Doctoral thesis summary: Researching on organizational models and business operations of financial companies in Viet Nam

Research objectives: Overall goal of this thesis is to examine theoretical and empirical foundation for providing recommendations and solutions to improve organizational structure and boost business operation of financial companies owned by groups/corporations in Viet Nam. The research of the thesis are organizational models and business operations of financial companies having capital contribution from large groups/corporations in Viet Nam.

MINISTRY OF EDUCATION AND TRAINING MINISTRY OF PLANING AND INVESTMENT Central Institute for Economic Management - NGUYEN THI HUONG LAN RESEARCH ON ORGANIZATIONAL MODELS AND BUSINESS OPERATIONS OF FINANCIAL COMPANIES IN VIET NAM Major: Economic Management Code: 62 34 04 10 SUMMARY OF DOCTORAL THESIS OF ECONOMICS HANOI - NĂM 2015 Completed at: Central Institute for Economic Management Scientific advisor: Assoc Prof., Dr Le Xuan Ba Examiner 1: ……………………………………………… …………………………………………………………… Examiner ……………………………………………… ………………………………………………………… Examiner 3: ……………………………………………… …………………………………………………………… This thesis shall be defended before Institute-level Thesis Examination Council of Central Institute for Economic Management at … on …………………… 2015 Can be looked up at libraries of: - Central Institute for Economic Management - National Library, Hanoi INTRODUCTION Rationale of the thesis Financial companies exist in all developed and developing countries in the world Though sharing a number of common features, models of financial companies in different countries and in different period possess distinguished characteristics Legal frameworks and actual operation of financial companies form different models of financial companies in different countries Revisiting the road of 17 year establishment and operation of financial companies in Viet Nam, we can say that the biggest contribution of financial companies is that they have been taking part in creating a more dynamically competitive and diversified financial market However, it also can be noted that they are still being hindered by lots of weaknesses and drawbacks In terms of organizational model, a financial company is being governed as a member company of a parent company and at the same time being governed by the State Bank of Viet Nam, therefore supervision and control over operations of financial companies as a credit institution are not strictly carried out In addition, the fact that member of management board or member board of corporations or groups sometime are also a member of that boards of financial companies creates a conflict of interest Financial companies owned by state owned corporations have been poorly operated This results in a resious consequences not only for corporations but also for privates or institutions, who provide capitals In terms of business performance, a number of financial companies can not survive , or are hard to be revived Certain financial companies fail to fulfill their role of capital allocation within their parent groups/corporations as having been determined at the time of establishment, and some companies even become burdens of their parent groups/corporations Hereunder are a number of facts in 2014 of 10 financial companies having capital contribution from their parent groups/corporations, as collected and calculated by the author: (1) Minimum Capital Adequacy Ratio cannot be maintained; (2) Loss of owner’s equity ; (3) Bad debts and provisions for bad debts of financial companies are large; (4) Book Value per Share is lower than face value of shares (less than VND10,000/share) In addition, a number of complicated long-standing problems have not been solved Motivated by the above findings, the author decided to engage in this thesis “Researching on organizational models and business operations of financial companies in Viet Nam” Objectives of the thesis 2.1 General objective Overall goal of this thesis is to examine theoritical and empirical foundation for providing recommendations and solutions to improve organizational structure and boost business operation of financial companies owned by groups/corporations in Viet Nam 2.2 Specific Objectives In order to achieve the aforesaid overall goal, the thesis shall: (i) Synthesize and explain theoretical framework being used for analyzing, assessing organizational models and business operations of financial companies (ii) Clarify business nature and characteristics and roles of financial companies owned by groups/corporations (iii) Review and clarify experiences of organizational models and business operations of financial companies in the world and draw lessons for Viet Nam (iv) Analyze and assess organizational models and business operations of financial companies owned by groups/corporations in Viet Nam (v) Identify viewpoints/directions to improve organizational structure and boost business operation of financial companies owned by groups/corporations in Viet Nam (vi) Provide solutions and proposals to improve organizational structure and boost business operation of financial companies owned by groups/corporations in Viet Nam in the time to come Objects and scopes of research of the thesis 3.1 Objects of the research Objects of the research of the thesis are organizational models and business operations of financial companies having capital contribution from large groups/corporations in Viet Nam 3.2 Scopes of research - Scope of content: + The thesis mainly research on financial company model operating as non-banking credit institutions (operating under Law on credit institutions) of which charter capitals are owned wholly or partially by large groups/corporations This company group has the largest scope, the biggest scale as well as lots of problems in Viet Nam nowadays + The thesis engages in two issues, namely “organizational models” and “business operations” of financial companies having capital contribution from large groups/corporations (also referred to as financial companies owned by groups/corporations) - Scope of time: organizational models and business operations of financial companies are reviewed on the basis of data within the period of 2011-2014 Approaches and methods of research 4.1 Approaches of research The thesis is based on historical and systemic approaches 4.2 Methods of research * For secondary data The thesis employs methods being used widely for researching on secondary data, such as desk research, statistics, summary, comparison and analysis of collected data and documents related to organizational models and business operations of financial companies in Viet Nam * For primary data - Consulting experts: The author consults experts to on the solutions to improve organizational models and boost business operations of financial companies in Viet Nam - Questionnaire: + Questionnaires for individual customers who have used services of financial companies Sample size is 100 customers Survey time was from the 5th to the 28th of July, 2015 + Questionnaires for organization customers who have used services of financial companies Sample size is 50 organizations Survey time was from the 5th to the 28th of July, 2015 Data collected from questionaires are processed by SurveyMonkey and presented in details in appendices of the thesis Structure of the thesis The thesis comprises of main chapters, as follows: Chapter 1: Theoretical foundation of organizational models and business operations of financial companies Chapter 2: Status quo of organizational models and business operations of financial companies in Viet Nam Chapter 3: Solutions to improve organizational models and boost business operations of financial companies in Viet Nam CHAPTER THEORETICAL FOUNDATION OF ORGANIZATIONAL MODELS AND BUSINESS OPERATIONS OF FINANCIAL COMPANIES 1.1 Financial companies and roles of financial companies in the market economy 1.1.1 Financial intermediaries In common sense, a financial intermediary is a financial institution that connects capital owner to capital demander Being different from direct financial exchange where capital owner and capital demander exchange directly with each other, in this form of financing, financial intermediaries facilitate the channeling of funds indirectly, which means that the borrowers must resort to a third party to get their necessary funds, and such third party is the financial intermediary Financial intermediary are, among others, banks, loan associations, credit unions, insurance companies, and financial companies Functions: Creation of capital; Supply of capital; Control Types of financial intermediaries: There are a number of ways to categorize financial intermediaries, and these ways varies form country to country In general, the financial intermediaries can be: - Commercial banks - Savings and loans associations - Savings banks - Credit funds - Financial companies - Contract-based savings (insurance companies, pension funds) - Securities companies - Investment intermediaries (investment banks, venture investment companies, investment funds, mutual funds, asset management companies) 1.1.2 Financial companies In common sense, “a financial company is a financial intermediary taking the role of facilitating the circulation of funds A move of capital from a capital provider to a capital spender is facilitated by a financial company by means of issuance of bonds, bills together with other added services to stakeholders” Classification of financial companies: 1) Based on professional operations: Sales financial companies, Consumer financial companies, Business financial companies 2) Based on ownership types of financial companies: State owned financial companies, Financial Joint Stock companies, Financial companies owned by credit institutions, Financial joint venture companies, 100% foreign invested financial companies Functions of companies: - Financial companies operating as non-banking credit institutions: Financial companies of which business commodities is money as commodities, Financial companies of which has their main, frequent and professional business operations are banking services (excluding accepting deposits and providing payment services), Financial companies is a type of enterprises being under professional control of State Bank/Central Bank - Financial companies being a special enterprise with money business operations: The enterprises are exposed to high risks, therefore conditions of business registration and operation is much stricter Roles of financial companies in market economy: Roles of financial companies in the economy, Roles to capital owners and demanders in the economy, Other roles to corporations/ groups Due to distinguished features of economic groups, financial companies while operating have to implement various functions and duties related to financial conditions of the economic groups The main duty of financial companies, apart from for-profit operations, is to help the economic groups to to maintain best financial resources to increase competitive strength of the economic groups Financial companies also help the economic groups to make best use of business opportunities in market Apart from advantages a financial company can get from being member of an economic group, the company also exposes to a number of disadvantages and risks: 1.2 Organizational models of financial companies 1.2.1 Nature and structure of organizational models of financial companies Financial company is a type of enterprises operating in financial market and has distinguished characteristics of non-banking credit institution Therefore, organizational models of financial companies bear nature of organizational models of enterprises as well as distinguished features of credit institutions 1.2.2 Types of organizational models of financial companies - Organizational models based on independent functional divisions - Organizational models based on products, customers and geographic areas - Organizational models based on network 1.2.3 Criteria and indicators to determine and assess organizational models of financial companies - Organizational functions of organizational models of financial companies - Organizational principles of organizational models of financial companies - Design principles of organizational models of financial companies Organizational models of financial companies must be designed in accordance with a certain set of principles While evaluating and assessing organizational model of a financial company, it is a must to determine if such principles are in line with essential organization design principles or not 1.2.4 Requirements of organizational models of financial companies In general, in order to achieve business success in the new context, organizational models of financial companies must meet following requirements: - Shifting from large-scale model to a compact and flexible one - Converting function-based sub-structures to a multi-functional ones - Shifting from specialized sub-structures to multi-functional and effectively cooperative ones - Demonstrating distinguished features and roles of credit institutions functioning in capital and monetary trading - Guaranteeing that organizational models are flexible and highly responsive to market and at the same time facilitate internal control and supervision 1.3 Business operations of financial companies 1.3.1 Main business operations of financial companies - Banking services of financial companies - Account opening services of financial companies - Capital contribution and share purchase of financial companies - Other business activities of financial companies 1.3.2 Factors impacting business operations of financial companies Theoretically, there have been various ways of considerations, but in common sense the factors impacting business operations of a financial company can be sorted into subjective and objectives ones, just like the way those of other enterprise types are considered 1.3.3 Criteria for assessing business operations of financial companies The author assesses business results of financial companies and a number of indicators reflecting business efficiency of financial companies, which are shown in a number of financial indicators and most importantly in financial reports of financial companies These are the most essential and distinguished indicators of business operations of credit institutions in general and of financial companies in particular: * Indicators in business result reports: (1) Net interest income (2) Operating costs (3) Total income before taxes (4) Total profit after taxes * Indicators from balance sheets: (5) Total assets, of which the main criteria to be assessed are: + Money and gold deposited in and borrowed from credit institutions + Lending to customers (6) Payables, of which the main criteria to be assessed are: + Money deposited in and borrowed from credit institutions + Deposits of customers (7) Capital and funds, of which the main criteria to be assessed are: + Capital of credit institutions + Undistributed profit * Financial indicators reflecting the efficiency of capital usage: (8) EPS (Earning per share) (9) BVPS (Book value per share) (10) ROEE (Return on equity everage) (11) ROAE (Return on asset everage) * Indicators reflect safety limits of credit institutions: (12) CAR (Minimum Capital Adequacy Ratio) (13) Bad debt ratio (14) Rate of short-term capital used for medium- and long-term loans 1.4 Experiences of organizational models and business operations of financial companies in the world and lessons for Viet Nam 1.4.1 Overview of organizational models and business operations of financial companies in a number of countries in the world In order to get a panorama of organizational models and business operations of financial companies in a number of countries in the world, the 11 laws, excluding providing payment services and receiving deposits of less than year term As of 31 December, 2014, Viet Nam has 17 financial companies organized in main types: joint stock financial company, and one-member financial company limited (of which capital is owned 100% by the State or by foreign organizations) Of the 17 financial companies, 10 having capital contributions from groups/corporations are organized in the form of multifunctional financial company (conducting various business operations), and the other financial companies are specialized ones (consumption credit) 2.1.2 Overview of performance of financial companies in Viet Nam - Consumer financial companies In general, these financial companies are mostly in the form of onemember limited company with 100% of capital owned by foreign entities Although these companies also meet difficulties arising from market conditions, business performance of these companies are promising thanks to their focusing on consumption credit (individual finance) to meet large demands of individual consumers, and some of the companies even have very good performance Details of business performance and development of this type of financial companies are presented in Appendix 12 of the thesis - Financial companies having capital contributions from groups/ corporations These companies can be sorted into two categories: joint stock financial company, in which groups/corporations own not less than 25% capital, and one-member financial company limited, in which groups/corporations own 100% capital Of the categories, joint stock financial companies have better business performance The other type of financial companies have been suffering from cccumulated losses or deficit of owner’s equity for years As the author cannot collect all necessary data of all 17 financial companies in Viet Nam, in table 2.1 the author presents in the most condensed manner business performance of all financial companies in Viet Nam as of 31/12/2014 12 2.2 Analyses and assessments of organizational models of financial companies in Viet Nam 2.2.1 Legal models of financial companies in Viet Nam Regarding to the forms of establishment (legal form), as specified in Article of Decree No 81/2008/NĐ-CP dated 29/7/2008 on amending and supplementing a number of articles of Decree No 79/2002/NĐ-CP dated 4/10/2002 of the Government on organization and operations of financial companies, it is allowed to established and operate financial companies in Viet Nam in following forms: - One-member financial company limited - Financial company limited with two or more members - Joint stock financial company As of 31/12/2014 in Viet Nam there is no financial company limited with two or more members There are only one-member financial companies limited and joint stock financial companies On 22 April, 2015, with a strategic capital contribution from Credit Saison (Japan), Hochiminh City Development Joint Stock Commercial Bank One-member Financial Company Limited has been changed into HD SAISON Finance Company Limited and becomes the only financial company limited with two member in Viet Nam up to now At the end of 2014, of the 10 financial companies owned by groups/corporations, are joint stock companies, and the other are 100% state-owned companies in the form of one-member company limited Organizational structures of financial companies in general and of financial companies owned by economic groups are specified in Paragraph 3, Chapter IV of the Law on credit institutions 2010 Financial companies are owned by economic groups but run under independent accounting regime and have their own management systems Although some of these financial companies are joint stock companies and the other are one-member companies limited, their organizational structures are relatively similar to each others Recently, on 07 May, 2014, the Government promulgated Decree No 39/2014/NĐ-CP on operations of financial companies and financial leasing companies As regulated, financial companies are allowed to conduct more operations of commercial banks, such as: issuing credit cards, bonds, 13 promissory notes, and trading foreign exchange, among others This Decree is effective from 25/06/2014 The Decree specified that there are types of financial companies, including: Multi-functional financial company, being allowed to conduct all activities as specified in Law on credit institutions and in this Decree Specialized financial company, including factoring financial companies, consumer credit financial companies, financial leasing companies, as specified in this Decree and instructions of the State Bank of Viet Nam Of this type, factoring financial companies are specialized in factoring, and consumer credit financial companies are specialized in consumer credit In order to provide a clearer image of organization of financial companies, in this thesis the author presents diagrams of organizational structure of a number of financial companies, including joint stock companies and companies limited 2.2.2 Status quo of organizational models of financial companies in Viet Nam Financial company is a credit institution, having characteristics of banking sector, and being a type of enterprise providing services of deposits, investment, consultancy and other financial services In general, operations of a financial company bear characteristics of banking sector Although a financial company is a credit institution, a financial company is different from a commercial bank in terms of: nature, scope of operation, amount of legal capital, duration of operation, degrees of risk and competition, and operational characteristics 2.3 Status quo of business operations of financial companies in Viet Nam Tables showing data of business operations of each financial company are presented in Appendix 11 of this thesis 2.3.1 Status quo of business operations of joint stock financial companies Founding shareholders and large shareholder holding controlling interest of joint stock financial companies are groups/corporations In additions, other founding shareholders of joint stock financial companies may be commercial banks or other enterprises Of the joint stock financial companies, because the author can not collect all necessary data from Vietnam Textile and Garment Finance Joint 14 Stock Company as have done with the other companies, collected data are presented in tables (Table 2.2 and Table 2.3) Average data of joint stock financial companies fully collected by the author show that there have been a number of bad signs Total assets are decreasing year on year, with a total decrease of 27.3% in years Operating costs are decreasing but just in an insignificant degree; due to the fact that net interest income reduced significantly over the years, income before taxes and profit after taxes of financial companies continuously decrease significantly, up to a total decrease of 78.6% in years Table 2.2: Average data of business situations of joint stock financial companies Unit: Billion VND BUSINESS RESULTS Net interest income 2011 218.380 2012 171.403 2013 146.302 2014 137.803 45.797 40.088 38.655 36.320 Total income before taxes 165.522 80.867 62.913 35.428 Total Profit after taxes 124.630 60.644 48.214 29.258 ACCOUNT BALANCE Total assets - Money and gold deposited in and borrowed from credit institutions - Lending to customers 2011 6,476.001 2012 5,695.415 2013 5,297.133 2014 4,705.456 1,542.882 1,417.077 1,034.361 963.894 1,155.717 1,063.425 1,540.663 1,739.425 Payables - Money deposited in and borrowed from credit institutions - Deposits of customers 5,223.006 4,470.427 4,073.172 3,496.332 2,693.604 1,754.414 1,188.912 996.894 445.629 715.630 973.403 689.122 Capital and funds 1,252.994 1,224.987 1,224.021 1,217.453 + Capital of credit institutions Operating costs 1,087.331 1,087.797 1,087.797 967.917 + Undistributed profit 107,690 63,546 50,729 41,015 FINANCIAL INDICATORS 2011 2012 2013 2014 15 EPS of the latest calendar quarters (VND/share) 1,026 310 252 23 11,641 11,420 11,483 11,337 ROEA (%) 10.33 5.01 4.32 2.04 ROAA (%) 2.23 1.31 1.26 0.38 BVPS (VND/share) Source: Financial reports of joint stock financial companies, collected by the author Notes: joint stock financial companies are: VVF (Vinaconex-Viettel Finance Joint Stock Company); SDF (Song Da Finance Joint Stock Company); Cement Finance Joint Stock Company (CMF); EVNFC (EVN Finance Joint Stock Company); VCFC (Vietnam Chemical Finance Joint Stock Company) As a consequence, indicators reflecting profitability is also decreasing Average EPS of the joint stock financial companies decrease from VND1,026/share in 2011 to VND23/share in 2014 (or a decrease of 98% in years) ROE reduces to 2.04% in 2014 (which is much lower than deposit interest rates of commercial banks) At the same time, EPS, ROA, ROE of VVF become negatives Vietnam Textile and Garment Finance Joint stock Company (TFC) has healthy business performance, demonstrated by the fact that capital adequacy ratio and ratio of bad debts over the years have been meeting requirements of the State Bank of Viet Nam Bad debts of TFC in the period of 2011-2014 is approximately 2%-2.54%, which is considered as a good indicator in the system of credit institutions However, after the Company increases their capital to 500 billion VND, their income fluctuates unpredictably Profit after taxes decreases over times, with an annual decrease rate of 11.4% The decrease of profit results in decrease of Owner’s equity giảm Average Ratio of Profit after taxes/Charter capital decrease from 14.48% in 2011 to 4.1% in 2014 Ratio of Profit after taxes/Owner’s equity in 2014 is just a third of that in 2011 2.3.2 Status quo business operations of financial companies limited In general, in comparison with the other joint stock financial companies, financial companies limited (of which capital is 100% owned by groups/corporations) are of poor performance with lots of different drawbacks in different companies, causing severe loss of State’s budget Two largest loss companies are: 16 - Viet Nam Rubber Finance Company Limited (RFC) It can be said that of the financial companies limited, this company is suffering from the largest loss, as well as having the highest number of breaches Losses in business are consequenses of ineffectiveness in both internal and external lending, losses in securities trading, and deliberately fraudulent actions for the purpose of corruption RFC is suffering from difficulties which can not be recovered At the middle of 2014, Charter capital of RFC is 1,088 billion VND and Total assets 1,630 billion VND, but total accumulated losses is at 1,775 billion VND, and bad debts at 1,625 billion VND (at the ratio of 83%) and the company is in danger of capital loss In aforesaid conditions, especially value of accumulated losses as presented in Table 2.3, RFC, the financial company having the second highest Charter capital among the financial companies having capital contribution from groups/corporations, has not only lost all of their State’s capital but also been in deficit of 762 billion VND Table 2.4 Financial situation of RFC in the period of 2011-2014 Unit: Billion VND INDICATOR Total assets (estimated) 2011 2,000 2012 2,000 2013 1,800 2014 1,630 Profit after taxes (estimated) -200 -900 -80 -250 Accumulated loss (estimated) -670 -870 -1,770 - 1,850 1,000 1,088 1,088 1,088 800 -188 -682 -762 Charter capital Owner’s equity (estimated) Source: Collected by the author - Vinashin Finance Company (VFC) Vinashin, being parent group of VFC, has caused severe consequences for the country’s economy in recent years; being a member of the group, VFC is involved in various serious problems related to lending, guarantees and other problems VFC raised capital from and lending to member companies of Vinashin, and after that collapsed together with such member companies Capital raised by VFC from other external organizations were lent to member companies of Vinashin, and when these member companies failed to make 17 repayment, VFC could not find any financial resources to make repayments to such external organizations A number of cases have been filed, and VFC is always the losing party In the period of 2010-2013 VFC lost its ability to pay and was put under special control by the State Bank of Viet Nam Among all financial companies in Viet Nam, VFC is suffering from the most difficulties At the end of 2014, business loss and provisions for credits and investment of VFC reach approximately 1,300 Billion VND, losses of ability to pay occur repeatedly The biggest problem is that, apart from poor business efficiency, VFC’s breaches are complicated and hard to resolve 2.4 Overall assessments of organizational models and business operations of financial companies in Viet Nam 2.4.1 Overall assessments of organizational models of financial companies - Strengths: Firstly, creating difference and unique advantages in business negotiations for financial companies owned by groups/corporations Secondly, having advantages in exploiting available potential markets Thirdly, being flexible in terms of organization and business thanks to advantages of small scale Fourthly, being capable of minimizing risks in business operations Fifthly, having supports from parent companies or founding shareholders (their owner groups/corporation) - Weaknesses: Firstly, financial companies must at the same time observe regultations of the State Bank of Viet Nam and follow instructions of their owner groups/corporations Secondly, due to limited scope of business, financial companies not have significant advantages in a competitive market Thirdly, in general, financial companies 100% owned by groups/corporations are less efficient in operation than joint stock financial companies Fourthly, there is a lack of objectivity in management decisions 18 Fifthly, the model of one-member financial company limited 100% owned by groups/corporations has clearly shown their weaknesses, just like other state owned enterprises Sixthly, operations of financial companies are easily affected by overall performance of their owner groups/corporations - Causes of weaknesses: Firstly, viewpoints and awareness about purposes of establishing financial companies within groups/corporations in current conditions of Viet Nam are not reasonable Secondly, financial companies must observe limits of business scopes Thirdly, Capital scales of financial companies are low Fourthly, Organizational models of financial companies limited 100% owned by the State are put under low pressure of managenment and operation Fifthly, Inspection and supervision over financial companies are conducted loosely Sixthly, there is a lack of objectivity 2.4.2 Overall assessment of business performance of financial companies - Achievements: Firstly, having made certain contributions to creating a more dynamic financial market Secondly, a number of financial companies being able to preserve capital and generate certain economic benefit in spite of low efficiency in using capital - Drawbacks: Firstly, capabilities of providing services are limited Secondly, minimum capital adequacy ratio cannot be maintained Thirdly, Owner’s equity is in deficit: Fourthly, bad debts and provisions of financial companies are large Fifthly, Ratio of short-term capital for long-term loans exceeds allowable limits Sixthly, BVPS is low Seventhly, information transparency is low * Causes of the drawbacks: 19 - Economic context of Viet Nam: Firstly, the model of financial company was born and developed in a period when the economy of Viet Nam was witnessing lots of changes Secondly, financial companies are affected by the overall difficulties of the whole economy in the recent years - Management by State regulatory agencies: Firstly, company registration processes are done in a haste manner, without a clear direction for this type of enterprise in Viet Nam Secondly, there is no overall strategy and no warning from State regulatory agencies in terms of number and scale of credit institutions in general and of financial companies in particular to match with scale of market in Viet Nam Thirdly, management by State regulatory agencies is not conducted in a strict manner Fourthly, regulations on disclosure and transparency of information about operations of financial companies are limited Fifthly, implementation of legal documents and instruction for financial companies are not issued in time, causing confusion to financial companies in conducting their business operations - Groups/corporations: Firstly, being confused and inconsistent in considering roles and importance of financial companies Secondly, not providing supports, or not being able to provide financial and market support Thirdly, overemphasizing investment and investment trusts, and even instructing financial companies to invest in ineffective projects - Financial companies: Firstly, having narrower functions and scope of business as compared to that of commercial banks; meanwhile, financial companies have to compete with commercial banks and to observe operation regulations of credit institutions, which are similar to that of commercial banks Secondly, financial companies have to pay high capital expenditures 20 Thirdly, being newly established financial institutions in Viet Nam, not having sufficient experiences in establishing financial companies in Viet Nam Fourthly, increases of capital of financial companies in accordance with Decree No 141/2006 were conducted in the time securities prices reach their heights Fifthly, issuance of internal regulations is of limited effectiveness Sixthly, there is no clear strategy for trading and using capital Seventhly, financial companies are of limited resources and capability of receiving and processing information, as well as limited adaptability Eighthly, supervision roles of owners and public are not properly implemented Ninthly, operation of credit councils, investment councils are ineffective 2.4.3 Overall assessment of status quo organizational models and business operations of financial companies in Viet Nam Based on study of experiences of foreign countries, assessment and analyses of status quo and causes related to organizational models and business operations of financial companies owned by groups/corporations in our country, the author comes to following summaries: (1) In the world, the model of financial company exist in both developing and developed countries The most active period of establishment and development of this model began in the beginning of 1990s However, this is a special type of enterprise Financial company is a non-banking credit institution (means that they are not allowed to conduct all operations of commercial banks); therefore, the way of management and direction of developing financial companies vary from country to country (2) the establishment and existence of financial companies in Viet Nam are of great implication It not only diversifies subjects of financial market, enhances competitive strengths of intermediary credit institutions but also exploit different market share where commercial banks have not paid much attention to (3) financial companies 100% owned by groups/corporations are of historical origins and are not suitable with actual conditions and context of Viet Nam because of a number of reasons, of which the most remarkable one 21 is that these companies no longer possess the required independence of a financial intermediary, undermining safety of credit institutions; the making of lending and investment decisions is affected by subjective thinking (not based on feasible lending and investment plans), reverence, on commands, even by interest groups (4) only when a proper viewpoint is established and properly realized can financial companies, being a type of non-banking credit institutions, enhance strengths of the groups/corporations owning 100% of capital or controlling interest of such financial companies in Viet Nam nowadays (5) It is clearly proved that, on general aspects of market, financial companies are not capable of competing fairly with commercial banks (6) Organizational models of financial company owned by groups/corporations have shown lots of weaknesses (7) In facts, many experts are skeptical about the existence of this model Leaders of many groups/corporations not have adequate trust in smooth operation of financial companies in accordance with initial directions and purposes set at the time of establishment Leaders of many financial companies have lost their faith in and been tired of their companies, and not believe in the future of their financial companies (8) Legal framework for financial companies is not adequate and is not aimed at encouraging and creating favorable conditions for this type of enterprises to compete with other types of financial intermediary, especially with commercial banks (9) Business efficiency is not as expected: Many financial companies are suffering from low performance, and some even suffer from loss and deficit A number of owner groups/corporations are severely affected (10) Risk control and management in financial companies, in general, are weak Qualities of staff is not an advantage of financial companies while engaging in market competition (11) Inspection and supervision conducted by state regulatory agencies over financial companies are not conducted timely and properly (12) As State regulatory agencies has acknowledged status quo of organizational models and business operations of multi-function financial 22 companies owned groups/corporations, they have launched a number of restructuring solution by issuing a legal document serving as basis for the changing or ending of this model, namely Decree No 39/2014/NĐ-CP on operation of financial companies and financial leasing companies (13) The current trend is that the number of financial companies shall remarkably increase in the period of 2015-2016 Although this looks like a conflict with current context, this is a comprehensive change in ownership, functions and duties of business of financial companies in Viet Nam in the time to come And this is the reason of a number of merge and acquisition between commercial banks and financial companies CHAPTER SOLUTIONS TO IMPROVE ORGANIZATIONAL MODELS AND BOOST BUSINESS OPERATIONS OF FINANCIAL COMPANIES IN VIET NAM 3.1 Opportunities and challenges to financial companies in Viet Nam in the time to come 3.1.1 Opportunities - Demands on capital sources and financial services of the society are large - Consumer credit market of Viet Nam is expanding - Number of small and medium enterprises in Viet Nam takes up large proportion of the economy 3.1.2 Challenges - Competition becomes more and more severe - Risks shall increase together with increase of consumer credit - Financial companies have to prepare and establish new and wide distribution systems - Financial companies are exposed to pressure to create and maintain compact document systems capable of quickly processing loan applications 3.2 Directions of our Party, State and viewpoints of the author about improving organizational models and boosting business operations of financial companies in Viet Nam 3.2.1 Directions of our Party, State 23 - Restructuring financial companies - Groups/corporations paying attention to vertical development and divestment from their member financial companies 3.2.2 Viewpoints of the author - Model of financial company owned by state groups/corporations is not suitable with conditions of Viet Nam - It is a must to restructure financial companies firmly and faster in order to minimize loss of State’s capital - In long term, establishment of financial company should be based on distinguished demands and characteristics of groups/corporations - Organization and business operations of financial joint stock companies should be improved 3.3 Solutions to improve organizational models and boost business operations of financial companies in Viet Nam 3.3.1 Solutions to improve organizational models - Consolidating or merging financial companies with commercial banks is a solution suitable with current context - Operation models should be changed in accordance with strengths of each financial company - Internal regulations of financial companies should be improved - Role of internal inspection and supervision should be enhanced - Informatics systems of financial companies should be improved 3.3.2 Solutions to boost business operations related to current services of financial companies - Developing new products, services - Enhancing cooperation between commercial banks and financial companies - Focusing on improving service quality, improving efficiency of risk management in order to attract customers - Developing capital mobilization and currency trading - Developing credit operations - Developing financial investments and securities business - Developing financial and monetary services 24 3.3.3 Solutions for financial companies merged with or going to be merged with commercial banks - Taking full advantage of the potential of banks - Quickly building and developing service referral points, establishing good relations with suppliers of products, services - Developing new products having great market potential - Building different interest rates to limit risks and to increase professionalism in service delivery - Cooperating with foreign strategic partners to have access to modern technology platform and advanced and comprehensive risk management methods 3.4 Conditions ensuring the implementation of the solutions The conditions were touched on: By the Government; By the State Bank of Viet Nam; By groups/corporations owning capital in financial companies; By other agencies and organizations CONCLUSION Financial companies in Viet Nam can exist, develop and remarkably contribute to the diversification and development of the system of credit institutions in general However, in the recent development period of financial companies, especially of financial companies owned by groups/corporations, there appear a number of weaknesses and drawbacks Based on theoretical and practical studies, the thesis has dealt with theoretical issues and practical issues In addition, the thesis suggests a number of solutions to improve organizational modelsand boost business operationsof financial companiesafter 17 years of development in Viet Nam Although the author has made all effort to conduct this research, the author could not collect sufficiently some information In the review of the literature in Chapter 1, certain information presented are not completely matched with the research theme In Chapter 2, certain data related to bad debts of financial companies, or data of accumulated loss, deficit of owner’s equity, especially that of financial companies 100% owned by 25 groups/corporations, are estimated by the author based on the unofficial information source or newspaper Last but not least, the author expects that the research results presented herein shall be used as reference to be applied in reality as well as to contribute to improving organizational models and boosting business operations of financial companies in Viet Nam in the time to come./ RELATED PUBLICATIONS OF THE AUTHOR Nguyen Thi Huong Lan (2008), “Operation of financial companies in 2008: Difficulties persist”, Tạp chí Dự báo Kinh tế, Ministry of Planning and Investment, (16), tr.20-22 Nguyen Thi Huong Lan (2015), “Resolving weaknesses of financial companies having capital contribution from state owned groups and corporation”, Tạp chí Dự báo Kinh tế, Ministry of Planning and Investment, (18), tr.52-54 Nguyen Thi Huong Lan (2015), “Opportunities and challenges for consumer credit business of financial companies in Viet Nam”, Tạp chí Nghiên cứu Tài - Kế tốn, Academy of Finance, Ministry of Finance, (09)146, tr.16-18 ... experiences of organizational models and business operations of financial companies in the world and draw lessons for Viet Nam (iv) Analyze and assess organizational models and business operations of financial. .. foundation of organizational models and business operations of financial companies Chapter 2: Status quo of organizational models and business operations of financial companies in Viet Nam Chapter... Solutions to improve organizational models and boost business operations of financial companies in Viet Nam CHAPTER THEORETICAL FOUNDATION OF ORGANIZATIONAL MODELS AND BUSINESS OPERATIONS OF FINANCIAL