BUSINESS STRATEGY OF PETROLIMEX GROUP OMMERCIAL JOINT STOCK BANK (PG BANK)

Internal factors of the bank...20 CHAPTER 2: STRATEGIC ANALYSIS OF PETROLIMEX GROUP COMMERCIAL JOINT STOCK BANK PG BANK...21 2.1.. Internal Factor Evaluation Matrix IFE...50 CHAPTER 3: P

CAPSTONE PROJECT REPORT

DISSERTATION MBA BUSINESS STRATEGY OF

PETROLIMEX GROUP OMMERCIAL JOINT STOCK BANK (PG BANK)

TABLE OF CONTENTS

TABLE OF CONTENTS 1

ACKNOWLEDGEMENT 4

LIST OF TABLES AND GRAPHS 5

LIST OF ABBREVIATIONS IN THE CAPSTONE RESEARCH 7

FOREWORD 8

1 OVERVIEW AND THE NECESSITY OF THE RESEARCH 8

1.1 Overview 8

1.2 The necessity of the research 8

1.3 The meaning of the research 9

2 OBJECTIVES OF THE RESEARCH 9

2.1 Overall objectives 9

2.2 Concrete objectives 9

3 SUBJECT AND SCOPE OF THE RESEARCH 10

3.1 Subject of the research 10

3.2 Scope of the research 10

4 RESEARCHING METHODOLOGY 10

5 STRUCTURE OF THE RESEARCH 10

CHAPTER 1: RATIONAL FOUNDATION AND THE DEVELOPMENT OF AN ENTERPRISE’S BUSINESS STRATEGY 11

1.1 THE BUSINESS STRATEGY OF AN ENTERPRISE 11

1.1.1 Definition of business strategy 11

1.1.2 The role of business strategy 11

1.1.3 Levels of strategic management 12

1.1.4 Some business strategies in the actual banking sector 12

1.2 SETTING UP AND SELECTING THE BUSINESS STRATEGY 13

1.2.1 Setting up business strategy 13

1.2.2 Research on the business environment 14

1.2.2.1 Macro-environment 14

1.2.2.2 Micro environment 15

1.2.2.3 The External Factors Evaluation Matrix (EFE) 15

1.2.2.4 The CPM Matrix 16

1.2.2.5 Internal Environment 16

1.2.2.6 The internal factor evaluation matrix (IFE) 16

1.2.3 Setting up and selecting feasible business strategies 16

1.3 THE CHARACTERS OF BANKING SECTOR THAT AFFECT DEVELOPING STRATEGY 19

1.3.1 Potentials and needs of using banking services 19

1.3.2 The management of State bank 19

1.3.3 The development level of related and supporting sectors 19

1.3.4 Competitors 19

1.3.5 Internal factors of the bank 20

CHAPTER 2: STRATEGIC ANALYSIS OF PETROLIMEX GROUP COMMERCIAL JOINT STOCK BANK (PG BANK) 21

2.1 GENERAL OVERVIEW OF PETROLIMEX GROUP COMMERCIAL JOINT STOCK BANK (PGBANK) 21

2.1.1 History of establishment and development of PG Bank 21

2.1.2 Organizational Structure: 23

2.1.3 Vision and Mission of PG Bank 24

2.2 EXTERNAL ENVIRONMENT ANALYSIS 24

2.2.1 Macro environment 24

2.2.1.1 Political and Legal Factors 24

2.2.1.2 Economic Factors 26

2.2.1.3 Cultural and Social Factors 29

2.2.1.4 Technological Factors: 30

2.2.2 Banking Environment 31

2.2.2.1 Pressure from suppliers 31

2.2.2.2 Pressure from customers 31

2.2.2.3 Competitors 31

2.2.2.4 Substitute products 35

2.2.2.5 Threats of potential competitors’ analysis 36

2.2.3 Opportunities and Threats 36

2.2.4 External Factor Evaluation Matrix (EFE) 37

2.2.5 Competitive Profile Matrix 38

2.3 INTERNAL ENVIRONMENT ANALYSIS OF PG BANK 40

2.3.1 Human Resources Analysis 40

2.3.2 Financial ability analysis 40

2.3.3 Marketing activity analysis 47

2.3.4 Technological activities analysis 48

2.3.5 Research and Development Activities Analysis 49

2.3.6 Strengths and Weaknesses 49

2.3.7 Internal Factor Evaluation Matrix (IFE) 50

CHAPTER 3: PROPOSED BUSINESS STRATEGIES FOR PETROLIMEX GROUP COMMERCIAL JOINT STOCK BANK (PG BANK) BY THE END OF 2015 52

3.1 PG BANK’S GOALS BY 2015 52

3.1.1 General development goals of PG Bank by 2015 52

3.1.1.1 Mission and vision of PG Bank by 2015 52

3.1.1.2 General development orientation by 2015 53

3.1.2 Specific Objectives 53

3.1.2.1 Human Resources Objectives 53

3.1.2.2 Financial Objectives 53

3.1.2.3 Business Objectives (Mobilization/Loan) 54

3.2 BUSINESS STRATEGY ANALYSIS 55

3.2.1 Internal and External Matrix (IE) 55

3.2.2 SWOT Matrix 55

3.2.3 SPACE Matrix 56

3.2.4 GREAT Matrix 58

3.3 SELECTION OF BUSINESS STRATEGIES 59

3.4 SOLUTIONS FOR IMPLEMENTING THE SELECTED STRATEGIES 60

3.4.1 Developing corporate culture and core values 60

3.4.2 Strengthening the financial capability 61

3.4.3 Human Resource Development 62

3.4.4 Modernizing the Information Technology 63

3.4.5 Strengthening the Marketing Activities 64

3.4.5.1 Market Research 64

3.4.5.2 Implementing Marketing Mix 64

3.4.6 Improving Processes, Regulations and Organizational Structure 67

3.4.6.1 Processes and Regulations 67

3.4.6.2 Organizational structure 67

3.5 RISK MANAGEMENT 68

3.6 RECOMMENDATIONS 70

CONCLUSIONS 73

REFERENCES 74

Our group would like to express our sincere thankfulness to the Directors, theStaffs and the Faculty from Center for Educational Technology and CareerDevelopment (ETC) – Vietnam National University (VNU), School of GraduateStudies (VNU); and Griggs University for having created us the best study conditionsand have encouraged us in all the time of research and writing this capstone

We have further more to thank PG Bank’s General Director, the Managersfrom the Headquarter and transaction offices of for their provided relevantinformation, data and their supports for our Capstone

We understand that due to our lack of experience and limited information, ourCapstone would have some shortcomings However, we would really appreciate allcomments and suggestions for improvement in order to make the Capstone become,somehow, more applicable and more meaningful to the current context

We affirm that the work of this Capstone is our own independent research Allinformation and data used are true and with traceable sources

LIST OF TABLES AND GRAPHS.

Unit Contain PageTable 1-1 Different phases in developing the strategy 13Table 1-2 The SWOT Matrix 17Table 1-3 The SWAT Matrix 18Table 1- 4 The GREAT Matrix 18Chart 2-1 PG Bank Organizational Chart 23Table 2-2 Structure of shareholders 23Table 2-3 Main Shareholders 23Graph 2-4 Quarterly GDP Growth in the period of 2008-2010 26Graph 2-5 Monthly Inflation Rate of 2010 27Graph 2-6 Fluctuations of Exchange Rate VND/USD in 2010 28Graph 2-7 Government Budget Deficit in the Period of 2005-2010 29Table 2-8 Typical competitors 32Graph 2-9 Banking product and service classification in Vietnam 35Table 2-10 PG Bank’s External Factor Evaluation Matrix 38Table 2-11 PG Bank’s Competitive Profile Matrix 38Graph 2-12 The situation of increase in liabilities of banking system 41Table 2-5 The business situation of PG Bank from 2008 to 2010 41Table 2-14 Capital mobilization situation of PG Bank from 2008 to 2010 42Table 2-15 Situation of liabilities based on debt quality from 2008 to 2010 42Table 2-16 The situation of liabilities in time series from 2008 to 2010 43Table 2-17 Loan situation in monetary units from 2008 to 2010 43Table 2-18 Loan situation for corporate outside of Petrolimex 43Table 2-19 Foreign Currency Trading Situation from 2008 to 2010 44Graph 2-20 ROA; ROE of some banks in the last few years 45Graph 2-21 Yearly ROA of PG Bank 46Graph 2-22 ROE of PG Bank throughout the years 46Graph 2-23 CAR of PG Bank throughout years 46Graph 2-24 PG Bank’s Internal Evaluation Factors 50Graph 3-1 PG Bank’s IF Matrix 55Table 3-2 PG Bank’s SWOT Matrix 56Table 3-3 PG Bank’s SPACE Matrix 57Table 3-4 GREAT elements matrix of PG Bank 58Table 3-5 Selections of prior strategies of PG Bank 59

LIST OF ABBREVIATIONS IN THE CAPSTONE RESEARCH

PG Bank Petrolimex Group Commercial Joint Stock Bank (PG Bank)

WTO World Trade Organization

WB World Bank

AFTA ASIAN Free Trade Area

CJS Commercial Joint Stock

Petrolimex Vietnam National Petroleum Corporation

IFE The Internal Factor Evaluation Matrix

EFE The External Factor Evaluation Matrix

SPACE The Strategic Position and Action Evaluation Matrix

GDP Gross Domestic Product

ROA Return on Assets

ROE Return on Equity

CITAD Inter-Bank Payment System

SWIFT Society for Worldwide Interbank Financial Telecommunication

CAR Capital Adequacy Ratio

USD United States Dollar

FDI Foreign Direct Investment

ICOR Incremental Capital-Output Ratio

LienVietBank LienViet Joint Stock Commercial Bank

Ocean Bank Ocean Commercial Joint Stock Bank

GP Bank Global Petro Commercial Joint Stock Bank

opened up with many opportunities for Vietnam, but in the same time it poses manychallenges as well Moreover, in order to survive and develop in the competitivemarket, an enterprise needs to have long- and short-term strategic business plans

1.2 The necessity of the research.

In the recent years’ economic context, Vietnam's economy has seenbreakthrough growth in many aspects It gradually stabilizes and opens up to theworld’s market, as well as normalizes relations with different organizations such asthe International Monetary Fund (IMF); the World Bank (WB) and joined theASEAN Free Trade Area etc The banking sector, with its specific business role, has

an important influence on the development of the country's economy andsimultaneously it is also very sensitive to the changes of economy, politics and societyboth domestically and internationally

On the other hand, the competitive pressure is fiercely increasing that requireseach bank to have its own strategies to sustain its market share and takes advantage ofopportunities and avoid the risks in the process of opening and integration More thanever, it requires every bank to make great efforts to develop an appropriate strategicorientation in order to overcome challenges, improve competitiveness and developsustainable In short, strategic management is regarded as the basic businessphilosophy to help the bank achieve success in the long run

PG Bank is one of the Commercial Joint Stock Banks in Vietnam with a widenetwork of branches all over the country and has affirmed its position and reputation

in the market However, the bank still exposes some shortcomings that need to beovercome and improved to increase its competitive advantage Therefore, researchesand suggestions are extremely necessary for the strategic development of PG Bank inthe period of 2010-2015 Those will help PG Bank develop stably, overcomechallenges and seize opportunities especially when Vietnamese economy is in thetransition of regional to international integration Moreover, this is also the concern of

PG Bank’s Board of Directors in order to develop the bank according to the plannedorientation: Secure-Trust-Effectiveness, as much as maintain and strengthen its brandand recognition For these reasons, our group has chosen the title “PG Bank’sBusiness Strategy in the period of 2011-2015” as our capstone research

The study summarizes the development and strategic management of PG Bankfrom its humble beginning, identifies the current strengths and weaknesses, andrecognizes the opportunities and threats for the future development

Our group has our research done with the information and data from previousstrategic implementations, forecast of the world’s economy, the country’s situation inthe period 2011-2015 and future orientation of PG Bank to develop strategy for it inthe period of 2011-2015

1.3 The meaning of the research.

Setting up an overall orientation in the period of 2011-2015 with clearobjectives to announce broadly within the bank and mobilize the inputs tosuccessfully perform the assigned goals

2 OBJECTIVES OF THE RESEARCH.

2.1 Overall objectives

Creating PG Bank a rationale for sustainable development and becoming one

of the leading financial institutions in Vietnam

2.2 Concrete objectives

Forming and developing breakthrough strategies for PG Bank in the period of2011-2015, namely in the below listed solutions:

 Developing the bank’s culture philosophy

 Heightening the financial capacity

 Bettering the service’s quality

 Investment for development and increase the market share

3.1 Subject of the research

The capstone focused on researching the business of PG Bank in the last fewyears, based on the factors that affected the business strategy, and completing thestrategic business for the bank as well as solution to accomplish the set goals

3.2 Scope of the research

Scope of the research is mainly the business activities of PG Bank and somecompetitor in the same industry

4 RESEARCHING METHODOLOGY

Rational foundation for this capstone research deprived from the guidelines,policies, practice-oriented activities of banking sector in Vietnam, theory of strategicmanagement, marketing management, information and data from different websites,magazines, and reports of many banks

Apart from the foreword and conclusion, the capstone is structured as follows: Chapter I: Rational Foundation and the Development of an enterprise’sbusiness strategy

Chapter II: Analyzing PG Bank current business strategy

Chapter III: Business strategy of PG Bank by 2015

CHAPTER 1: RATIONAL FOUNDATION AND THE DEVELOPMENT OF

AN ENTERPRISE’S BUSINESS STRATEGY.

1.1 THE BUSINESS STRATEGY OF AN ENTERPRISE.

1.1.1 Definition of business strategy.

According to the Strategic Management textbook issued by Griggs University:

“Business strategy is a set of goals and policies set up by a group of people It decidesmethods and locates the business to improve profitability, create economic value for

the owners and shareholders Strategy helps to answer two key questions: “Whatindustry we should be involved in?” “How will we compete?”

According to Michael Porter, strategy is to create a unique position and value,including the differentiation, the choices with changing-will to extract the most of allresources, from which creates advantages for the company

In other words, strategic is direction and scope of an organization in the longterm to gain a competitive advantage through mobilizing and formatting its resources

in a changing environment in order to achieve a certain purpose, to meet the market’sdemand and satisfy the expectations of different parties

Thus, the strategy relates to the objectives of the enterprise It is the way ofimplementing selected actions and methods coordinating all the resources andcapacity like opportunities and threats of the external environment, the choice andtrade-offs in the competition to create the harmonization among the company’sactivities

There are five tasks in strategic management: Develop the prospectedstrategies and mission; Set goals; Build strategies to achieve goals; Implement andperform the selected strategy; Evaluate, monitor, repair and adjust if necessary in eachtask (Source: The Textbook of Strategic Management – Statistical Publishing House,2009) As a result, strategic management is a continuous activity to establish andmaintain strategic direction and business operations for an organization in order toresolve challenges

1.1.2 The role of business strategy.

In the market economy context with increasing competition, a company needs

to have better management strategies to get more opportunities and actively make use

of the competition in the market With strategies, a company will become more agileand dynamic in the market’s vicissitudes, come up with the right decision and controlthe operations, take advantage of the opportunities and weaknesses, overcome threats,strengthen the competitiveness and maintain market share position

On the other hand, during the existence and development, specialization hasallowed improving productivity, efficiency of the business Therefore, to make the

most of available capacities and create a new competitive advantage, the enterprisehas to be the fastest to seize the opportunities in the market.

In short, we can say that strategy and strategic management have a crucial role

in the operation an organization, they contribute to the successes and failures of theenterprise Strategic management makes a company active rather than reactive againstthe future

1.1.3 Levels of strategic management.

There are different strategies used in an organization, but basically there arethree levels that used frequently:

Company level: Set up goals and business activities of the company, createpolicies and plans to achieve the goals

Business level: Determine the business market of the company, thesegmentation and products for each market

Strategy level: Define solutions and plans for each business field

1.1.4 Some business strategies in the actual banking sector.

Banking is a specific sector, therefore it also have some remarkable businessstrategies as follows:

Improving market share: strengthen and improve the bank’s image andreputation to resolve debts, improve product quality and services to attract customers,maintain and develop the market share

Diversifying products and services: diversify products and services in differentoperations to satisfy the customers’ highest demands and attract new customers

Strategy to expand distribution network: diversify and expand the bank'sdistribution channels, widen the providing areas to bring customers the mostconvenient way to exchange, and therefore attracts more customers and increases thecompetitiveness

Focus: the company collects all its resources to achieve the objectives ofgrowth and high efficiency

Differentiation: develop plan based on the available strengths andcharacteristics to achieve the goals

1.2 SETTING UP AND SELECTING THE BUSINESS STRATEGY.

Setting up business strategy is the process of determining the objectives, andbasic tasks of a company’s business activities, the best way to implement theobjectives and key tasks Process of setting up strategy includes the following basicsteps:

1.2.1 Setting up business strategy.

We can summarize the phases and activities through the following table:

Table 1-1: Different phases in the process of setting up strategy

Phase Content

1 Systemizing the information

2 Combine information to come up with feasible strategies

3 Use all general evaluated information to select the best strategy for thecompany

Setting up strategy is the process of establishing business mission, surveying toidentify the limited internal and external factors, listing long-term long - term goalsand selecting among alternative strategies This phase can be called as the phase ofstrategic planning

Phase 1: Strategists work with data collection, combined with intuitive, real

analysis and selection made with alternative strategy through a number of strategicmanagement techniques such as External Factors Evaluation matrix (EFE), InternalFactors Evaluation matrix (IFE)

Phase 2: By using the arrangement of elements collected from the internal and

external environment of the enterprise to make the strategy feasible by using toolssuch as the SWOT matrix, the SPACE matrix

Phase 3: By using the information in stage 1, objective evaluation in phase 2 to

choose a business strategy through a number of key tools like the QSPM matrix, theGREAT matrix

To ensure the highest effectiveness during operations, strategists are forced tomake strategic decision that will benefit the company most Decisions in the period offormation will attach the organization to its products, markets and technologies in aprolonged time The competitive advantage in the long term is defined in the strategy.This is a very important phase of strategic decision, because it will have long-termeffects: either better or worse or for organization

1.2.2.1 Macro-environment.

This is one of the two elements of the external environment that can influencethe performance of business goals The external environment is the factor outside theenterprise, in which administrators do not control the impact on the operation of thebusiness Macro-environment includes:

Thus, analyzing the macro environment helps to identify changes from theelements of the external environment It allows banks and businesses realize theopportunities and challenges from the macro environment

1.2.2.2 Micro environment.

Micro environment is a range of factors directly to the bank, other competitiveactions and the competitive reaction of the bank The business in the same sector isinfluenced by the micro environment of the industry, including:

 Potential Competitors

 Current Competitors

 Customers

 Providers

 Substitute financial markets

For that reason, analyzing factors in micro-environment will allow businesses

to identify the opportunity that they can take advantage of and challenges and risks

that they face that resulted in the change the five forces, thereby build the appropriatestrategy.

1.2.2.3 The External Factors Evaluation Matrix (EFE).

The EFE Matrix is built following these five steps

 List factors: Gather a list of external factors Divide factors in to twogroups: Opportunities and Threats

 Assign a weight to each factor The value of each weigh should be between

0 and 1.0 means the factor is not important 1.0 is very important The totalvalue of all weighs should equal 1.0

 Assign a rating to each factor Rating should be between 1 and 4 Ratingindicates how effective the firm’s current strategies respond to the factor.1= the respond is poor, 2= the respond is below average, 3= above average,4= superior

 Multiply each factor weight with its rating This will calculate the weightedscore factor

 Add all weights scores for each factor This will calculate the totalweighted score for the company

1.2.2.4 The CPM Matrix.

This matrix shows a clear picture to the Company about their strong points andweak points relative to their competitors in the same industry This matrix is theextension of EFE Matrix with the weight for each factor, meaning of each weight andtotal weights score The CPM matrix is different from the EFE Matrix because someimportant factors are used for compare Total weighted score of the competitors will

be comparing with the chosen model institutions

1.2.2.5 Internal Environment.

This is the process of analyzing internal environmental or analyzing theconditions and resources of the bank It can be understood as the analysis of internalelements of the banking system that can be mobilized and controlled to do business.Internal environment includes of tangible and intangible elements appear in theoperation of the business and directly influence the strategic management process.Every business has different internal environment The analysis of internal

environmental will allow identifying the strengths (S) and weaknesses (W) of thebusiness Since then, the chosen the strategy needs to maximize its strengths andovercome the weaknesses of the business.

1.2.2.6 The internal factor evaluation matrix (IFE).

The IEF Matrix is set up through 5 steps:

 List factors including strengths and weakness that affect the company

 Classify the weight of each factor base on a scale 0 – 1

 Identify the weigh for each factor base on a scale from 1 to 4

 Multiply the weight of each factor with its rating to have the weighted score

 Sum the weighted score for each factor to have to total weighted score

If the total weighted score of the Matrix is below 2.5: the company is weak atinternal factors and if it is above 2.5: the company is strong at internal factors

1.2.3 Setting up and selecting feasible business strategies

Using IFE and EFE matrices to determine the current position of the enterprise,this means to add weighted scores of EFE Matrix’s vertical axis and IFE’s horizontalaxis The connection point of two axes shows us where the company is and whatstrategy should it use in the future

The SWOT matrix: Are tool combines strengths (S), weaknesses (W),opportunities (O) and threats (T) from the environment to come up with strategies

Through SWOT matrix, following strategy could be planned:

 SO Strategy: Using internal strengths to make use of external opportunities

 WO Strategy: Overcome weaknesses by make use of external opportunities

 WT Strategy: minimize risks to avoid external threats

 ST Strategy: Using strengths to avoid risks

When analyzing strategy, SWOT Matrix is used This is the suitable model toevaluate the status of the company through evaluating internal Strengths andWeaknesses, external Opportunities and Threats of the company The SWOT Matrixfilters information in an easily understandable way

Table 1-2: The SWOT Matrix

SWOT Matrix Strengths (S) Weaknesses (W)

Opportunities SO strategy: Using strengths to WO strategy: Overcome

To analyze the SWOT of an enterprise, we have to take into account of:

Strengths: Advantages, main and necessary resource of the enterprise

Weaknesses: Know your weaknesses to avoid and overcome We need to look

at all the internal and external factors as well as our competitors to improve thecompany situation

Opportunity: Make use of opportunities and avoid wasting opportunity

Threats: Knowing what threats are happening Analyzing if the change intechnology causes any threats for the company? Which threats need to be warnedabout?

Selection strategy is an important stage of the whole business strategy process.The strategists will, based on the analysis from the input control phase, to select theoptimal strategy to implement The analysis of strategic choice is mainly subjectivedecision, because it is mainly based on objective information Identifying the rightprocess will help the companies can fulfill their responsibility and goals There aremany methods and tools to support the evaluation and selecting strategy, however thiscapstone only mentioned tools that support effective strategy selection, which areSPACE and GREAT Matrices, in which SPACE Matrix is an effective measure todetermine the strategic decision of the company:

Table 1-3: The SPACE MATRIX

The factors include Financial Strengths (FS), Competitive Advantage (CA),Environmental Stability (ES) and Industrial strengths (IS) of the company

The GREAT Matrix is form according to the following scheme:

Table 1- 4: The GREAT Matrix

Indicator Weig

h

StrategiesStrategy 1 … Strategy nRatin

g

WeightedScore

Rating

WeightedScore

1.3.1 Potentials and needs of using banking services.

The potential is the element that affects the company the most The listedfactors can help us the need for future banking service:

 The increase of population in urban area, the increasing amount ofindustrial zones and residencies leads to the increase in need of bankingservice

 The average income of the people increases The volume of needs is gettingbigger and the bank can make use of the scale improve business activitiesand services.

 Activities with foreign partners

 The structure of total payment

1.3.2 The management of State bank.

The State Bank (SB) is a state agency managing the currency This is theagency responsible for issuing currency, managing money and advising policiesrelated to monetary for the government such as issuing currency, exchange ratepolicy, policies on interest rates, management foreign reserves management, drafting

a bill on banking, credit The bank transfers financial policies in the economyTherefore, when developing strategies every bank is governed by laws and regulationsissued by SB

1.3.3 The development level of related and supporting sectors.

The development of the bank is not separated from the development of theconcerned sectors and supports such as securities, insurance, information technology(IT) These aspects support each other and help the business to develop

The development of this field raises capital and channels for new investment,reduce risk, reduce transaction costs The IT creates credit cards, automated tellermachines, etc

Therefore, the presence and development of related and support fields willincrease the productivity and competitiveness to the banks

1.3.4 Competitors.

The competitors always know each other, therefore strategic confrontationshappen often On the other hand, banks have to compete and in the same timecooperate because the failure of a bank will adversely affect the whole safety system

of credit institutions

1.3.5 Internal factors of the bank.

Banking is a sophisticated service sector with high risk, therefore, the bankingindustry requires highly on human resources, capital, technology base and science

Human resources is reflected in factors such as: the level of education,professional proficiency, motivation, level of attachment to the enterprise, manner andworking style.

The capacity of technology: Technology is the most important component inthe bank It helps shorten the operation time, improve accuracy, bringing convenientbanking services, developing modern services, informing risk within the bank

Reputation of the bank gains customers’ trust, attracts customers, enhancescompetition

The level of product diversity and quality services for our customers: banksoffer many types of services in accordance with the market’s demand will make thebanks to have advantage, create the banks more stable development and gain highefficiency

Network operating system is very important to the operation of banks

Management capacity and organizational structure: Good managementcapacities maintain and improve the operational efficiency of the bank Theorganizational structure of banks is reflected in the division of functionaldepartmental, the supporting divisions and the relationship among them

In short, the enterprise should always identify annual and long-term goals forthemselves in business process Business strategy is the path to reach the goal InChapter I, our group has mentioned general concepts of strategy and strategicmanagement, which are the basis for the development, selection and implementation

of strategies These are also theoretical foundation needed to do the research on status

of PG Bank and applicable business strategy for PG Bank’s business activities

CHAPTER 2: STRATEGIC ANALYSIS OF PETROLIMEX GROUP COMMERCIAL JOINT STOCK BANK (PG BANK).

JOINT STOCK BANK (PGBANK).

2.1.1 History of establishment and development of PG Bank.

The initial name of Petrolimex group commercial join stock bank(abbreviation: PG Bank) was Dong Thap agricultural commercial joint stock bank In

1993, Dong Thap agricultural commercial joint stock bank was licensed to operatewithin Dong Thap province with the chartered capital of 700,000,000 VND by thegovernor of State Bank of Vietnamese Implementing the strategy of restructuring thebank, in July 2005, Dong Thap agricultural commercial joint stock bank invited newshareholders, increased the chartered capital to 90 billion VND Some newshareholders were financially potential and experienced in the financial fields such asVietnam Petrolimex Corporation (Petrolimex), Saigon Securities Institution (SSI) InMarch 2007, PG Bank was licensed to change into urban commercial bank according

to Decree no 125/QĐ-NHNN date 12/01/2007 and changed its name to Petrolimexgroup commercial joint stock bank according to Decree 368/QĐ-NHNN date08/02/2007 Consequently, PG Bank has the ability to expand its network nationallyand conduct international payment jobs, trade foreign currencies On 17th March

2010, PG Bank officially changed it’s headquarter from Dong Thap to Hanoiaccording to Decree no 3209/QĐ-NHNN date 25/12/1009 The new headquarter ofthe bank is Office no 5, building 18T1-18T2, Trung Hoa Nhan Chinh new urban zone,

Le Van Luong street, Nhan Chinh ward, Thanh Xuan District, Hanoi

The developments of PG Bank:

 On 26th June 2007, PG Bank officially opened its branch in Hanoi,marking its participation in heated bank market of major economic area –Hanoi

 In December 2008, PG Bank increased its chartered capital to 1,000 billionVND

 In November 2008, PG Bank was classified as “A level bank” by StateBank of Vietnamese and allowed to do international payments

 On 29th March 2009, PG Bank was awarded as Strong Vietnamese Brand

2008 by Viet Trade Promotion Agency and Vietnam Economic Times

 In December 2009, PG Bank was proudly awarded as Top Trade Services

2009 by Ministry of Commerce and Newspaper of Trade

 N 4th April 2010, PG Bank was awarded as Strong Vietnamese Brand

2009 This is the second year that PG Bank was awarded this prize

 In December 2010, PG Bank was proudly awarded A level bank in 3consecutive years by State Bank of Vietnamese (According to report no2097/NHNN-HAN8 date 14/12/2010)

 PG Bank was one of the top banks operating in financial services awarded

“Top Trade Services 2010” This is the second year that PG Bank wasawarded this prize

 Total assets calculated until 31st December 2010 were 16,378 billion VND,increased 58% in comparison with 2009; liabilities were 10,886 billion,increased 74% in comparison with 2009(industry growth rate 27,65%);Profits before tax were 316.8 billion, reached 109% plan with 29% profitbefore tax ratio and 22% profit after tax, increased 7% from 2009 Thechartered capital was 2,000 billion

 Until 2010, PG Bank had 64 branches, transaction offices, and commercialcenters in major economic areas of Vietnam Following the common trends,

in the future, the network of PG Bank will be expanded nation-wide

2.1.2 Organizational Structure:

(Source: Annual Report of PG Bank 2010)

Chart 2-1: Organizational structure of PG Bank

By 30th December of 2010, the structure of shareholders is:

Table 2-2: Structure of shareholders

Shareholders Number of shareholders Equity capital Ownership ratio

Table 2-3: Main shareholders

Shareholders Type of shares Total value Ownership

ratioVietnam Petrolimex

Corporation (Petrolimex) Common shares 800,000,000,000 40%

Saigon Securities

Institution Common shares 199,500,000,000 9.98%

Shareholders’ meeting is organized once a year, after 5 years (except firstyear), the election is organized to appoint, dismiss the positions of chairman,controlling board, to approve development directions and target annual growth rate

In general, organizational structure of our bank has been specialized to createmost favorable environment for product developments

2.1.3 Vision and Mission of PG Bank.

PG Bank is committed to become one of the leading commercial bank inVietnam PG Bank has been striving to build skilled, devoted staff to create addedvalues for corporate and personal customers through wise financial solutions with lowcosts, making sure customer satisfaction

PG Bank always tries to create unique organizational culture in the period ofworld integration The corporate culture focuses on 5 core values

 Compliance

 Sense of responsibilities

 Creativity

 Professionalism

 Always strive towards efficiency

With these above directions, despite 18 years of operations, PG Bank has beenactually recognized in recent 3 years and become a sparkle in the financial andbanking market in Vietnam

2.2 EXTERNAL ENVIRONMENT ANALYSIS.

2.2.1 Macro environment.

Macro environmental factors affecting business activities are:

2.2.1.1 Political and Legal Factors.

Politics: Vietnam is the socialist republic country The political system onlyaccepts one party regime- Vietnam Communist Party with the motto: CommunistParty leads, State manages and People take control Vietnam is recognized as havingthe most stable politic in Asia Socialist-directed market mechanism will continue to

be developed and completed Many economic policies will be modified, complement

to create legally favorable conditions for investors This is the firm foundation foreconomic development activities for banking generally and stable environment for PG

Bank particularly, especially in the environment in which major shareholders isPetrolimex The stable politic gives ground to receive support from Petrolimex.

Legal framework for bank activities: Legal framework for banking activitieshas been improved to meet the needs of world economic integration, increased theeffectiveness of bank’s cash flow, for example: State Bank of Vietnam’s Law andLaw of Credit Agencies were modified and completed in 2003 and 2004 Especially

on 16th June 2010, National Assembly of Vietnam introduced State Bank ofVietnam’s Law and Law of Credit Agencies and is going to officially enforce theselaws from 1st January 2011 New modifications are aimed at establishing modernbanking system, suitable with banking practices and world standards, reducingintervention of governmental agencies into banking activities The legal framework iscontinuously improved and modified, loosening control over banking services andfinancial market such as Law of Assignment Instruments no 49/2005/QH11introduced on 29th November 2006, Law of Securities no 70/2006/QH11 introduced

on 29th June 2006, Law of Electronic Transactions no 51/2005/QH11 introduced on29th November 2005… PG Bank operates in the set legal framework which createsfoundation for development directions

Monetary Policy Administration: In administration, State Bank of Vietnam hasmade some certain success in administering monetary policies, gradually stabilizingvalue of Vietnam currency, promoting economic growth, ensuring stability anddevelopment of banking system The used instruments of monetary policies areindirect ones such as open market operations, currency exchange which replacedadministrative instruments Interest rates were liberalized, exchange rate was changedfrom fixed exchange rate system to flexible exchange rate system regulated basing oneconomic environment Foreign currency, credit and international paymentadministration regimes are loosened and flexible Banks have more control andresponsibilities Policies about bankruptcy, merger, organizational structure, loanregulations, deposit guarantee, credit risk management, and fund management willaffect bank business activities

2.2.1.2 Economic Factors.

Economic Growth: In 2010, Vietnam economy continued to recover rapidly

after global economic recession The graph 1 shows the GDP growth rate from 2006

to 2010, average GDP growth rate was 7% per year and GDP per capita was 1,160USD in 2010

Graph 2-4: GDP growth rate from 2008 to 2010

Growth indicators of many industries demonstrated clear recovery signs.Industry is the major driver of Vietnamese economy Industrial production valueindex was calculated to increase 14% in comparison with 2009 In industry, servicesector also recovered after recession but at a slower pace The growth rate of servicesector was 7.5% in 2010 Total values of agricultural, forestry and aquicultureproduction increased 2.8% Increasing GDP is good ground for PG Bank to expand itsnetwork

Investment: Economic recovery is an important reason for promoting

investment Social venture capital yielded positive results in 2010 Estimated, totalsocial venture capital was 800 billion VND, increased 12.9% from 2009 and made up41% of GDP Investment capital from individuals and residents was 31.2% of socialventure capital, state investment capital was 22.5%, increased 4.7% from 2009 Theseresults show that domestic potentials were positively gathered In terms of foreigndirect investment (FDI), until November, our country attracted 883 new projects with13.3 billion USD registered capital, equals to 60% of this last year Operating capitalwas 10 billion USD, increased 9.9% Even though FDI registered capital was lowerthan this in 2009, operating capital over registered capital ratio was much higher This

can be considered a good point in attracting FDI in 2010 The fact shows us the term commitment of foreign investors to Vietnamese market On the one hand, highgrowth rate of capital demonstrates the accumulated relations – consumption hasmoved positively On the other hand, it showed limitations in capital efficiency If in

long-1997, the growth rate had been 8.2% with investment capital 28.7% of GDP; with thesame growth rate (8.5%) we would have invested 43.1% of GDP Until 2010, whentotal social venture capital was 41% of GDP, growth rate was only 6.7% ICOR ratewas excessively high, more than 8 in comparison with 6.6 in 2008 ICOR index ofcompanies, especially limited liability companies was 3-4 while ICOR index of stateeconomy and state investments was 9-101 Besides, there were the delays indisbursement in investment from state budget and government bonds, wastes, losses

of investment due to administration All the features are alarming in both long-termand short-term perspectives In the situation, PG Bank will face challenge inestablishing development policies for specific group of customers and industry

Inflation:

(Source: General Statistics Office)

Graph 2-5: Inflation rate in 2010 throughout months

Inflation rate and prices of 2010 are exceptionally high deriving from manyreasons First, economic recovery encouraged the increasing needs for goods andservices especially food In addition, the disasters and floods in middle part ofVietnam increased the needs even more Second, prices of some imports in the world

costs of many companies Third, exchange rate adjustment depreciated Vietnam Dongtherefore increased importing costs In return, prices of goods and services rosedramatically Moreover, there still existed some old reasons causing high inflation inVietnam They are lack of financial disciplines in public investment and operatingactivities of state-owned enterprises and corporations As a result, investmentstimulation by loosening credit loans for state-owned companies and corporationtogether with lack of assessment and thorough supervision attributed to the highinflation Discount rate adjustment as well as rising loan interest rate of commercialbanks at the end of 2010 pushed the inflation rate not only some last months of 2010but also some beginning months of 2011

Exchange Rate: In recent years, State Bank of Vietnam consistently

maintained stabilizing Vietnam Dong in comparison with US dollar policies.Exchange rate developments are quite complicated in 2011

Graph 2-6: Fluctuations in exchange rate VND over USD

As shown in the graph, exchange rate in the last quarter fluctuated andVietnam Dong was depreciated, foreign currency market was tense Instability ofexchange rate which was rooted from macroeconomic unrest such as over-expenditure, trade deficit and low capital efficiency made demand for foreigncurrencies higher supply In the context of increasing inflation and instability ofmonetary market, it is required that we should make wise decisions to manageexchange rate, reduce inflation and stabilize monetary market

The impacts of inflation and exchange rate were challenges for PG Bank inforecasting to operate liabilities/assets administration policies, making sure best use of

Government Budget.

Graph 2-7: Balance Sheet from 2005 to 2010

As it can be seen from the graph, state balance sheet is estimated to be 637,200billion VND, increased 9.4% from expected, increased 9% from 2009 Overexpenditure was estimated to be 117,100 billion VND, increased 5,95% of GDP,decreased from 2009 (6,9%) and decreased from plan (6,2%) These were positiveresults in the context of depression recovery However, over-expenditure was stillhigh (not lower than 5% as before)

Generally, some of macro factors have significant influences on capitalmobilizing and loan activities of PG Bank Nevertheless, with professional leaders,

PG Bank overcame difficulties and developed better than other banks

2.2.1.3 Cultural and Social Factors

Results of population and housing investigation showed that Vietnam has the3rd biggest population in ASEAN and 13th biggest population in the world.According to the investigation of Bureau of Statistics until 2009, Vietnam has 86,024thousand people, urban population made up 29,6%, countryside population made up70,4%, population structure tended to increase in urban population because of rapidurbanization, increased 9.47 million people from 1999 Annual average populationgrowth rate from 1999 to 2009 is 1.2% per year, decreased 0.5% per year incomparison with 10 years before and is the lowest rate in the past 50 years Hanoi hasthe 2nd biggest population in Vietnamese with 6,448,837 people It is forecast thatuntil 2020, urban population will make up 40% to 50% of total population Populationsize and population structure affects the needs and development potentials of banks

Therefore, when population grows, population structure will move to urbanpopulation side, needs for banking services will develop Rising income and improvedliving standards are favorable conditions to develop financial services such asincreasing deposits, more services and products are widely used.

Together with GDP growth, GDP per capita increased as well At the end of

2009, Vietnamese escaped from poor country list and joined low and average incomecountry list with GDP per capita 1,000 USD and expected GDP per capita 1200 at theend of 2010 Growing GDP per capital of Vietnamese improved living standards andsavings Consequently, people have the needs to invest in many fields as well as tomake loans for consumption All of them have to come to financial market to seek forinvestment consultancy, portfolio management, agencies, fund management,insurance… The needs for financial and banking services will increase Improvedliving conditions give opportunities for financial and banking sectors to thrive PGBank has realized this opportunity and at the end of 2010, PG Bank establishedRetailing Banking to develop personal customers professionally

VN Top, to pay electronic bills, taxes, and train tickets

Internet processing has been implemented in almost every bank; many jobshave been done online

PG Bank has shown careful attention, constant developments, modern servicesand payments to help customers make transactions easily Modern software

developments allowing customers to transfer money, deposit online have contributed

to the success of PG Bank

2.2.2 Banking Environment.

2.2.2.1 Pressure from suppliers.

Materials, equipment of the bank are mainly computer, software about bankingactivities, printing papers, posters, stationery… Therefore, the bank doesn’t suffer anypressure from suppliers since there are many domestic and foreign suppliers withcompetitive prices and services Every year, PG Bank opens bidding for differentpackages of stationery and office equipment so that we can choose suppliers withhigh-quality products, competitive prices This is an advantage bringing manybenefits for PG Bank

2.2.2.2 Pressure from customers.

Customer is the determining factors affecting the survival of banks in thehighly competitive environment Customer is an integral part of banks; loyal customer

is a competitive advantage of every bank Customers are not consistent They can bedepositors, borrowers and banking services users Customer loyalty is built based oncustomer satisfaction and desire for better services Therefore, the bank needs to haveflexible customer strategy to serve satisfactorily and to ensure profits Banks need tohave specific customer care services such as traditional customers, strategiccustomers, potential customers, unusual customers… With different group ofcustomers, we should have customized customers’ packages Each bank has its owncustomer care and this is the way to retain and attract customers Being aware of thisfact, PG Bank has conducted Customer Relationship Management (CRM) This is thecomprehensive solutions aiming to create, maintain customer relations This skill isapplied in the bank by dividing personal customer and corporate customer division tospecialize customer care from the very beginning

2.2.2.3 Competitors.

According to an investigation, total assets of 43 big-sized banks and financialcompanies until 31st December 2010 increased 28% from 2009, gained 3,515thousand billion VND (175 billion USD) Total liabilities increased 21% to 1,917thousand billion VND (96 billion USD) and debt/GDP ratio is 100% Meanwhile,

non-performing loan was reported to be 2.2%, net profit was 2.7% return on equity(ROE) was below 13%.

This shows that the market for PG to develop is very large The competitorsare all banks that have branches and transaction offices in the same areas as PG Bankhas However, we chose some of the following banks to analyze

Criteria: Owner equity, assets, liabilities, equivalent mobilization, trademarkeasy to cause confusion, growth rate over years

Table 2-8: Typical Competitors

Criteria PG Bank GP Bank Ocean Bank Lien Viet BankTotal assets 16,378 27,731 55,139 34,985Mobilized capital 13,995 23,447 50,427 30,421Loans 10,886 8,844 17,631 10,114Profits before tax 293 275 691 759Chartered capital 2,000 3,018 3,500 4,106ROE 20% 11.59% 20.6% 16.6%ROA 1.6% 1.32% 1.2% 2%Capital Adequacy Ratio (CAR) 20.64% 14.75% 12.3% 14.5%Bad debts ratio 1.42% 1.83% 1.7% 0.4%Source: http://www.stox.vn/News/nganh-ngan-hang-viet-nam-a-helicopter-view.html

Every bank has its own strengths and products customized for differentcustomers To clearly understand the competitiveness of banks, we chose to analyzethrough competitive profile matrix

Beside chosen banks, the remaining banks have their own competitivestrategies Despite the size, they have certain competitive strategies and we would like

to analyze the following activities

Deposits: In order to increase deposits, some banks offer higher interest ratethan market interest rate This is called “interest rate fight” by media This model ofcompetition badly affected small banks which don’t have strong financial potentialand competitiveness For example, on 8th December 2010 Techcombank launchedprogram “Save gold for 3 days with 17% annual interest rate” even though State Bank

of Vietnam set the maximum interest rate of 14% This kind of activity didn’t lastlong but it directly affected capital mobilization of some banks including PG Bank

In addition, some banks organized a lot of promotional programs such as luckydraw, deposit and receive valuable gifts such as cars, houses… This activity in reality

didn’t improve banking services but led to promotional competition to stabilizecapital.

Many attractive ways such as rewarding deposits, deposits changed into gold,

US dollars, bonuses for staff who can mobilize large amount of deposits have causedinstability for the whole banking system

To deal with the situation, PG Bank was forced to compete, applying somepromotional program such as “High interest rate 5-star traveling”, “Small deposits-Receive big house” to retain customers and increase deposits

Loans: Small-size commercial banks such as PG Bank are dealing with harshcompetition from state-owned banks such as VCB, BIDV… Because state-ownedbanks have financial potential with stable developments, nation-wide network, access

to cheap capital from state-owned companies and foreign investors, it is possible tomake loan for projects with low possibilities of having profits

Even though it’s common to have price competition in loans, some banks canprovide new products with unbelievable prices, especially products of small-sizedcommercial banks having advantages such as loans for buying cars, loans for houserenovation, loans paid by installments with interest rate 0% for the first 3 monthswhen customers buy cars in CuuLong auto at Sacombank, loans with 1% whencustomers buy Mercedes at VIB…

Services: In recent years, commercial banks have made dramatic changes intobanking services developments From the very beginning of 2010, service competitionstrategies were implemented introducing new products and services to attractcustomers

If before, credit investment activities accounted for 85% to 90% of totalrevenues, 10% to 15% was from service fees, now, the structure is changed: 60% to65% from credit activities and 35% to 40% from service fees

Banks have been intensively develop online banking services, ATM servicesproviding convenience to withdraw money, transfer, payments, loans through cards,currency exchange… Banking services such as cards, currency trading, deposits,money transfer, consultancy, overseas national currency exchange, and discounts arebeing invested in terms of technology, equipment, human resources, marketing

activities, bran development to satisfy strong need to compete 30 out of 49commercial banks offer Internet Banking, Home Banking, SMS Banking, and Mobilebanking, etc Many banking specialists thought that 2 or 3 years more, Vietnambanking services can have access to world banking services.

Nonetheless, there were some limitations in providing banking services.Financial products of Vietnam banks are not enough to meet demands Even thoughforeign banks charge high fees, they offer diverse ad high-quality services thanks toprofessional staff Moreover, technology and administration advantage help foreignretailing bank offer more flexible services

Each service of commercial banks doesn’t build strong trademark, service size

is small, quality is low, poor competitiveness, and especially utility of some services

is not high That’s why there is only 20% of population using financial services ofbanks

Banking products and services such as Internet Banking, Home Banking, SMSBanking, and Mobile Banking haven’t attracted many customers while in othercountries, these services are popular Many small and medium enterprises (SMEs)have caught the habit of using commercial sponsorship program such as guarantee,money flow management, and derivatives management Card users who used cards topay usually are the ones working in finance, bank and tourism

Beside the reason that the bank hasn’t built its trademark yet, low-qualityservices, low utility, there are some objective reasons from weak cash-basedeconomy Because of habits and concealed incomes, gold deposit, safe renting andassets management don’t have enough chances to develop

Being aware of increase added services in income structure, PG Banksucceeded in developing electronic bank to compete with other banks, increasingcustomer values This helped to create more profits and set up foundation for furtherdevelopments

2.2.2.4 Substitute products.

Banking products and services in Vietnam are classified as follows

Graph 2-9: Banking product and service classification in Vietnam

Even though there are a lot of products and services, target users are naturalperson and legal entity

Legal entities mostly are companies Therefore, the possibilities of beingsubstituted is low since this group of customers need transparency, bigger financesize, stable flow of supplies so that they can set up strategic plans If there is anydifficulty in using products, customers are more likely to change to any bank instead

of finding a substitute Being aware of this, PG Bank stabilize its finance situation,offer comprehensive financial solutions such as short-term package (guarantee, L/C,credit), medium term package such as (medium term credit, cash flow management,etc.) to provide for companies so that the bank can increase its competitiveness

With personal customers, the possibility of being substituted is high.Previously, investors and personal customers usually deposit their idle money into thebank as investment However, part of idle money goes to real estate market, gold andforeign currency trading market (USD), securities market These are substituteproducts of banks Insurance industry offers many insurance products such as lifeinsurance; welfare … monthly insurance fee in years, insured people can withdrawdeposited money and gained interest on the deposited amount The model is similar tosavings of bank, if the bank doesn’t have strategy in mobilizing capital; it’s easy tolose its market share since customers can enjoy insurance and interest on theirdeposits Bank’s competitor of bank industry is securities market, companies canissue stocks to mobilize capitals for business operations instead of applying for loansfrom bank and this limits the credit activities of the bank

Being aware of the situation, PG Bank has developed many savings products toattract deposits from residents and economic organizations, issued bills to mobilize

customers to make transaction easily Therefore, PG Bank has experiencedunprecedented growth in capital mobilization rate, higher than last year and average

of the industry

2.2.2.5 Threats of potential competitors’ analysis

Beside direct competitors, the bank has to face with potential competitors Inthe world, banks are focusing on developing high-technology services, providingmaximized utility to customers, expanding market overseas Upon joining WTOVietnam will increase needs of banking services, especially international bank’sservices Domestically, companies having a lot of capitals want to invest in bankingsector by partnering with 2 or more big companies Branches of international banks:Even though they don’t have headquarters in the areas, they are potential competitors

in developing corporate customers such as joint venture companies, 100% owned companies operating in Vietnam Vietnam has potential insurance and inreality a number of insurance companies were established with a lot of consultantstaff such as Prudential, AAA, and BaoMinh, etc They are the potential competitors

foreign-of the bank in the field foreign-of capital mobilization Financial institutions and non-financialinstitutions providing customers, suppliers, goods by installments are also potentialcompetitors

2.2.3 Opportunities and Threats.

From external environment analysis, PG Bank has the following Opportunitiesand Threats

 Open financial service market will give opportunities for domestic banks toacquire technology, management to reform

 High needs for products, banking services: Population increases more andmore, incomes are growing, the habit of using cash is reducing The needsfor using banking services are potential

 Scientific and technological developments diversify banking products withmore utility, enabling to provide comprehensive service packages tocustomers, increasing income for banks

 Stable politics, favorable investment invitation policies encourage more andmore foreign investors to Vietnam, creating needs for banking services

 Banking system generates competition about market share, humanresources, causing disorder in strategies of the bank

 Insurance, securities market will develop more products to reduce themarket share of banks

2.2.4 External Factor Evaluation Matrix (EFE).

Using the method of diversifying external factors through some importantissues as presented in Chapter 1 We will see the ability to deal with changes ofexternal factors

Table 2-10: External factor evaluation matrix of PG Bank

External factors Weight

(2)

Ratin

g (3)

Weighted score(4)=(2)*(3)

1 Import and export turnover 0.05 3 0.15

2 Stable political environment 0.1 4 0.4