Xây dựng và phát triển chiến lược kinh doanh bán lẻ tại ngân hàng BIDV giai đoạn 2015 2020

LUẬN VĂN THẠC SĨXây dựng và phát triển chiến lược kinh doanh bán lẻ tại ngân hàng BIDV giai đoạn 2015-2020 THESIS MBA BUILDING A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING BUSINESS AT BI

LUẬN VĂN THẠC SĨ

Xây dựng và phát triển chiến lược kinh doanh bán lẻ tại ngân hàng BIDV giai

đoạn 2015-2020 THESIS MBA BUILDING A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING

BUSINESS AT BIDV PERIOD 2015 TO 2020

Providing personal financial services or retail banking (RB) business is one of thetraditional activities to form the world commercial banking system Since its formationuntil now, RB has played an important role to create sustainable development forcommercial banks RB is less affected by economic cycles It scatters risks andcontributes to create capital and stable income for the banks In addition, the retailbanking’s actvities play an important role for expanding the market, increasing thecompetitive capabilities and stability of the bank’s performance

This role has been shown clearly in the recent world economic crisis Almost allcommercial banks which had strategy focusing on RB have survived while the biginvestment banks were bankrupted such as: Merrill Lynch, Lemon Brothers or feltinto difficulties and also shifted to the RB field Therefore, the trend today ofcommercial banks in the world is development of RB

In Vietnam, stable politial and social enviroment, growing economy, largepopulation, living standard is more and more improved, the consumer trend andservice usage are more and more increasing, the development of the personalfinancial services is still low… which all make the retail banking market beconsidered as having great potential and opportunities for development for domesticand foreign commercial banks

With the process of economic integration to the world, banks in Vietnam now isfacing the RB development requirements to meet the demand, being undercompetitive pressure not only of the domestic banks, but also of foreign banksoperating in the country

Besides tradition, experience and strengths in corporate banking, the RB business

of BDIV is until now mostly spontaneous, without strategic plan Under theintensifying pressure of competition and international integration, BIDV needs tohave a strategy for development of RB, making this activity become one of the coreactivities of the bank in order to help the bank keep its competitive capability and

sustainable development Because of these reason, we chose the topic "BUILDING

A STRATEGY FOR DEVELOPMENT OF RETAIL BANKING BUSINESS

AT BIDV PERIOD 2015 TO 2020" This is a highly practical topic, contributing to

meet the needs of business and development of BIDV in the future Besidessignificant importance for the bank, studying this topic will also help the teammembers to apply the learned knowledge into real business, thus enriching and toimproving knowledge about business administration in career development

- To build an appropriate strategy for the bank in period 2010-2015

- To propose implementation of the chosen strategy to achieve the objectives of BIDV

- Internal and external analysis

- Analysis of the data and building strategies, using some tools as BCG, SWOTMatrix and the theory of the 5 competitive forces by Michael E Porter

Structure of the article:

Chapter 1: Theoretical basis about strategic management in general business,

banking and the retail banking field

Chapter 2: Analysis the current situation of retail banking business at BIDV Chapter 3: Proposing strategies for development of retail banking business at

BIDV period 2010 - 2015, the solutions, recommendations and conclusions

CHAPTER I

THEORETICAL BASIS OF STRATEGIC MANAGEMENT IN GENERAL BUSINESS, BANKING AND RETAIL BANKING FIELD

1.1 BASIC ISSUES OF BUSINESS STRATEGY

1.1.1 The concept of business strategy

There are many different definitions about business strategy, each definition is more

or less depending on the viewpoints of each author [3, 4, 6, 11]

Alain Threlart said: "Strategy is the art that businesses use to compete and gainsvictories"

According to M Porter: "Strategy is the art of building the competitive advantagesfor defensing"

According to the united point of view : "Business strategy is the art of coordinatingactivities and controls them in order to achieve long-term goals of the business"

In 1980, Quinn gave a more general definition: "Strategy is a pattern or plan tointegrate the major objectives, policies and action sequences into a closelycohensive entity"

Mintzberg defined the general strategy with 5P:

Plan: The sequence of actions intended consistently.

Pattern: The time consistent behavior, intended or not.

Position: The match between the organization and its environment.

Perspective: the way for perception of the world.

Ploy: The concrete way to defeat the competitor.

By Charles W.L.Hill and Gareth R Jones: "Business strategy is a process ofidentifying the basic and long - term goals of business, choosing the way or action

According to Fred R David [4], "Business strategy is the means to achieve term goals”

long-By William J.Glueck, "Business strategy is a plan with united, comprehensive andcooperative features which is designed to ensure that the basic goals of the businesswill be achieved”

From the mentioned above definitions, we can generally define business strategy asthe following:

"Business strategy is a general long-term plan or a general action program in order

to exploit the resources to achieve the objectives of the company, ensuringconformity with the change of environment"

With the birth of the concept of business strategy, the concept of strategicmanagement in business has also been introduced

By Fred R David: "Strategic management can be defined as an art and science forestablishment, implementation and evaluation of decisions related to many functionsallows an organization to achieve its objectives"

By John Pearce II and Richard B Robinson: "Strategic management is a system ofdecisions and actions to form and perform plans to achieve the objectives of thecompany

Therefore, strategic management, like any other management process, consists ofplanning, organizing the implementation and supervise the implementation.Object of management here is the impact of the environment (the uncertainties,and opportunities) and the way businesses respond to the impact of theenvironment (by the efforts of all units of the business) In other words, strategicmanagement includes synthezising of planning activities, organization forimplementation and check, adjustment business strategies to ensure thatcompany always seizes the opportunities and limits or avoids the threats, the risk

in the way to achieve its goals

Figure 1.1: Strategic management

Strategic management is the process of studying the present and futureenvironment, defining the objectives of the organization; decision making,performing and supervising the implementation of the decisions to achieve thoseobjectives in current or future environment to enhance competitive capabilities andposition of the enterprise

Strategic management consists of 5 tasks with close relationship and mutual impact

- Building a strategy to achieve the desired goals

- Implementation and direction the selected strategies effectively and efficiently

- Evaluattion the implementation and adjustment of the strategic vision, long-term

Establish-Building of the strategies

to achieve the objectives

Implement ation and direction of the sellected strategies

Evaluation implementation monitoring, correction adjustment

Improvement/

change

If necessary Correction

if

necessary

Correction

if necessary

Improvement/

change

If necessary

Recover 1,2,3,4

If necessary

1.1.2 The benefits and the role of strategic management

Strategic management helps companies to seize and take advantage of businessopportunities and simultaneously to take measures to overcome the risks and threats,

to contribute to enhance the efficiency of using resources, to increase competitivecapabilities of enterprises for ensuring sustainable development Strategicmanagement creates the solid bases for setting out the policies and decisions onproduction and business activities in accordance to the fluctuation of the market Onthe competition aspects, the core capabilities which make the difference and createcertain advantages should be used Such capabilities consist of the knowledge,skills, technologies and special resources for an organization to differentiate itselffrom the competitors and create competitive advantages

Strategic management process helps companies to see clearly their purpose anddirection Awareness of desired results and future goals will help leaders andemployees to realize what to do to achieve success

Environmental conditions that organizations face are fast-changing and can createsurprises Management strategies help managers to see the environment in the future,

so they can control it better and utilize the opportunities and avoid or reduce the risks

Strategic management helps managers to use effectively the available resources ofthe company and allocate them rationally It helps companies to make decisions inaccordance to environmental conditions In addition, strategic management engagesmanagers at all levels in the organization and creates resonance to achieve commongoals of the company

1.2 STRATEGIC MANAGEMENT IN BANKING

1.2.1 The Concepts of Bank and Retail Banking

1.2.1.1 The concept of bank:

According to the functions (services and roles) the bank performs in the economy,the bank is considered as a financial intermediate organization that accepts deposits,

gives credits and performs business acivities with currencies and banking services.The most common activities are accepting deposits, using that money to give credit,providing payment services

The main characteristics of banking activity:

 The bank mobilizes the idle capital of organizations and population, using thatmoney for lending (so using not-own money to give credit) to other organization

or people, thus creating both subjective and objective risk This is a sensitive area,relating directly to all sectors and all aspects of social economic life

 Financial asset: highly profitable but it is influenced by factors as interestrate, inflation so banks face many risks

 Providing other services to the economy: The large scale of a bank cancreate good relationship between the bank and its customers

 Risk for banks is the relationship between banks and customers

 Bank’s goods are money Compared to conventional goods, money value isfluctuating quickly by influence of inflation, exchange rates, interest rate.Money is considered as special good which a state uses to manage themacroeconomics Money could influece development or degradation theeconomy of a country, therefore it is controlled strictly by the government

1.2.1.2 The concept of retail banking service:

According to WTO, retail banking is a typical type of banking service Retail bank

is a place where individual customers can come to carry out such activities asmaking deposit, loan, payment, checking accounts and card services Forcommercial banks, retail banking services play an important role to enhancecompetitive capability and expand market share, to bring stable revenues andcontribute to create the quality of the banking busisness In addition, it createsopportunities to diversify non-banking products and services, cross-sellingopportunities for individuals and small businesses

According to economic experts of Asian Techonology Institute, retail banking areservices providing products -services to individuals, households, small and mediumbusinesses through a network of branches Customers can also have direct access tobanking products and services through telecommunication and information technology.Thus, in general, the retail banking is services providing financial products and services

to customers who are individuals, households, small and medium enterprises

1.2.1.3 Characteristics of retail banking services:

Object customers of the retail banking services are extremely large but the value ofeach transaction is not high Retail banking products are both debit assets and curentassets (saving assets, current accounts, bill payment, debit and credit cards, consumerloans, ) The development of retail banking services depends on the informationtechnology level of the economics in general and the bank in particular In addition,one of the success factors of the retail banking service is distribution channels

1.2.1.4 The role of retail banking services:

- For the economy: The retail banking services directly change a cash economy into a

non-cash economy, raising the efficiency of state management, reducing social cost inpayment and exchange in cash In addition, through retail banking services, the process

of currency flow is strengthening and more effective, the capital potentials are utilizedand exploited better to promote business, production and consumption, improving thelives of people Banking services are connected closely to the social life Therefore,enhancing of the capital flow and stability of the financial system they contribute toensure the effectiveness of the state’s macro- management of the economy

- For bank: RB diversifies products and provides a stable source of revenue for

banks, create a foundation for sustainable development for commercial banks Theretail banking operations contribute to create stable capital and income for thebanks, scatter the risk and are less affected by economic cycles In addition, theretail banking operations contribute importantly to expanding market, improvecompetitive capability and operation stability of the bank

- For customers: RB provides a variety of products, convenience, safety, saves costs

and time for customers

1.2.2 The role of strategic management in banking

To be able to exist and develop, a bank must have right business orientation.Strategic management helps banks to get right business orientation in the short,medium and long terms Strategic management helps banks to adapt to the changingbusiness environment, highly risky and sensitive field of business Strategicmanagement also helps the bank to improve management ability, development inthe business environment in order to take the opportunities and cope withchallenges, to exploit and use resources in a bank rationally and efficiently.Resources of the bank consist of human resources, organization and facilities,techniques In the banking activities, building and implementation a strategy areextremly important Management of the bank directly impacts the bank performanceand even the value of that bank in the market In the macro level, bankingmanagement affects risk-taking capacity of banks and is a measure for the adaptableability of banks to pressure of the economy

In the global trend and international integration, requirement of strategicmanagement will be more intensified for the domestic banks It is not only forresistance of competition but also for the stable interaction of the inter-bank market

A bank with weaknesses in management will not only cause losses to the bank, butalso creates certain risks with chain character for other banks, affecting theeconomy and impacting on effectiveness of the state’s macro-regulatory policies Sothe strategic management in banking is very important, especially the stage ofobjectives definition, selection of the most appropriate plan, ensure both compliance

to the macro monetary policy and profitability, lowering the risk level

There are strong relationship between a bank’s strategic management and itsperformance [9, 18 , 21, 24, 27], as top bank performers usually has best strategies,developed for years [25]

1.2.3 Strategies and trend in retail banking business

There has been documented the relation between customers’ satisfaction andperformance of retail banking [12, 22, 24, 26] Most banks in retail bankingbusiness now are focusing their strategies in improvement of customer relationshipmanagement (CRM) [12] In the era of internet and information technology (IT),retail banking services via IT have become more and more important [10, 17] Withdevelopment of the e-banking, the CRM has become more complicated sincepersonal contacts between banks and customer are diminishing or vanishing, sospecific strategies may be required [19] The other strategies for retail bankingdevelopment are expansion or consolidation of bank branches [8], market nicheentry planning [13], improvement of risk management [14]…

Looking at the future next decade, Kimberly Hedley and colleagues from IBMInstitute for Business Value indentified 2 megatrends in retail banking: (1)Customers redefine the rules of the game as their power is increasing, and (2)universal banks and ultra-focused niche players thriveas competition is intensifying[16] The same authors also proposed four strategic imperatives banks must follow

to cultivate innovation and position themselves for sustainable growth:

( 1) Focus on core strengths and partner for everything else - Leading banks will

optimize their performance by becoming specialized enterprises, managing only strategic, differentiating business components internally and partnering with best-in- class specialists for those capabilities that do not drive competitive advantage.

(2) Optimize the potential of each customer relationship - Rather than attempting to be

all things to all people, industry leaders will use superior customer insights to offer the most appropriate and profitable products, tools and services to targeted segments.

(3) Harness the potential of the workforce through effective performance management - Banks will need to realign skills and set the right performance metrics

to motivate a changing workforce to continuously pursue innovation.

(4) Recognize that technology will be a critical element of success - By making

technology a central component of the strategic decision making process, banks will be able to tightly align their business and technology initiatives, and will be able to differentiate their offerings and seize market opportunities with greater agility.

1.3 THE PROCESS OF STRATEGIC BUSINESS MANAGERMENT

Strategic Management helps banks to identify clearly goals and businessorientation, to increase initiativeness and adaptability, to capture the opportunitiesand cope with the future challenges Strategic management process consits of sixbasic steps (figure 1.2)

Figure 1.2: Basic steps of strategic management

Bank's business strategy is very important When the bank formulates a businessstrategy, this strategy will be pursued in the whole implementation process Awrong business strategy will affect long-term development of the bank Therefore,

to identify their goals, the bank needs to answer the following questions:

1 Customer: Who are the customers of the bank? Who will be the target

customer?

2 Products or services: What are the bank’s main products and services?

3 Market: In what market does the bank focuse on competition?

4 Technology: Investment in technology and development potential?

5 Attention to the existence, growth and profits: Has the bank committed to

Idendifi-cation of

objective

Analysis of external business environment Analysis of internal business environmen t

Strength weakness

ties / threats, challenges

Opportuni-Defining objectives Building of

business strategy

mentation business strategy

Imple-Check and adjust men business strategy

Building Plan

Organize and perform

Check and adjust

6 Business Philosophy: What are basic beliefs, recognized core values, desires

and priorities of the business ethics of the bank?

7 Self-Assessment: What are competitive advantage and core capabilities of

the bank?

8 Attention to the image in the public: How does the bank meet the

requirements on environmental and social issues?

9 Attention to the staff: How does the bank recognize and assess its human

resources?

From the mission and vision, leaders at all levels will determine the bank’s strategicobjectives Strategic objectives present the specific results which the bank wants toachieve in a certain period The identification of objective strategy is namely theconversion the mission into specific tasks, giving direction to managementdecisions and establishment of criteria for evaluating the work results Goals can beseparated into two groups: financial and strategic objectives The financialobjectives aim to improving financial results, and the strategic ones – to improvethe competitive position of the company in the industry In the process ofimplementing strategies to achieve long-term goals, business can split those goalsinto many short-term goals, relating to each short period

1.4 CONTENT STRATEGY BUSINESS MANAGEMENT

1.4.1 Defining of objectives

1.4.1.1 The concept: Objectives are the destination or the results that the bank

wishes to achieve in an operating period

Objectives are usually referred in general as all short and long term goals In otherwords, objectives may be in the short and long term The goal is often considered as

a guideline for the bank In a operating period, a bank may have not one but manyobjectives, all of them are directed to the long-term goal: profit

1.4.1.2 The base for determining objectives:

- Functions, tasks and activities of each bank

- Guideline and policies of the government

- Mission or business principles and purposes of the bank, or in other words, theleaders and managers’ point of view

- Business Environment

- The resources of the bank

- Geographical location, natural conditions, customs, cultures, consumption habits

of the locals where the bank is headquartered

1.4.1.3 Requirements of the objectives:

- Quantitative: Objectives must be quantifiable The quantifiability or measurability

helps the bank to check whether its objectives are achieved or not

- Feasibility: The objectives are feasible or could be reached If you set goals too

high, you will not achieve them, thus discontenting managers, employees,customers In the opposite case, they would waste resources

- Specification: The objectives of the bank must clearly identify the limits which

should be reached, the time necessary to complete the goals Large objectivesshould be specified or splited into more small targets which are easier to beachieved For example, building the objective of expanding market share needs todetermine rate of expansion for each market, the needed time to achieve

- Legitimacy: The goals that the buiding bank must conform to the law.

- Consistency: The objectives of the bank in each period should not obstruct or

conflict with each other Conflicting objectives can never be achieved, thusmaking the process of setting goals meaningless

1.4.2 Environmental Analysis

To build business strategies, the study of the environmental factors is very

challenges that a company may face so managers can build strategies in order totake advantage of opportunities and minimize risks Environmental are the factors,forces influencing activities and performance of the business Business environmentinclude in the macro environment, micro-environment (industry) and conditionswithin the enterprise.

1.4.3 Buiding business strategy

1.4.3.1 Proposing business strategy:

There are three levels of strategy according to the equivalent levels of management:

- Overall Strategy (corporate level):

To answer 2 key questions: what business activities to be carried out and how the firm(corporate) manages these acivities The strategy of firm level chooses and manages agroup of different business activities in some industries and market-products

- Strategy for a business unit level:

This is a set of commitment and acitivities a firm uses to gain competitiveadvantages by using its key success factors in a particular market with particularproduct (s) According to Abell, to buid a strategy in business unit level, threefactors must be defined: (1) customers’ needs (what to be satisfied); (2) customergroups (who to be satisfied); (3) how to be satisified

There are three basic approaches to build up competitive advantages: (1) stratedy ofcost leader; (2) strategy of differentiation; (3) strategy of focus (or segmentation) Inpractice, not rarely the mixed approaches are used instead of purely one

- Strategy of functional level:

Strategy of functional level support strategy of business unit and the general level

to help achieve the firm’s common goal Functional level strategies aime toimprove efficiency of the basic activities inside the firm as production, marketing,R&D, human resource…[6]

1.4.3.2 Analysis and selection of business strategies:

The combination of management opportunities, risks, strengths, weaknesses identified

in the analysis of business environment and internal company with the goal thatcompanies need reach to make the choices suitable strategies

a SWOT model:

SWOT is an abbreviation of Strength, Weakness, Opportunities, Threat SWOTmatrix is used to list all opportunities, risks from external environment, andstrengths and weaknesses from internal environment for a company, in anappropriate order and placement To build SWOT matrix, firstly managers have

to conduct screening process, identifying the real opportunities and threats as well

as the main strengths and weaknesses of the enterprise

SWOT matrix of the bank is very complex There is no formula to make decision

Difficulty of using the model is in combination of matrix elements and there is nocertain method to select optimal pair of factors

b BCG model:

This model was proposed by Boston Consulting Group The model is fixed bytwo factors, the vertical axis: evaluation of the industry growth rate; horizontalaxis: relative market share of a company compared to the whole industry

Question

Dog

Bank analyzes market share compared to the competitors as well as industrygrowth rate to determine the bank’s position.

1.4.4 Implementing business strategy

1.4.4.1 Setting annual objectives:

Annual objectives are part of the identified overal goal It is considered the resultsthat a bank wants to achieve in its business each year and help the bank achieve thedefined overall objectives The meaning of the annual objectives could be expressed

in three aspects:

- Annual objectives are the basis for managers to confide tasks to individuals andeach department in the bank

- They are the basis for checking, monitoring the implementation process

- They are the basis for the allocation of resources in each department

1.4.4.2 Building policies and action plans:

Policies and action plans are short-term plans, concretizing the contents of businessstrategies to help administrators identify the tasks, tactics that banks must perform

in each year The policies clearly defined principles, rules that the functionaldepartments must comply with in the working process These policies are regularlyupdated, modified to suit the changes of the business environment

1.4.4.3 Allocation of resources:

Managers have to allocate resources rationally The bank has many methods toensure the effectiveness of the process of allocating resources The bank shouldallocate the resources according to the importance of a task In this process it mustensure economy, optimal use of the resources, focus on main resources

1.5 CHECKING AND ADJUSTMENT OF BUSINESS STRATEGIES

This process helps administrators to identifie timely the changes and errors in theprocess of building and implementation of the business strategy, to find the causes

and to adjust promptly the strategy, helping the bank to achieve the establishedobjectives

Figure 1.4: Checking and adjusting strategies

SUMMARY

Strategic management is a very dynamic and uninterrupted process Each change in

a major component of the model can lead to change one or all other components.Therefore, the activities of formulation, implementation and evaluation of thestrategy should be performed continuously

To operate effectively, managers have to solve not only internal issues, but also thefactors from the external environment affecting the busisness In banking business,this is an important issue to decide the success of the enterprise in the market.Therefore, managers should concentrate on studying and predicting the variation ofenvironmental factors, the competitive ability, to draw out the best bankingdevelopment strategy to achieve the goal of profit and complete their mission

Implementation of present business strategy

Adjustment business strategy

Re-defining object-tives

XĐ lại các CLKD hỗ trợ

CHAPTER II

ANALYSIS OF THE ACTUAL SITUATION OF RETAIL BANKING BUSINESS AT BIDV

2.1 OVERVIEW ABOUT BIDV OR BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM

2.1.1 General Introduction

Name: Ngân hàng Đầu tư và Phát Triển Việt Nam

International trade name: Bank for Investment and Development of Vietnam

Head office: 194 Tran Quang Khai, Hoan Kiem, Hanoi.

Charter capital: 10.500 billions VND (on 31 December, 2009)

Established on 26 April, 1957 by Decision No 177/TTG of the Prime Minister,BIDV is under direct rule of the Finance Ministry In the earluy stage the bankconsisted of eight branches and 200 staffs with the name: Bank of Construction ofVietnam Its tasks consisted of allocation, capital management, supplying capital forall social and economic fields

On 24 June, 1981 its name was changed to Bank for Investment and Construction ofVietnam, under direct rule of Vietnam State Bank On 18 November, 1990, the bankwas renamed as Bank for Investment and Development of Vietnam BIDV's missionwas changed: Continue to receive capital to give credit to state- planed projects;raise capital from medium and long loans for investment and development; currencyoperations, bank’s service, credit for business mainly in construction andinstallation to serve investment and development In 1995 BIDV was granted aversatile business license, diversifying its business fields, including financial,curency, credit and banking services conforming to the law, constantly increasingthe profitability of the banks, contributing to the implementation of national curencypolicy for developing the economy of the country

2.1.2 Objectives

To build Bank for Investment and Development of Vietnam to become a FinanceBank corporation with multi-owned mechanism, multi-sector business includingactivities in finance, banking, insurance, securities and financian investment, estate-real estate, at a level equal to the advanced financial banking corporations in SouthEast Asia The bank operates under international convention, quality - prestige,scale efficiency, and is the leading retail bank in Vietnam

2.1.3 Slogan of BIDV

 Business effectiveness of customers is the operating goal of BIDV

 Sharing opportunities – Successful cooperation

 Quality - Sustainable growth – Effectiveness and Safety

2.1.4 BIDV’s Products – Service

 Bank: Supplying full package of the traditional and modern banking services

 Insurance: Insurance, reinsurance of all types of non-life insurance

 Securities: brokerage, repo, consultance, guarantee and issuance,management of investment portfolio

 Finance Investment: bons, stocks, contributing capital to establishment ofcompanies for investment in projects

2.1.5 Organizational structure

The board of directors:

Is the highest department of the bank, deciding development strategy andorientation of activities of BIDV

Board of general managers:

Board of general managers is the directly managing deparment and manages allactivities of the bank

BIDV is one of the banks which have the largest distribution network in thebanking system in Vietnam, divided into two blocks:

Business Block:

 Commercial Bank branches include in 103 level 1 branches with nearly 400transaction places, more than 700 ATMs and tens of thousants POS placesspread all over the country, ready to serve all customer needs There are twospecialized units:

 Bank for payment for the stock market (Nam Ky Khoi Nghia)

 Wholesale bank as trustee agency disbuting ODA capital (3rd Transactionoffice)

 Financial Leasing Company I

 Financial Leasing Company II

 Financial Investment Company

 Fund Management Company Industry and Energy,

 The joint ventures:

 BVIM Investment Management Company

 VID Public venture Bank

 Laos - Vietnam venture Bank

 Vietnam - RussiaVenture Bank

 BIDV Tower verture bank

 Venture Bank of Cambodia

Administrative block:

 Training Center

 Information Technology Center

Total staff of the whole system is over 10,000 people

2.2 ANALYSIS THE ACTUAL SITUATION OF BIDV IN THE RETAIL BUSINESS FIELD

2.2.1 BIDV Internal environment

2.2.1.1 Organizational structure of retail banking:

Since September 2008, BIDV has made reconstructure in organization andoperational activities in the whole system Headquarters formed 7 blocks and theBranch formed 5 blocks (customer relationship, risk management, operationalmanagement, internal and subsidiaries) Accordingly, organizational structure forthe retail banking operations consists of:

a BIDV’s headquarters:

There are 3 units in BIDV headquater: Department for retail productdevelopment and marketing, Card Center and Board for managemenr ofbranches

- Retail product development board and Marketing: To advise and help the Board

of Directors in direction of development and management of retail productsincluding retail credit products and retail non-credit products (except for cardproduct), development and management of modern distribution channels (notincluding ATM / POS) and retail marketing operations of the bank This unit isresponsible for market research, building strategy for development andmanagement of retail products; defining distribution channels, how to sell to thedepartment concerned; responsible for efficiency of assigning retailed products

Vice-manager directs the retail branchVice-manager directs the retail branch

The retai product

development

department

The retai product

development

department Thebranchboardmanaging

The branch managing

Quality management department 2

Development business department

Operation department

Risk management department

- The Centre of Card: Advising Board of dicectors to plan policy, develop

strategies, solutions and organize the business in the system of BIDV; Directingand guiding the member units to conform to the policies of the government, StateBank, BIDV in card business

- The Board for management of branches: Advising Committee and helping

leaders in the development of business networks in the whole system (includingbranches and transaction offices, transaction, savings, ATM ); controling andorientattion activities of the branch in accordance to the conditions andcharacteristics of each locality; Direction, guidance and supporting branch inimplementing business plans and business operation; intermediate role between theExecutive Board of Directors, the Board, Center at Headquarters and the branch

Figure 2.1: Organization of retail business at BIDV

Vice-manager directing customer relationshipVice-manager directing customer relationship

Vice- manager directing customer serviceVice- manager directing customer service

Individual customer relationship department/ team/

brand

Individual customer service department/ team/

brandCN

Credit management departmentBranch Manager

Transaction Department Transaction Department

Storage service manager department

b At the branch:

There are departments for individual customer relationship management,individual customer service and transaction office with main tasks: marketing,direct selling the retail banking products or services to individual customers andhouseholds

According to the internal statistic report, to 9/2009, the BIDV system has justonly 30 from total 108 branches with established separate individual customerrelationship department with 250 staffs The others established in the individualcustomer relationship unit in the general customer relationship department andmost staff holds both wholesale and retail service products concurently

2.2.1.2 The development of retail banking network

Until now, BIDV has 1057 staff serving retail operations (including 324professional staff responsible; attend by 30,6% / total staff and 733 retail staff thesearch, accounting for 69,4% / total retail staff), accounting for about 8% of thestaff system As mentioned above, with 103 level 1 branches with nearly 400trade offices, more than 700 ATMs and tens of thousants POS places, BIDV hasthe second largest network in the country, ranged only after Angribank(Appendix No 6)

b Network ATM – POS:

In 2005, BIDV had the second largest ATM network (ranged No 2 after VCB),but in 2006 BIDV rated on 4th place after VBARD, VCB, East Asia Bank with14,3% market share In 2007, BIDV rose to third place on the ATM networkafter VCB and VBARD with 15,1% market share However, in 2008, thoughretains third position on the ATM network, market share of BIDV has dropped to

13% In 2009, BIDV was in fourth place on the number of ATMs in the marketwith the market share reduced to 11,2%.

However, the trend for inter-connection of banks card operations is dominating withparticipation of more banks Number of members of the card alliance is increasingwith the number of new banks joining the card market At present, BIDV is joiningtwo card alliances Banknet and Smartlink, and so far the two alliances wereconnected each other Thus the number of ATMs belonging to a bank is no longer acritical issue affecting the customer decision to use the card service

2.2.1.3 Development of retail banking products and services:

In the period 2006-2008, many retail banking products and services contributed todiversification of services provided to individual customers, while also contributing

to increasing revenues for banks

Retail business at BIDV had initially been payed attention for development,especially in the period after September 1st, 2008, when BIDV reformed businessorganization into 2 separate wholesale and retail blocks Since then RB has made acertain contribution to BIDV business performance

The marketing activities in retail banking which Head Office and branches haveactively implemented, from building of marketing programs for the products(external marketing and internal marketing) and formulation of mechanisms andpolicies in marketing activities, market research services to promote the retailbanking activities

However, work in BIDV retail business is not yet corresponding to the potential ofdevelopment and the results are still quite modest This may due to perception of theimportant role of retail banking is not consistent in most directing levels, theattention of the branches in the organization for implementation of retail banking isstill limited Many branches have not been interested much in RB activities andhave not arranged enough staff for retail operations

2.2.1.4 The results of business operations

a The retail credit activities:

BIDV has long had a strong position and experience in lending for investment anddevelopment for enterprises of large and medium scale (wholesale) Interest in retailcredit activity started from recent years, especially from 2008 as mentioned above

To 31/12/2008, the proportion of outstanding retail credit debt/ total of BIDVconstituted a modest proportion (10,9%) but the outstanding retail credit debt scale ofBIDV equivalent group of major banks such as Vietcombank, ACB and Sacombank(2008, outstanding credit debt of the retail bank in turn is 8.809 billion VND, 16.258billion VND, 18.356 billion VND and the BIDV 16.220 billion VND) (Table 2.1)

Table 2.1: Results of the retail credit in 2006, 2007 and 2008 [2]

(Unit: Billion VND)

1 Outstanding retail credit debt 10.002 16.567 16.220

2 Growth of outstanding retail credit debt 65,64

% -2,09%

4 Oustanding retail credit debt/ totaloutstanding credit debt 10.1% 14.03% 10.9%

5 Overdue debt / total outstanding retail credit 2,2% 0,8% 2%

6 Debt with assets guarantee/ total outstandingretail credit 76% 81,7% 81%

 The retail credit size: the retail credit size tends to increase In 2007,

outstansing retail credit debt of BIDV reached 16.567 billion VND,increased by 66% compared to 2006 In 2008 it was affected by economicfluctuations (interest rate of capital mobilization reached record high 21%per year) Despite high inflation rate, low liquidity, reduced production and

financialcapacity of business and, outstanding retail credit debt of BIDVremained 16.220 billion VND in 2008.

 The proportion outstanding retail credit debt / total outstanding debt:

BIDV reached the ration of outstanding retail credit debt / total outstandingdebt nearly 11% in 2008, while stocks commercial bank have the rate from35-50% However, those banks typically define retail customers includingsmall and medium enterprises, and development activities of retail bankingare the main direction of their development

 About retail credit quality: bad debt ratio in 2006, 2007 and 2008 is 2,2%,

0,8% and 2%

 The results of retail credit by type of product: are shown in the table 2.2.

Table 2.2: Results of credit by type of retail product [5]

(Unit: Billion VND)

No Type of credit

Credit debt

Propo rtion

%

Growth (%)

Credit debt

Propo rtion

%

Growth (%)

3 Credit for small family busisness 5.383 32 N/A 6.357 39 18

- In the retail credit products of BIDV, credit small family business constituted the

largest proportion of outstanding credit, by over 39% of total retail credit debt.Total credit debt for small family business in 2008 reached 6.357 billions VND,

fact, BIDV has no specific product for small family business but on the basis ofgeneral provisions for loans of banks and BIDV, the branches have activelyimplemented the loan for small family business, especially the Central Highlands,the Red River delta, the Mekong River

- Products for housing-related loans: outstanding credit debt accounts for 18% of the

total outstanding retail credit debt, mainly due to activities of the branches in majorcities Total outstanding housing-related credit debt in 2008 reached 2.799 billionsVND, growing 8% compared to 2007 To accelerate product development for homeloans, good cooperation and coordination with the investors of new urban areas inthe process of lending and management of morgaged real estates would be ofadvantage but BIDV has not exploited well this relationship in recent years

- Products pledged securities lending, repo: outstanding credit debt in 2008 decreased

31% compared to 2007, accounting for over 14% of total outstanding retail creditdebt It dued to strong decline of the stock market and of the demand of credit forsecurities business, as well as the BIDV policies for restriction this type of credit

- Implementing the policy limiting consumer loans, outstanding consumer credit

debt of the whole system in 2008 only reached nearly 20% of total outstandingretail credit debt

b Activities raising capital from population:

 Results of capital mobilization in the whole system:

Recognizing the importance and long-term stability of population capital, BIDValways pays attenttion to individual capital mobilization, creating a series ofproducts to meet diverse needs of customers: savings ladder, savings withflexible withdrawal, savings golden eggs… This has contributed to achieve thefaborable results in mobilization of population capital for the period 2006-2008

In these three years, growth rate of individual capital mobilization of BIDV at theend of the period reached 7% per year, raising capital average 6% per year.Growth rate of population capital mobilization depends on the effectiveness of

various investing channels in the economy For example in 2007 capitalmobilization from population declined due to attractiveness of other investmentchannels such as securities, real estate, gold In the same year, in order tocomply with the ceiling interest rate of banks, BIDV has actively pioneered lowerinterest rates to mobilize capital than other banks, resulted in withdrawal ofcustomer from BIDV But by 2008, interest rate increased gradually to ensure realgain so that attracted customers to give personal deposit in the bank again By theend of December 31, 2008, total population capital mobilization reached 58.872billions VND, average mobilized capital was 56.532 billions VND.

Although the population deposits grew markedly, the proportion of thosedeposits to the total mobilized capital declined from 43% in 2006 to 35% in 2007and only 31% in 2008 due to the stronger growth of deposits from customer-organizations

 Market share of individuall capital mobilization:

In general, from 2006 to 2008, the BIDV’s market share of population capitalmobilization continued to decline (average 2,2% per year), especially in 2007decreased 2,85% It was explained by the fact that the average growth rate ofindividual capital mobilization of BIDV (13,96%) was lower than the averagerate of the whole system (35,28%)

Table 2.3: Capital mobilization of some major banks: market share (in % ) [7]

Index 2005 2006 2007 10/2008

1 Savings from population

Joint Stock Comercial Banks 26,11 31,89 40,37 46,03

2 Valuable papers

Other credit organizations 9,25 16,27 14,9 13,45

* Vietcombank, Agribank, Vietinbank

Through the years, the structure of residential deposits shifted positively with theproportion of deposits in VND, term deposits, including valuable paperscontinuously increase However, the proportion of deposits with term under 12months increased sharply in 2008 and creatted pressure on the ability to balancethe capital, the capital cost and business performance of BIDV

 According to the type of currency:

In three years, the proportion of VND deposits in total individual capitalmobilization increased from 72% in 2006 to 80% in 2008 with the averagegrowth of 12% / year (absolutely increase: 9.309 billions VND), to December 31,

2008 reached 46.484 billion VND Notably, in 2008, VND deposits increased bymore than 19% (while in 2007 this figure is only 5%), due to the attractiveness ofinterest rates (up to 21 % / year)

From 2006 to 2008, the growth of foreign currency deposits tended to decreasewith average of 9% / year (absolutely decreased: 2.338 billion converted VND),the proportion decreased from 27,58% in 2008 to 20,2% in 2008 and untilDecember 31, 2008 reached 11.767 billions converted VND It was explained byexcess of foreign currency sources, mainly U.S dollars, in the period and BIDVhas actively applied interest rates lower than other banks in mobilization of USD

 According to the product types:

- Payment deposits and no-term saving deposits were created for the purpose ofdiversifying products and meet the needs of customers The proportion is nothigh, only approximately 7% of total population deposit with a total balancereached 4.208 billions VND by 31 December 2008 In the last 3 years, balance ofmobilization payment and saving deposits increased about 1.500 billions VNDbut the growth rate was not stable In 2008 it decreased 9% compared to 2007 In

2007, due to the hot development of stock market, these deposits grew 77% In

product lines, saving Golden eggs is preferred by customers, with the balance lastmobilized in 2008 of 110 billion.

- The term savings is the main product of BIDV for mobilization of individualcapital This is the traditional product that BIDV focused to give competitiveinterest rate and product diversity: ordinary term savings, ladder savings, savingswith flexible drawal, saving with lotery In two years: 2006, 2007, this kind ofmobilization made up 85% of the mobilized capital from population, with agrowth rate of 7% (equivalent to 2100 billion VND) However, in 2008, BIDVimplemented valuable papers products which were directly competitive with theproduct term savings so the proportion of the later declined to 75%, with balance

by the end of 2008 reached 43.693 billion VND For products term savings :market share of BIDV off quite large (3% per year) mainly due to compliancewith the provisions of the ceiling interest rate for banks, BIDV always activelypioneers lower interest rate of raising capital from population than othercommercial banks, causing customers to switch to other banks

- Deposit certificate is a kind of product that has gradually received moreattention of individual customers In 3 years, balance of this product increasedabout 5.900 billions, but the growth was not stable In 2007, it decreased 74%(equivalent to 3.300 billions VND), while in 2008 total sales reached 20.000billion VND, BIDV has attracted nearly 10.000 billions VND (equivalent to798% growth), bringing balance of valuable papers to 31/12/2008 to reach10.350 billions VND This excellent growth resulted from BIDV’ 5 issuances ofcertificates of short term deposit in 2008 with attractive interest rates and flexiblepolicy for payment before maturity, which were welcomed and preferred bycustomers That also explained why BIDV's market share of valuable papersincreased strongly in 2008 compared with 2006 and 2007

 According to the product terms:

In the two years: 2006 and 2007, the structure of the population capital at BIDVwas maintained at a quite reasonable level as the proportion of deposit less than

12 months ranged from 36 to 39%, deposits 12 months or longer term made upabout 55 % The deposits with term of 12 months made up the largest share ofmobilized individual capital - about 45%, reflecting relative stability of thecapital structure

However, in 2008, deposits with term less than 12 months at BIDV grewsuddenly, reached 65% or 37.765 billions VND, while deposits with term over

12 months decreased by nearly 30% to only 28% or 16.416 billions VND Inthis year, deposits with term less than 6 months accounted for majorproportion of 50%, the highest were 3 - month term (24%), 12 - month termdecreased to only 23% The main reason for that was two-digit inflationfollowing hot waves of increasing interest rates to mobilize short-termdeposits to ensure liquidity of banks Psychological expectation that theinterest rates would continue to rise also was a reason for people preferredshort term deposit in this period

c Card business:

The results of BIDV’s card business in the period 2006-2008 are shown in theTable 2.4 The average growth rate of quantity of the issued domestic debit cardreached to 64% / year, but this growth rates were decreasing, in 2007 reached88% but in 2008 only reached 40,6% In the first 6 months of 2009, the number

of debit cards increased only 6,9% in comparison to 2008 The growth rate of thenumber of BIDV’s debit card was lower than average rate of the market, makingBIDV position and market share of domestic debit card decline continuouslyover the years In 2005, BIDV was in the second place in the market of domesticdebit card, but in 2006, BIDV dropped to the fourth place (after VCB, East Asiaand the ICB) with 13,5% market share; in 2007, it dropped down to the fifthposition (after VCB, East Asia, and VBARD, ICB) with 12,27% market share In

2008, BIDV was in the 5th position but market share dropped to only 10,8% In

2009, although still maintaining the position, the market share of debit cardBIDV continued down to 10,2%

Table 2.4: Card business of BIDV

Net charge (billion VND)

BIDV officially launched the card payment services via POS / EDC from May

8, 2007 However BIDV met many difficulties in expanding its network ofPOS In 2008, the number of new POS increasedby 72% compared to 2007 butthe first six months of 2009, the number of new POS decreased by 14,5%compared to 2009 POS network of BIDV currently holds a very modest marketshare of 3,5%

In 2005, BIDV was the second largest ATM network in Vietnam (after VCB),but in 2006 it dropped to the fourth place after VBARD, VCB, East Asia with14,3% market share In 2007, BIDV were ranged the third on ATM network,after VCB and VBARD with 15,1% market share However, in 2008, thoughretains third position on the ATM network, the market share of BIDV hasdropped to 13% In 2009, the third position was taken by Vietinbank and themarket share of BIDV also reduced to 11,2%