THE MOBILIZATION AND USING CAPITAL ACTIVITIES OF TECHNOLOGICAL AND COMMERCIAL JOINT-STOCK BANK

FOREIGN TRADE UNIVERSITY FACULTY OF FINANCE AND BANKING INTERNSHIP REPORT THE MOBILIZATION AND USING CAPITAL ACTIVITIES OF TECHNOLOGICCAL AND COMMERCIAL JOINTSTOCK BANK Student: Chu Le Thuy Quyen Student’s ID:1114340049 Class: Instructor: A18- High quality class, Faculty of Finance and Banking, K50 M.A Do Duy Kien Hanoi, August 2013 CONTENTS CONTENTS OF ABBREVIATION No Abbreviation Technological and Commercial Joint-Stock Bank HongKong and Shanghai Banking Coporation Net Interest Margin Non-Performing Loans Return on Asset Return on Equity Capital Adequacy rate Full name Techcombank HSBC NIM NPLs ROA ROE CAR CONTENT OF DATA TABLES AND CHARTS Chart I.1: Techcombank’s shareholders .10 Chart I.3: Techcombank’s Organizational Structure 12 Table II.1: Income statement of Techcombank from 2011 to 2013 (Souce: Techcombank’s annual financial report) 15 Table II.1: ROA and ROE of Techcombank in 2012 and 2013 .16 Table II.2.1: Deposits by segments (Source: Techcombank’s Annual Financial Report) 16 Chart II.2.1: Deposits by segments 17 Table II.2.2: Deposits by terms from 2011 to 2013 (Source: Techcombank’s Annual Financial Report) 17 Chart II.2.2: Deposits by terms from 2011 to 2013 18 Table II.2.4: Capital adequacy rate from 2011 to 2013 19 Table II.3: Loans to customers by segments from 2011 to 2013 20 Chart II.3: Loans to customers by segments from 2011 to 2013 20 Table II.3: Loans to customers by term 21 Table II.3: Loans classified by credit worthiness 22 INTRODUCTION REASONS FOR CHOOSING TOPIC The global financial crisis which derived from United State in 2008 has affected strongly to the global economy in general and Vietnamese economy in particular The bubble of the real estate not only lead to the bankruptcy of thousands firms, the extremely high inflation rate but also lead to the best nightmare ever of every bank – Bad Debt In this scenario, it seems that Vietnamese banks have not found the right way and direction for themselves After a series of merge and acquisition, many banks which are unable adapt the market and have weak background have to leave the play Banks which are still alive are the strongest ones But it doesn’t mean that these banks not have to face to any difficulties The fact that they deal with their problems and they are finding the most effective way to recover all loss from the terrible crisis Moreover, nowadays, the trend of globalization and international economic integration are stronger than ever before Global economy needs the sturdy relationship among subjects And Vietnam is not out of these subjects Especially, in this period, we need to pay more attention in investment activities with projects bringing back great advantages for society In this condition, banks play the vital role in the industrialized and modernized economy Through learning, I was introduced to Technological and Commercial Joint-Stock Bank (Techcombank) and I decide to choose Techcombank as the subject of my report because in my opinion, Techcombank is one of the most suitable banks which reflect the typical condition of Vietnamese banks in recent years with up and down result Moreover, while participating in Techcombank’s internship, I studied a lot which will be useful for me in the studying process in universities and it is also the initial experiences for my future career All of the reasons above motived me to study and have a deeper look in the topic: “THE MOBILIZATION AND USING CAPITAL ACTIVITIES TECHNOLOGICCAL AND COMMERCIAL JOINT-STOCK BANK” OF PURPOSE AND SCOPE OF REPORT a b I II III Purpose: analysis and assess the effectiveness to see the weakness and strength of Techcombank Scope: the operating result of Techcombank from 2011 to 2013 METHODOLOGY Method of data collection The data used in the report were collected from the Techcombank’s annual financial report throughout three years 2011, 2012, 2013 Information and some data in newspaper and financial magazines with the instruction of Instructor and the Techcombank’s staff Methods of data analysis Typology Absolute comparison method Relative comparison method STRUCTURE OF THE REPORT OVERVIEW OF VIETNAM TECHNOLOGICAL AND COMMERCIAL JOINTSTOCK BANK TECHCOMBANK PERFORMANCE ADVANTAGES AND DISADVANTAGES OF TECHCOMBANK RECOMMENDATIONS AND CONCLUSION I OVERVIEW OF VIETNAM TECHNOLOGICAL AND COMMERCIAL JOINT-STOCK BANK GENERAL INFORMATION AND HISTORY OF FORMATION 1.1 General information To the approval of Governmental pre- minister, The State bank of Vietnam and State Securities committee, Viet Nam Technological and Commercial Joint Stock Bank( Techcombank) officially announces the result of released stocks for strategic shareholders- Hong Kong Shanghai banking corporation( HSBC) to raise the chattered capital at the second time in 2008 The quantity of released stocks for HSBC: 20.895.459 raising the ownership properties in Techcombank of HSBC to 20 %; in which: -Type of shares: popular shares -Value of shares: 10.000 dong/ per share - Released cost for HSBC: 60.891,52 dong/ per share Time of release: 5th September 2008 The Techcombank chattered capital after releasing shares for HSBC was 3.165.235.710.000 dong (three thousand one hundred sixty five billion two hundred thirty five million seven hundred ten thousand) The capital using plan: Used for trading business, investing, capital contributing of Techcombank and supporting IT system of Techcombank, networks, head office and branches The limitation of shares authorization: based on the Vietnamese laws For more information, please contact: secretarial office of Administrative boardVietnam Technological and Commercial Joint Stock Bank head office, 70-72 Ba Trieu, Hoan Kiem, Hanoi 1.2 History of formation Techcombank was established on September 27th, 1993 with the initial registered capital of VND 20 billion, after 18 years of operation, Techcombank has become one of the top joint-stock commercial banks in Vietnam with the aim to become an efficient financial intermediary bridging the savers with the investors in need of capital for business and economic development in the open-door era Techcombank’s strategic shareholder is HongKong and Shanghai Banking Coporation (HSBC) with 20% of the shares Techcombank is also the first bank and the Financial Insights only awarded Bank for leading technology solutions and applications Chart I.1: Techcombank’s shareholders In 1995, the registered capital was increased to VND 51,495 billion Parallel with this event, the Ho Chi Minh City branch was established starting the process of fast expansion of Techcombank in the main urban areas In 1996, Thang Long branch and Nguyen Chi Thanh sub-branch were established in Hanoi, together with Thang Loi sub-branch in Ho Chi Minh City The Bank’s registered capital has increased to VND 70 billion In 1998: With the establishment of Da Nang branch in that year the branch network has covered all three main regions: the North, Central provinces, and the South From 1999 to 2013, Techcombank increased the total registered capital from VND 80,2020 billion to VND179,934 billion and open over 300 branches and sub-branches in 44 provinces of Vietnam Services Techcombank offer for customers: • Individual Service: - Account - Card - Saving deposit - Time deposit - Money transfer - Personal loan - Banc assurance - E-Banking • Corporate Services: - Business account - Payment and cash management - Corporate financing - Foreign exchange and treasury - International payments - Trade finance - Guarantees - Investment banking 10 INCOME STATEMENT 2013 2012 REVENUE Interest and similar income 13,281,305 17,622,864 Interest and similar (8,945,643 (12,507,291 expenses ) ) Net interest income 4,335,662 5,115,573 2011 19,948,573 (14,650,198 ) 5,298,375 14 Fee and commission income Net loss from trading of foreign currencies and gold Net gain from trading of securities held for trading Net gain/(loss) from investment securities Other income Income from investments in other entities Total noninterest income Total revenue Provision expenses Fee and commission expenses Other expenses Operating expenses 1,150,038 1,051,286 1,520,157 (121,501) (138,863) (698,913) 105,137 2,701 (55,333) 160,910 738,646 (175,043) 617,848 416,257 707,115 17,253 2,050,483 6,386,145 (1,413,964 ) 29,992 1,387,921 6,503,494 8,061 1,897,344 7,195,719 (1,449,481) (341,864) (485,883) (256,233) (369,803) (163,741) (3,294,041) 5,485,638 1,017,856 (2,099,198) 2,974,606 4,221,113 (413,795) (324,514) (3,355,666 ) 5,507,939 878,206 Total noninterest expense Income before income tax Income tax expense – current (213,146) (253,344) (1,077,016) Income tax expense – deferred (5,989) 1,174 9,669 Net income after tax 659,071 765,686 3,153,766 Table II.1: Income statement of Techcombank from 2011 to 2013 (Souce: Techcombank’s annual financial report) - - Operating Income in 2013 reached VND 5,648 billion, slightly lower by 1.9% in comparison to year 2012 as a result of Net Interest Margin (NIM) compression from 3.4% to 3.2% due to a downward trend in interest rates in 2013 Net Interest Income decreased 16.94%, to VND 4,336 billion Net Fee Income increased 30.2%, equivalent to VND 736 billion Trading and Investment Income improved in 2013, from a loss of VND 311 billion in 2012, to a profit of VND 145 billion in 2013 Operating Expenses increased by VND 62 billion, or 1.87% compared to last year The Bank continued to invest in IT infrastructure and branch offices as to maintain its extensive network of 315 branches throughout the country 15 - Provision for Loan Losses stood at VND 1,414 billion, decreasing by VND 36 billion in comparison with last year following a conservative approach in assessing NonPerforming Loans (NPLs) As of the end of 2013, the NPL ratio of the Bank was at 3.65%, representing a significant decrease from 5.9% as of the end of the Third Quarter of 2013 The Bank has been focusing on bad-debt management and recovery, together with controlling credit risk, following international standards 2012 20.13 Return on Asset (ROA) 0.42% 0.39% Return on Equity (ROE) 5.58% 4.77% Table II.1: ROA and ROE of Techcombank in 2012 and 2013 - Profit before Tax reached VND 878 billion, a decrease of 13.7% compared to last year As a result, Return on Assets (ROA) declined from 0.42% to 0.39%, while Return on Equity (ROE) decreased from 5.58% to 4.47% in 2013 Both reductions are not good signal for the development of Techcombank Managers should something with the business strategy to deal with this situation MOBILIZATION 2.1 Deposits by segments Year 2011 VND million 2012 % VND million 2013 % VND million % Economic 31,012 22.67% 34,406 22.84% 40,973 30.30% Entities Individuals 57,636 42.14% 77,056 51.16% 79,005 58.43% Other Credit 48,133 35.19% 39,170 26.00% 15,225 11.26% Institution Total Deposits by 100.00 100.00 100.00 136,781 150,632 135,203 Segments % % % Table II.2.1: Deposits by segments (Source: Techcombank’s Annual Financial Report) Chart II.2.1: Deposits by segments Total mobilization witness an unstable trend from 2011 to 2013 with the highest number of 150,632 million dong in 2012 The deposits in 2013 decreased 15,429 million dong, equal to 10.24% of total deposit in 2012 The result of the break-down of deposits by currency due to the falling deposit of other credit institution of 23,945 16 million dong which is equivalent to 61.13% of deposits from other credit institution in 2012 and 68.37% in 2011 or exactly due to the strong decrease of foreign currency (foreign currency deposits decrease by 11.9%) while deposits from economic entities and individuals still kept rising 2.5% and 19.1% respectively 2.2 Deposits by term Year 2011 VND million 2012 % VND million 2013 % VND million % Saving deposit 11,440,309 12.91 13,000,727 11.66 17,695,172 14.75 Time 100,952,92 deposit 75,275,537 84.92 97,204,765 87.21 84.14 Margin deposits 1,931,933 2.18 1,256,796 1.13 1,329,824 1.11 Total deposits 88,647,779 100.00 111,462,288 100.00 119,977,924 100.00 Table II.2.2: Deposits by terms from 2011 to 2013 (Source: Techcombank’s Annual Financial Report) Chart II.2.2: Deposits by terms from 2011 to 2013 In total deposits, time deposits accounted for a significant proportion, particularly above 80% throughout year from 2011 to 2013 while saving deposits and margin deposits just took up a small proportion This is a great advantage for the bank because time deposits are regarded as a relatively stable source of capital so Techcombank would find it much easier to get involved in banking investment or other profitable activities especially in revolving capitals With such a reasonable structure of mobilization, Techcombank was able to use the funds effectively In particular, thanks to this structure banks can save costs by reducing mobilized capital for promissory notes with higher interest rate Obviously, the competitive and attractive strategies of Techcombank worked well and got good results 2.3 General comments Despite the difficulty of economic condition, the deposits of two above segments still showed an upward trend is the result of some well-done activities such as: + Consolidate and increase close relationship with the traditional customer units in many years such as Vietnam social Insurance, health Insurance , development Assistance Fund, treasury venom system in the province, Vietnam deposit Insurance… + Doing good work with key partners’ payment 17 + + + + 2.4 Always closely monitoring, capturing movement of interest rates in the market, focusing on marketing and finding new customers which help Techcombank adjust interest rates promptly ensure competitiveness and efficiency in business Expand the network level activity to gradually dominate the business market, work on day-off to improve the quality of customer service The cash collection and payments are quick, safe, and accurate meet the requirements of economic entities and individuals Applying effective marketing methods to encourage more transactions and customer loyalty to banks, raising capital to open more channels through the issuance of promissory notes Capital Adequacy rate (CAR) 2013 2012 2011 Capital Adequacy rate 14.03% 12.60% 11.43% Table II.2.4: Capital adequacy rate from 2011 to 2013 This is an important indicator to assess the safety of banks (the ratio of equity capital to total risk assets), this ratio especially express its optimality in such a potential risk market like Vietnam According to the Circular No 13/2010/TT-NHNN, which was issued by State Bank of Vietnam and took effect from October st, 2010, stipulates the minimum capital adequacy ratio of commercial banks is 9% The above table shows the CAR of Techcombank from 2011 to 2012 We can see that this ratio witnesses an upward trend from 11.43% in 2011 to 14.03% in 2013 and especially, all of them exceeding 9% By performing a relative high CAR, Techcombank has succeeded in contributing and monitoring Risk Management procedure, by the way, increase the faith of customers The CAR of Techcombank in 2013 was higher than CAR of Vietinbank (13.2%) or Vietcombank (13.37%) or we can say in another way that the CAR of Techcom bank is fairly high in Finance and Banking industry as a whole USING CAPITAL – LOANS TO CUSTOMERS BY SEGMENT AND BY TERM 18 2011 VND millio n Agriculture and Forestry Trade Manufacturing and Processing Construction Warehousing, Transport and Communication Individuals and Others Total loans 8,783 22,993 5,097 2,114 24,465 63,452 2012 % 13.84 VND millio n 6,390 36.24 24,141 8.03 5,174 3.33 8,74 38.56% 31,683 100.00% 68,262 2013 % 9.36 VND millio n % 5,324 7.58 35.37 26,620 7.58 8,591 37.88 12.22 1.28 744 1.06 46.41% 28,996 100.00% 70,275 41.26% 100.00% Table II.3: Loans to customers by segments from 2011 to 2013 Chart II.3: Loans to customers by segments from 2011 to 2013 Based on the data table, we can see some main points in the Loans to customers by segments of Techcombank throughout three years Specifically as follow: o In general, the total loans to customers experienced an upward trend and as of the end of 2013, reflecting the conservative approach in lending policy of the Bank, the customer loan balance reached VND 70,275 million, representing a slight increase of 2.9% from 2012 However, it is undeniable that year 2013 is a difficult year Vietnamese economy in general and Finance and Banking industry in particular so this result is not disappointing at all o In three years, loans to customers in Trade Manufacturing and Processing and Individuals and Others were two sectors which took up the largest proportion Both segments showed an unstable trend Year 2012 also marked a change in the loan structure by industry mainly due to the gradual recovery of the real estate market Techcombank’s loan portfolio in the Agriculture and Forestry sector decreased by 17%, increased by 66% in the Construction sector and increased by 10% in the Trading and Manufacturing sector Year 2011 2012 2013 19 VND million Short term Medium term Long term Total loans Percentage VND million Percentage VND million Percentage 35,586,745 56.08% 36,446,276 53.39% 35,073,696 49.91% 10,619,444 16.74% 16,425,411 24.06% 19,421,234 27.64% 17,245,276 27.18% 15,389,755 22.55% 15,779,716 22.45% 100.00% 68,261,442 100.00% 70,274,646 Table II.3: Loans to customers by term 100.00% 63,451,465 According to the data table, we can see that, the short-term loans have little change over years Moreover, it is the segment which occupied the largest proportion in total loans to customer by term so Techcombank would take advantage of this structure to increase the bank’s ability to revolve capitals and use them in the most effective way However, medium-term and long-term also brought back great benefit in ensuring a stable interest rate during up and down years like recent years In the evaluation, parallel with the evaluation of the size and structure of credit application, administrators Techcombank also simultaneously calculate target rate average loan that formula is expressed as follows: Lending rate = x 100 This indicator says 100 on bank capital to loans receivable incurring interest Along with extending credit, Techcombank always pay attention to improve credit quality by lenders If the sales are high, revenue collections is low, which means banks have problem loans, many outstanding debts, and the business situation will not have good results Consequently, rating credit quality is always the requirements which are set in practical operation of the bank To assess the credit quality of the bank, managers of Techcombank used disaggregation method to classify loans into the following categories which are shown in the following table: Group Current 2011 2012 2013 VND VND VND million % million % million % 57,104,41 64,415,28 63,736,18 90.00 94.37 90.70 20 Group Special mention Group Substandard Group Doubtful Group - Loss Total Loans 4,553,396 7.18 2,005,682 2.94 3,972,491 5.65 927,476 1.46 108,330 0.16 447,898 0.64 623,731 0.98 848,623 1.24 1,128,849 242,449 0.38 883,519 1.29 989,497 63,451,46 68,261,44 70,274,91 100.00 100.00 Table II.3: Loans classified by credit worthiness 1.61 1.40 100.00 By using this method, managers can easily determine the status of loans and set up a reasonable provision level We can see that, in 2013, the proportion of current loans decreased and it leaded to the increase of proportion of the worse quality loans such as Special mention loans, substandard loans, Doubtful loans and Loss loans Compare to the third quarter of 2013, the proportion of current loans has increased; however, it is still lower than that in 2012 Techcombank need pay more attention in risk management and give more effective method to deal with this situation III ADVANTAGES AND DISADVANTAGES OF TECHCOMBANK ADVANTAGES OF TECHCOMBANK In recent years, Vietnamese economy has developed quickly in favorable macro economy Economic growth and GDP continuously increase, especially, year 2006, Vietnam join in WTO, which leads to many opportunities for our country Additionally, import and export activities grew than ever before Living standard and minimum wage increase make people demand more and more money, which has promoted credit services and individual loans The development of stock market increase demand for brokerage service, repo and other financial services All of conditions mentioned above are great advantages to banks in general and Techcombank in particular 21 DISADVANTAGES OF TECHCOMBANK The open economy is a two edge weapon which not only brings back many benefits to Techcombanh but also give Techcombank a strong competition from foreign banks and financial institutions Besides, with the financial crisis, credit risk is a problem which prevents Techcombank from making loans The decline of interest rate also make customer have less motivation to make deposits in bank Bank’s staffs are young, active and are willing to learn however they are lack of experiences All of things above are some main difficulties Techcombank have to face to Managers and staff need to try harder to deal with these problems 22 RECOMMENDATIONS AND CONCLUSION RECOMMENDATIONS 1.1 To Techcombank After studying the operating situation of Techcombank, I boldly give some recommendation as follows: Techcombank should pay more attention in risk management process as well as rating credit process to reduce NPLs - Techcombank also should concentrate more in medium and small firm to give reasonable and attractive to these firms Renew process of making loans to medium and small firms Using typical products for medium and small firm - Shortening the time to review loans but still keep the effectiveness Besides, making the procedure of making loans become easier to understand - Increasing the marketing activities to attract more customer simultaneously provide products’ information to customers - Diversifying collateral and form of guarantee - In current year, Techcombank can adapt most of demand for short term loans, however, medium term and long term loans are not paid enough attention So that, banks should care more about product for medium and long term loans - Training staffs to improve skill in banking activities Concentrating in human resource 1.2 To State bank of Vietnam - SBV should issue documents guiding the implementation of laws and regulations for in a clear and understandable way - SBV should increase autonomy for the commercial banks as not to interfere too deeply in adjusting interest rates or loan forms… - 23 CONCLUSION Because of the difficulty of economy and financial situation, beside positive results, Techcombank still has to face to many problems With the effort of managers and all staffs, Techcombank are trying to overcome all and developing well By learning the operation of Techcombank, my report have some general assessments about situation of Techcombank During my working time in Techcombank,I have got very much useful information and knowledge as well as valuable experience for studying and working With the limitation of knowledge and vision, additionally the continuous change of business and economic environment, my report remains many deficiencies So I hope that I could receive the opinions of Techcombank’s staff as well as lecturers Faculty of Finance and Banking, especially my instructor However, I expect that my recommendation will be cared more to improve the business result of Techcombank and the development of Finance and Banking industry Finally, I sincerely thank my instructor-M.A Do Duy Kien for helping and supporting me during the time I wrote this report and I also sent my gratitude Techcombank for giving me chance to work in a active and professional environment 24 REFERENCES Techcombank’s Annual Financial reports year 2011, 2012, 2013 Vietnam’s Law of Finance and Banking No 46/2010/QH12, 2010 M Buckle, E Beccalli , Principle of Banking and Finance, FN1024, 2790024 2011 Jeff Madura, Financial Market and Institution, Edition 10th Peter S.Rose, Sylvia C.Hudgins, Banking Management and Financial Services, Edition 7th Information from Techcombank website: https://www.techcombank.com.vn/ Capital Adequacy Ratio definition and Calculation at: http://www.investopedia.com/terms/c/capitaladequacyratio.asp 25 SUMMARY OF INTERNSHIP Internship place: Techcombank Tran Thai Tong branch Address: Sunrise building, D11, Tran Thai Tong Street, Hanoi Department: Financial Accounting Position: Accountant Description of task: Study about the bank’s financial statement and especially study about the mobilization and using capital management of bank Besides, learn about analysis of bank’s financial statement and how to write an annual financial report Difficulties: because of the short time of internship, I didn’t have enough time to explore deeper about the bank’s financial statement analysis Achieved experience: I had chance to apply theories and principles which I have learnt at university I also worked under pressure and faced to real problems which arose in working process In the working period, I also learnt to work with other staffs in branch and got many skills in dealing with relationship between boss and staff, or among staffs Finally, I knew more people who taught me many things in working and had a good time with other staffs 26 ... motived me to study and have a deeper look in the topic: ? ?THE MOBILIZATION AND USING CAPITAL ACTIVITIES TECHNOLOGICCAL AND COMMERCIAL JOINT-STOCK BANK? ?? OF PURPOSE AND SCOPE OF REPORT a b I II... (NPLs) As of the end of 2013, the NPL ratio of the Bank was at 3.65%, representing a significant decrease from 5.9% as of the end of the Third Quarter of 2013 The Bank has been focusing on bad-debt... shall examine the financial activities of the bank; monitor the observance of the accounting system, the operating system checks and test internal auditing of the bank 3.3 Audit and risk committee