Summary of Doctoral dissertation in Economics: Sustainable development of commercial banks in Vietnam

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Summary of Doctoral dissertation in Economics: Sustainable development of commercial banks in Vietnam

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The overall objective of the research is to assess the current status of sustainable development of commercial bank and to propose solutions for the sustainable development of the Vietnamese commercial banks.

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM BANKING ACADEMY OF VIETNAM -∞∞ - BUI KHAC HOAI PHUONG SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKS IN VIETNAM Major: Banking and Finance Code: 9.34.02.01 SUMMARY OF DOCTORAL DISSERTATION IN ECONOMICS HANOI – 2019 THE DISSERTATION WAS COMPLETED AT BANKING ACADEMY OF VIETNAM Supervisors: ASSOC PROF DR TO KIM NGOC ASSOC PROF DR NGUYEN THI MUI The dissertation will be defensed at the Dissertation Board of Banking Academy of Vietnam At ……… Date … Month … Year 2019 The dissertation could be found at: - Library of Banking Academy of Vietnam - National library of Vietnam INTRODUCTION The urgency of the dissertation topic The sustainability of business in the banking sector is discussed and implemented in developed countries Bank executives believe that sustainability is extremely important to the bank's success in the future This view is also published in research by two organizations, United Nations Global Compact and Accenture (2010) The study is the largest study of sustainability, with 766 CEOs from nearly 100 countries in the world, including 41 CEOs from major banks such as Grupo Santander and Calvert Group , HSBC, Storebrand, UniCredit, etc The survey results show that 98% of CEOs of banks affirm the importance of sustainability for business success in the future Figure 1: The importance of sustainability for companies and banks Source: United Nations Global Compact and Accenture CEO Study (2010) The bank acts as a credit intermediary, a player of the financial market, a capital channel for the economy, thus banking operations affect and orientate economic development in scale and performance The reason why the banks integrate sustainable development in their operation is management agencies, social organizations and financial organizations often require to consider environmental and social factors State management agencies often directly or indirectly regulate the management of environmental and social impacts in banking operations Although environmental impacts of the bank itself are not significant compared to other sectors, the bank has a considerable impact on the environment and the community through their customers’ activities In addition, economic cooperation through sponsoring projects often requires strict environmental and social risk management In addition, sustainable development tends to start inside the bank, arising through the need to set core goals and create their brand value, aligning and balancing the benefits of their stakeholders, create goodwill, build consumer base and market share, attract financial partners thereby increasing profits in short and long term In Vietnam, the development of sustainable banking is at an early stage Some banks are interested in this However, the implementation of sustainable development of banks is not equal, many banks not have environmental and social risk management system Solutions are lacking and legal procedures for sustainable development are incomplete In the trend of globalization, the system of commercial banks must integrate deeply Therefore, sustainable development helps to improve the competitiveness of the banking system and is an indispensable trend in line with the trend of international integration Currently, the commercial banking system is being restructured in association with bad debt handling to ensure the safety, health and sustainability of the credit institution, thereby creating a firm premise to curb inflation developing and innovating growth models aimed at sustainable economic development Because of its urgency and its applicability to sustainability in the future, PhD candidate decided to choose "Sustainable development of commercial banks in VietNam" PhD candidate wants to assess sustainability and propose solutions for sustainable development of Vietnam's commercial bank in the trend of international integration An overview of the research on sustainable development of banks 2.1 Overview of researches in the world Assessing sustainability according to performance There have been many different approaches to assess the sustainability of an organization, the previous view of sustainability is tied to performance based on maximizing benefits for shareholders In recent studies, sustainable development is now expanded into maximizing benefits for other stakeholders, including shareholders, customers, investors, management agencies and the whole community instead of maximizing benefit for shareholders According to traditional approach, bank’s performance is aimed at maximizing benefits for shareholders Application of the theory of stakeholders in sustainable development assessment The application of theory in sustainable bank assessment has many advantages over traditional performance appraisal methods The perception of the performance of banks in previous studies is based on maximizing shareholder value, so the criteria that reflect the performance of banks tend to focus on the benefits for shareholders There were several studies based on other criteria, in addition to maximizing value for shareholders Currently, according to the author's understanding, three previous studies by Garcia and Surroca (2008), Avkiran and Morita (2010) and Rebai reviewed many stakeholders in assessing bank performance The study by Garcia and Surroca (2008) provided a composite performance index using the objectives of various stakeholders to evaluate the output Meanwhile, Avkiran and Morita (2010) classified from each stakeholder perspective to determine inputs and outputs Rebai's study proposed the concept of sustainable banking and sustainable finance This study also assessed performance associated with bank sustainability goals based on the application of stakeholder theory Assessing sustainability of commercial banks through green initiatives Sahitya and Lalwani (2014) studied the importance of green initiatives for achieving sustainable banking development goals in India The study evaluated the efforts of commercial banks to implement sustainable development, including bank’s internal activities such as using energy resources, exploiting facilities efficiently Dyllick and Muff's (2016) studied the significance of a sustainable business model and categorizes the sustainability of a bank's business into three different levels Banks at level 1.0 enhanced the value of shareholders, the business goal was to benefit shareholders At level 2.0, banking operations not only brought value to shareholders but also brought benefits to society and the environment At Level 3.0, businesses were completely sustainable, at which level the banks would create business opportunities, provide environmentally friendly green products and sustainability products from business challenges, social and environmental issues such as climate change, migration, corruption, resource scarcity, pandemic, unemployment, overdue debt, financial instability Assessing sustainability of an organization by DJSI The DJSI evaluates the performance of the world's leading companies in economic, environmental and social indicators, providing investors standards to manage their portfolios (Searcy et al., 2012) DJSIs are based on an analysis of economic, environmental and social performance, assessing issues such as corporate governance, risk management, branding, climate change mitigation, supply chain standards, energy consumption, human resource development Sustainable development according to the Global Reporting Initiative (GRI) The GRI has been developed with the goal of helping organizations report on environmental, social, and economic activities and to increase their accountability 2.2 Overview of researches in Vietnam Researches on sustainable development of banking in Vietnam are very few There are no comprehensive researches on sustainable development assessment of Vietnam's commercial banking system Tran Thi Hoang Yen (2016) applied a linear regression model to examine the relationship and impact of independent variables: corporate social responsibility to the bank's financial results through variables Dependencies are ROA and ROE In this study, the author clarified theories of corporate social responsibility This was the core theory of social responsibility of organizations Nguyen Hong Son et al (2015) summarized the views and criteria for evaluating sustainable bank development The authors assessed the development of Vietnam's commercial banking system and re-structured in line with international practices, which also provided solutions for the sustainable development of the Vietnamese commercial banking system However, the content of the study focused on assessing the realities of banking system development and restructure, mainly based on criteria for assessing the stability and soundness of the banking system This study đin’t elaborate on the situation of sustainable development of the commercial banking system in line with international practices on environmental and social factors affecting banking operations In general, studies on sustainable development of commercial banking system in the country are not much, especially studies on sustainable banking models Domestic studies focued on assessing the performance of commercial banks, there were very few researches on sustainable development of commercial banks Research directly related to the topic of dissertation is a study by Nguyen Hong Son et al (2015) This study analyzed the development status of commercial banks associated with the restructuring of the banking system However, this study analyzed the sustainable development of the banking system, which did not integrate environmental and social issues into the bank's operations - these are considered important elements of sustainability 2.3 Research questions The first question: What is the theory of sustainable commercial banks? In order to answer this question, the study will present and synthesize a theoretical framework for sustainable development of commercial banks, including: perspectives, principles and models for sustainable development, etc This study proposes the definition, principles and model for sustainable development of commercial banks The second question: What is the lesson for Vietnam on the sustainable development of commercial banks from the experiences of other countries in the world? This question is answered through the study of commercial bank sustainable development experience from the typical banking model, the success of different countries Country experiences and sustainable management pathways, sustainable development stages, and sustainable development practices of successful and typically successful banks in regionally and in developed countries The third question: What is the level of sustainable development of commercial banks in Vietnam? This question will be answered through the development of criteria for assessing bank sustainability These criteria are also used to assess the sustainability of the commercial banking system in terms of economic, social and environmental sustainability The fourth question: What obstacles the sustainable development of commercial banks in Vietnam? This question was answered through expert consultation to identify major obstacles to banks through a survey of bank managers based on defined criteria The fifth question: How to develop a sustainable commercial banks in Vietnam in the integration trend? This question is answered through research on the impact of global economic integration on the sustainable development of Vietnam's banking system and measures to promote the sustainable development of the commercial banks Objectives of the research 3.1 Overall objectives The overall objective of the research is to assess the current status of sustainable development of commercial bank and to propose solutions for the sustainable development of the Vietnamese commercial banks 3.2 Detail objectives - Assess the current status of the sustainable development of Vietnam's bank for the period 2008-2017 - Analyzing the factors affecting the sustainable development of Vietnam's commercial bank, clarifying the challenges for the sustainable development strategy of the commercial banking system - Proposing solutions to promote the sustainable development of Vietnam's commercial banks in the period of 2019-2025 Objects and scope of the research Objects of the research: The sustainable development of the commercial banking system in Vietnam, in terms of healthy bank balance, environmental and social issues Scope of the research: The dissertation on the sustainable development of 12 joint stock commercial banks in Vietnam from 2008 to 2017 Data are collected in the audited financial statements of each bank to calculate financial indicators Data is collected over a long period and financial indicators are quite many The dissertation only assesses of sustainable development of 12 commercial banks, including state commercial joint stock banks and joint stock commercial banks Research methodology 5.1 Method of data collection and processing The research uses the descriptive statistical method using the STATA 12 to calculate the indexes, mean, standard deviation, maximum and minimum values, and the degree of time series This result is used to assess the sustainability of the commercial banking system for the period of 2008 to 2017 5.2 Survey method The research is an in-depth survey of banking managers from vice-manager upwards to assess performance and find barriers to sustainability of commercial banks The survey participants are managers, strategic decision makers, implementers and implementers of the Bank's sustainable development strategy The contribution of the dissertation The dissertation systemizes the theory and elaborates more on the theory of sustainable development of the banking Based on the views on sustainable bank development, the dissertation has identified various sustainable banking models, standards and principles for the sustainable development of commercial banks by leading banks in sustainable development initiatives around the world The dissertation lists the sustainable banking models and the principle of sustainability of each model Based on that, the dissertation proposes to develop a system of criteria for assessing sustainability of commercial banks through criteria that reflect economic, social and environmental sustainability These criterias are integrated through the products and services provided by the bank The dissertation also studies on sustainable development experiences of commercial banks of developed nations and developing countries These experiences come from the countries that have developed and implemented the sustainable development path and the sustainable development practices of successful banks and typical banks in the countries Based on the experience gained and the sustainable banking model in the world, the author identifies the conditions for sustainable development of the commercial banking system in Vietnam The dissertation analyzes the current state of sustainable development of commercial banks in the period from 2008 to 2017 The dissertation evaluates the achievements and shortcomings in the sustainable development of commercial banks in Vietnam One of the biggest obstacles is the development and improvement of environmental and social risk management systems This management system needs to be integrated as a method of credit risk assessment to approve loan projects The dissertation proposed solutions for sustainable development of Vietnam's commercial bank in line with international integration trends In particular, the dissertation proposes a sustainable model through three phases: Phase is building an internal environmental management system; Phase is the management of environmental and social risks in lending and investment; Phase is to provide sustainable financial products In addition, the dissertation proposes to relevant agencies of the bank such as the Government, relevant ministries, State Bank of Vietnam, commercial banks and clients to implement proposed solutions most consistently and effectively The structure of the dissertation Apart from the introduction and conclusion, the dissertation consists of chapters: Chapter 1: Theoretical issues on sustainable development of commercial bank Chapter 2: The situation of sustainable development of Vietnam's commercial banks in the period from 2008 to 2017 Chapter 3: Solutions for the Sustainable Development of Vietnam's Commercial Banks from 2019 to 2025 CHAPTER THEORETICAL ISSUES ON SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANK 1.1 PERSPECTIVES ON PRINCIPLES AND MODELS OF SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKS 1.1.1 Perspectives on on sustainable development Sustainable development is "development that meets current needs without compromising or compromising the capabilities of future generations" This definition emphasizes the long-term viability of sustainable development; current developments must not affect future generations (WCED, 1987) 1.1.2 Perspectives on sustainable banking development Based on literature review on sustainable development of commercial banks, the author proposes the definition: "Sustainable Bank secures development stable, healthy, contributing to the strength of the financial system The bank has policies and activities to improve the environment The bank's activities aim to maximize benefits to stakeholders and the whole community” From the perspectives on sustainable banking development as above, sustainable banks have the following characteristics: (1) The bank has a healthy, efficient and sustainable financial capacity (2) The Bank has policies to encourage and support companies, environmentally and socially responsible investment projects to contribute to promoting sustainable economic growth (3) Sustainable banking activities bring benefits to shareholders and to the others such as customers, management agencies, employees, suppliers and the whole community 1.1.3 Models of sustainable development of commercial banks a Modeling on the level of sustainable development Sustainable bank Integrated bank Unsustainable bank Figure Levels of sustainable development of commercial banks The first level is unsustainable development, the bank's goal is to maximize profits for shareholders, but not paying attention to and focusing on environmental and social efficiency in lending and investment activities The second level is integrated development, which aims to maximize profits and integrate E&S issues in operations At this level, the bank's income structure is from traditional lending projects that benefit the environment and community The final level is sustainable banking, which has built and implemented policy systems on sustainable development, including: principles and standards for sustainable development, banking management according to international standards, initiatives on sustainable development The principles and standards of sustainable banking development are enforced from managers to make credit and investment decisions b Modeling on business strategy - Sustainable banking model combined with traditional business: This business model is popular in developing countries with low technology and capital Therefore, there are no conditions for sustainable bank development The characteristic of this model is that the bank will consider the environmental and social implications for lending projects and in investment activities Banks will reject projects that have a negative impact on the environment and society Economic efficiency consider environmental impact consider environment al impact Sustainable bank combined with traditional business Figure 1.3: Sustainable banking model in line with traditional business - Sustainable banking model: The Global Alliance of Banking Values has built on the key features of sustainable banking, including the following six principles: the three key elements are human, planet and prosperity; serving the real economy; long-term relationship with customers; long-term, self-sustainability and recovery; transparent and comprehensive management These principles are attached to the culture of the bank This model is often implemented in developed countries where banks are supported, facilitating sustainable development thanks to well-designed and sustainably-designed legal systems was created Sustainable banks in these countries have strong links and support from non-governmental organizations on environmental initiatives and social issues to provide sustainable financial products Triple bottom line approach Real Economy Client Centred The culture of the bank Long term, Resiliency Transparent 1.2 SYSTEM CRITERIA FOR EVALUATION OF SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKS Based on the perspectives and sustainable banking models, the dissertation synthesizes, supplements and completes the system of criteria to assess the sustainability of commercial banks in terms of economic, social and environmental sustainability These criteria are integrated in commercial banks’ operations, including ensuring economic, social and environmental efficiency in internal and external activities such as lending and investment The criteria reflect economic sustainability include equity size, group of criteria for credit risk, profitability, executive management; criteria reflect liquidity are integrated and developed by author according to CAMELS frame, the Financial Soundness Indicators (FISs) of IMF Criteria reflect stability, healthy and sustainability are synthesized and developed by author Author develop criteria that reflect the environmental and social sustainability of the bank based on IFC's performance standards for environmental and social sustainability, equatorial principles, and environmental initiatives of the United Nations Dow Jones Sustainable Index (DJSI), GRI In addition, the sustainability of commercial banks is associated with providing green products and sustainable finance Accordingly, banks with low sustainability provide products with improved selection on environmental issues, limiting the negative effects of products on the environment The system of criteria for sustainable banking assessment is built, synthesized and developed as follows: assessment of the size of equity Group of criteria that credit risk SUSTAINABLE BANK Criteria that reflect profitability chất lượng tài sản management and executive capacity Sustainable economic Criteria groups reflect liquidity Criteria for technological capability stability and sustainability of commercial banks Employee benefits Social sustainability Customer benefits Comprehensive finance Invest in a socially responsible manner Environmental sustainability Commitments to sustainable development Environmental and Social Risk Sustainable supply Responsibility for the environment 1.3 EXPERIENCE ON SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKS SOME COUNTRIES AND LESSONS FOR VIETNAM 1.3.1 Experience on sustainable development of commercial banks some countries 1.3.1.1 In developing countries 10 Thirdly, the participation and support of related parties of commercial banks Fourthly, adhere to international standards of sustainability Fifthly, diversify banking services and provide sustainable financial products provide sustainable financial products adhere to international standards of sustainability the participation and support of related parties of commercial banks improve the system of environmental and social risk management financial capacity is stable and healthy Source: synthesis of the author 11 CHAPTER 2: THE SITUATION OF SUSTAINABLE DEVELOPMENT OF VIETNAM'S COMMERCIAL BANKS IN THE PERIOD FROM 2008 TO 2017 2.1 VIETNAM'S BANKING SYSTEM FROM 2011 TO THE PRESENT 2.2 THE STATUS OF SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKIS IN VIETNAM 2.2.1 Legal framework for sustainable development of commercial banking system The legal framework for sustainable development of Vietnam's banking system has been gradually built and improved, creating a driving force for the whole banking industry to practice sustainable development 2.2.2 Group of criteria for assessing sustainable economic banking 2.2.2.1 Criteria of size of equity capital 70000 billions VND 63765 52558 60000 50000 40000 30000 20000 16031 10000 48834 26931 29601 14251 29696 22876 13722 14691 8788 Equity of Vietnamese commercial banks in 2017 Source: Commercial bank's annual report 2.2.2.2 Group of criteria that reflects the credit risk Describe the criteria that reflects the credit risk Criteria Number of The average Standard Smallest Greatest samples value deviation value value NPL’s to total loans 132 0,0210856 0,0121067 0,0034 0,088 NPL’s to total equity 132 0,1508058 0,1093973 0,008274 0,619322 Potential loss loan 132 0097589 0084251 003144 0427939 Source: processing data of the author using STATA 12 Non-performing loan ratio (NPLs) of banks is at a minimum of 0.34% and a maximum of 8.8% The ratio of bad debt to equity ranges from 0.83% to 61.93% Thus, the ratio of bad debt to equity of commercial banks is too high In particular, there are banks with 61.93%, so bad debt is more than half of equity 2.2.2.3 Group of criteria reflects profitability Describe the criteria that reflects profitability Criteria Number of The average Standard deviation Smallest value Greatest samples value value ROA 120 0,010967 0,00603 0,000274 0,0266 ROE 120 0,140628 0,0774707 0,003 0,36 Source: processing data of the author using STATA 12 12 The ROA and ROE differ widely, with ROA fluctuating between 0.027% and 2.66% and ROE fluctuating between 3% and 36% 2.2.2.4 Group of criteria reflects ability of executive management Describe the criteria that reflects ability of executive management Criteria Number of The average Standard Smallest Greatest samples value deviation value value Growth of debit balance 120 0,37425 0,7265 -0,2334 7,4857 Growth of asset 120 0,3385 0,8035 -0,3726 8,3547 Growth of income 120 0,2526 0,3147 -,03968 1,6875 Source: processing data of the author using STATA 12 The average value of the growth rate of outstanding loans in the period of 2008-2017 of the commercial banking system is 37.43% Total asset growth rate was 33.85% and income growth rate was 25.26% Although the average growth rate of these criteria is relatively high, the growth rate is unstable Specifically, some banks have increased their outstanding loans by over 748%, some banks have reduced this rate to 23.34%, some banks have growth rates of over 835% and growth rate the lowest is 37.26% 2.2.2.5 Group of criteria reflecting liquidity 2.2.2.6 Group of criteria reflecting technology level 2.2.2.7 Group of criteria reflecting stability and sustainability of commercial banks a Equity structure Vietnam joint stock commercial banks are owned by different shareholders, of which state owned commercial banks have a very high proportion of state ownership of over 60% including VCB, VietinBak and BIDV, the remaining joint stock banks are owned by various shareholders including individuals and legal entities at home and abroad In recent years, many commercial joint stock banks in Vietnam have shareholders being international financial corporations However, starting from the end of 2017, many strategic investors and foreign major shareholders have withdrawn capital at domestic banks b.Capital Adequacy Ratio The average CAR of commercial banks is 12.66%, the ratio is quite high in the period 2008-2017, the lowest value is 8.02% and the bank had the ratio of 45, 89% The leverage ratio is 12.53% BIDV has the highest average leverage ratio of 18.37% Meanwhile, ACB has a financial ratio of 45.37% and Vietinbank is 14.57% Eximbank has the lowest leverage ratio (8.36%) Currently there are only two banks that follow basel standards II are VCB and VIB Capital Adequacy Ratio Ratio CAR Number samples 120 of The average Standard Smallest value deviation value 12,6624 0,0445 0,0802 Greatest value 0,4589 Source: processing data of the author using STATA 12 To assess the impact of the Basel III framework on banks, the Basel Committee on Banking Supervision monitors the effects and dynamics of the reforms Information considered for this report was obtained by voluntary and confidential data submissions from individual banks and their national supervisors Data were provided for a total of 206 banks, including 111 large internationally active (“Group 1”) banks, among them all 30 G-SIBs, and 95 other (“Group 2”) banks Compared with the previous reporting period (June 2017) the average Common Equity Tier (CET1) capital ratio under the fully phased-in initial Basel III framework has increased from 12.5% to 12.9% for 13 Group banks and from 14.7% to 16.0% for Group banks All Group and Group banks (including all 30 G-SIBs) would meet the CET1 minimum capital requirement of 4.5% and the CET1 target level of 7.0% (ie including the capital conservation buffer) This target also includes the G-SIB surcharge where applicable but does not include any countercyclical capital buffers c The short-term capital ratio for medium and long-term loans VIB Sacombank VPBank Maritimebank BIDV SHB Eximbank MBBank Techcombank Vietinbank Vietcombank ACB 50% 27% 28% 27% 24% 23% 44% 30% 9% 27% 12% 11% 10% 10% 10% 0.1 42% 21% 27% 33% 31% 0.2 long-term loans 34% 34% 34% 41% 0.3 0.4 Medium loans 0.5 0.6 Figure 2.11: The ratio of medium and long term debt to total outstanding loans in 2017 Source: Commercial bank's annual report and calculations by the author d Income structure Income of commercial banks is mainly from interest income There are banks with net interest income of nearly 90% of total income Traditional non-credit services will be the foundation for generating sustainable income for the bank Developing non-credit services contributes to the diversification of banking products and services, providing customers with a variety of utilities Providing credit services also contributes to diversifying risks in business operations, gradually reducing dependence on revenue from credit activities, increasing income and profit from service activities Therefore, this service generates stable and sustainable income of banks Commercial banks' income is relatively high in 2017 Net interest income accounts for the highest proportion of total commercial bank earnings (76.6% in 2017), followed by income Services income from services (10.3%), income from securities trading and income from equity contribution accounted for a very low proportion of total income Net interest income in FY2010 increased by 24% y / y to VND 2,264 million, while net interest income increased 51.7% y / y to VND 595 million, net income from securities investment in 2017 down 19.8% (equivalent to 38.5 million) compared with 2016 Countries in the euro area have a relatively high proportion of non-interest income in total income, in 2013, this rate reached 40.39% Compared with banks of the Euro, Vietnamese commercial banks have a very low proportion of non-interest income 14 e Bad debt structure 35000 Milion VND 30000 32304 31344 29484 25000 20000 18084 15000 10000 5000 16752 13680 10728 9528 7212 Năm 2015 substandard debt Năm 2016 doubful debt Năm 2017 irrecoverable debts Bad debt of Vietnamese commercial banks Source: Commercial bank's annual report According to a commercial bank's report, bad debt tends to increase after restructuring from 2011 to 2015 The NPL ratio in 2017 of 12 commercial banks is 2.04%, down from 2016 is 2.31 % However, the size of bad debt tends to increase In 2016, the total bad debt of 12 banks was VND 59,916,000,000 increasing by 26,34% (equivalent to VND 12,492,000,000) Of which, subordinated debt tended to increase sharply, increasing 68.6% (equivalent to VND 7,356,000,000) In 2017, bad debts of these commercial banks reached VND 61,776,000,000, a growth rate of 3% (corresponding to VND 1,860,000,000) compared to 2016 In which, bad debt is expected to increase sharply to 75, 8% (equivalent to VND 7,224,000,000) Thus, bad debts of commercial banks have not been thoroughly dealt with after restructuring, bad debt is still high in the banking system However, these bad debts are bad debts on the balance sheet reported by banks, this figure has not reflected adequately and intrinsic bad debts, excluding the bad debts sold to VAMC and the amounts has been removed from the balance sheet f Cross-ownership status of commercial banking system g Ability to apply 4.0 technology to provide banking products and services 2.2.2 Group of criteria for assessing social sustainability 2.2.2.1 Employee benefits Employee treatment policies include compensation policies, good employee benefits, training activities to improve the quality of human resources, provide career development opportunities for workers, and promote gender equality, creating fairness, paying attention to the lives and well-being of workers, human rights issues such as labor-related activities, etc Employee income: Commercial banks have a policy of salary and bonus of employees closely related to business results Compared to other industries, the average income of employees in the banking industry is usually higher - Training to improve the quality of human resources, commercial banks not have in-depth training courses for staff on environmental issues to raise awareness and capacity to assess the risks in decisions in lending To ensure sustainable development, credit officers need to adequately and accurately assess the environmental risk management process in their business operations, reject projects that are harmful to the environment and society At present, some banks, such as Sacombank and Vietinbank, have set up 15 specialized social and environmental risk assessment teams, indicating that these banks have initially paid attention to environmental and social risks in lending - Benefits for employees - Human rights and the process of using labor in commercial banks in Vietnam in recent years have not recorded any cases related to forced labor, child labor, etc 2.2.2.2 Customer benefits 2.2.2.3 Comprehensive finance 2.2.2.4 Invest in a socially responsible manner With a large scale of capital and to achieve the social objectives of the State, commercial banks of the state invest in social security In the period 2010-2016, BIDV has sponsored more than 1,448 billion dong, Vietcombank financed more than 1,220 billion dong Since its inception, Vietinbank has supported over 6,500 billion dong of social security In investment for social security, investments in improving the quality of education and health are the banks focus and invest most In addition, banks also donate charitable and voluntary activities to share difficulties and improve the quality of life of the community 2.2.3 Group of criteria for assessing environmentally sustainable banks 2.2.3.1 Environmental and social risk management system a Environmental and social risk management policy b Situation of implementing the system of environmental and social risk assessment of commercial banks (ESMS) Commercial banks attach great importance to environmental and social risks when evaluating loan projects BIDV does not approve loans for unplanned projects Vietcombank only accepts credit for projects that have been approved for environmental impact assessment and requires the project owner to provide information related to technology and environment in the application file Sacombank deploys an ESMS system that is implemented with the following elements: Strategy, governance model, environmental and social policy (E&S) integrated into the credit process, Excel includes E&S impact assessment for customers, ESMS group establishment at Head Office BIDV has promoted green credit growth and environmental and social risk management in credit extension through projects linked to the World Bank In fact, the implementation of the environmental and social risk assessment system in the credit extension of most banks only rests on the integration of requirements for approved projects move to the environment Only a few banks have independent credit assessments on the environmental and social risks of the loan project In addition, the report on sustainable development of commercial banks shows that there are no significant negative and negative environmental impacts on the bank's product supply chain So far, there have been no complaints about environmental impacts, and no loans have been closed due to environmental issues This fact shows that many banks have not adequately assessed the environmental and social risks of credit granting, and have not closely monitored E & S risks after capital transactions with customers 2.2.3.2 Commitments to sustainable development of commercial banks in Vietnam According to the results of the survey, bank managers agree with the view of sustainable development of commercial banks in the following aspects: sustainable development bank is a stable and transparent operation to ensure the interests of the parties involved and contribute to the stable and healthy development of the financial system In addition, the criteria for integrating environmental and social issues into the operation of banks have not been well appreciated by management With the objective of sustainable development, managers highly appreciate the criteria to meet the requirements of state management agencies 16 and create the relationship with customers Survey results show that the goal of sustainable development is mainly to meet the requirements from outside the management agencies and customers Commercial banks have not yet actively implemented sustainable development in order to seek profit and investment opportunities in the environment 2.2.4 Provide sustainable products At present, commercial banks in Poland only provide a number of green products, support sustainable development projects for the community such as social security projects, education, health, grassroots infrastructure, etc Some banks have been lending credit to the environment, such as using energy savings These banks also participate in some typical environmental projects such as waste treatment, environmental awareness rising for the community, providing some environmentally friendly products, participating in international cooperation projects, etc However, there are not any banks that develop under the model of sustainable banking and provide a diverse range of sustainable financial products Commercial banks are providing credit along with environmental and social factors Sacombank, Techcombank and Vietinbank have applied and disclosed information about environmental and social impact assessment systems for credit projects The financial resources provided for the most environmentally-friendly projects are still available through links with foreign sources, funding from the World Bank, or through cooperation with governments in developed countries Commercial banks are involved in financial management, customers, disbursements, etc Banks must be assessed technically, environmentally and socially, and technology by other units that are not banks The granting of credits to environmentally-friendly projects, clean energy projects and renewable energy from banks is still limited 2.3 ASSESSING CURRENT STATE OF SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKS IN VIETNAM 2.3.1 Achievements - Firstly, the legal framework on banking safety has been gradually improved - Secondly, financial capacity of the banking system is stable and transparent in operation After restructuring the banking system for the period 2011-2015, financial capacity of commercial banks improved markedly The criteria of capital adequacy, asset quality, growth rate, liquidity and income of commercial banks have achieved good results since 2015 - Thirdly, reduce the cross-ownership of the banking system: In 2017 many commercial banks, especially state-owned commercial banks, have successfully withdrawn capital in credit institutions and other companies to ensure safe and effective BIDV continued to effectively divest some of its investments, resulting in a total return of 444.72 billion dong, surpassing its target for 2017 (259 percent) Vietcombank successfully divested capital at Saigon Commercial Bank and Cement Finance Joint Stock Company Accordingly, Vietcombank has collected profit of VND200 billion after the divestment By the end of 2017, Vietcombank successfully sold two thirds of its shares in Orient Commercial Joint Stock Bank (OCB) and earned 171 billion dong EIB, MBB continue to implement the plan to divest - Fourthly, compliance with environmental regulations - Fifthly, invest in social policies: Commercial banks have successfully implemented internal social issues such as income policies linked to business results of the bank, pay on demand and efficiency of work, reward policiess have encouraged staffs’ engagement Commercial banks have policies to improve the quality of human resources and promotion policies to motivate employees to promote their own capacity 17 The average income of staff, bank staff is usually higher than other branches In addition, commercial banks in Vietnam comply well with human rights regulations and workers enjoy legal rights There is no human rights violation such as not using child labor in any business activities, no claims of forced labor, and no violations of the rights of indigenous peoples 2.3.2 Limitations and reasons 2.3.2.1 Limitations Firstly, many commercial banks have not followed Basel II standards Up to now, Vietcombank and VIB has already met the Basel II standards Secondly, Limitations on Investment Resources for Sustainable Development Internal competition 79% 84% Budget Limitations Source: survey results Thirdly, Increase in potential bad debt in the banking system Although bad debt tends to decrease in post-restructuring 2011-2015, the scale is still large Bad debt is increasingly difficult to identify and so far no measures to deal with bad debt Bad debts of commercial banks have not been thoroughly dealt with after restructuring, bad debts are still high in the banking system However, these bad debts are reported by banks only and not included bad debts sold to VAMC and other amounts taken out of the balance sheet, thus this figure does not reflect fully and substantially the bad debts Fourthly, challenges from successful application of technology revolution 4.0 Fifth, lack of sustainable financial products Currently, there is no bank that has developed according to a sustainable bank model and offers a variety of sustainable financial products Sustainable financial products are provided primarily through links with funds, non-governmental organizations or tdeveloped countries Sixth, customer rights are not guaranteed Some commercial banks not guarantee the safety of customers' deposits which are partly or completely lost set of deposits of customers, such as Eximbank, Ocean Bank Another limitation in commercial banks Vietnam is when the damage occurs, the bank does not solve it in time, even the customer has to sue in court Seventh, income of commercial banks is heavily dependent on credit activities Net interest income accounted for the highest proportion in total income of commercial banks, this rate reached 76.6% in 2017 Credit activities are characterized by low profit margins, depending on the difference between input costs (deposit interest rates) and lending rates Secondly, there is a lack of training to improve the capacity of staff and a lack of information on the environment 2.3.2.2 reasons 18 Firstly, the legal framework to promote the commercial banking system sustainable development 79% 76% limited legal framework lack of sustainability inventions Source: survey results Secondly, High quality human resources to meet the requirements of sustainable development 77% 72% 53% Poor EmployeeEngagement lack of coordination of stakeholders Limited TopManagementSupport Source: survey results Thirdly, environmental and social risk management system of commercial banks Fourthly, lack of training courses to improve staff capacity and lack of environmental information Fifth, lack of coordination and support of stakeholders Sixth, international standards for sustainability have not been widely applied in Vietnamese commercial banks 64% 36% Yes No Source: survey results Seventh, the effectiveness of implementing social and environmental policies is not high Vietnam has developed many environmental protection policies but effective implementation of legal regulations is still limited Many projects that greatly affect the environment are still approved for environmental impacts, many projects that not meet the required environmental standards are still allowed to operate and approved for project implementation and even expand the scale of production 19 CHAPTER 3: SOLUTIONS FOR THE SUSTAINABLE DEVELOPMENT OF VIETNAM'S COMMERCIAL BANKS FROM 2019 TO 2025 3.1 OPPORTUNITIES AND CHALLENGES FOR THE SUSTAINABLE DEVELOPMENT OF THE COMMERCIAL BANKING SYSTEM IN VIETNAM IN THE TREND OF INTEGRATION 3.1.1 Trends in sustainable development of the commercial banking system 3.1.2 Sustainable development orientation of Vietnamese commercial banks until 2025 3.2 SOLUTIONS TO DEVELOP SUSTAINABLE BANKING IN VIETNAM IN THE TREND OF INTEGRATION 3.2.1 Enhance the stability and transparency of commercial banks 3.2.2.1 Increase in equity of commercial banks Firstly, improve risk management in order to reduce costs of risk provisions which accounted for a considerable proportion of expense in bank's operations; thus, enhancing risk management capacity may reduce costs Secondly, improve the ability to cooperate with potential investors by selling shares to foreign strategic investors because these investors have strong capital and good management capacity Thirdly, increase equity by issuing bonds, medium and long-term deposit certificates to investors To successfully implement this solution, commercial banks need to calculate the appropriate interest rates to attract investors and compete with other financial institutions Fourthly, provide new products and services to increase utilities for customers and increase proportion of income from service activities, reduce the dependence on credit activities Fifthly, increase equity by paying more stock dividends and less cash dividends Although shareholders will not be happy to not receive cash dividends, in order to increase financial capacity and improve competitiveness, the bank must increase its capital capacity Sixthly, call for more capital from existing shareholders to preserve the bank's shareholder structure However, not all the banks can implement this solution For the banks that operate effectively, existing shareholders are willing to invest more, while low-performing banks will have difficulty in implementing this solution 3.2.2.2 Improve asset quality of commercial banks Completing the legal framework on debt trading market which still has many limitations, as the market participants are limited in accordance with the law, the seizure and handling of security property has many legal obstacles, rights and responsibilities Debt and seller's responsibility have not been clearly defined Currently, only VAMC and DATC of the Ministry of Finance operate effectively, while 28 Asset Management Companies (AMC) of commercial banks have very limited resources and most of them only handle internal debt for the parent banks themselves Therefore, it is necessary to complete a legal framework on the debt trading market for various types of participants, continue to strengthen capital capacity for VAMC, DATC, optimize asset portfolio and sell at reasonable prices to increase the ability to convert these debts into cash These solutions help to boost the debt trading market effectively The SBV has taken drastic measures to properly and adequately determine the size and structure of NPLs, including potential bad debts and forcing commercial banks to deal with bad debts, and selling bad debts at reasonable prices Implementing measures of securitizing bad debts, restructuring debts and issuing shares to companies, handling bad debts through cooperation and joint ventures with companies for the purpose of sharing risks 20 and increase the ability to recover capital from handling these debts; Valuation, classification of bad debts and selling it on the stock market For some weak banks (e.g poor asset quality and poor liquidity), strong measures need to be applied: forced to merger or closure 3.2.2.3 Enhance the quality of management and administration of commercial banks, apply management methods in accordance with international standards 3.2.2 Improve environmental and social risk management system Phase I: Building internal management system Phase II: Managing environmental and social risk in lending activities Phase III: Provides green financial products and sustainable products Phase I: Building internal management system - Take measures to effectively use energy and resources within the banks - Incorporating environmental risk in customer relationship management - Raising awareness about the environment and energy for employees - Initiation of environmental management in the operation of banks - Selection and training of staff on environmental and energy issues - Implement communication measures to provide employees with important environmental information - Compliance with environmental standards and regulations Phase II: Environmental risk management in lending activities - Evaluate and monitor the environmental risk of the customer's business activities - Find out and eliminate bad credit proposals for the environment - Encourage customers to reduce adverse environmental impacts in their business Phase III: Provide sustainable financial products - Provide green financial products and sustainable products - Provide specific solutions to assist clients invest in environmental improvement and clean technology - Monitoring environmental and social compliance of loan projects - Measures to handle when customers not comply with environmental and social regulations In the final phase, banks will provide sustainable and green financial products Banks around the world have provided these products, including: environmental investment funds, sustainable payments, sustainable savings products, sustainable credit, environmental insurance, microfinance tissue, climate products, and environmental consulting services etc At present, not many commercial banks in Vietnam provide green and sustainable credit products Annual reports of many commercial banks not clearly show the green and sustainable products provided by the banks Green and sustainable products are provided mainly through channels linking with foreign organizations Typically, BIDV provides rural finance sponsored by the World Bank, banks affiliated with green investment funds 3.2.3 Enhancing human resources for sustainable development 3.2.4 Solutions on technology application for sustainable development 21 3.2.4.1 Improvement of information technology infrastructure 3.2.4.2 Solutions to enhance the applicability of technology in the technological revolution 4.0 In the trend of integration and competitive markets, commercial banks are enhanced by the support of science and technology, which highlights the 4.0 revolution Leading-edge technologies in the innovation of FinTech (Financial Technology) include distributed ledger technology (DLT), wireless technology, birth large data sets, artificial intelligence and cloud computing These technologies are combined with existing financial services Specifically, in the payment and payment, a variety of new applications have emerged in the financial industry in the world Fintech's innovation aims to encourage the involvement of non-financial institutions in the financial services industry and enhance competition and cooperation between financial and non-financial companies In terms of potential benefits for commercial banks, the Industrial Revolution 4.0 can overcome the inefficiency of current financial services Digital technology will also enable commercial banks to improve their profitability by helping them design new business models and reduce ICT investment costs Consumers may enjoy increased utility, such as reduced transaction costs, greater convenience and wider range of options in financial products and services 3.2.5 Solutions to diversify products and provide sustainable finance Commercial banks should develop the provision of non-credit services such as investment, diversification of electronic payment services, corporate and personal financial advisory services, to provide environmental and social counseling services to small and medium enterprises In addition, commercial banks develop sustainable financial products to enhance their brand value and engage with customers, including: Promote links with governments in developed countries in the design and delivery of sustainable and green financial products To gain access to their experience in assessing, assessing and monitoring the environmental and social impacts of borrowers Commercial banks should develop environmental standards for loan approval Commercial banks need to identify barriers to green products and customer service These barriers may include lack of product information and awareness of stakeholders, the inability of product design, or cost uncertainty over profit Commercial banks should conduct market research and analysis related to the environment and desires of each customer segment, in order to identify and categorize their green finance needs, from which there are Designing products suitable for each customer group For those customers who are not well aware of the environmental issues, commercial banks need to take measures to stimulate demand for green products and services through marketing and communication campaigns and educational activities to raise awareness of customers Sustainable financial products not only provide credit, but also provide funding for green projects, which have a positive impact on the environment, but also extends to savings, insurance and advisory services E & S issues for businesses, investors, the establishment and operation of green investment funds, the mobilization of capital markets from green bonds, certificates of deposit, etc 3.3 RECOMMENDATIONS 3.3.1 Recommendations to the Government and relevant Ministries 22 Firstly, commercial banks must prioritize the development and finalization of legal documents to ensure the implementation of Vietnam's commitments when joining the integration, creating a competitive environment, Transparent, convenient and transparent of the financial system, etc Secondly, commercial banks must develop a legal framework and drastically implement solutions to promote green and sustainable economic growth Banks also have to develop principles and standards to attract capital into sustainable sectors, such as reducing the use of renewable energy by renewable energy sources such as solar, wind power, projects that use energy efficiently to combat climate change and implement green growth Thirdly, commercial banks need to have solutions to support, promote the system of commercial banks to implement sustainable development and then spread to other sectors of the economy Banks should take measures to encourage financial institutions to provide credit for environmentally friendly and renewable energy projects, contributing to the sustainable allocation of investment capital Fourthly, commercial banks need to build a legal framework for the development of a typical sustainable banking model 3.3.2 Recommendations to state banks - Build a roadmap and policies to develop into a sustainable bank, including common principles and norms for the sustainable development of the commercial banking system, uniform and consistent ESMS policies To move towards requiring commercial banks to incorporate environmental issues as part of their credit risk approach to assessing borrowers In parallel with the policy formulation, commercial banks should develop a mechanism to supervise and administer ESMS in a uniform manner and disclose information that will take strict measures against banks that not comply with ESMS Effectively managing and enforcing policies - Specify commercial banks to develop and implement ESMS to evaluate and monitor projects throughout the lending process Banks also need to formulate policy frameworks for specific areas to create an environment assessment framework for sensitive sectors such as agriculture, metallurgy, mechanics, cement production, basic metals and chemicals, manufacturing and service industries 3.3.3 Recommendations to commercial banks Banks need to apply the ESMS system throughout their banking operations, combining environmental and social risk assessment in customer management; Creation of environmental issues in banking activities, establishment of environmental and social risk management systems in approving loan projects In addition, banks need to design a credit contract that contains terms and obligations and obligations to comply with the provisions of the law on environment and society There are solutions to help customers enforce environmental regulations Commercial banks need to develop a sustainable banking strategy in a sustainable banking model All of its banking operations are sustainable and provide a full range of sustainable financial products, or a sustainable banking model combined with traditional business, integrating E & S risk management into credit, both provide environmental and social responsibility Banks should have a policy to effectively manage ESMS risks to improve the quality of their portfolio, providing sustainable financial products that generate new returns, new markets and customers and new products The practice of a sustainable banking model helps commercial banks get financially wealth from financially viable firms 23 3.3.4 For borrowers is an enterprise Commercial banks should adopt policies and implement environmental and social risk management issues for borrowers of sustainable finance projects Policies include Environmental Management Plan (EMP), Environmental Impact Assessment (EIA) These banks should also integrate environmental provisions including ESMS, EIA and EMP into the loan application Environmental monitoring by ESMS, EIA and EMP and loan Reporting and evaluation must comply with environmental safety Thus, the environmental policy of the enterprise will go through from project preparation to loan completion, project implementation and completion of the project CONCLUSION The dissertation assessed the sustainability of commercial banks, in particular, assessments of economic, environmental and social sustainability Some banks have developed a social and environmental risk assessment system, a change of management model to integrate ESMS into credit extension The majority of banks require projects to have environmental and social impact assessments when providing funding, while others require immigration, etc However, sustainable development is uneven Among banks, many banks still not have an ESMS system to assess E&S risk of customers There are no banks that have developed in a sustainable banking model In addition, sustainable financial products are not diversified Research has surveyed 250 managers of commercial banks The results of the study show that banks are interested in and committed to sustainable development, but there are many obstacles in the implementation process, including obstacles that need to be resolved quickly Only with these barriers can the successful implementation of a safe, effective and sustainable development strategy for the commercial banking system, such as the completion of a legal framework for sustainable development, improve quality human resources and capacity building, and improvement of environmental and social risk management systems Based on the results of the situation analysis as well as the assessment of the sustainable development of commercial banks in Vietnam, the dissertation proposes solutions for the sustainable development of Vietnam's commercial banking in line with the trend of international integration Firstly, commercial banks needs to improve consistently and soundly, including raising capital adequacy to protect shareholders, investors and customers, and improving the quality of their assets and improving operational efficiency Secondly, complete the ESMS system consists of three stages: the first building internal environmental management system, the second environmental and social risk management in the lending and investment activities, providing sustainable financial products In addition, the dissertation proposes to the bank's stakeholders such as the Government, relevant ministries, the State Bank of Vietnam, commercial banks and customers to implement the proposed solutions in the most effectively 24 LIST OF THE AUTHOR'S PUBLICATIONS IN ASSOCIATION WITH THE DISSERTATION Bui Khac Hoai Phuong, 2012, Some measures to promote state investment credit for small and medium enterprises in Quang Binh Banking Review, No 18/2012, pp 48-52 Bui Khac Hoai Phuong, 2013, Experiences for Vietnam from the restructuring of commercial banks in Korea and China Banking Technology Review, No 86/2013, pp 22-28 Bui Khac Hoai Phuong and Duong Thi Ngoc Sau, 2014, Dealing with bad debts of Vietnamese commercial banks through Asset Management Company Banking Technology Review, No 96/2014, pp 1216 Bui Khac Hoai Phuong, 2014, Some solutions to improve the competitiveness of Vietnam Commercial Bank - Toward sustainable development Banking Review, No 20/2014, pp 24-29 Bui Khac Hoai Phuong, 2016, Experience for Vietnam from developing green banks of some countries in the world National conference School of banking and finance, National Economics University, pp 101113, ISBN: 978-604-946-159-0 To Kim Ngoc and Bui Khac Hoai Phuong, 2017, Sustainable banking products aim to provide a green financing solution for the economy Banking Review, No 15/ 2017, pp 15-21 Bui Khac Hoai Phuong and Le Khac Hoai Thanh , 2017, Sustainable development of vietnam commercial bank in the integration trend Banking Review, No 15/2017, pp 28-32 Bui Khac Hoai Phuong and Le Khac Hoai Thanh, 2018, An application of camel model in evaluating financial capacity of vietnamese commercial banks Banking Review,pp 11-14 Bui Khac Hoai Phuong and Le Khac Hoai Thanh 2018, Challenges for sustainable development of vietnamese commercial banks International Conference For Young Researchers In Economics And Business, ICYREB 2018 ISBN: 978-604-79-1930-7 pp 276-282 10 Bui Khac Hoai Phuong, 2018, Experiences for Vietnam from the development of a policy framework for environmental and social risk management aimed at the sustainable development of the banking system Banking Review, No 21/2018 11 Bui Khac Hoai Phuong and Le Khac Hoai Thanh (2019), Solutions to promote sustainable development of vietnamese commercial banks Socio-Economic and Environmental issues in development ISBN: 978604-65-4174-5, Pp.135-146 ... Models of sustainable development of commercial banks a Modeling on the level of sustainable development Sustainable bank Integrated bank Unsustainable bank Figure Levels of sustainable development. .. THE COMMERCIAL BANKING SYSTEM IN VIETNAM IN THE TREND OF INTEGRATION 3.1.1 Trends in sustainable development of the commercial banking system 3.1.2 Sustainable development orientation of Vietnamese... ON SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANK 1.1 PERSPECTIVES ON PRINCIPLES AND MODELS OF SUSTAINABLE DEVELOPMENT OF COMMERCIAL BANKS 1.1.1 Perspectives on on sustainable development Sustainable

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