recommended solutions to enhancing the efficiency of capital mobilization at maritime bank in the context of global economic crisis

More importantly, the dissertation proposes measures and recommendations to help commercial bank diversify its methods of raising capital and improve the efficiency and quality of capita

FACULTY OF FOREIGN LANGUAGES

-***** -GRADUATION THESIS

RECOMMENDED SOLUTIONS TO ENHANCING THE EFFICIENCY OF CAPITAL MOBILIZATION

AT MARITIME BANK IN THE CONTEXT OF

GLOBAL ECONOMIC CRISIS

ĐỖ THỊ QUỲNH MAI

CQ47/51.03Hanoi - 2013

FACULTY OF FOREIGN LANGUAGES

-***** -RECOMMENDED SOLUTIONS TO ENHANCING THE EFFICIENCY OF CAPITAL MOBILIZATION

AT MARITIME BANK IN THE CONTEXT OF

GLOBAL ECONOMIC CRISIS

SUMMITED IN PARTIAL FULFILMENT OF THE

REQUIREMENTS FOR THE DEGREE OF BACHELOR OF ART IN

ENGLISH FOR FINANCE AND ACCOUNTING

Supervisor : Ms Cao Phương Thảo

Hanoi – 2013

I declare that this thesis and the work reported herein was composed by and originated entirely from me Information derived from the published and unpublished sources has been acknowledged in the text by means of complete references

Hanoi, dated 6thMay 2013

Student’s signature

Do Thi Quynh Mai

First and foremost, I would like to express my sincere gratitude to my advisor, Ms Cao Phuong Thao- lecturerof English Linguistic Theories and Translation, in English for Finance and Accounting Faculty in Academy of Finance for her continuous support of my graduation thesis, for her patience, motivation, enthusiasm and immense knowledge This thesis would not have been possible without the help and advice of Ms Cao Phuong Thao The good advice, support her has been invaluable on both academic and personal level, for which I am extremely grateful I owe my deepest gratitude to my supervisor for her constant and invaluable guidance during my graduation thesis Her attention, moral support and timely suggestions were precious in the preparation of my thesis I am very thankful to my supervisor for putting me in the track of this research

Beside my advisor, I would like to express my deep appreciation to Ms Le Thai Ha- a financial analyst at Financial Management Centre of Maritime Bank and also

my mentor for her generous help and useful advice in particular issues related to capital mobilization She is always willing to give me the necessary data for my research With her profound knowledge, experience and professional working manner in banking sector, she helped me a lot in analyzing data, gave me many constructive comments and valuable suggestions Additionally, I would like to thank other people at Financial Management Centre of Maritime Bank for sharing the lunch table very often with me and the discussion during the lunch time is anice memory

I am very much grateful to Maritime Bank board of director for offering me opportunities to participate in the “Potential Internship Trainee Program” I am

thankful to Maritime Bank leaders for providing the nice and friendly working environment and creating favorable conditions for me to accomplish my thesis.

Moreover, it is a pleasure to thank all members of my thesis reading committee at Academy of Finance for spending their time on careful reading of my thesis as well as for their valuable comments

I met some very kind peers who made me stay enjoyable at Maritime Bank I am thankful to all of my colleagues in the Internship Group at Maritime Bank during

my Internship process for sharing me useful experience and knowledge

Last but not least, these acknowledgements would not be completed without expressing my sincere thanks to my family and friends for their unconditional love and support It is their frequent encouragement during my process of implementing this dissertation that has played as the spiritual foundation and given me strength to fulfill this challenging task and make it such a success

Capital is one of the most significant input factor for any enterprises not just banks- a special financial intermediation in the economy Mobilizing capital is a basic activity of commercial bank Capital is not only the mean of banking business activities but also the subject of commercial banks’ business operations Mobilizing capital is the primary objective of commercial banks’ business strategy

In the context of global economic downturn, capital mobilization has become an urgent requirement to commercial bank The research studies the theories of capital mobilization applied by the system of Vietnam commercial bank system It focuses

on the actual mobilization of Maritime Bank by analysing the figures and information reflecting the bank’s financial situation It also examines difficulties in mobilizing capital facing commercial bank and mentions some achievements and shortcomings in capital mobilization activities existing in this bank More importantly, the dissertation proposes measures and recommendations to help commercial bank diversify its methods of raising capital and improve the efficiency and quality of capital mobilization in the context of global economic downturn

LIST OF CONTENT

INTRODUCTION 1

CHAPTER 1: LITERAL REVIEW 5

COMMERCIAL BANK AND CAPITAL MOBILIZATION OF 5

COMMERCIAL BANK 5

1.1 General overview of commercial bank 5

1.1.1 Definition of commercial bank .5

1.1.2 Function of commercial bank 6

1.1.2.1 Act as financial intermediation 6

1.1.2.2 Act as agent of payment 7

1.1.2.3 Creation of money 7

1.1.3 Role of commercial bank in the economy 8

1.1.3.1 Accelerating the rate of capital formation 9

1.1.3.2 Provision of Finance and Credit 9

1.1.3.3 Monetization of Economy 9

1.1.3.4 Implementation of Monetary Policy 10

1.1.3.5 Encouragement to the investment in new enterprises 10

1.1.3.6 Balanced development of different regions 10

1.1.3.7 Fulfillment of Socio- economic objectives .11

1.1.4 Banking operations .11

1.1.4.1 Capital mobilization 11

1.1.4.2 Capital utilization 11

1.1.4.3 Agent services 13

1.2 Capital and capital mobilization of commercial bank 15

1.2.1 Definition of capital 15

1.2.2 Capital structure of commercial bank .15

1.2.2.1 Bank owner’s equity 15

1.2.2.2 Mobilized capital 16

1.2.3 Role of capital of commercial bank 17

1.2.3.1 Capital is the prerequisite for business operations of commercial bank .17

1.2.3.2 Capital determinesthe credit scale and the business scale of commercial bank18 1.2.3.3 Capital ensures solvency and enhance prestige of commercial bank 18

1.2.3.4 Capital enhances the competitiveness of commercial bank .18

1.3 Capital mobilization of commercial bank 19

1.3.1 Methods of mobilizing capital of commercial bank .19

1.3.2 Factors affecting capital mobilization of commercial banks 20

1.3.2.1 Objective factors 20

1.3.2.2 Subjective factors 21

CHAPTER 2: THE STUDY 24

THE PRACTICAL SITUATION OF CAPITAL MOBILIZATION AT MARITIME BANK 24

2.1 Introduction to Maritime Bank (MSB) 24

2.1.1 History and development of Maritime Bank 24

2.1.2 Business philosophy of Maritime Bank 26

2.1.2.1 Vision 26

2.1.2.2 Mission 26

2.1.2.3 Core vale 26

2.1.2.4 Declarations of action 26

2.1.3 Products and services provided by Maritime Bank 27

2.1.3.1 Personal banking products 27

2.1.3.2 Corporate and business banking products 28

2.1.4 Organizational structure of MSB 28

2.1.5 Business result of MSB 32

2.2 The real situation of capital mobilization of MSB 34

2.2.1 Capital scale and capital growth rate of MSB 34

2.2.2 Mobilized capital structure of Maritime Bank 35

2.2.3 Result of capital mobilization at Maritime Bank .39

2.2.3.1 Borrowing from the Government and State Bank of Vietnam (SBV) 39

2.2.3.2 Deposits and borrowings from other credit institutions .41

2.2.3.3 Deposits from customers .47

2.2.4 Expense of capital mobilization activities of Maritime Bank 56

2.2.4.1 Interest rate of mobilized deposits .57

2.2.4.2 Capital mobilization expenses 58

2.3 Assessment of practical capital mobilization situation of MSB 60

2.3.1 Achievements 60

2.3.2 Shortcomings 62

2.3.3 Causes of shortcomings 63

2.3.3.1 External causes 63

2.3.3.2 Internal causes 65

CHAPTER 3: RECOMMENDATIONS 66

RECOMMENDED SOLUTIONS TO ENHANCING EFFICIENCY OF CAPITAL MOBILIZATION AT MARITIME BANK 66

3.1 Business orientation of Maritime Bank 66

3.2 Recommended solutions to enhancing the efficiency of capital mobilization of Maritime Bank 68

3.2.1 Diversifying capital mobilization products 68

3.2.1.1 Diversifying types of products 69

3.2.1.2 Diversifying terms of deposits 71

3.2.2 Adopting flexible interest rate policy .71

3.2.3 Enhancing service quality 72

3.2.4 Promoting good will of Maritime Bank 73

3.2.5 Investing in modernizing banking technology and improving banking infrastructure. 73

3.2.6 Strengthening marketing activities to stimulate mobilized capital 74

3.2.7 Harmonizing capital mobilization and capital utilization 75

3.2.8 Improving human resources 76

3.3 Proposals to enhance the efficiency of capital mobilization of Maritime Bank 76

3.3.1 Proposals to the Government 76

3.3.2 Proposals to the State Bank of Vietnam 78

CONCLUSION 81

REFERENCES 83

LIST OF ABBREVIATIONS

1 ADB: Asian Development Bank

2 ALCO: Assets and Liabilities Committee

3 BIDV: Bank for Investment and Development of Vietnam

4 CDs: Certificate of Deposits

5 FS: Financial Statement

6 HR: Human Resources

7 M&A: Merge and Acquisition

8 ODA: Official Development Assistance

9 SVB: State Bank of Vietnam

10.VDB: Vietnam Development Bank

11.WB: World Bank

LIST OF TABLES

Figure 2.2: Business results of MSB during the period from 2010 to 2012 33 Figure 2.3: Capital scale of MSB over the period from 2010 to 2012 35 Figure 2.4: Structure of mobilized capital according to methods of mobilizing 37 Figure 2.5: Borrowings from the Government and SBV 40 Figure 2.6: The growth rate in the borrowings from SBV 41 Figure 2.7: Structure of deposits and borrowings from other credit institutions 42 Figure 2.8: Structure of deposits of other credit institutions 45 Figure 2.9: Structure of borrowings from credit institutions 47

Figure 2.11: Deposits from customers by types of money 50 Figure 2.12: Deposits from customers by types of customers 52 Figure 2.13: Proportion of saving deposits out of total deposits 54 Figure 2.14: Structure of saving deposits from customers according to maturity 56 Figure 2.15: Effective year end- annual interest rate of mobilized capital 58 Figure 2.16: The growth rate of mobilized capital and mobilized capital expenses 59 Figure 2.17: Expenses for capital mobilization of MSB 60

Global economic crisis has become a matter of considerable public concern recently It has become widespread and caused so many negative consequences on the world economy Of course, the global economic crisis is no longer a new phenomenon It is considered the inevitable movement of the economic revolution The global financial crisis, brewing for a while, really started in the America and rapidly expanded to other world economies According to economic integration and global entanglement in recent decades, the global economic crisis has dramatically impacted on every aspects of the world economy Around the world, stock markets have fallen, many corporations went bankruptcy and large financial institutions have collapsed or been bought out In even the wealthiest nations, the government has had to come up with rescue packages to bail out their financial system Many economists forecast a somber picture and pessimistic outlook of the future of the world economy

Fundamental to the survival of any organizations is its ability to mobilize necessary financial resources to forward its own purposes It goes without saying that capital is the prerequisite to any business activities in the economy especially

in the banking sector The Banking Sector has for centuries formed one of the pillars of economic prosperity Banking operations play a great significance to the stability and the development of national economy It is difficult to establish a prosperous economy without a sound banking system, which is able to effectively mobilize and utilize capital Indeed history provides us with some starting information regarding how banks provided finance for imperialist ventures in newly acquired colonies Over time banks have formed an important part in providing an avenue for both savings and investments Commercial banks play role

as a special financial intermediary serving the general public in the economy The bank’s financial position maintains the financial structure and motivates operations

on the financial market Banks facilitate growth and development of national economy

As a result of global financial meltdown, banking sector has experienced a period

of volatility Commercial banks, make no exception, cannot avoid the general rule

of the economy They have been under pressure of the economic downturn and have coped with many difficulties Many of them have been merged or taken over One of the challenges facing commercial banks nowadays is the capital mobilization and many of them have found difficulties in raising capital As an important financial intermediary in the economy, capital is not only a necessary condition for business but it is also a bank’s business object Moreover, raising capital is one of the most vital demands for commercial banks to avoid negative impact of global economic crisis Therefore, enhancing the capital mobilization efficiency has aroused as a matter of considerable concern among commercial banks As a member in Vietnam banking system, Maritime bank has also participated in performing the task of the entire banking industry: Mobilizing capital to overcome difficulties in the period of economic downturn

From the above reasons, along with the experience obtained during the internship trainee program at Maritime Bank, which is a prestigious financial institution with more than 20 years of operating in financial sector and has taken many challenges

on the market, I decide to focus on the recommendations aiming at enhancing the capital mobilization efficiency for the Maritime Bank in the context of global economic crisis It is an urgent and debated topic not only to the experts in banking, finance, and economics but also to the public

2 Aims of the study

The thesis aims at summarizing basic theoretical issues and emphasizing the importance of capital mobilization activities of commercial banks especially in the context of global financial crisis.

Furthermore, it provides a general overview of the practical financial situation of Maritime Bank It especially focuses on analyzing and assessing the real financial operations of Maritime bank in general and the field of capital mobilization in particular

And more importantly, the dissertation will propose some typical options to improve the efficiency of capital mobilization of Maritime Bank so that it can overcome difficulties in the context of widespread financial meltdown and suggest some orientation to the Bank’s future development as well

It is expected that this research would become a helpful reference, at least in respect of theory for the experts in finance and banking sector as well as the student in need of researching this finance and banking sector

3 Methodologies of the study

So as to perform this study, I decide to combine various methods such as methods

of collecting data, qualitative and quantitative analyzing, summarizing, assessing, synthesizing and comparing to interpret the content of the thesis

4 Scope of the study

This paper is intended, as title suggests “Recommended solutions to enhancing the efficiency of capital mobilization of Maritime Bank in the context of global economic crisis” to touch on the following issues:

Analyze the real situation of capital mobilization activities at Maritime Bank in the context of global economic crisis, and assess these achievements and shortcomings

in capital mobilization

5 Organization of the study

The thesis includes three main parts

The first part is the introduction, which provides a theoretical background and deals with rationale, purposes, methods, scope and organization of the study

The second part is the main part of the dissertation with three chapters

Chapter 1 is a literature review, which give a general overview and background knowledge of Commercial Bank and its capital mobilization activities

Chapter 2 focuses on reflecting the practical situation of capital mobilization of Maritime Bank in the context of economic downturn

Chapter 3 discusses the solutions to enhance the efficiency of capital mobilization activities for Maritime Bank in the future

CHAPTER 1: LITERAL REVIEW COMMERCIAL BANK AND CAPITAL MOBILIZATION OF

COMMERCIAL BANK 1.1 General overview of commercial bank.

1.1.1 Definition of commercial bank.

Banking occupies one of the most important positions in the modern economic world It is necessary for trade and industry Bank is one of the results of the Industrial Revolution and the child of economic necessity Its presence is very helpful to the economic activity and industrial progress of a country

The term “Bank” has been defined in various ways by different economists

Horace White defined a bank, “as a manufacture of credit and a machine for facilitating exchange”

Prof Kinley says “Bank is an establishment which makes to individuals such as advances of money or other means of payments as may be required and safely made for use

According to the World Bank, “Banks are financial institutions that accept funds

in form of deposits repayable on demand or in short notice”

According to Vietnam Law on Banking promulgated in 1997, commercial bank is

a form of oriented profit- seeking business institution entitled to carry out all banking activities and other related activities In general, commercial bank is a profit-seeking business firm, dealing in money and credit It is a financial institution dealing in money in the sense that it accepts deposits of money from the public to keep them in its custody for safety

1.1.2 Function of commercial bank.

Commercial bank is the financial institution performing diverse types of function

in the economy It satisfies the financial needs of variety of sectors in the process

of economic social needs These are some basic functions of commercial bank

1.1.2.1 Act as financial intermediation

Commercial banks play an important role in the financial system and the economy

As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities A commercial bank accepts deposits from customers and in turn makes loans even in excess of the deposits The most important function of commercial banks is to accept deposits from the public Various sections of society, according to their needs and economic condition, deposit their savings with the banks For example, fixed and low income group people deposit their savings in small amounts from the points of view of security, income and saving promotion On the other hand, traders and businessmen deposit their savings in the banks for the convenience of payment It thus, functions as a mobiliser of saving in the economy

Commercial banks are not only borrowers of money from the public but also are providers of credit Banks lend money in several ways but they all cost the customers who borrow They must pay back the loan with interest and it is in this manner that banks make profit Banks charge interest from the borrowers and this

is the main source of their income Banks grant loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers

A bank is, therefore like a reservoir into which flow the savings, the idle surplus money of households and from which loans are given on interest to businessmen and others who need them for investment or productive uses

1.1.2.2 Act as agent of payment

An important function of banks is the provision of mechanism of payment and transfer of funds Transferring balances among accounts is an activity that banks perform, upon receipt of checks issued by deposits holders Bank provides a payments and collection mechanism primarily to attract deposits

1.1.2.3 Creation of money

Banks are not merely traders in money but also important sense manufacturers of money Commercial banks play a crucial role in the expansion and contraction of the supply of money and credit in our economy Through their lending activities, banks increase or decrease the checking deposit component of the money supply Checking deposits make up the largest portion of our money supply Economists have defined numerous measures of the money supply to pinpoint the impact of money supply changes on our economy's health M1 is the basic measure of our money supply M1 includes coins and currency in people's hands plus the funds available in checking accounts M1 functions as the primary medium of exchange

in our economy M2 is a broader definition of the money supply and includes M1 plus savings accounts, certificates of deposit, and money market funds Banks operate under a fractional reserve system which means they are required by law to set aside a fraction of their customers' deposits as required reserves Banks may lend an amount equal to their remaining reserves which are called excess reserves Banks earn revenue and profits through lending and charging interest on loans They also increase or decrease the checking deposit component of the money supply through lending The process whereby banks make loans equal to the

amount of their excess reserves and create new checkbook money is known as multiple deposit creation Each time a bank receives a deposit, it sets aside some of

it to meet reserve requirements and may lend an amount equal to the remaining excess reserves These loans take the form of new checking accounts for the borrower which increases the checkbook portion of the money supply When the borrowers spend the loan, they write a check on the new checking account The recipient of the check, in turn, deposits his or her funds into another bank After this second bank sets aside its required reserves against the new deposit, it may lend an amount equal to its remaining excess reserves These loans also take the form of new checking accounts for the borrowers, and each successive cycle of lending generates an increase in the money supply in the form of these new checkbook dollars Additionally, with each round of new deposit creation, there are fewer excess reserves The deposit creation process is multiplied throughout the entire banking system until all excess reserves have been absorbed into required reserves

1.1.3 Role of commercial bank in the economy

Commercial banks are considered not merely as dealers in money but also the leaders in economic development They are the store houses of the country’s wealth and the reservoir necessary for economic development A well- developed banking system is essential for the economic growth of a country The activities in the economy may be difficult to smoothly happen without a sound system of commercial banking In case of developing countries like Vietnam, the commercial banks are considered the backbone of the economy They contribute toeconomic development in the following roles

1.1.3.1 Accelerating the rate of capital formation

Capital formation is the most important determinant of economic development The basic problem of a developing economy is slow rate of capital formation Banks promote capital formation and they encourage the habit of saving among people They mobilize idle resources for production purposes Economic development depends upon the diversion of economic resources from consumption

to capital formation Banks help in this direction by encouraging saving and mobilizing them for productive uses They accept deposits from individuals and businesses, these deposits are then made available to the businesses, which make use of them for productive purposes Banks are, therefore, not only the store houses of the country’s wealth, but also provide financial resources necessary for economic development

1.1.3.2 Provision of Finance and Credit

Commercial banks are a very important source of finance and credit for industry and trade Credit is a pillar of development Credit lubricates all commerce and trade Banks become the nerve center of all commerce and they are instruments for developing internal as well as external trade

1.1.3.3 Monetization of Economy

An underdeveloped economy is characterized by the existence of a large monetized sector The existence of this non-monetized sector is a hindrance in the economic development of the country The banks, by opening branches in rural and backward areas can reduce the exchange of goods through barter and promote the process of monetization (conversion of debt into money) in the economy Thanks to increasing use of money in business transaction, the volume of production of goods sharply rises

non-1.1.3.4 Implementation of Monetary Policy

Economic development needs an appropriate monetary policy A well-developed banking is a necessary pre-condition for the effective implementation of the monetary policy Control and regulation of credit by the monetary authority is not possible without the active co-operation of the banking system in the country The central bank of the country controls and regulates volume of credit through the active co-operation of the banking system It helps in bringing price stability and promotes economic growth within the shortest possible period of time

1.1.3.5 Encouragement to the investment in new enterprises

Innovations are an essential prerequisite for economic development These innovations are mostly financed by bank credit in the developed countries But in underdeveloped countries, entrepreneurs hesitate to invest in new ventures and undertake innovations largely due to lack of funds Facilities of bank loans enable the entrepreneurs to step up their investment on innovational activities, adopt new methods of production and increase productive capacity of the economy The provision of timely credit increases the productive capacity of the economy

1.1.3.6 Balanced development of different regions

Banks can also play an important role in achieving balanced development in different regions of the country They transfer surplus capital from the developed regions to the less developed regions, where it is scarce and most needed Thanks

to this transfer, the less developed regions are able to get adequate capital to meet their business demand This reallocation of funds between regions will promote economic growth in the country

1.1.3.7 Fulfillment of Socio- economic objectives.

In recent years, commercial banks, particularly in developing countries, have been called upon to help achieve certain socio-economic objectives laid down by the state Banking is thus used to achieve the national policy objectives of reducing inequalities of income and wealth, removal of poverty and elimination of unemployment in the country

to both the commercial banks and the entire economy Commercial banks are allowed to use legal tools and methods to mobilize idle financial sources in society for the purpose of providing credits and making loans

1.1.4.2 Capital utilization

Capital utilization is a primary banking operations reflecting the process of using funds to ensure business safety, avoid risks and seek profits Capital utilization includes the particular operations

a) Reserves

Credit creation of commercial banks aims at seeking profit but these activities need

to provide safety in order to preserve the public confidence in banking system In case customers want to withdraw money, banks should set aside a portion of

money to meet their cash demands and ensure the solvency This portion of unused capital is known as reserves

b) Credit creation

Banks supply money to traders and manufacturers They also create or manufacture money Bank deposits are regarded as money They are as good as cash The rest of capital after being reserved can be supplied to individuals and organizations The credit creation includes the basic activities:

v Advance loans

Banks charge interest from the borrowers and this is the main source of their income Banks advance loans not only on the basis of the deposits from the public but also on the basis of mobilized fund from current accounts of borrowers In other words, they create loans out of deposits and deposits out of loans This is called as credit creation by commercial banks Modern banks give mostly secured loans for productive purposes In other words, at the time of advancing loans, they demand proper security or collateral Generally, the value of security or collateral

is equal to the amount of loan This is done mainly with a view to recover the loan money by selling the security in the event of non-refund of the loan At limes, banks give loan on the basis of personal security also Therefore, such loans are called as unsecured loan

v Discounting Bills of Exchange

This is another type of lending which is very popular with the modern banks The holder of a bill can get it discounted by the bank, when he is in need of money After deducting its commission, the bank pays the present price of the bill to the holder Such bills form good investment for a bank They provide a very liquid asset which can be quickly turned into cash The commercial banks can rediscount the discounted bills with the central banks when they are in need of money These

bills are safe and secured bills When the bill matures the bank can secure its payment from the party which had accepted the bill.

1.1.4.3 Agent services

Banks also perform certain agency business activities for and on behalf of their customers The agency services are of immense value to the people at large The various agency services rendered by banks are as follows:

v Collection and Payment of credit instrument

Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes on behalf of their customers

v Locker Facility

Bank provide locker facility to their customers, which enables them to keep their valuables such as gold, silver ornaments, important documents, shares and debentures in these lockers for safe custody

v Purchase and Sale of securities

Banks purchase and sell various securities on behalf of their customers

v Collection of dividends on shares

Banks collect dividends and interest on shares and debentures of their customers and credit them to their accounts

v Execution of standing orders

Banks execute the standing instructions of their customers for making various periodic payments They pay subscriptions, rents, insurance on behalf of their customers

v Accepting Bills of exchange on behalf of customers

The bank finances internal and foreign trade through discounting of exchange bills Sometimes, the bank gives short-term loans to traders on the security of commercial papers This discounting business greatly facilitates the movement of internal and external trade Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of their clients, which enables them to import goods

1.2 Capital and capital mobilization of commercial bank

1.2.1 Definition of capital.

Capital is one of the most important concepts in banking Capital refers to all the monetary value that banks create or mobilize for the purpose of investment, credit and other business activities Generally, capital of commercial bank can be defined

as the total cash flow mobilized by commercial bank to serve all the business activities In fact, commercial banks’ capital is a part of national income, which is temporarily idle in production, distribution or consumption that customers deposit

in bank for different purposes

1.2.2 Capital structure of commercial bank.

1.2.2.1 Bank owner’s equity

Bank’s own capital is all of the bank owner’s equity or all the amount of money created by banks According to Douglas, J Elliott, bank equity represents the portion of a bank’s assets which have no associated contractual commitment for repayment Bank capital consists of authorized capital (statutory capital), reserve funds and portion of undistributed profits

v Authorized capital (chartered capital or statutory capital).

It is the maximum capital up to which the bank is empowered to raise capital In other word, it is the amount with which a bank is registered In general, the entire statutory capital is not raised from the public That part of authorized capital which is issued in the form of shares for the public subscription is called the issued capital Subscribed capital represents that part of issued capital, which is actually subscribed by the public Finally, paid up capital is that part of the subscribed capital which the subscribers are actually called upon to pay

v Reserve funds

It is the accumulated undistributed profits of the bank At the time of declaring dividend, a certain portion of the profit is transferred to the reserve fund This reserve belongs to the shareholders and at the time of liquidation, the shareholders are entitled to these reserves along with the capital The bank maintains reserve fund by setting aside part of profits to meet unforeseen expense and to tide over any crisis According to Decree 146/2005/ND- CP dated 23 November 2005 issued

by the Government of Vietnam, the Bank is required to make the following allocations before distribution of profits

Annual allocation Maximum balanceReserve to supplement

share capital

5% of profit after tax 100% share capital

Financial reserve 10% of remaining profit

after tax

25% share capital

Other equity funds are allocated from profit after tax The allocation from profit after tax and the utilization of the other equity funds are approved by the shareholders in the Annual General Meeting The funds are not required by law and are fully distributable

v Portion of undistributed profit

Profit is another source to a bank for the purpose of business Profits signify the credit balance of the profit and loss account which has not been distributed The accumulated profits increase the working capital of the bank and strengthen its financial position Bank capital accounts for a small portion in the capital structure

of commercial bank but it is a compulsory condition enabling its foundation

1.2.2.2 Mobilized capital

Mobilized capital is all the monetary value that banks mobilize to serve its business activities Unlike other types of enterprises, mobilized capital represents a large

portion in the total amount of capital of commercial bank It is all the monetary value that banks mobilize from individuals, organizations, enterprises in society Mobilized capital belongs to various owners, banks have right to use and repay the principal and interest when due Working capital of commercial banks often includes these as follows

They incur during the business activities of commercial banks

1.2.3 Role of capital of commercial bank

1.2.3.1 Capital is the prerequisite for business operations of

only the means but also the direct objective for business activities of commercial banks In fact a large amount of capital may create favorable conditions for commercial banks’ operations and finances its business activities.

1.2.3.2 Capital determinesthe credit scale and the business scale of

commercial bank

Capital has significant impact on credit scale and business activities of

commercial banks Credit creation of bank depends on its capital Capital creates favorable conditions for banks to provide diversified and flexible forms of credit, decrease the interest rates Furthermore, capital supports banks diversify their services

1.2.3.3 Capital ensures solvency and enhance prestige of commercial

bank

Prestige is the essential condition for the existence and development of bank Capital is the precondition determining the reputation of a bank on the market Capital ensures the solvency of commercial banks, helps them avoid the default risks and improve their liquidity Additionally, the bank capital represents the ability to lend and to invest of commercial banks Bank cannot make long term loans or invests in big project unless it has sufficient capital

1.2.3.4 Capital enhances the competitiveness of commercial bank.

The bank scale, its staff qualifications and modern infrastructure of banks help banks easily mobilize capital An abundant amount of capital helps banks extends their credit scale Moreover, banks with high capital can gain initiative in deciding the loan terms and even the interest rates Thanks to these, banks may probably attract more deposits As a result, it will increase the revenues and profits of banks The capital will also enhance its financial capacity, enable it to diversify its

business activities, And this, in turn diversify risks and enhance the competitiveness of banks on the market.

1.3 Capital mobilization of commercial bank.

1.3.1 Methods of mobilizing capital of commercial bank.

a) Accepting deposits

Public is a powerful and abundant source of fund to bank Accepting deposit is a primary form of capital mobilization Banks generally accept three types of deposits: Current deposits, Saving deposits and fixed deposits

v Current deposits (Demand deposits)

These deposits are also known as demand deposits These deposits can be withdrawn at any time Generally, no interest is allowed on current deposits, and in case, the customer is required to leave a minimum balance undrawn with the bank These deposits are kept by businessmen and industrialists who receive and make large payment through banks The bank levies certain incidental charges on customer for the services rendered by it

v Term deposits (Fixed deposits)

These deposits are also known as fixed deposits These deposits cannot be withdrawn before the expiry of the period for which they are deposited or without giving a prior notice for withdrawal If the depositor is in need of money, he has to borrow on the security of this account and pay a slightly higher rate of interest to the bank They are attracted by the payment of interest which is usually higher for longer period

v Savings deposits

It can be opened without any introduction Money can be deposited at any time but the maximum cannot go beyond a certain limit There is a restriction on the amount

that can be withdrawn at a particular time or during a week If the customer wishes

to withdraw more than the specified amount at any one time, he has to give prior notice Interest is allowed in the credit balance on this account

b) Borrowings

The borrowed capital is a major and an important source of fund for any banking business Commercial bank can borrow from these following sources

v Borrowing from central bank

The commercial banks in times of emergency borrow loans from the central bank The central bank extends its helps when financial help is required by commercial banks

v Borrowing from other banks and credit institutions

To raise funds, commercial banks can also borrow from other commercial banks and financial institutions, credit unions on the interbank market to fulfill the temporary shortage of capital

c) Issuing valuable papers

Bank can also raising fund by issuing valuable papers such as: bonds, treasury bills, public debt notes published by the Government, saving cards, certificate of deposits, etc…

1.3.2 Factors affecting capital mobilization of commercial banks

1.3.2.1 Objective factors

Fund raising of commercial banks is influenced by many external elements

a) Social and economic environment

b

b) Legal environment and macro-economic policies

Banking sector is under the supervision of law and appropriate authorities Banking operations are strictly governed by the provision of the law Legal environment brings about both opportunities and challenges for commercial banks Moreover, commercial banks are under the control of legal framework and government regulations Therefore, their capital mobilization activities may be impacted by government policies and state bank’s policies For instance, the monetary policies, interest policies and credit policies can dramatically influence

on the capital quality and the capital mobilization capacity of commercial banks

c) Competition of other commercial banks

When developing and implementing business strategies, commercial banks should consider business environment Competition is inevitable in market economy and it

is one of the challenges facing business world today Competition of other competitors directly influences on banks’ raising fund activities To survive and develop, commercial banks should carefully do research on market; thoroughly understand their competitors and the customers’ needs in order to developappropriate capital mobilization strategies aiming at enhancing the capital efficiency and reducing cost

d) People’s habits and behaviors

Cultural environment has impact on people’s using money habits and consumption behaviors somewhat impact on capital mobilization activities of commercial banks

If people prefer keeping their cash at home or investing in other items to depositing

it at bank, it is difficult for banks to raise funds

1.3.2.2 Subjective factors

Besides the objective factors, capital mobilization of commercial banks depends on many internal factors

a) Business strategies of commercial banks

Basing on analyzing the strengths, weaknesses, opportunities, threads and understanding the bank position on the market and forecasting the changes of environment in the future, each bank makes its own business strategies; in which bank decide whether to extend or narrow the mobilized capital scale or to change the capital structure and interest rate of mobilizing capital If the business strategies are right, it will enhance the efficiency of capital mobilization of the bank

b) Interest rate of commercial banks

Deposit interest rate is an important tool to mobilize capital so it dramatically affects the raising fund activities of commercial banks If banks have reasonable and flexible deposit interest rates, they will attract more deposits from public Furthermore, adopting right interest policy helps banks create appropriateness in capital scale and structure

c) Capital mobilization policy of commercial banks

It is a significant factor affecting the capital mobilization activities If banks give convenient, flexible and diversified forms of capital mobilization, they can easily attract funds from public Various forms of capital mobilization can meet demand

of different people in society

d) Bank’s infrastructure

Good bank infrastructure and modern bank technology will bring great benefits for commercial banks because these factors not only help banks serve customers better but also increase public confidence in banks Customers tend to rely on the banks with high banking technology And this, in turn increases the amount of mobilized capital for banks

e) Quality of services provided by commercial banks

Banking quality services determines the efficiency of capital mobilization The better banking services, the easier it raises funds In the financial market, the competition is more and more cutthroat; improving service quality is necessary for capital mobilization activities in particular and bank development in general Also, improving the service quality enhances the competitiveness of commercial banks

on the market

f) Good will of commercial banks

Good will is an intangible asset of bank and it is invaluable Good will includes reputation of commercial bank in banking system, prestige of Board of Director Brand name is very meaningful in raising funds because it creates and strengthens the public confidence in bank When bank build and promote a good brand name,

it can mobilize a steady amount of capital and save cost of capital mobilization

g) Competence of banking human resources.

Not just in banking sector, human resources are given high priority in any business aspects Competence of bank staff is a determinative factor in mobilizing capital of commercial banks Bank employees with high qualifications, good skills, deep knowledge of banking operations, thorough understanding of customer may probably deal with complicated situations and motivate the capital mobilization of commercial banks Besides the professional qualifications, the attitude of bank officials is critical because it impacts on the service quality Friendly, enthusiastic, devoted bank staffs can satisfy customer The bank officials represent the image of commercial banks so it is vital to improve the quality of bank staffs

CHAPTER 2: THE STUDY

THE PRACTICAL SITUATION OF CAPITAL MOBILIZATION AT

MARITIME BANK 2.1 Introduction to Maritime Bank (MSB)

2.1.1 History and development of Maritime Bank

Vietnam Maritime Commercial Bank, commonly known as Maritime Bank, was officially founded under the license number 001/NH-GP dated 8thJune 1991 by the Governor of State Bank of Vietnam Maritime Bank held its inauguration ceremony and came into official operation on 12th July 1991 in HaiPhong city, right after the Ordinance on Joint Stock Bank, Credit Cooperative and Finance Company took effect Its name is abbreviated to MSB MSB was one of the first commercial banks in Vietnam At that time, the debate about the model of join stock bank was still not settled and Maritime Bank became one of the first commercial join stock banks in Vietnam It was the result of collaboration strength and innovative thinking of founding shareholders: Vietnam Maritime Administration, Vietnam Post and Communication Group, The Civil Aviation Administration of Vietnam and etc…

At the beginning, Maritime Bank only had 24 shareholders with chartered capital

of VND 40 billion and several branches in big cities such as HaiPhong, Hanoi, QuangNinh and Ho Chi Minh City It may be said that the establishment of Maritime Bank in the early 1990s represented a major breakthrough during the transformation of economic structure in Vietnam

Looking back at the previous development phase, the period from 1997 to 2000 was the most challenging for Maritime Bank As a result of Asia financial crisis,

Maritime Bank had to face many difficulties However, by its own strength and spirit, Maritime Bank has gradually regained the balance and continued developing since 2005.

In 2001, Maritime Bank was one of the six Vietnam Banks that was honorably selected and subsidized by World Bank to participate in the project: “Modernizing the banking and payment systems” Luckily, Maritime Bank was the only bank to continue taking part in the step 2 of this project

In August 2005, Maritime Bank was moved from HaiPhong to Ha Noi It is one of the most remarkable landmarks of MSB because it facilitates and motivates comprehensive development of bank

Until now, Maritime Bank has grown strongly, sustainably The current charter capital of Maritime Bank is VND 8,000 billion and total assets reach more than VND110,000 billion

The banking network is extensive, ranging nationwide with more than 230 branches MSB’s head office is located at 88 Lang Ha Street- Dong Da Ward-Hanoi Main stakeholders of Maritime Banks are famous group such as

- Vietnam Posts and Telecommunications Group (VNPT)

- Vietnam Investment and Development Group (VID)

During 22 years of development, Maritime Bank has established an effective and convenient banking network for customers MSB banking network is widespread

in Southern, Central and Northern regions of Vietnam

Thanks to the decision to comprehensively restructure ranging from business strategy, brand image, branch design to customer approach method, Maritime Bank

is recognized as one of the most innovative banks with audacious business strategy

& professional transaction model in Vietnam

2.1.2 Business philosophy of Maritime Bank

2.1.2.1 Vision

Maritime Bank is making great effort to become the best bank and the leading business in Vietnam, which provides professional financial services that can meet the international standards To achieve this, Maritime Bank is in the ongoing process of creating one of the strongest brands in the country

v To customer: The success of the Maritime Bank depends primarily on the

satisfaction and success of our customers Given the trust of customers, MSB is committed to:

Provide high quality services in a fast and flexible manner

Continuously diversify products and services to offer the most suitable to customers

Ensure absolute safety and security

v To staff: One of the most important assets, the driving force behind the

development of Maritime Bank is human resource The Bank’s leaders are committed to:

Set up a working environment based on mutual trust and respect

Effectively develop cultural aspects with adequate benefits

Create development opportunities for all members of Maritime Bank

v To shareholders: Shareholders have the absolute belief and willingness to

share success or failure with the Bank In response to that trust, MSB committed to:

Value of investment growth rapidly for shareholders

Ensure the sustainable growth of the Bank

v To the entire society: By ensuring continuous growth of the Bank and regular

participation in cultural and charity activities, Maritime Bank is committed to contributing cultural and economic values to the overall development of community and society

2.1.3 Products and services provided by Maritime Bank

2.1.3.1 Personal banking products

v M1 Account

v M- Family payment and product package

v Money transfer service

v Savings deposits

v Bancassurance

v Card products

v Loan products

v Investment product

v Term products and provisions.

v Other products and services.

2.1.3.2 Corporate and business banking products