MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMIC UNIVERSITY Do Thi To Quyen INVESTMENT IN ENHANCING COMPETITIVE CAPACITY AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNA
Trang 1MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMIC UNIVERSITY
Do Thi To Quyen
INVESTMENT IN ENHANCING COMPETITIVE CAPACITY
AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF
VIETNAM
Speciality: Development Economics (Investment Economics)
Code: 62.31.05.01
SUMMARY OF ECONOMIC DOCTORAL THESIS
Hanoi, 2014
Trang 2This work has been completed at: National Economic University
Instructor:
1 Prof Dr Tran Tho Dat 2 Asso.Prof.Dr Nguyen Bach Nguyet
Judge 1: Asso.Prof.Dr Dao Van Hung
Judge 2: Asso.Prof.Dr Trinh Thi Mai Hoa
Judge 3: Dr Le Thanh Tam
The Thesis shall be defended in front of the State level Thesis Assessment Council held at:
National Economic University, No 207 Giai Phong, Hai Ba Trung, Ha Noi
At on
The Thesis can be found in the library of:
Trang 3PREFACE
1 The imperativeness of the Subject
The effectiveness and stability in the system of commercial banks in Vietnam are under immense pressure after going through the economic recession At the same time, they have to face increasing greater challenges in the open financial market Therefore, the competitive capacity of domestic commercial banks should be re-evaluated carefully from both theoretical and practical aspects
Joint Stock Commercial Bank for Foreign Trade of Viet Nam (VCB) is one of the major banks and holds significant market shares in key products, but it still have
to compete intensely against others and is at risk of a decline in market shares Hence, enhancing its competitive capacity is an urgent requirement for VCB
The solutions often proposed to raise the competitive capacity for VCB are building a business plan, developing the financial potential, modernizing technology, diversifying products, and enhancing customer service quality, boosting promotional campaigns and branding… However, these solutions need investment to be carried out Therefore, investing in enhancing competitive capacity is considered the basic and essential task for VCB The issue arising to VCB is how to build the investment strategy, mobilize and allocate capital into the appropriate assets and fields… to bring the most probable effects to VCB’s competitive capacity
VCB, the pioneer in the banking system as well as a typical bank that not only represents the state-owned bank but also carries new features of a joint stock bank, is
an adequate and active example to do research on the issue of investing to enhance the competitive capacity For this reason, I choose the subject of “Investment in enhancing competitive capacity at Joint Stock Commercial Bank for Foreign Trade of Vietnam” for my doctoral thesis
Lê Đình Hạc, doctoral thesis “Competitive capacity enhancement of commercial joint stock banks in Ho Chi Minh City in the context of integration” of Đoàn Đỉnh Lam… Those researches only focus on describing and evaluating factors in competitive capacity However, the origin of those factors were not analysed and quantified specifically and scientifically Those researches, thus, do not point out the role of
Trang 4investment in enhancing the banks’ competitive capacity but just indirectly mention it while investment is the origin of many factors in competitive capacity
Foreign researches: The research of Professor Michael Poter is outstanding one about competitive capacity It can be applied to all levels and sectors However, his research is highly level It should have flexible uses when applying to a certain subject and role of investment has not also been studied directly in his research Therefore, this thesis focuses on investment in enhancing banks’ competitive capacity It includes analysis and evaluation investment in enhancing bank’s competitive capacity through specific and typical figures of VCB, building the criteria for result and effect evaluation of these operations, proposal of the solutions for investment in enhancing competitive capacity to bring the hightest effect to VCB
3 Research objectives
- Developing and systemizing the theoretical issues in terms of investment in enhancing competitive capacity at commercial banks
- Through theory and practice, confirming a extremely critical role of investment
in enhancing competitive capacity for development of them in general and VCB in particularly Depending on each period, development strategy, competition strategy and characteristics, banks implement appropriate investments
- Finding out the solutions for investment inenhancing competitive capacity to bring the highest effect to VCB
4 Research subjects and scope
The research subjects are investment in enhancing VCB’s competitive capacity, results and effects gained from these operations The research scope is investment in enhancing VCB’s competitive capacity in the last period (mainly 2005-2012)
5 Method for research
Many scientific methods including analysis, synthesis, comparison, statistics,
mathematics, logical deduction, etc are applied in this thesis In addition, the thesis
combines description and analysis of the actual data to evaluate investment in
enhancing VCB’s competitive capacityin the quantitative and qualitative manner
6 New scientific contributions of the thesis
- In theories: The thesis develops theoretical issues regarding to investment in
enhancing banks’ competitive capacity systematically Concepts, characteristics, roles, influencing factors of these operations are associated with characteristics of commercial banks The thesis shows that operations of investment in enhancing banks’ competitive capacity depends on competition strategy, competitive tool the bank uses at each period For this reason, competition strategy also influences capital mobilization and structure of capital For purpose of showing close relationship between investment and banks’ competitive capacity at the same time evaluating effect of these operations, the thesis builds process of investment in enhancing banks’ competitive capacity, critera for results and effects of investment in enhancing banks’
Trang 5competitive capacity, including direct and indirect criteria, qualitative and quantitative criteria
- In practice: The actual situation of investment in enhancing competitive
capacity at VCB is summarized and assessed by applying theories and practice on multiple angles With the current characteristics, competitive position, the thesis points out that investment in enhancing VCB’s competitive capacity should attach special importance to improvement of technology, human resource and development brand and sales promotion In the last time, structure of investment in enhancing competitive capacity at VCB was not irrational because investment has not been made right in the main points The mobilization of capital with methods in accordance with VCB, management and supervision investment on the process, strategies also are the critical factors By calculating criteria, the thesis shows that investment in VCB’s competitive capacity makes a positive impact on competitive capacity; but there still exists some limitations Based on analysis of limitations, causes, the thesis puts forward the practical solutions to promote effect of investment
in enhancing VCB’s competitive capacity
7 Structure of the thesis
Besides introduction, conclusion, the thesis consists of the following three chapters:
Chapter 1: Basic contents of investment in enhancing competitive capacity at commercial banks
Chapter 2: The actual situation of investment in enhancing competitive capacity
at Joint Stock Commercial Bank for Foreign Trade of Viet Nam
Chapter 3: Some solution of improving investment in enhancing competitive capacity at Joint Stock Commercial Bank for Foreign Trade of Viet Nam
CHAPTER 1: BASIC CONTENTS OF INVESTMENT IN ENHANCING COMPETITIVE CAPACITY AT COMMERCIAL BANKS
1.1 Competition and competitive capacity of commercial banks
1.1.1 Overview of the commercial banks
1.1.1.1 Concept and functions of commercial banks
The commercial bank is financial institution that provides a list of the most diverse financial services, especially credits, savings, payment services and its business is for profit The commercia bank plays an important role for economy because it has the following three basic functions: financial intermediaries, creating the means of payment, payment intermediaries
1.1.1.2 Activities of commercial banks
The commercial bank is a firm that provides a list of financial services to individuals and organizations Thus, besides specific activities of a bank, the
Trang 6commercial bank is also a firm with full normal activities like other firms, including
investment in improving competitive capacity
1.1.2 Theories of competition and competitive capacity of commercial banks
1.1.2.1 Concept of competition and competitive capacity of commercial banks There are many concepts of competition and competitive capacity in the
different ranges, different angles In my opinion, competition between banks is that
the banks create and utilize the comparative advantages of supplying product and service in the same business environment to achieve the specific targets such as profits, sales or market share, enhance its position on the market in comparison with other banks
Bank’s competitive capacity is capacity the bank creates, maintains and
continuously enhances its advantages to gain higher level of product and service quality than average level and/or have ability to reduce the relative costs, allowing the bank to increase profits, market share and ensuring its operations safely, healthily Competition between banks carries many specific characteristics because the banks operate in financial services field which is sensitive and requires high stability, transparency: competing within cooperation; competing healthily; competing within the framework, regulation and supervision of the state bank through policies each period; competing under many diverse and sophisticated forms
1.1.2.2 Competitive tools in banking
Depending on business characteristics, competition strategy in each period and current competitive capacity, the bank selects the following competition tools: competition on prices; competition on products; competition on distribution system; competition on brand; competition on sales promotion programs
1.1.2.3 Critera of commercial bank’s competitive capacity
- Criteria for financial capability: scale of charter capital, equity, total assets,
profit after tax, return on total assets (ROA), return on equity (ROE), capital
adequacy ratio (CAR), non-performing loan ratio
- Criteria for operational capacity: sales, quality and market share of the products; ability to develop products and services
- Governance capacity: governance levels and monitoring capabilities of the board; response capability of the operating mechanism for market movements; quality and validity of implementing business policies and processes, processes of risk management, internal control; organizational structure; level of coordination between divisions and capability of adaptability, change of structure
- Technological capability: technological innovation ability; the level of meeting technology in supporting development of product, distribution channels, management, etc
- Staff capacity: scale, qualifications, number of trained personnel; professionalism, service attitude; rationality and effect of the labor structure
Trang 7- The capacity of the distribution channel system: a number of transaction points; distribution; the reasonableness of the distribution channel
1.2 Investment in enhancing competitive capacity at the commercial banks
1.2.1 Concept and role
Investment in enhancing competitive capacity at the commercial banks is that
the bank uses the current resources (money and other sources) to continuously enhance the competitive advantages to achieve higher level of product and service quality than average level and/or have ability to reduce the relative costs, allowing the bank to increase profits, market share, ensuring safety, health in its operations Investment in enhancing competitive capacity plays a vital role for each bank, helps the bank have competitive capacity and ability to win when competing through impacts improving the basic factors such as financial resources, operational capacity, technological capability, governance capacity, etc
1.2.2 Characteristics
- Using a large amount of capital
- Usually taking place because bank’s positions and competitive environment are changeable
- Including many operations but requiring a reasonable structure, depending on competition strategies
- Being influenced by external factors
- Taking place as process
1.2.3 Operations of investment in enhancing competitive capacity at the commercial banks
Depending on competition strategies, competition tools at each period, investment in enhancing competitive capacity may include the following operations :
Investment in infrastructure development; Investment in technology improvement; Investment in human resource qualification improvement; Investment in development brand and sale promotion
1.2.4 Investing capital for enhancing competitive capacity at commercial banks
Equity consists of: initial capital, capital formed during business such as retained earnings, funds, etc
1.2.5 Model and process of investment in enhancing competitive capacity at the commercial banks
The model expresses close relationship, continuous interaction between competitive position of the bank and investment in enhancing competitive capacity From this competitive position, through establishment of competitive strategy, the
bank will identify capital scale and make capital allocation as target Conversely,
investment in enhancing competitive capacity makes decision of competitive position
Trang 8of the bank which is result and effect of investment in enhancing competitive capacity This relationship is ongoing because of changeable position of the bank
and a process with repetitive steps including:
Step 1: Assessing the competition situation
Step 2: Building competitive strategies, strategies and plans for investment in enhancing competitive capacity
Step 3: Performing investment
Step 4: Assessing the results and effects of investment in enhancing competitive capacity
1.2.6 Criteria for result and effect of investment in enhancing competitive capacity at commercial banks
1.2.6.1 Criteria for result
Depending on the targets of investment in enhancing competitive capacity at each period, the appropriate criteria in the following system will be used when assessing the results:
(1) Group of criteria reflecting direct results:
Criterion 1: Annual increase in trained staffs (∆ĐT)
∆ĐT = ĐTi – ĐTi-1 (1.6) Criterion 2: Changes in staff structure on qualifications
Criterion (1) and (2) reflect changes in staff capacity
Criterion 3: Annual increase in number of transaction points (∆ĐGD)
∆ĐGD = ĐGDi – ĐGDi-1 (1.7) Criterion 4: Annual increase in number of automatic transaction points (ATM and POS) (∆ĐGDTĐ)
∆ĐGDTĐ = ĐGDTĐi – ĐGDTĐi-1 (1.8) (2) Criteria reflecting indirect results:
Criterion 1: Annual increase in charter capital (∆VĐL)
Criterion 5: Annual increase in profitability ratios
∆ROA = ROAi – ROAi-1 và
∆ ROE = ROEi – ROEi-1 (1.13)
Trang 9Criterion 6: Changes of capital adequacy ratio (∆CAR)
∆ CAR = CARi – CARi-1 (1.14)
Criterion 7: Changes of asset quality (∆TLNX)
∆ TLNX = TLNXi – TLNXi-1 (1.15)
Criterion 8: Changes of annual sales of main products (∆DS)
∆DS = DSi – DSi-1 (1.16) Criterion 9: Changes of annual market share of the main products (∆TP)
1.2.6.2 Criteria for effect
Criterion 1: Increased sales compared with investment capital (∆DS/Iv)
∆DS/Iv = (DSi – DSi-1)/ Ivi (1.18)
Criterion 2: Increased market share compared with investment capital (∆TP/Iv)
- Competitive strategies of the bank,
- Resources of the bank,
- Management level and experience of the leaders,
- Corporate culture and awareness of staffs,
- Policies and regulations of the State,
- Overall development of national society and economy,
- Level of competition and strategies of competing banks,
- Openness of financial markets
Identifying influencing factors enables the bank to control investments avoid passive investment with ill effect or violation of the policy, guidelines of the State on
its own initiative
1.4 Experiences of investment in enhancing competitive capacity of Banks
of China, Malaysia and lessons for Vietnam commercial banks
Lessons learned from experience of the banks of China, Malaysia are:
Trang 10- Improving capital mobilization for investment through effective channels such as: equitization, stock issuance, bond issuance into international markets
- Having strategies sticking closely on market, being flexible, not avoiding competition
- Powerfully investing in human resource and technology that is a bottom line to compete with foreign banks Investing in the staffs to limit brain drain and increase quality of customer service Investing in technology and scientific researches to develop modern banking services, wait in front of market
CHAPTER 2: SITUATION OF INVESTMENT IN ENHANCING COMPETITIVE CAPACITY AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM
2.1 The needs of investment in enhancing VCB’s competitive capacity
2.1.1 Overview of VCB
Through 50 years of operation, VCB is considered as a reputable bank in Vietnam in sectors of forex trading, import and export payment and other banking and financial services On basis of standing position of a wholesale bank and promoting retail operations, VCB has transferred from a wholesale bank into a
joint-2.1.2.2 Characteristics of business operations: VCB has changed significantly through many periods From a specialized bank, VCB transferred to multi-state commercial banks and then to commercial joint stock banks and occupied monopoly position in long time In addition, VCB is a traditional bank with strengths in the sectors of wholesale, has good relationships with many partners, international organizations; however, its retail sector has not had many strengths
2.1.2.3 Characteristics of competitive position
Trang 11Two competitive tools VCB utilizes effectively consist of product quality and price However, other competitive tools such as distribution channels, brand, sales
promotion, and promotion have not been effectively untapped
(1) Financial Capability: In spite of being one of the four most large-scale banks
on capital and total assets and fairly high business efficiency, financial resource of the VCB has still been limited in comparison with other banks in the same region (2) Operational Capacity: VCB is strong in traditional sectors, wholesales but its market share tends to decrease For other retail operations, VCB is under stiff competition with joint-stock banks
(3) Governance capacity of the VCB has not kept up with the requirements of modern banking
(4) Technological capability: Although VCB has still improved its technology, it has not met requirements of product development and management in the current competitive conditions
(5) Staff capacity: Human resource capacity of VCB is judged to be of high quality, but it has been beyond international standards, professional business etiquette
(6) Distribution system capacity: In spite of fairly large traditional distribution channels, modern distribution channels has not been untapped in the maximum and effective manners
Considering brand strength index, competition matrix through assessment of experts shows that leading position of VCB is under threat and fierce competition with several large banks and its many sectors decrease competitiveness
Competitive strategies VCB is pursuing are: consolidating its position of traditional business sectors, at the same time promoting retail services; improving of product quality competitive tools, at the same time promoting use of competitive tools through brand, promoting sales The key point to enhance competitive capacity
is that VCB must invest in technology as a basis for diversifying the product, improving features and utility of the product and investing in staff qualification improvement, brand development, sales promotion
2.2 The situation of investment in enhancing competitive capacity at VCB
2.2.1 Process
Investment in enhancing competitive capacity at VCB is managed, monitored quite closely through mechanisms, decentralized administration and ensures rational process
2.2.2 Investing capital
Large amount of investment capital was spent for investment in enhancing competitive capacity In general, this amount tends to increase over years because VCB is focusing on technology investment and branch network expansion
Trang 12Table 2.1: Capital for investment in enhancing competitive capacity at VCB Year 2005 2006 2007 2008 2009 2010 2011 2012
1.Iv for technology
improvement
(billion VND)
337.98 277.00 351.60 270.90 392.30 252.50 528.80 594.10
Density (%) 67.90 54.59 66.06 60.60 51.58 24.30 21.99 25.79
2.Iv for brand
development and sales
(Source: Annual report of VCB in 2005 – 2012)
Investment capital was allocated in four operations in which the highest density
is investment capital for technology improvement, mainly machinery and equipment The density of investment development brand and sales promotions, staff qualification improvement are small; investment in infrastructure development are relatively large
Investment capital of enhancing competitive capacity at VCB was primarily mobilized from equity, supplemented from retained earnings, funds, issuance of convertible bonds in 2006, mobilized capital from equitization in 2007, etc
2.2.3 Operations of investment in enhancing competitive capacity
The critical objectives of VCB in competing include: diversification and
improvement of product quality, products and services features towards focusing on
wholesale sector, at the same time development of modern retail services; promotion
of the brand and image position, transformation of sales promotion into provided invaluable support tool for competition For these reasons, VCB should focus on technology improvement; staff training in a basical manner; development brand and
sales promotion
(1) Investment in improvement technology
Investment capital for technology was carried out on foundation of approved technology projects, needs for purchasing machinery and equipment for the whole system
Trang 13Table 2.2: Capital for Investment in improvement technology at VCB Year 2005 2006 2007 2008 2009 2010 2011 2012
1 Iv for machinery and
(Source: Annual report of VCB in 2005 – 2012)
Annually, VCB spent around $ 20 million of capital which is relatively large amount in comparison with other commercial banks, for hardware and technology solutions However, investment capital for technology was very small in total investment and development capital of the VCB Investment structure on technology components still had a lot of irrationality, especially investment capital for machinery and equipment accounted large density (over 80%) while for software solutions was low For software technology, VCB attached special importance to deep investment
towards: centralizing the handling operation systems; developing application
programs to provide new products on basis of modern technology such as ebank, internet banking, SMS banking, be in online connection with securities companies, provide payment services for e-commerce transactions; modernizing technology for some subsidiaries Besides that, solutions and systems of supporting Bank administration such as human resource management, financial management and
establishment of reserve center were also considered to invest
(2) Investment in development Brand and Sales promotion
Investment in development Brand and Sales promotion includes many varied activities, belongs to an overall project and are closely connected The development
of products that is suitable for the needs and gains a solid position on the market is an important method to build the brand Besides that, to invest in brand development also consists of activities to be invested towards professionalization, specialization Investment capital tended to significant increase from 2007 (see Table 2.1) because VCB carried out equitization and started to operate on model of a joint-stock corporate, which led to implementation of activities to develop its images, innovate system of brand identity, and enhance foreign affairs Promotional activities were
Trang 14carried out synchronously and uniformly throughout the system In addition, VCB establised and carried out system of VCB cultural standards Moreover, VCB was also interested in organizing activities of approaching individual customers and businesses, offering products in a increasingly professional and effective process, exploiting of customer data to approach customers and to provide the products to meet the right demands Besides that, promotional activities, gifts, customer policy were performed increasingly to attract new customers and remain old customers However, these investment operations at VCB have not really held a proper position, and its professionalism and synchronization have not met requirements of a large and modern bank
(3) Investment in improvement of staff qualification
VCB attaches special importance to invest in training and fostering staffs Training costs for improving staff qualification at VBC as a whole increased over the years (see Table 2.1) Investment in training and improving staff qualification consisted of organizing home and foreign courses about banking operations, foreign language, operations expanded or related which are long-term or short-term; organization of study tours in foreign banks; organization of seminars, conferences about operations VCB has established a Training Center that is responsible for implementation of training operations since 2006 The Training Center launched helps to make activities serving staff training professionally and methodically
(4) Investment in Infrastructure
Investing in infrastructure made an impact on competitive capacity of VCB by building distribution system, facilities, working conditions for staff, supporting transactions, contributing in building its image, appearance of the bank
Table 2.6: Capital for investment in infrastructure at VCB
Year 2005 2006 2007 2008 2009 2010 2011 2012
Purchasing house and
architectural items, Land
(Source: Annual report of VCB in 2005 – 2012)
Investment in infrastructure as a whole increased annually, particularly from
2010, which is because VCB significantly invested in purchasing, building headquarter and expanding its branches For infrastructure investment, items that accounted a large density was items of fundamental building and purchasing house