Hoàn thành chiến lược kinh doanh của ngân hàng BIDV chi nhánh thăng long

THIESIS SUBJECTCOMLETION OF BUSINESS STRATEGY OF THANG LONG BRANCH OF BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM... SBV State bank of Vietnam Vietcombank Vietnamese Commercial Bank V

THIESIS SUBJECT

COMLETION OF BUSINESS STRATEGY OF THANG LONG BRANCH OF BANK

FOR INVESTMENT AND DEVELOPMENT OF VIETNAM

TABLE OF CONTENT

TABLE OF CONTENT 2

ABBREVIATION 4

LIST OF TABLE 5

LIST OF FIGURE 5

PREAMBLE 6

CHARTER 1 8

BASIS OF THEORY OF ENTERPRISES’ BUSINESS STRATEGY 8

1.1 Business strategy of enterprises 8

1.1.1 Concept 8

1.1.2 Business strategy at business enterprises 9

1.2 Process of setting up strategy 12

1.2.1 Determining business duty 12

1.2.2 Evaluating external factors 12

1.2.3 Assessing internal situation of enterprises 13

1.2.4 Analyzing strategy and selection 13

1.3 Tools to set up business strategy 14

1.3.1 Collecting and systematizing information 14

1.3.2 Process of combination 16

1.3.3 Decisive Process 18

1.4 The characteristics of banking sector impact on strategic management 19

1.4.1 The potential need for usage of banking service 19

1.4.2 The management of the SBV 20

1.4.3 Development of related and supported industries 20

1.4.4 Competitors 21

1.4.5 Internal factors of banking 22

CHAPTER II 24

THE CURRENT SITUATION OF BUSINESS ENVIRONMENT OF BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM-THANG LONG (BIDV TL) 24

2.1 Introduction of Bank for Investment and Development of Vietnam – Thang Long (BIDV TL) 24

2.1.1 History of establishment and development 24

2.1.2 Distributing Network 24

2.1.3 Products and Services 25

2.1.4 The Business Result 26

2.2 The analysis of environmental factor impacts on the operations of BIDV TL 34

2.2.1 Macro-environment 34

2.2.2 Micro environment 41

2.2.3 Evaluating opportunities and threats 47

2.2.4 External factor evaluation matrix (EFE) 48

2.2.5 Matrix of competitive image 50

2.3 Analyzing internal factors of BIDV Thang Long 53

2.3.1 Human resources 53

2.3.2 Marketing 54

2.3.3 Organizing Structure 55

2.3.4 Management capacity 55

2.3.5 Financial capacity 56

2.3.6 Research, development 56

2.3.7 Information technology 57

2.3.8 Evaluating strong and weak points 57

2.3.9 Internal factor evaluation matrix (IFE) 58

2.4 Necessity of building up business strategy for BIDV Thang Long 59

CHAPTER III 61

COMPLETION OF BUSINESS STRATEGY OF BIDV TL BY 2012 61

3.1 Business target of BIDV TL by 2012 61

3.1.1 General target 61

3.1.2 Detailed target by 2012 61

3.2 Analyzing feasible business strategy 62

3.2.1 Analyzing SWOT matrix 62

3.2.2 Analyzing SPACE 64

3.2.3 Analyzing large strategy matrix 66

3.2.4 Determining substitution business strategy 66

3.3 Quantitative strategic planning matrix (QSP) 67

3.4 Solutions to implement strategy 69

3.4.1 Solutions to develop human resources 69

3.4.2 Marketing Solutions 72

3.4.3 Technological solution 74

3.4.4 Restructuring solution of organization 75

3.4.5 Building up culture of organization 78

3.4.6 Building up material facilities 80

CONCLUSION 80

REFERENCE 82

SBV State bank of Vietnam

Vietcombank Vietnamese Commercial Bank

Vietinbank Vietnamese trade bank

Agribank Agriculture and rural development bank

BIDV Banks of Investment and development of Vietnam

SACOMBANK Saigon Thuong tin Commercial Bank

BIDV TL Banks of Investment and development Thang Long

ATM Automatic transferring machine

EFE External factor evaluation

IFE Internal factor evaluation

SWOT Strengths, weakness, opportunities and threats

SPACE Strategic Position & Action Evaluation

BCG Boston Matrix

IE Internal external

LIST OF TABLE

Table 2.1 ATM network 25

Table 2.2 Business Report 26

Table 2.3 GDP growth rate 34

Table 2.4 import export turn over……… 35

Table 2.5 Populations scale and structure……… 36

Table 2.6 Structure of total instruments paid by 2002-2006……… 38

Table 2.7 Comparison Norm……… 46

Table 2.8: EFE Matrix……… 48

Table 2.9: Matrix of competitive pictures……… 50

Table 2.10: IFE Matrix……… 58

Table 3.1 SWOT Matrix……… 62

Table 3.2 SPACE Matrix……… 63

Table 3.3 SPACE Matrix……… 67

Table 3.4 Selected strategies……… 69

LIST OF FIGURE

1 The necessity of selecting subject

According to Vietnam’s pledge with WTO and bilateral agreement, Vietnam hasduty to remove commercial and financial barriers for foreign investors Hence,Vietnamese enterprises are facing difficulties due to strong competition when openingits market

By the end of 2011, foreign banks will be treated as Vietnamese ones, resultingthat they will face fierce competition Up till now, banks are promptly founded,expanded their scale to confirm sustainable position Setting up suitable businessstrategy for each bank is vital for survival, development and enhancement

As a result, Subject “Completion of business strategy of branch of Bank of Investmentand Development Vietnam Thang Long by 2012” is selected

2 Study object and scope

Study object: Business strategy of BIDV Thang Long

- Scope: business activities of BIDV Thang Long, comparing with competitors

in banking sector including: Viectcombank, Vietinbank, Agribank

3 Study goal and target

Goal of Group 8 is to set up business strategy for BIDV Thang Long to 2012and propose solutions to make BIDV Thang Long one of strong banks in BIDVsystem

- Determine business targets based on SWOT, set up strategy and solutions toimplement the strategy

4 Methodology

- Resources of references: banking newspapers and magazines, books, website(asset.com, bidv.com.vn, vietcombank.com.vn…), report of Vietcombank, Vietinbank,Agribank

- Approaching method: All methods are used When analyzing current situation

of BDIV Thang Long, particular approach method is used When analyzing internaland external factors affecting business activities of BIDV Thang Long, historical,qualitative and quantitative approach method are used

- Primary information collecting method: Observation, interview, expertmethods are used

- Information handling method: Modernizing method, result-reason analyzing,statistics are used Methods of subjects: Strategy management, HR management,Marketing…are combined to analyzed

5 Meaning of subject

The capstone project is base on theory relating to strategy management and uses

it to analyze SWOT of BIDV Thang Long, setting up business strategy and solutions toimplement this strategy, mostly in the context of Vietnam entry into WTO andVietnam must pledge to implement regulations in banking by 2012

CHARTER 1 BASIS OF THEORY OF ENTERPRISES’ BUSINESS STRATEGY 1.1 Business strategy of enterprises

1.1.1 Concept

“Business strategy of enterprises is a general action plan to implement target ofenterprises” In order to gain such targets, it does not depend on business strategy; theyare variety of support programs, functional strategies Business strategy createsguideline framework for implementation

* Business strategy in general is determined by three levels:

+ Company – level strategy: Determine and show purposes in detail, targets andbusiness activities of a company, create policies and basic plan to gain targets

+ Business – level strategy: Determine selection of products and particular type

of products for business activities inside company; determine methods for everybusiness units to complete their targets to distribute to company’s target fulfillment

+ Function- level Strategy: Determine solutions, plan for every businessindustry

* Some concepts closely related to concept of business strategy

+ Duty Report: Report about long term purpose, which represent businessmission of company by products and services providing customers, making differencebetween this company and that company It describes values and priorities of company,determine general development of company

+ Long term targets: Results which enterprises gain from completing their mainduty Long term targets are lengthened over one year with criteria: challenge,measurable, suitable and clear Long term targets are set up for enterprises and theirunits Long term targets play an important role in period of strategy’s establishment

+ Annual targets: Milestone which enterprises must achieve to meet long termtargets Annual targets include types as follow: management, marketing,finance/accounting, producing/managing, developing study and information system.Annual targets play an important role in period of strategy’s implementation

+ Policies: Tools to gain targets, guideline for making decision andimplementing repeat or frequency circumstances Policies play an important role inperiod of strategy’s implementation

+ Opportunities and challenges: Such factors depend on external environment,out of control of enterprises, which may harm or make profit

+ Strong and weak point: Such factors depend on inside environment, in control

of enterprises They are determined in the connection with competitors

1.1.2 Business strategy at business enterprises

1.1.2.1 Centralizing growth strategy

It is able to apply every enterprise’s strategy to their units However, at businessunits, centralizing growth strategy must be firstly focused on because central object ofstrategy is products and marketing

This strategy mainly improve status of competition of enterprises with theirexisting products in the marketing, on the basis of strengthening marketing activities orchanging current marketing strategy without changing products There are three mainstrategies:

+ Market penetration: Looking for market share for increasing current productsand services at existing market through marketing effort

+ Market development: Introduce current products, services to new area

+ Product development: Increasing revenue by improving and renewing currentproducts, services

1.1.2.2 Competitive strategy base on M Porter’s ideal

Michael E.Poter – Harvard University’s professor defined basic competitivestrategy in the book: “Competitive Strategy”

1 Low cost leadership strategy

Such strategy creates competition by two ways:

- Valuating is lower than that of competitors to attract targeted customers whoare sensitive to prices to increase total profit It is suitable for enterprises with largescale, which have ability to reduce cost in activities

- Controlling not to reduce totally, satisfying current market share and usinglower costing tools to gain profit margin higher for every product

2 Differentiation strategy

Enterprises will focus on making more clearly different types of products andmarketing programs than competitors to gain the top position After that, fixing higherprice than normal products, increasing revenue through attracting customers withremarkable characteristics such as: unique taste, storage to distribute products tocustomers everywhere, scientific applying into designing and managingimplementation, optimal service, high service, prestige and easy to differentiating withother products…

3 Strategy focusing on main points

Enterprises focus on narrow market segments Such segments are determined bygeographical area, products, and customers Attractive segment selected are areaswithout competitions or competitors not meet all customers’ need and wants

1.1.2.3 Competitive strategy for business enterprises based on market share

Although every business units depend on enterprises, their market share isdifferent

1 Leadership business units

Strategy widening total market demand: Looking for new geographic area to sellproducts, looking for new customers, developing new tools, encouraging customers touse further products

- Defensive strategy: Help units to maintain their position at current market.They are always threatened by other competitors, especially units keeping challengingposition with market Hence, units must continuously defend prior to competitors

- Market share widening strategy: Re – purchasing business units ofcompetitors, attacking to holding market share of weak competitors

2 Business units challenging to market

Attacking leadership business units and other competitors to increase marketshare or doing business activities with competitors and no competing with others Inorder to implement strategy of attack, steps must be as follow:

- Determine competitors to attack and targets of strategy

- Selecting suitable strategy of attack: attacking ahead, adjacent, surrounding…

3 Business units following market

They do not want to face leading competitors or challenging competitorsbecause they are lack of human resource, afraid of damage, wastage of cost…They willonly go follow leadership competitors through imitating strategy:

- Imitating absolutely products, distributing mode, advertising and marketingactivities, supplying products for targeted market with low price

- Imitating some main content in marketing mix of leadership competitors andkeep differences about packing, price, advertising, selling network…

- Imitating creatively to adapt to demand and wants of market by depending onmarketing mix of leadership competitors

4 Market hidden business units

They always look for some safe segment and able to make profit In order to besuccessful at narrow segment, typical specializing strategy is implemented

- Specializing based on last customer: depending on industry which units arehiding at the market, they select customers with demand of using products or service

- Specializing based on processes of producing, distributing products: theyselect details, component of one perfect product, goods to supplement main products

- Specializing based on customers: Selecting customers based on demographysuch as customers with high, average or low income, or children, teenage…

- Specializing based on selling area: Selecting area such as inland, local market,international area…

1.2 Process of setting up strategy

Setting up business strategy is the first process of strategy management Itincludes 4 steps, each contains major activities:

1.2.1 Determining business duty

Ideal of report of business duty of Peter Drucker in the mid-70s was resultedfrom his study at General Motors and 21 books and hundreds of his articles He said

“Report of business duty is the declaration “survival reason” of one organization Itanswers the question of what is the center of business working It is very vital to set uptarget and draw up strategies efficiently” [2,93]

1.2.2 Evaluating external factors

Environment of an organization includes factors, forces, and institutions…which can not be controlled by managers However, they affect enterprise’s activitiesand results Enterprises’ environment can be divided into 2 levels: micro and macro

Macro environment affects all business industries, but not necessary to followtotally, include: (1) Economic environment, (2) Leal, governmental and politicalenvironment, (3) Social and cultural environment (4) Natural environment (5)Technological environment.

Micro environment is determined by specific industry Enterprises in industrywill suffer from micro environment of such industry, including (1) Competitors; (2)Customers; (3) Providers; (4) Potential competitors; (5) Substitution products

Analyzing environment’s factors allows enterprises to determine where areopportunities which they can take chance and where are threats they must face

Identifying and assessing opportunities, threats from external environmentaffecting them, which allow them to set up clear duty, to determine feasible long- termtarget, to design suitable strategy and to make policies to gain such targets

Analyzing external factors is sensitive and difficult to image In managingstrategy, researchers show out two tools allowing enterprises to rate and estimateeffects of environment to enterprises’ activities EFE matrix and matrix of competitivepicture are used

1.2.3 Assessing internal situation of enterprises

It is assessed through functional factors: Finance, human resources,management, organization structure, marketing, study/development, IT

Analyzing internal situation of enterprises allows to determine strengths (S) andweakness (W) As a result, selected business strategy will develop S and overcome W.IFE is used

1.2.4 Analyzing strategy and selection

Analyzing strategy and selecting are making subjective decision based onobjective information to select processes to complete responsibilities and targets

Enterprises’ strategy, targets and mission, internal and external controllinginformation assist foundation and assess feasible strategy

1.3 Tools to set up business strategy

According to Fred R David, there are 3 phases to set up strategy and each phaseuse each tool

Phase 1: Collecting and systematizing information This phase summarize basic

information collected and systematized to set up business strategy This phase use 3tools: EFE matrix, competitive picture matrix and IFE matrix

Phase 2: Combining process

This process will select, arrange, and combine external factors, inside factors toset up feasible strategy This process will include matrix tools: SWOT, SPACE, largestrategy matrix

Phase 3: Decisive process

Only tool used in this process is QSPM matrix QSPM matrix is usedinformation of phase 1, assess objectively selected business strategy of phase 2 todecide which business strategy is best for the enterprise

1.3.1 Collecting and systematizing information

1.3.1.1 EFE Matrix

There are 5 steps for EFE matrix:

- Step 1: Listing decisive factors for industry which enterprises are doingbusiness, including O and T

- Step 2: Assessing important level of each factor with point from 0 to 1(increasing important level) and total point is 1 Important level is based on industrywhich enterprises are doing business

- Step 3: Rating each factor from 1 to 4 for enterprises’ response Point 4 forgood response Point 3 is above average Point 2 is average Point 1 is weak response

- Step 4: Determine total point for each factor (by multiplying step 1 and step 2).

- Step 5: Determine total point of important level of enterprises by total point ofstep 3

Highest point is 4 and the lowest is 1 Average is 2.5 The higher point is, thebetter external factors are responded by enterprises

1.3.1.2 Matrix of competitive image

This matrix identifies major competitors It is broadness of EFE matrix withimportant level of each factor, meaning of points of each factor, total important pointswith same meaning

It has some differences with EFE: some internal factors with decisive level areinput to compare Total points to assess competitors will be compared with enterprisesselected as the sample

1.3.1.3 IFE Matrix

There are 5 steps:

- Listing decisive factors

- Assessing important level of each factor with point from 0 to 1 (increasingimportant level) and total point is 1 Important level is based on which factor isimportant to enterprises, not differentiating which factors are strengths or weakness

- Rating from 1 to 4 for each factor Point 1 is the most weakness, point 2 leastweakness, point 3 is least strengths, point 4 is most strengths

- Determine total point for each factor (by multiplying step 3 and step 2)

- Step 5: Determine total point of important level of enterprises by total point ofstep 4

Highest point is 4 and the lowest is 1 Average is 2.5 The important total pointlower than 2.5 shows the internal weakness of enterprises, higher 2.5 show the internalstrengths of enterprises

1.3.2 Process of combination

1.3.2.1 SWOT Matrix

It is combined by S, W, O and T to make 4 types of strategy

- SO strategy: Using internal strengths of enterprises to explore externalopportunities

- WO strategy: Taking chance internal opportunities to improve internalweakness

- ST strategy: Using strengths of enterprises to avoid or reduce external threats

- WT strategy: Defending to reduce internal weakness and external threats

SWOT is illustrated as follow:

SPACE is built up through steps as follow:

- Selecting a group of representative variable of FA, IS, ES and CA

- Rating value from 1 (worst) to 6 (best) for FS and IS, from -1 (best) to -6(worst) for ES and CA

- Calculating average point for FS, IS, ES and CA

- Rating average point for each factor

- Adding 2 points on axis X and marking result, adding 2 points on axis Y andmarking result Marking co-ordinate of this new point

- Drawing vector from origin to new vector from the center of SPACE to yourpoint

FS

Conservative 6

54321

Aggressive

CA -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 IS

-1-2-3-4

Defensive -5

-6

ES

Competitive

Figure 1.2: SPACE Matrix

If vector is at Aggressive: enterprises are at best position to use internal

strengths Strategies: market penetration, market and product development, aheadcombination, behind combination, width combination are feasible

If vector is at Conservative: enterprises should do business according to their

ability Strategies: market penetration, product and market development, centralizeddiversification

If vector is at defensive: enterprises focus on improving weakness and

avoiding external threats Strategies: costing limitation, reducing, and centralizedspecification

If vector is at competitive: strategies: ahead, behind, width combination,

market penetration, product and market development, join venture

1.3.2.3 Large strategy matrix

It includes: Axis X show competitive position of enterprises in the market (strength orweakness) and axis Y show growth of market (Fastness or slowness) Suitablestrategies are listed as follow:

Fast Corner II

The strategies put into QSPM are not overall those which are found at phase 2

Six steps need to construct QSPM:

- Step 1: Provide a list of factors - S, W, O, T- taken from EFE and IFEmatrixes

- Step 2: Identify each factor in order to match with EFE and IFE matrixes

- Step 3: Research the matrixes at phase 2 and indicate the replaceablestrategies

- Step 4: Determine the Total Attractiveness Scores (TAS) according to suchfactors as: the range for Attractiveness Scores is 1 = not attractive, 2 = somewhatattractive, 3 = reasonably attractive, and 4 = highly attractive

- Step 5: Calculate the Total Attractiveness Scores (TAS) which are defined asthe product of multiplying the weights (step 3) by the Attractiveness Scores (step 4) ineach row

- Step 6: Calculate the Sum Total Attractiveness Score of each strategy Themost attractive strategy has highest TAS of step 6

1.4 The characteristics of banking sector impact on strategic management

Banking sector is specific with differences from other businesses, and hasimpact on the strategic management process of the banks

1.4.1 The potential need for usage of banking service

The potential demand has large effect on other business sectors Analyzing suchbelow factor can show future demand for banking service

- The population structure changes, the population growth (especially in urbanarea), and increase in industrial zones and new urban areas will increase demands forbanking service of individual and enterprises

- Annual people’s average income When income is raised, the banking serviceswill also develop

- Business performances with foreign partners

- The Structure Index of total payment instruments, this index reveals the usinglevel of banking service of people

Demand scale of customers is large, the commercial banks can take advantage

of scale; improve business performances and its services

1.4.2 The management of the SBV

The SBV is a state organ managing currency This state organ is responsible forcurrency issue and management It also consults the government on such currencypolicies as currency issue, exchange rate, interest rate, the management of foreigncurrency reservation, the edition of banking business and credit organization law, thefoundation supervision of the banks and credit organizations, and commercial bankmanagement…For example, when the inflation is high, the State Bank uses thefinancial tools to withdraw money out of circulation: in 2007, increase the obligatoryreservation rate by 11%; issue the obligatory treasury bill and collect 46 thousandsbillions VND in August 2007, 19 thousand billions VND in September 2007 and 30thousand billions VND in October 2007 The State Bank adjusted the basic interest ratetwo times in 2008 from 8.75% per year to 12% and to 14% per year According to that,the lending ceiling interest rate is 21% per year, the ceiling of mobilizing interest rate

is removed, and commercial banks themselves fix the mobilizing interest rate tobalance cost These measures have direct impact on the liquidity, the risk level and thebenefit capability of commercial bank system Therefore, commercial banks areconveyor belts to transfer the currency policies in the economy When buildingstrategies, banks have to follow laws and regulations issued by the State Bank

1.4.3 Development of related and supported industries

The development of banking can not be separated from related and supportingindustries such as securities, insurance and information technology Trend of co-operation between such industries is developed rapidly worldwide

The development of these branches has direct impact on that of banking sector,for example creating new mobilizing and investing capital channel for banking sector,decreasing the risk, minor transaction fees Information technology plays a veryimportant part in creating useful products of banking sector such as credit card,automated teller machine…

The appearance and development of related and supported branches willincrease productivity and competitiveness of commercial banks in this information era

1.4.4 Competitors

According to the possessiveness, until August 2008, commercial bank system of

Vietnam includes: (internal resources of BIDV)

- 5 state commercial banks with the total of 4.000 branches: Vietcombank,Vietinbank, Agribank, BIDV, MHB

- 2 banks with hundreds branches for the policy of the poor

- 36 join-stock Commercial banks

- 6 join-venture banks: Vinasiam Bank, Indovina, Chohungvina Bank,VIDPULIC Bank, Vietnam Laos bank, Vietnam Russia bank

- 44 branches of foreign banks

- 1 Central Credit Fund with over 30 branches in 25 provinces and 998 PeopleCredit Funds at communes and provinces… Competitors understand clearly eachother: financial efficiency, operating net, Operating market share, lending andmobilizing interest, kinds of service fees Therefore, it is easy for them to have thestrategies for confrontation In the other word, the commercial banks are bothcompetitive and cooperative because of the banking system prestige The failure of onebank will have bad influence on the whole credit organization system This will spreadquickly, effect seriously on areas outside banking Let’s take financial crisis in 1998-

1999 as an example

1.4.5 Internal factors of banking

Banking is a complicated and much risky service sector Therefore, it has highrequirements of human resources, capital resources, science and technology base…Theinternal factors of banking are evaluated according to such requirements as:

The human resources: Human resources are indispensable to any organization.

The competitive efficiency of human resources is represented by such factors as:

training level, professional level, working motive, loyalty to the enterprise, sense and

working manner

The technology efficiency: Technology is the most important part in banking

infrastructure Automatic machine and equipment help to decrease time ofmanipulation and to increase accuracy and convenience of banking service.Technology is a basic criterion for banks to deploy modern services Bankingtechnology also consists of managing information system, risk warning system insidebanks

The banking prestige: The banking prestige makes the customers believable for

their transaction Therefore, if one bank is prestigious, it will have the competitiveadvantage to attract the customers

The diversification of product and service, and customer service quality

One bank with many kinds of products and services which meet market demand and itsmanaging capacity will be an advantageous bank The diversification of products andservices makes the bank develop more stable and improve advantages thanks to scale.However, diversification must be suitable with human and financial resources, or itbrings little effectiveness

The operating network system is of business advantages based on scale It is

also important to banking operation, especially when traditional banking services aredeveloping and the information technology system hasn’t met need of theimplementation of the modern banking system

The managing efficiency and organizing structure: The managing efficiency is

represented by the target; the motive and the commitment of executive board tomaintain and improve the operating efficiency of banking In addition, those are salarypolicies for the staffs, business process and policies as well as internal controlling andrisky managing process

The organizing structure is an important target It reveals whether thedistributing mechanism of baking resources is suitable with scale and managing level

of banking as well as characteristics of banking sector and requirements of market ornot The banking organizing structure is represented by division of functionaldepartment and board, the combination among departments and board, belonging units,the relationship among departments…

In summary, the enterprises during the business process have to determine theirannual target and long term target The business strategy is the way to gain thosetargets

In this capstone project, determining business duties, analyzing of external andinternal factors of BIDV Thang Long will be solved in Chapter II Chapter III is thedetermination and selection of business strategies

CHAPTER II THE CURRENT SITUATION OF BUSINESS ENVIRONMENT OF BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM-

THANG LONG (BIDV TL) 2.1 Introduction of Bank for Investment and Development of Vietnam – Thang Long (BIDV TL)

2.1.1 History of establishment and development

Bank for Investment and Development of Vietnam – Thang Long (BIDV TL) wasestablished and developed from a department under the Central Bank of Construction(that was later renamed Bank for Investment and Development of Vietnam– BIDV) toissue, investigate and pay basic building capital for Thang Long bridge construction In

1991, it was renamed Bank for Investment and Development of Vietnam – Thang Long(BIDV TL) directly under Bank for Investment and Development of Vietnam (BIDV).According to Business Registration Certificate numbered 315370, dated January 12th

2009, BIDV TL was one of 108 member units of BIDV , BIDV TL traded in

multi-sectors such as finance, credit, currency, baking service and non- banking inaccordance with state law BIDV TL has constantly improved profit, contributed toimplement national monetary policy and develop the national economy At the time ofbeing established, BIDV TL had 3 functional departments with the property total of

200 billions dong and 22 staffs The head quarter was located on Pham Van Dong road– Tu Liem Dist – Hanoi

Table 2.1: ATM network

ATM

HC supermarket, Pham Van Dong road, Tu Liem Dist 02

Academy of Finance, Dong Ngac, Tu Liem Dist 02

Vietnam Commercial University, Ho Tung mau, Tu Liem Dist 02

Transaction Office 10, Pham Van Dong, Tu Liem Dist 01

Transaction Office 2, Tran Dang Ninh, Cau Giay Dist 02

Hanoi University of Mining and Geology 01

The People’s Police Academy, Co Nhue, Tu Liem Dist 01

In addition, BIDV system has payment connection with other banks viaBanknetvn:Vietnam Join Stock Commercial Bank for Industry and Trade (Vietinbank);Saigon Join Stock Commercial Bank for Industry and Trade (Saigonbank); An BìnhJoin Stock Commercial Bank (ABBank); Vietnam Bank for Agriculture and RuralDevelopment (Agribank); Hanoi Housing Development Commercial Joint Stock Bank(Habubank); Mekong Housing Bank (MHB); Vietnam Technical Commercial Bank(Techcombank); Joint stock Bank for Foreign Trade of Vietnam (Vietcombank);Vietnam Russia Bank (VRB)

2.1.3 Products and Services

BIDV TL is making effort to diversify the financial and banking services and theproducts It not only has the traditional services such as deposits and lending but alsosupplies many modern baking services and various products for the market The mainservices can be divided into 3 groups:

Group 1: Debit property management: payment deposit, savings deposit in term or

in no term, award savings, ATM payment, interbank saving deposit …

Group 2: Banks owned property management: lending, provisions, export bills

negotiation, foreign currency business, business based on currency market (Spot,Forward, Option)…

Group 3: Banking services: package of financial service for universities and

enterprises, import and export payment, internet banking, Home banking, BSMS

banking… debit property management brings the capital for the operation of the bank.

Bank-owned property management and services bring income resources for the bank.However, the interest income from the lending plays largest part in the incomestructure of BIDV TL

2.1.4 The Business Result

Table 2.2: Business Report

2006

Year2007

Year2008

6 M of2009

Increase-Decrease Ratio2007/

7 Medium, long term

debit ratio/total surplus

-* Property total

In 2007, the property total is 2.960 billions dong, it is equal to 119% incomparison with 2006 In 2008, the property total is 3.657 billions dong, increasing24% in comparison with 2007, in which the total of profitable property accounts for97% of the property total of the bank Debit property structure has changed into

positive trend When the whole banking sector has the capital redundancy and outputs shortage, BIDV TL has reinforced the credit operation with the reasonable growth level

28% and its package service This has contributed to sudden growth of the difference

of revenue and cost, and has improved the business efficiency of BIDV TL The

property total has gained 3.310 billions for 6 months of 2009

* The capital mobilization

The total of mobilizing capital at the end of term of 2008 was 3.040 billionsVND, increasing 10% in comparison with the end of 2007 Term-end capitalmobilization at average growth of 3 years was 16,5% per year (the whole sector wasaverage 24,45%), and the absolute growth sum of 3 years was 613 billions dong In thisperiod, the growth speed of capital mobilization of BIDV TL was average 13%,especially in 2008, the growth speed was low (10,0%) BIDV TL trading in suburb areahas many difficulties Mobilizing capital resources is mainly from economicorganizations, so the capital foundation hasn’t been really stable The capitalmobilization from habitants remains limited because of their low income On the otherhand, the Central Bank pass annual business plan of BIDV TL according to December

31st figures, so the capital resources of BIDV TL usually increases much more than thebeginning of the year The reason is that checking, taking over and paying ofconstruction enterprises at the end of the year resulted to handing over of high andunrealistic growth plan

+ In 2008 the capital mobilization task was under much pressure because of thesharp competitiveness among commercial banks The fluctuation of monetary flow in

circulation had strongly influenced on the capital mobilization On the other hand,because the money gradually lost its value, the year mobilizing interest constantlyincreased for the months of mid 2008 Then it constantly decreased for the months atthe end of the year Therefore, the incoming and outcoming monetary flow wasunstable, which made the capital mobilization target of BIDV TL decrease and increasesuddenly

+ Capital resources structure: in 2008 the capital resources structure positivelychanged into habitant area with high growth level (27%), accounting for 40% of thetotal capital resources The capital mobilization of economic organizations onlyincreased over 5%, because during year BIDV TL did not develop many new clients.Such growth level could shorten the capital resources gap between habitants andorganizations, which made the capital resources of BIDV TL highly stable

+ New client development task of year hasn’t been strongly deployed because ofthe fluctuation of the economy and the market The clients of economic organizationsusually had short-term deposit to take advantage of maximum interest rate, so that thiscapital resource is unstable On the other hand, because of the competitive pressure andthe various mobilizing interest among commercial banks, the client development isvery difficult

* Credit

Although BIDV TL has many difficulties, for example, the business location isdisadvantageous, the clients are mainly the SOEs who trade in construction andassembly areas and who have financial difficulties, bad debt, over term debt, offbalance sheet debt, high hanging debt, the credit staffs young and unstable, the creditoperation of BIDV TL for the past three years followed exactly the BIDV control ofeach period The target is to ensure safe and efficient growth as well as credit listrestructure, focus on clients with financial efficiency, sectors which State focus to

develop ( import – export sector, key sectors for economy balance, individual clients,

…) quickly solve bad debt, off balance sheet debt, hanging debt to complete plan

- Scale and credit growth speed

on December 31st 2005 (increasing rate 44%) The increase in debt surplus in thisperiod was mainly from short-term debt The short-term debt increased 480 billionsdong in 2008, the mid and long term debt surplus increased 172 billions dong incomparison with at the end of 2005; Until June 30th 2009, the short-term debt surpluswas 1.885 billions dong, increased 661 billions dong, the mid and long-term debtsurplus was 403 billions dong, increased 36 billions dong in comparison with the end

of 2005 The increase in lending debt surplus was mainly short-term lending to clients.The increase in mid and long-term debt surplus was mainly 2 big lending projects:Ankhe-Kanak hydroelectricity by Board of project management of hydroelectricity 7,which was disbursed 86 billions dong on December 31st 2008, Ho Ho hydroelectricity

project was disbursed 120 billions dong The credit growth of BIDV TL alwaysensures to absolutely follow the credit target given by BIDV in each period

The credit debt surplus of 2005, 2006, 2007, 2008, and at the end of June 2009 inturn accounted for 74%, 66%, 60%, 61%, 69% the property total and had the trend togradually decrease for years

- The structure of capital lending duration and type of client

Ordinal

number Target Unit Year 2005 Year 2006 Year 2007 Year 2008 2009 6M/

1 The total of credit debt surplus Billiondong 1.590 1.639 1.763 2.260 2.288

2 The classification according to capital lending duration

The short-term debt surplus

Billiondong 1.224 1.295 1.349 1.722 1.885The mid and long-

term debt surplus

Billion

3 The classification according to type of client.

The State Enterprise

Billion

The Private Enterprise

Billion

Retail individual

Billion

In the period of three years, from the beginning of 2006 to June 2009, the total ofcredit debt surplus of BIDV TL increased nearly 44%, but the increase was mainly theshort-term debt surplus (increased 661 billions dong) The mid and long-term debtsurplus increased a little (172 billions dong, increased 10%) in comparison with 2005.These differences can be changed at the end of 2009 and the following years whenseveral middle and long-term projects are completely disbursed However, basically,this real situation is obeying the orientation of credit operation of BIDV The period of

2005 – 2008 was to gradually decrease the mid and long-term debt surplus, increaseshort-term credit, transfer client structure according to the trend of lending

development to medium and small enterprises, private enterprises, as well asimplement efficiently the targets, enforce the monetary policy of the State Bank,stabilize currency and macro-structure.

The credit debt surplus in this period, which is mainly short-term debt surplus,either follows the development trend of the system or reflects the real situation of postrecession of the economy The mid-term projects require large capital, the capitalrecovery is long Therefore, the enterprises have not invested in such projects Theystill focus on short-term business projects in which the investing capital is moderate,capital fee is low, the profit can be gained as expectedly and especially fast capitalrotation speed, in order to meet the need of the sudden changes of the economy,therefore the business risk can be limited

In the credit structure according to type of client, the figures in the table abovecan show clearly the strong transference of the client structure according to the trend towiden private sectors and retail consumption Loan rate to SOEs gradually decreasedfor years and the lowest level for 3 years of the period 2005-6/2009 (the decrease by56% on June 30th 2009 in comparison with debt surplus at the end of 2005, accountingfor 16% of the debt surplus total) While, debt surplus of private economic sectordeveloped strongly for periods (it was 1.812 billions dong until December 31st 2008,accounting for 80% of the debt surplus total, increased 869 billions dong in comparisonwith 2005 It was 1,922 billions dong until June 30th 2009, accounting for 84% of thedebt surplus total) Retail debt surplus increased in comparison with 2005(increased

124 billions dong at the end of 2009 in comparison with 2005, accounting for 11% ofthe debt surplus total)

* Net service revenue

The period of 2006-2008 was the service operation of the whole system ingeneral and of BIDV TL in particular This was the period rising in both absolute

relative numbers The average growth level of BIDV TL for 3 years was 58% (theaverage growth level of the whole sector was 54%).Net service revenue accounted forhigh rate of the total of net service revenue which came from business operation ofBIDV TL (22,7% in 2006, 25% in 2007, 40% in 2008) Net service revenue per capita

of the next year was always higher than previous year (95 millions per staff in 2006,

163 millions per staff in 2007, over 200 millions per staff in 2008)

For the past three years, BIDV TL has deployed strongly and comprehensivelythe products provided by BIDV and have gained the considerable growth In order tomeet the need of using the products and services of economic organizations efficientlyand in time such as credit service, guarantee, payment and foreign currency businessect , the retail service products were deployed strongly such as ATM/POS cardservice, BSMS, salary payment, account overdraft, remove debt of telecommunicationtariff Viettel, electricity bill payment ect In 2008, service task gained high result 46,5% in comparison with the growth level of 2007, accounting foe 32% of the total of thenet difference of BIDV TL

The domestic payment service was estimated 2, 21 billions dong, increasing 57,9% in comparison with the same period and gaining 105, and 2% of the plan.International money transference fee and commercial finance were estimated 4, 8billions dong, increasing 23% in comparison with 2007 and gaining 84% of the plan.Revenue from foreign currency business with absolute number was 7, 82 billions dong,increasing 81, 4% in comparison with last year, gaining 136, and 8% of the plan.Revenue from guarantee service fee with the absolute number was 16 billions dong,gaining 106, 7% the clients and accounting for over 50% of the total of net servicerevenue of BIDV TL The results above showed that BIDV TL took advantageousopportunity of the market very well, especially in the first 6 months of 2008 Otherservices also had high growth level, which made the result of net service revenue ofBIDV TL gain and exceed the plan of 2008 given by the Central bank

The business efficiency during the first six months of 2009

- The total revenue for the first six months of 2009 was 229 billions VND,accounting for 121% in comparison with the same period of 2008

- The total expense for the first six months of 2009 was 196 billions VND,accounting for 128% in comparison with the same period of 2008

- The gap between the revenue and the expense for the first six months of 2009was 33 billions VND, accounting for 92% in comparison with the same period of 2008

- The risk provision deduction is 10 billions VND (deduct 40% of the plan of2009)

- The per capita post-tax profit is 160 billions VND, accounting for 76% incomparison with the whole year 2008

Through the analysis and comparison of data base on business report of BIDV TLfor recent years, despite unfavorable location and basis of customers not as good asthese of other branches in the area, BOM orientation and all staff’s trial at best makeBIDV TL be assessed branch Grade 1 with financial norm, credit quality at high level

of BIDV TW

- Comparing norms of BIDV TL with BIDV TW by 31st December 2008

1 Medium, long term

debit ratio/ total

6 Surplus ratio Group

2/TSD

2.2 The analysis of environmental factor impacts on the operations of BIDV TL

in international economic integration, in which the most remarkable event was thatVietnam organized successfully 14th APEC submit and officially became 150th

member of WTO The US approved the Permanent Normal Trade Relations (PNTR)with Vietnam On the other hand, GDP growth level is higher and higher

Table 2.3: GDP growth level

Unit: %

Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Estimated

2009GDP

growth

4,9 6,79 6,9 7,08 7,34 7,8 8,43 8,17 8,44 6,18 5,2

(Source: General Department of Statistics)

In 1999, because of the Asian monetary financial crisis, GDP growth level ofVietnam decreased 4, 9% However, in 2000, the economy recovered quickly, theeconomic growth level was 6, 79% and constantly increased in the following years.Currently, when the forecast of one economic crisis in 2008 has been over, therecovery trend of the world economy in general and of Vietnam in particular is beingconfirmed The forecast of GDP growth in the next time is completely possible

When the economy grows, the enterprises will have the need of capital to invest

in modern equipment, which helps to widen and develop manufacturing tradeoperations The investment is not only on national scale but also international Thiswill result in the demand for banking service such as payment, guarantee, hire andpurchase, foreign currency exchange ….Therefore, when the economy grows, thedemand for banking service will also increase

Import export operation

Table 2.4: Import-export turnover

Unit: million USD

Figure 2.1: Import-export turnover The total of import-export turnover constantly increased for years: the exportturnover was 32.447 millions USD in 2005, 39.826 millions USD in 2006, and 48.561millions USD in 2007 The import turnover is 36.761 millions USD in 2005, 44.891millions USD in 2006 and 62.682 millions USD in 2007 The increase in exportoperation resulted in the need of banking service: voucher discount, foreign currencyexchange, capital lending for manufacturing….

Investment operation

In recent years, the attraction of domestic and foreign investment has had positivechanges The government has gradually improved the investment environment andmakes advantage of the enterprises’ operations Therefore, the whole societyinvestment capital has had a considerable rise Many import-export markets have beennewly opened such as the US market, which has become one of important trade partner

of Vietnam

The whole society investment capital was 393, 5 thousand billions VND in 2006.Among three economic sectors classified according to possessive background, theforeign investment sector most quickly increased in 12, 41% in 2006 in comparisonwith 2005 Capital resources of private economic sector increased 3, 7% in 2006 incomparison with 2005 While the investment capital of the state economic sector had 5,6% decrease in comparison with 2005 This is a positive signal It has shown that our

economy with the stable politics, the more and more clear improvement of legalcorridor is really a safe and attractive investment arrival for foreign investors

2.2.1.2 Culture and society environment

The population scale and structure

The population scale of the country was estimated 84.110 thousand people in

2006, increasing 1, and 19% in comparison with 2005 The population scale had thetrend to increase urban habitants because of the quickly urbanizing speed

Table 2.5: The population scale and structure

population(thousandpeople)

Increasingspeed (%)

The populationscale of urbanarea (%)

The populationscale of suburbarea (%)

(Source: General Department of Statistics)

According to the table above, the population scale of urban area increasedregularly for years If the population of urban area accounted for 25, 11% of the totalpopulation of the country in 2002, it would increase in 27, 10% in 2006 And thepopulation forecast will be about 90.000 millions people in 2020, in which the urbanpopulation rate will account for 35%-50% The population scale and structure has quitebig impact on potential demand for banking service using Vietnam is a developingcountry, the people hasn’t had the habit of using banking service, especially in ruralarea Therefore, when the population scale is larger and the population structure has thetrend to increase urban habitants, the demand for banking service also increases

People’s income

Per capita income of Vietnam is increasing, so is the living standard Therefore,people with their savings will have the need of investing their income to make interest

as well as the need of lending to consume in advance They all have to come to thefinancial service market such as consultation, investment channel, investment listmanagement, investment through second side, intermediary, budget management,insurance … Therefore, the demand for financial banking services will increasestrongly In recent years, the macro-economy stability and our country’s economicgrowth have made per capita GDP and per laborer GDP constantly increase In 2006,GDP per capita was estimated 11.578 thousand VND, increasing twice as high as 2001and GDP per laborer was estimated about 22.419 thousand dong, also increasingtwice as high as 2001 The increase in per capita GDP and per laborer GDP areimportant reports reflecting the increase in people’s living standard and income Theimprovement of social life will help to develop financial banking area

The structure of the total of payment instrument

The habit of using cash for payment has been improved, but not much

Table 2.6: The structure of the total of payment device period 2002-2006

Unit: thousand billion dong

(Source: Banking Magazine number 2/2007)

Payment throughout banking system accounts for big rate in the total of paymentdevice and has the trend to increase gradually for years, for example, 77, 4% in 2002and 85, 4% in 2006 On the contrary, the cash rate in 2006 continually decreases in

comparison with the previous years This reveals the fact that the structure of the total

of payment device of the whole society has been improved according to the trend todecrease gradually the cash in the economy The structure also reveals the fact that theexpansion and development of payment device without cash such as ATM card hascontributed to decrease the cash volume in payment However, this fact hasn’t beenpopular, it only focus on the areas of state officials, office staffs, workers of bigenterprises At the end of 2006, with nearly 60 trademarks, 16 issue banks and paymentagencies of more than 20 banks, the domestic cards issued were 4.298.875 ones,increased 70% in the comparison with 2005, the number of international cards was242.531 ones, increased 80% in the comparison with 2005 The total number ofAutomated Teller Machine (ATM) of the whole banking system was 2.782 machines,increased 60% in the comparison with 2005; there were 11.282 machines, increased8% in the comparison with 2005( Source: Banking Association report of Vietnam -term III) This is the lack of payment infrastructure; the capability of peopleconvincement was limited In comparison with Vietnam population in 2006 (estimated84.110 thousands people), the number of issued cards has so far been quite small, themarket has had much potentiality unexploited

Education and Training

The education and training sector has developed strongly Besides the publicuniversity system, the private one is more and more Currently at universities, therehave mostly been departments training the human resources for banking system.Banking Association and Training Centre usually have the training courses to help thestaffs of commercial banks update the knowledge regularly

2.2.1.3 Legal, governmental and politic environment

Politics

In general, the society and politics of Vietnam are very stable The politics ofVietnam is admitted by international organizations to be the most stable one in Asianarea.

Legal corridor for banking operations

The legal framework for banking operations has gradually been improved to meetthe need of international economic integration and to increase the efficiency ofmonetary banking operations Specifically, the law of the State Bank and creditorganizations has been complemented and changed and for the period of 2003 and

2004 These changes aim at constructing modern banking system according tointernational rule and standard, and aim at reducing the interference of managing office

in banking operations The legal framework has constantly improved and innovatedaccording to the trend to loosen the control of banking service and financial market, forinstance the transfer tool law with number 49/2005/QH11 issued by the NationalAssembly on December 29th 2005, the securities law with number 70/2006/QH11issued by the National Assembly on June 29th 2006, The electronic transaction law withnumber 51/2005/QH11 issued by the National Assembly on November 29th 2005…

The management and control of monetary policy

The SBV has succeeded in controlling the monetary policy, stabilizing the moneyvalue, promoting the economic growth, ensuring the stability and development ofbanking system The tools of monetary policy are used as the indirect ones, forexample, open market operations The currency swap has replaced the administrativetools The interest rate has gradually been liberalized; the fixed exchange rate hasgradually been turned into floating exchange rate adjusting to the market Themechanism of management of foreign currency, credit and payment performance ismore and more flexible and clear and improves the self-control and the responsibility

of commercial banks

2.2.1.4 Natural environment