction and trust are crucial for establishing a strong reputation in the banking sector.
VIB should enhance its credit granting process by implementing stricter regulations This includes prohibiting third-party assistance in completing credit applications, ensuring that all documents and signatures are exclusively provided by the customer.
To enhance credit monitoring post-loan approval, leaders should implement a quarterly check-in process, where department heads or credit officers contact customers to review their loan details and collateral assets This proactive approach not only helps in monitoring the customer's business performance but also allows for the identification of any potential errors made during the credit granting process.
VIB must effectively implement a comprehensive 3-layer defense model for risk management This involves consistent monitoring and evaluation to enhance the internal control system, refine policy mechanisms, and optimize application control programs By doing so, VIB can ensure early detection of non-compliance errors and timely prevention of potential issues.
To enhance communication and decision-making, it is essential to organize regular meetings—weekly, monthly, or periodically—across different levels and business units These meetings facilitate the exchange of information and provide managers with timely insights into the current situation, enabling them to develop effective plans and strategies that maximize future benefits.
VIB is experiencing rapid growth in its employee scale, indicating positive development for the bank However, it is crucial for VIB to prioritize the quality of its workforce To rejuvenate its employee organization, VIB should focus on recruiting young, talented individuals and enhance training programs, particularly in the credit sector.
Recommendations
3.3.1 For The Government of Vietnam
Despite the economic challenges posed by the pandemic in 2020 and 2021, Vietnam has emerged as one of the few countries to achieve positive economic growth, largely due to effective disease control measures The banking sector plays a crucial role in the nation's economic framework, benefiting from a stable economy and strong government management of the State Bank of Vietnam (SBV) As the country enters a new economic phase, it is essential for the banking industry, particularly VIB, to continue its growth trajectory To facilitate this, the author recommends specific strategies for the Government to consider.
In 2022, the economy experienced an unexpected growth rate of 8.02% For 2023, the government aims to stabilize the macroeconomy, targeting a 4% inflation rate and an increasing average CPI growth rate The GDP growth rate is projected to reach 6.5%, with a focus on enhancing foreign direct investment (FDI) As the epidemic situation improves, the growth rate from 2022 to 2025 is anticipated to range between 6.8% and 7%.
The Government needs to accelerate the development of national, regional and provincial plans according to the Law in order to develop a balanced and sustainable economy
The government must prioritize support for households and small to medium-sized enterprises (SMEs), which are vital for economic growth Additionally, reforming and restructuring state-owned enterprises, along with accelerating their equitization, is essential to enhance the effectiveness of the state economic sector.
3.3.2 For The State Bank of Vietnam
The State Bank is crucial in overseeing the entire banking system, meaning that any changes in its policies and regulations significantly impact the banking sector as a whole and specifically affect VIB.
Some recommendations to the State Bank to ensure the development of the whole banking system and VIB in particular:
In the post-COVID era, effective epidemic prevention has led to a significant increase in the money supply within the country Consequently, the State Bank must adopt a flexible monetary policy to stabilize interest rates and control inflation while ensuring that economic growth remains low and stable.
The SBV must focus on stabilizing the money and foreign exchange markets, maintaining a stable exchange rate, and increasing foreign exchange reserves Additionally, it should ensure a balanced double-ended interest rate to support exporters and the manufacturing sector, aiding the private economic zone during challenging times while still allowing banks to remain profitable.
The State Bank of Vietnam (SBV) must prioritize the safety of banking operations by proactively preventing potential crises that could jeopardize the financial system This involves enhancing inspection and supervision while ensuring the effective implementation of relevant policies and circulars.
The State Bank of Vietnam (SBV) must streamline its circular system by promptly issuing, amending, and supplementing regulations to avoid errors similar to those in Circular 39 and Circular 43/2016 Additionally, these revisions should be aligned with the current economic conditions and timelines to ensure relevance and effectiveness.
In light of the evaluation and identified limitations of VIB discussed in Chapter 2, the author presents several solutions aimed at enhancing the bank's financial capacity These recommendations not only address the criteria VIB has yet to fulfill but also build upon the achievements attained during the study period, enabling VIB to pursue both short-term and long-term objectives Additionally, the author proposes measures for the government and the State Bank of Vietnam to create a conducive environment for the growth and sustainability of Vietnamese commercial banks, particularly VIB.
Financial capacity is vital for the survival and growth of commercial banks, prompting a widespread inquiry into strategies for enhancement In the wake of the pandemic's severe impact, banks are engaged in intense competition to attract quality customers and achieve higher profitability.
The CAMELS model was utilized to thoroughly analyze the business performance and financial capacity of Vietnam International Commercial Joint Stock Bank (VIB) from 2020 to 2022, highlighting both its achievements and limitations This analysis provides insights into VIB's strengths to build upon and weaknesses to address, ultimately aimed at enhancing its financial capabilities Through the collective efforts of VIB's organization and a strong technological foundation, the bank has positioned itself among the top ten banks in Vietnam in terms of asset and equity scale by 2022, while adhering to the State Bank of Vietnam's regulations on liquidity, capital adequacy, and asset management.
As one of Vietnam's leading joint-stock commercial banks, VIB plays a crucial role in ensuring stability within the banking sector and contributing to the overall economic growth of the country With a well-structured strategic transformation plan set for a decade (2017-2027), VIB is positioned to enhance its performance and impact on the financial landscape.
2026), and the outstanding success of the first phase (2017 - 2021), the author believed that VIB will accomplish the planned targets, maintain and balance both growth in profitability efficiency and risk management
[4] Audited Consolidated Financial Statements of VIB 2020 - 2022
[5] BASEL II CAPITAL ADEQUACY RATIO DISCLOSURE PURSUANT TO THE CIRCULAR NO.41/2016/TT-NHNN of VIB 2019 - 2021