Evaluation on sources of fund and capital raising activities of military commercial joint stock bank of vietnam (MB)

BANKING ACADEMYFACULTY OF LANGUAGES

Quách Lan Hương

Trang Thị Huyền TrangVũ Thị Trinh

Hà nội - 2016

Main services and business activities 5

1 Savings deposit mobilization activities: 5

MILITARY COMMERCIAL JOINT STOCK BANK’S SOURCES OF FUND 9

I MB’s capital raising products: 9

1 Personal banking customer: 9

2 Corporate banking customer: 10

3 Factors affecting capital-raising activities of MB: 12

The commercial banking system with strategic domestic and foreignresources fund-raising activities plays an significant role in Vietnam economicgrowth It is fundamental for students majoring in economics, especially thosewho are studying in banking and financing sectors, to do research on fund-raising problems, methods and markets so as to build proper strategies and applythem into practice, to comply with the country’s capital requirements fordevelopement Facts and statistics have shown that Vietnam commercial banksfailed to fully realize their potential position as the amount of mobilized capitalis a small proportion of total assets, quality of credit is indequate, ratio of baddebts remains high, services are not diversified enough to meet the customers’demands and the financial situation of many banks is now in humble conditions.Particularly in the banking sector, fast growth of competitors and strictregulations pose big challenges for financial institutions Dealing with such asevere environment, approoriate solutions and policies must be drawn to takefull advantages of potential fund-raising from customers and eco-socialinstitutions to expand banking operation and enhance development.

Understanding this, Miffy Group has chosen Military Commercial Joint

Stock bank of Vietnam (MB), a distinguished commercial bank recognized for

its strong financial situation anf eminent customer experiences, to be the subjectof the case study Through the analyses of MB’s size and capacity performanceof fund in the period from 2013 to 2015 presented in this report, the bank’sstrategies of fund-raising are relieved such as their products and techniques.Brief descriptions of major factors affecting MB’s operation are provided aswell Lastly, there are recommendations for the bank in terms of fundmobilizations, loans and securities investment activities.

OVERVIEW OF MILITARY COMMERCIAL JOINT STOCKBANK OF VIETNAM

Military Commercial Joint Stock Bank of Vietnam, abbreviated as MB,

was founded on 4th November 1994 under the license issued by State Bank ofVietNam and valid for 50 years After 22 years of development, MB has becomeone of the strongest commercial banks with a sustainable position in Vietnam’sbanking and finance sector The main shareholders of MB are industrial, servingand financial institutions In addition to that, about 7000 individual shareholdersalso join hands in order to build up a potent bank The bank started its operationwith innitial capital of VND 20 million and 25 staffs Charter capital of MB in2010 was 7300 billion and this number is estimated to increase rapidly in theupcoming years, which will give MB the chance to be a big financial institution.It has been annually rated A ranking by State Bank and gained many impressiveachievements such as Vietnam Brand Award in 2005 and 2006, Vietnam TrustedBrand Award and Top 100 Vietnamese Brands in 2007, Vietnam Gold StarAward in 7 consecutive years and so on Late 2007, MB had expanded itsnetwork in almost all the cities and provinces in Vietnam with 65 branches, 3000staffs and expected to grow more It also focuses on enhancing internationalcooperation with more than 700 agencies in 75 countries all over the world.

Over the past 20 years, with the wish to become a wholehearted andreliable companion of customers, partners and shareholders, MB has beenmaking all efforts, heading towards the goal of sustainable development and

bringing about more added values MB’s values are not only evident in its assetsbut also in the intangible values that every staff appreciates and collaborates ofwhich include Reliability, Teamwork, Customer Care, Creative,

Professionalism and Performance-driven.

Being a business with a military origin, MB always pays attention andgives top priority to activities for gratitude, sharing losses and difficulties withwounded and diseased soldiers, family members and relatives of martyrs andwar veterans, and people with meritorious services to the revolution, etc In2014, MB allocated VND20 billion to these activities comprising multiplemeaningful programs, namely searching martyrs’ remains, building houses forsoldiers and families in difficult living conditions, supporting education,promoting community health and life, etc.

The Board of Directors, Board of Management and all employees of the Bankmake strong commitment to continue to be a safe and sustainable financial fulcrumfor all the customers; an efficient and stable investment destination for shareholders,and one of the prestigious financial organizations with active contribution to theimplementation of the monetary policies of the Government and State Bank ofVietnam.

MB developed strongly beyond the scope of a bank and step by step, became a group starting with the establishment of 2 member entities which are thang Long securities Co., Ltd, currently known as MB securities Joint stock Company (MBs) and MB assets Management Company (MBaMC) to diversify its range of servicesMB was established with the initial charter capital of Vnd 20 billion and the purpose of providing financial support to military enterprises.

After 8 years of effective operation, MB decided to reorganize itself to develop in a faster, stronger and more sustainable manner under the MB reorganization project accordingly, MB worked with a foreign consulting company to develop the 2004-2008 strategy with a vision towards 2015.

MB continued its business expansion with the establishment of hanoi fund Management Company (hfM), which is currently MB Capital Management Joint stock Company (MB Capital) MB successfully implemented the project of information and technology modernisation Core Banking t24 of temenos group (switzerland).

MB started the process of organizational restructuring, improvingand implementing the personnel strategy under the organizationalmodel of the period 2008-2012 Viettel group became a strategicshareholder and MB increased its share capital to Vnd3,400 billion.

MB completed the increase of its chartered capital to Vnd5,300 billion MB was awarded Labor Medal grade 3, and the iso 9001:2008 Certificate from Bureau Veritas Certification (UK) The 247 Customer Center was launched.

The MB’s first branch located in a foreign country was launched inLaos MB was assessed and rated e+ by Moody’s, a worldwidecredit rating organization MB achieved initial successes in theimplementation of the development strategy in the southern regionand invested in construction of the database center and theprovision center with the total investment capital of Usd10 million.

During the year, MB successfully appointed the new Chairman andtransferred its administration and military function to be under theMinistry of national defence and its Party Committee to be directlyunder the Central Military Commission Additionally, MB’s shareshave been successfully listed on Ho Chi Minh City stock exchange– HSX since 1 November 2011 MB implemented its strategicmodel for 2011-2015, as well as its business model and deployedstrategies for the Southern region, the Central region and theCentral highland MB sucessfully upgraded Core T24 from R5 toR10.

2011

II.General business activities:

Military Commercial Joint Stock Bank (MB) provides a wide range of

products and services The major offerings and activities include:

- Commerical banking activities in accordance with regulations by the State

Bank of Vietnam;

- Provide derivatives products in accordance with legal regulations;

- Act as an agent for insurance and related services in accordance with legal

- Trading bonds and other financial products in accordance with laws/legal

- Trade and process gold;

- For businesses that require special licensing, the Bank only operates in

those businesses when it is capable of meeting these condition accordance withlegal regulations.

Main services and business activities1.Savings deposit mobilization activities:

MB has implemented many solutions to attract funding sources to serve itsbusiness operations MB received savings deposits from corporates andindividual customers via numerous channels Deposits that come from corporateclients through MB’s sales network from CIB division (Corporate, InstitutionalBanking Division), SME division (Small & Medium Enterprises Division) andretail clients have all brought about favourable results MB has a diverse andflexible means of attracting deposits, which serves well to meet the diversifiedneeds of corporate and retail clients.

2.Lending activities:

MB has achieved good growth in terms of both the number of clients andsize of the loan portfolio.

MB’s credit approval process involves the Credit Committee (includingsenior executives) and thus warrants that the credit approval activity is executedwith the highest possible quality The Credit Committee serves all three maingroups of clients (large enterprises and financial entities; small & mediumenterprises; and individuals) with the goal of evaluating and making creditapproval decisions according to its given authority as specified in each period.MB has provided loans for corporates, institution and individuals with differenttypes and maturities, such as short-term, mid and long term credits, clean creditor collateralized loans in various currencies… MB has funded major defenseeconomic projects through lending activities Besides, MB has implementedcredit financing activities for customers such as large State owned corporations,small and medium enterprises, household as well as individuals, who have needsfor mortgage-back loans for consumption or running business.

3.Bank Guarantee:

MB provides a wide range of bank guarantee services, such as bid bond,performance bond, advance payment guarantee, guarantee for warrantyobligations, payment guarantee, tax payment guarantee, product qualityguarantee, etc MB’s bank guarantee services have significantly contributed toMB’s sources of income and have been efficient and prudent without anysubstantial risk events, Among domestic commercial joint stock banks, MB isone of the few with the highest revenues generated from bank guaranteeoperation since MB has a diverse client base operating in a large number ofindustries with high demands for bank guarantee services Moreover, MBpossesses the financial capacity and credibility to win business frombeneficiaries of these guarantees.

4.Payment services:4.1 Domestic payment:

MB offers a domestic payment service via its network of transactionoffices, ATM machines, e-banking system and agreements with other banks thatgives MB clients access to their payment networks Specifically, MB providesservices such as domestic payment, transaction account management for depositwithdrawals, balance management and other account management services.

4.2 International payment:

MB’s network of over 800 correspondent banks all over the globe meansthat its international payment services are effective, timely and well-respectedby its partners.

The international payment services that MB offers include Barter

transaction payments; Overseas outward remittance; Overseas inward

remittance; Documentary Collection including Documentary Collection AgainstPayment (D/P) and Documentary Collection Against Acceptance (D/A), whereMB acts as the collecting bank and transfer documents; Issuing export letter ofcredit with services including Advising and Amending L/C, Discounting L/C orConfirming L/C; Import letter of credit; Discounting bills from export letter ofcredit and International guarantee issuance.

5.Money Market and Forex trading:

With many partners that are banking and non-banking financial insitutionsboth in and outside of Vietnam, MB is an active player in the monety market.Trading in the money market helps MB utilize effectively its sources of capitalwhile managing liquidity and earning a reliable income stream.

6.Card services:

In 2004, MB started offering the debit card Active Plus for its clients Thisproduct has important features such as payment through POS, money transfervia ATM, and personal insurance for card owners The Bank successfullyestablished connections with the card union system Smart Link, enabling clientsto complete transactions from any ATM machine within the card alliance MB

has also officially become a member of Master Regarding the Visa Cardproject, MB succeeded in launching an internal payment system on December27, 2010 As of June 30, 2011, MB had issued in total of 398,500 cards;established 1,328 POS and installed 327 ATM machines Since early 2011, theBank has also launched the Visa Card and Master Card international credit cardprograms.

MILITARY COMMERCIAL JOINT STOCK BANK’S SOURCESOF FUND

I.MB’s capital raising products:

From 2013 to 2015, MB bank applied to capital raising products for 2types of customer with a variety of deposits There are 2 types of customers :personal banking and corporate banking.

1.Personal banking customer:

Personal banking customer of MB includes 3 types : current account,traditional saving and accumulated savings for corporate staff.

- Current account: With a payment account (current account), customers

can receive and keep their deposited money (VND, USD, EUR, etc, ) as well asuse the money in account for daily spending and payment Current account isunlimited for the times of deposit or withdrawal.

- Traditional savings: MB always brings customers the convenient

products Beside new products, MB still offers “traditional savings” including:advanced interest term savings, monthly interest term savings, in-arrear interestterm savings To enjoy this service, customers only need to bring the ID to anybranch/ transaction office of MB nationwide The product is flexible andconvenient for customers Interest can be paid in advance, on monthly basis or atmaturity

- Accumulated savings for corporate staff: this is a product with unique

characters to help customers know how to use their salary in an effective way.The salary will become a source of benefit Interest is earned on customers’actual depositing period and accumulated depositing balance Monthly depositamount may vary during the depositing period, based on the Deposits PeriodicalStatement corporations send to MB This is a term deposit in which deposits are

placed on a periodic basis to earn interest and aim at least long-term saving

purposes (Term: 12 months at minimum; Currency: VND, USD, EUR)

2.Corporate banking customer:

There are 3 forms of the deposit, which is applied to this customer objects :demand deposit, term deposit and term deposit with partial withdrawals

TYPEDEFINITIONBENEFITSREQUIREDDOCUMENTS,PROCEDURE

Demand depositaccounts areopened atfinancial

institutions toenable enterprisesto exercise theirsettlement

transactions viabanks’ means ofpayment.

- Account opening fee;- Simple, fast andconvenient applicationprocedure;

- Safe and convenienttransactions;

- Account informationsecurity;

-Beneficial to added services:overdrafts on demandaccounts, banktransfer, on-behalfsalary payment,receivables collectionsfor goods and services,E-banking services…

value Account applicationform

- Legal documents:Business License,Decisions forAppointment of GeneralDirector and Chiefaccountant, etc.

-Documents verifyinglegal representative statusof the account owner: IDor passport, appointmentdecisions (if any)…

-Tax code registration.

- Account opening - Documents verifying

Term deposit isthe money oforganizationsdeposited at MBfor a certainperiod of time inorder to earninterest

free waive;

- Simple and fastapplication procedure;- Diversified termscorresponding withflexible interest rates;- Safe and confidentialaccount information;

legal status of the accountowner;

- Tax code registration;- Term deposit contract(in MB form).

deposit withpartial

Term depositwith partialwithdrawals isdesignated fororganizationalcustomers.

Customers areentitled towithdraw parts oftheir depositedamount ondemand.

- Simple procedure,fast documentprocessing;

- Diversified termswith flexible interestrates;

- Principal can bewithdrawn at any timeand at any MBtransaction offices;- The remainingprincipal in the termdeposits with partialwithdrawals is stillsubject to the pre-agreed interest rate.

- Documents verifyinglegal representative statusof the account owner;- Tax code registration;- Term deposit contract(using MB template).

3.Factors affecting capital-raising activities of MB:3.1.External factors:

a Population structure and geographic location

If located evenly in a densely populated places or sub-regions, business andeconomic activities would grow better, bank’s expansion and fund raisingactivities are likely to flourish more rapid Even more favorable locations areones that is surrounded by active markets, high sensitivity to interest rate trendsand business operations.

b Development status of the economy

The move of the economy, or the development cycle of the economy,heavily impacts depositor’ decision to whether putting money in bank, hoardinggold, dollars or buying other asset In the case of economic instability, price andpurchasing power of the currency fuctuates greatly so people tend to keepvaluable assets to themselves rather than bringing money to banks Conversely,a developing economy that is stable with reasonable inflation rates would haveincreasing people deposit in banks.

c Funding demand of the economy

Commercial banks are essential financial intermediaries as it plays a bridgeconnecting the lack of capital and surplus capital, fulfilling funding demand ofthe economy The role of commercial banks in Vietnam is especially appreciatedas the stock market has just been recently opened; leaving borrowing demandheavily depends on commercial banks.

d Conditions in a competive environment

MB, in terms of total value of assets, doesn’t stand out as significant to theentire banking sector (MB’s total asset valued at VND 200.00 million in 2015,but the biggest banks in the country all have total asset valued at over VND800.000 billion) Consequently, MB isn’t quite recognized by the large numberof people Therefore, in order to survive and develop, MB needs to define

appropriate business straegy to be able to win in competiton with rivals, MB hasto improve and diversify its services, implement resonable products, developmarket research skills and perform well in marketing.

e Enviroment law

Regulations are major factor that influences the mobilization of any bank’scapital Monetary policies, fiscal policies, and the legal framework in Vietnamimposes very specific guidelines to banking operations and therefore makes themarket incredibly sensitive to any smallest change For instance, under theoperation of a tightening monetary policy can impact negatively on a liquidity ofa bank Currently, regulators, understanding the neccessity of raising capital ofcommercial banks, have issued several documents encouraging bank’ capitalexpansion to meet capital requirements for industrialization and modernizationof the country.

f Saving status of the economy

The surplus of assets in the econmy geratly afects capital-raising activitiesof banks When there is great productivity in the economy or when people makesastisfying income, savinf ratio grow as well In fact, when per capital incomereaches a certain level, savings rate will be increasing with larger porportion toper capital income In addition, MB should sihnificant role in issuanceoperation.

g Element of culture, social, and psychological

Culturally and socially approriate marketing would make MB more appealto depositors Psychological conditions can be expressed as lenders’ belief incurrency appreciation/depreciation For example, if MB were to be marketedoffensively to the Vietnamses culture, or if depositors believed in a future offalling currency, there would be a mass withdraw of capital Anothercharacteristic of customers is ther freqency of the use of banking services.Higher useage levels, or more loyal customers, are favorable conditions to abank’s operation.

3.2.Internal factors:

a Level of banking technology

The level of banking technology is expressed through the type of servicesthat bank supplies and their productivity; professional ability of staff; facilitiesand cater equipments of the banks operation.

b Business operation’s aims & strategies

In banking operation, operation of capital use directly affect capitalmobilization, each bank has own strategy from time to time, depend on theoperational characteristic of the banks themselves and the business enviromentconditions To perform well the task of raising capital, MB launched variousforms of capital mobilization, from different types of deposit to distinct financialinstrument Consequently, the most powerful tool in the bank’s hand is interestrate The effects of interest rates on lenders’ behavior are never to be disregared.Beside capital use, products, and interest rates policy, capital balancingmangement also allows the banks to understand certain financial situation andmake appropriate moves.

c Reputation of the bank

Having great reputation meaning thats bank would have more advantagesin capital mobliziation The trust and loyalty of customers will help the bank interms of stablizing capacity because the bank could set the reserver strategyeasier In line with advertising images, banks should not forget the importantsupportive role of products policy, customer policy, consulting services,discount policy, and staff poliscy because they are captivating unlities that coldensure customers’ belief, bring more customers and strengthen the bank’scompetiveness.

4.Techniques used to raise capital of MB:

There are 3 main solutions for MB to raise capital effectively.

In additional, a lot of specific products of MB brings it more customers andmore capital, such as: Saving for military person ( servicemen), saving for start-up, saving for kids, saving for the elder and so on.

Only with an integrated revolution based forms check forms relating tocustomers, in 2014 Military Bank (MB) has dropped 53% the length of the

contract from 26 pages to 10 pages, reduce 81% of the signatures of individualcustomers, down 37% the number of signatures and 27% of all forms ofenterprise customers

These efforts administrative reform (PAR) thus contributing to improvingthe quality banking services and the position of MB increased over the years.This is a practical activity, bring efficiency to customers as well as meet the riskappetite for the bank.

4.2.Technogical solution

Currently, MB is one of the few banks in Vietnam that early appling thesystem of international quality standards with effective management tools suchas quality management system ISO 9001, applying Lean Six Sigma approach(system of tools and strategies to improve the operation of the business) onredesigning operational processes, business processes MB has invested and gradually perfecting multi-channel communication systemto convey timely information to make up a high consistency in action from thehead Office to branches throughout the system towards serving customers withthe best quality Database of MB is gradually concentrated, systematized

On 01/07/2013, Military Commercial Joint Stock Bank (MB) and JSCTrading Services and Technology M-Pay (M-Pay) has officially launched theElectronic Communication Service Safety Contract operation between the twosides, which provide services to clients MB.Plus MB bank

With MB.Plus services, customer could buy cards, money transfer, queryyour bank account information with a simple operation, smart as yoursmartphone Service applies to all customers using telecommunicationsnetworks (Viettel, Mobifone, Vinaphone ).

From this point, the MB has implemented standardized processes largegroups of bank-driven End-to-End (from start to finish for 4 groups ofprocesses) As of August, 2015, the bank has completed the redesign work to