LV Thạc sỹ_Increase the effectiveness of capital mobilization in Vietinbank thai nguyen

PREFACE The mobilizing funds activity in commercial banks plays an important role for the banking operation activities The effectiveness of capital mobilization activity is one of the crucial factors affecting the bank’s business performance During the time doing internship, I have made the research in the capital mobilization activity of Vietinbank Thai Nguyen and analysis about its effectiveness After that, I wrote this thesis as a material which represents reality of capital mobilization effectiveness in VTN and includes suggested solutions and recommendations to increase effectiveness of mobilizing funds activity The structure of the thesis includes parts:  Chapter 1: Introduction about rationale, research objectives, research scope and research methodology  Chapter 2: Theoretical framework of capital mobilization in commercial banks  Chapter 3: The real situation of capital mobilization effectiveness in VTN  Chapter 4: Solutions and recommendations to increase the effectiveness of capital mobilization in VTN In the process of doing this report, I have received a lot of support from both of university and the branch I would like to express my gratitude to my supervisor, Mrs Nguyen Thi Thuy Duong, Ph.D, teacher of banking and finance faculty, National Economics University, and all the staffs of Business Bureau, Vietinbank, Thai Nguyen branch TABLE OF CONTENT PREFACE TABLE OF CONTENT ABBREVIATION LIST OF TABLES LIST OF DIAGRAM AND FIGURES CHAPTER 1: INTRODUCTION .1 1.1 Rationale: 1.2 Research objectives: .2 1.3 Research scope: 1.4 Research methodology: CHAPTER 2: THEORETICAL FRAMEWORK OF CAPITAL MOBILIZATION IN COMMERCIAL BANKS .4 2.1 The capital source of commercial banks: 2.1.1 The concept of capital in commercial banks: .4 2.1.2 The structure of capital in commercial banks: 2.1.2.1 Equity: 2.1.2.2 Borrowed fund: .5 2.1.2.3 Other sources of funds: 2.2 The theory of capital mobilization in commercial banks: .8 2.2.1 The role of capital mobilization activity in commercial banks: 2.2.2 Method to mobilize capital of commercial banks: .9 2.3 Effectiveness of capital mobilization activity: 10 2.3.1 Concept of capital mobilization effectiveness: 10 2.3.2 Indicators reflecting the capital mobilization effectiveness: .11 2.3.2.1 Capital size: 11 2.3.2.2 Capital structure: 12 2.3.2.3 Cost of raising capital: 12 2.3.2.4 Adequacy between capital mobilization and capital allocation: 14 2.3.3 Factors affecting the effectiveness of capital mobilization: 14 2.3.3.1 External factor: .14 2.3.3.1.1 Legal environment: 14 2.3.3.1.2 Social, political and economical environment: 15 2.3.3.1.3 The culture environment: 15 2.3.3.1.4 The competition factor in the financial market: 16 2.3.3.2 Internal factor: .16 2.3.3.2.1 Bank’s mobilizing funds methods, the quality of services and business network system: 16 2.3.3.2 The quality of credit activity: 16 2.3.3.2 Prestige of banks: 17 2.3.3.2 Business strategy of banks: .17 2.3.3.2 Competency and professional ethics of banking staffs: .17 2.3.3.2 The marketing activity: .18 CHAPTER : THE REAL SITUATION OF CAPITAL MOBILIZATION EFFECTIVENESS IN VIETINBANK TN 19 3.1 Overview of Vietinbank Thai Nguyen: .19 3.1.1 History of foundation and development: 19 3.1.2 Management structure and functions: 20 3.1.2.1 Management structure: 20 3.1.2.2 Functions: .21 3.1.3 Business operation of Vietinbank TN in recent years: 21 3.1.3.1 Capital mobilization: .21 3.1.3.2 Credit activity: 23 3.1.3.3 Services and foreign exchange: .25 3.1.3.4 Income statement of VTN: 27 3.2 The reality of capital mobilization effectiveness in Vietinbank TN: 28 3.2.1.Capital size: 28 3.2.2 Capital structure: 29 3.2.3 Cost of raising capital: .33 3.2.4 Effectiveness of capital utilization: 34 3.2.4.1 Making loans.: 34 3.2.4.1.1 Short-term loan: 36 3.2.4.1.2 Medium and long-term loans: 39 3.2.4.2.Adequacy between capital mobilization and capital utilization: 40 3.3 Assessment of VTN’s capital mobilization effectiveness: 41 3.3.1 Achievements: 41 3.3.2 Drawbacks .41 3.3.3 Causes of drawbacks: .42 3.3.3.1 Internal causes: .42 3.3.3.2.External cause: .43 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO INCREASE THE EFFECTIVENESS OF CAPITAL MOBILIZATION IN VTN 44 4.1 Development orientation of capital mobilization activity in VTN 44 4.2 Suggested solutions to increase the effectiveness of capital mobilization in VTN: 45 4.2.1 Expanding the capital mobilization methods: 45 4.2.2 Applying the flexible interest rate policy: 46 4.2.3 Restricting the business risks, improving business performance: 47 4.2.4 Improving the quality of marketing strategy: 48 4.2.5 Training and improving frequently the professional skills of staff: 49 4.3 Recommendations: 50 4.3.1 Recommendations to Vietinbank Vietnam: 50 4.3.2 Recommendations to State bank of Vietnam: 51 4.3.3 Recommendations to the Government: 52 CONCLUSION 54 REFERENCES ABBREVIATION Vietinbank Vietnam bank for industry and trade SBV State bank of Vietnam VTN Vietinbank Thai Nguyen CRM Customer relationship management LIST OF TABLES Tale 3.1 Operation profit of VTN 27 Table 3.2 Mobilized capital of VTN 28 Table 3.3 Capital mobilization structure by types of customer 29 Table 3.4 Capital mobilization of VTN by currency 31 Table 3.5 Capital mobilization of VTN by deposit 32 Table 3.6: Cost of capital mobilization 33 Table 3.7 Lending activity results .34 Table 3.8 Comparison between mobilized funds and total outstanding loan .40 LIST OF DIAGRAM AND FIGURES Diagram 3.1 Organizational structure of VTN 20 Figure 3.1 Capital mobilization 22 Figure 3.2 Loan sale by customers 24 Figure 3.3 The results of services operation 26 Figure 3.4 Structure of deposit by term of maturity 30 Figure 3.5 Outstanding loan structure at VTN 35 Figure 3.6 Short-term loan sale: 37 Figure 3.7.Outstanding short-term loans 38 Figure 3.8 Outstanding medium and long-term loans .39 CHAPTER 1: INTRODUCTION 1.1 Rationale: Along with the development of the economy and banking system, more and more problems are brought to our attention, one of which is capital mobilization Fund mobilization is one of the basic and profitable activities for commercial banks like other activities such as payments, credit activities, card services, etc With the high demand, capital plays an important role for the development and growth of bank and the whole economy Government budget is only contributed in investing in infrastructure which is not be able to refunded, while capital for business operation or fixed and floating capital are mobilized through borrowings Therefore, capital is not only needed in short-term but also in medium and long-term Without capital, economic systems cannot improve, industrial areas and service centers cannot be set up Banks are only one part of a vast financial system of markets and institutions that circles the globe The primary purpose of this ever changing financial system is to encourage individuals and institution to save and transfer those savings to the individuals and institutions planning to invest in new projects This process of encouraging savings and transforming savings into investment spending causes the economy to grow, new jobs to be created, and living standard to rise For this reason, it is essential for a bank to have sufficiency of capital in hand In addition to that, capital helps bank and financial institution (B&FI) to diversify and enlarge their businesses but also ensures the safety of the banking system Hence, a research related to capital mobilization of banks is critical Over recent years, capital activities at Vietinbank Thai Nguyen branch have been always focused Although approaching a number of achievements, these activities are facing some problems and revealing some shortcomings Fund mobilization of the branch still needs to be further analyzed and improved to better serve for its need That’s why I choose the topic: “Solution to increase the effectiveness of capital mobilization in Vietinbank Thai Nguyen branch ” for my graduation thesis 1.2 Research objectives: The objectives of this thesis are:  Reviewing some theoretical framework of capital mobilization in commercial bank  Analyzing and assessing the real situation of capital mobilization activity in Vietinbank TN  Proposing some solutions and making some recommendations to improve the capital mobilization effectiveness 1.3 Research scope: This thesis concentrates on fundamental theories of capital mobilization and studying and evaluating the current situation of capital mobilization in VTN during the period from 2009 to 2011 1.4 Research methodology: The methodology applied is a descriptive method of the research There are sources as following: Primary data: The data regarding “Capital mobilization” was collected through a combination of variety kings of methods: observation of daily performance of officers in Business- customer department ; interview was conducted with some officers at VTN to get the additional information for the sake of understanding the current practices and functions of capital mobilization in VTN Secondary data: The secondary data of this research was acquired through reading many books in Bank management & Financial Services, Capital mobilization in banking, and some information on the Internet which will be referred on the reference The research also has a reference on previous researches on capital mobilization of commercial banks Regarding the bank introduction and history, the data was collected from Vietinbank official website Also, some parts of the data were taken from the Economic magazine, Annual Report capital, it just deployed marketing activities through magazine or newspaper Hence, the results are not professional and effective The capital management is not in the direction of modern banking and does not orient to target group of customers Obviously, customers not have the same needs and carry the same profit for the branch Therefore, it is time to define segments to offer suitable customer care services and to develop distinctive product’s characteristics 3.3.3.2.External cause: The banking sector is in its high development time with more and more new-born banks and financial institutions Under that tough competition, the branch has to deal with the narrow market share and take part in the interest rate race The Vietnam economy is still in the recovery period from the financial crisis Hence, residents still doubt of depositing money at a bank because they afraid of high inflation rate In addition, having the cash in order to make payment is a traditional folk’s custom Besides, their understanding of banking activities is still limited which leads to many obstacles for bank to deploy mobilizing funds activity VTN is regulated directly under Vietinbank center, hence, the mobilizing funds methods applying by the branch have to abide by Vietinbank’s policy However, there are some aspects that are not proper with the reality in local area The mobilizing funds methods are restricted so the branch needs to diversify the capital mobilization methods in order to satisfy the needs of other activities CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO INCREASE THE EFFECTIVENESS OF CAPITAL MOBILIZATION IN VTN 4.1 Development orientation of capital mobilization activity in VTN When the global financial crisis started to spread over the world, Vietnam economy also is impacted by many aspects such as: the growth rate is slow down, FDI decreases significantly, some products are hard to sell, banking capital is stagnant, overdue debt has increasing tendency, foreign exchange rate is under pressured, etc The crisis also revealed many problems inside the Vietnam banking system which requires to be reconstructed in a strong manner In that conditions, with the understanding of banking industry and the whole economic environment, VTN set the orientation for capital mobilization for coming years as follows: - Stabilize the efficient business activities, handle the remaining problems in order to purify the financial condition, execute successfully the project of banking activity and structure fortification - Continue to increase capital mobilization, and try to persuade enterprises to pay salary via bank account This action will help the bank enjoy cheap demand deposits - Centralize on mobilizing funds with increasing in both quantity and quality, along with expansion and improvement of funds sources - Keep approaching the market with orientation towards a stable and concrete development to gain market share, build up a condensed mobilized network - Maintain growth of capital mobilization at high level, focus more on medium and long-term deposits - Provide high quality of customer care services, segment the market by different criteria like location, economic condition, level of competition, etc in order to create reasonable product, price, and distribution policies for each segments - Along with the expanding the sources of capital, VTN continuously improves effectiveness of capital utilization, focuses on rational capital structure, while emphasizes growth, safety and efficiency, and concentrates on positive capital development 4.2 Suggested solutions to increase the effectiveness of capital mobilization in VTN: 4.2.1 Expanding the capital mobilization methods: It is evident that limit in growth of capital sources is partly due to the undiversified term of deposits The branch has not diversified much of deposit terms Hence, it still can not provide plentiful product and services which leads to the restriction of credit structure and ability to support different liquidity assets In the future, VTN needs to improve existing products and services while doing market researches and developments of new products in order to retain old customers and attract new ones, in more detailed: - Expanding the deposits types from the folks, including saving deposits, card using deposits, ladder deposits, accumulated deposits, deposits with prize, etc The branch needs to have the solutions to transform automatically non-term deposits to term deposits For example, customers with over 2-months non-term deposits can be eligible for get interest of term deposits of month - Enhancing the benefits of services providing by the branch VTN needs to speed up the marketing activity for non-term deposits, persuade organizations and individuals to open accounts for shopping or paying salary If this activity is done well, the branch can enjoy the cheap non-term deposits - Expanding the form of interest payments The branch may apply a form of interest payment based on amount of deposits At the present, it is applying this form up to 500 million VND, however, the living standard of local folks is not so high, the branch should lower the requirement for 500 million VND The mobilized funds through issuing valuable papers are still low The branch should pay more attention to this mobilizing activity because it helps the bank active in restructuring the capital and increases the medium and long-term capital 4.2.2 Applying the flexible interest rate policy: Interest rate is one of the economic factors having strong impacts to the attracting of capital, especially the medium and long-term capital because the folks always consider the interest rate as first criteria when depositing the idle funds To use this tool effectively, the branch needs to ensure the following requirements: - The nominal interest rate must be higher than the expected inflation rate to ensure the customer’s benefit - Interest rate must assure the profit of business enterprises ( interest rate must be lower than the rate of return of firms) - Interest rate is constructed based on market principles, the relationship between capital demand and supply Interest rate is determined in the common condition of banking network and has to be competitive Interest rate for long-term deposits must be higher than interest rate for short-term deposits - Choose the appropriate interest rate that satisfies the capital size, saves expenses, increases the stability of capital sources Besides, the branch needs to forecast the changing tendency of market interest rate to be proactive in creating interest rate slots and to restrict the interest rate risk and liquidity risk 4.2.3 Restricting the business risks, improving business performance: Business risks happen when the banks make loans for customers but can not collect money back If the banks implement well the credit policies with positive business performance, more and more customers will have good relationship with banks, banks’ prestige is enhanced, the mobilizing funds activity will be facilitated in many positive aspects In order to perform good at business, restrict possible risks, ensure the credit capital, the branch should execute the following actions: - Before making loans for customers, VTN needs to examine the customers carefully along with considering important factors such as: collateral, legal capacity, reputation of projects, relationship with the branch, and so on During the time of making loans, credit officers must keep track of the capital utilization of customers seriously and honestly, report and recommend to the managers to avoid capital loss - The branch should help customers find input sources or product consuming sources in order to gain reputation and build long-term relationship with them - The branch must coordinate with the local authority in order to manage the pledged assets, and regularly report information of credit risk to State bank - Making compulsory sales with pledged assets at least in 10 days from the due of debts VTN needs form the asset liquidity council with represents of branch, local authority and assets’ owners 4.2.4 Improving the quality of marketing strategy: Another important factor in the mobilizing funds strategy of banks is marketing with the crucial aspects such as advertising, propaganda, etc This is a activity that the branch must execute to stand and develop in present competitive financial market Marketing expands the activity area of banks and convey the information of banking industry In addition, it enhances the saving attitude of folks, facilitates the gathering idle funds for investment projects to develop agriculture, modernize rural area, and improve the living standard of residents As mentioned earlier in this thesis, the marketing activity of the branch still has lots of problems and drawbacks In order to exploit this powerful tool, VTN needs to the following actions: - Providing regularly information about financial results, audited financial statement, etc through publication, broadcast, and media for folks It helps residents know more detailed about business capacity and the branch’s services with product’s benefit From that place, customers will have the overall and detailed view about Vietinbank’s network and VTN As a results, their confidence at Vietinbank increases and they will deposits more - Encouraging the current customers and potential customers take part in the talk show, presentation introducing the branch’s operation, mobilizing funds products and so on It will make folks understand the benefits of depositing and using banking services such as : safety, user-friendly and chance of profitability - Proving the advantages of branch and its services In the new areas, the folks still are not familiar with the opening accounts in bank, VTN should build model for opening accounts at some enterprises In addition, VTN should persuade enterprise to opening the private accounts for their officers and pay salary without costs If VTN succeeds in this model, the folks’ trust at branch will be enhanced and the model participators will be the best advertisers of branch - Applying the diversified forms of promotion such as: participation in form of lottery with numbers of serial, valuable receipts, preferential interest rate, or material promotion for regular customers in the special days ( tet, festival, birthday, etc) , sponsoring for the sport and art movements and for the charity activity, and so on to make influence and increase the reputation of the branch with all social class 4.2.5 Training and improving frequently the professional skills of staff: The human factor in the banking industry has important effect because it determines the level of success of bank’s activities For the mobilizing funds activity, human is the crucial factor deciding the size, structure and quality of mobilized capital It is the accounting officers who directly receive the deposits, make payment, etc Hence, it is required that the officers needs to have good qualifications, positive attitude, high responsibility, and the polite manners in business The branch should execute the following suggestions: - Training and retraining the staff system according to the current standard In specific, the staff doing the mobilizing activity must have knowledge about his business such as: computer sciences, non-money payment, capital , interest rate, foreign currency, etc to satisfy the requirement of banking industry Besides, the officers need to have ability to solve problems quickly, answer all the customers’ questions, direct them to follow the right procedure, and build the trust with customers This is the vital psychology factor because when the customers have satisfaction, they will continue to business and introduce more customers to the branch - Recruiting, restructuring and arranging the staff according to thier discipline, ethics manner, and personal strengths - Equipping the Marketing knowledge to facilitate members in VTN become the link in the chain of customers relationship management Especially, this activity is crucial for the officers contacting frequently with customers These officers must be the best marketing officers, exploit every possible opportunity to advertise and introduce about the branch, and make the branch’s image familiar with customers - Innovating the customers care services Currently, when entering the banks, lots of customers still are unfamiliar They come to the branch with mostly two reasons: to making transaction or to learn about the banks before determining to become its customers Therefore, VTN should improve the customers care services, especially for the officers contacting frequently with customers - Coordinating with the advanced computers science centers, arranging the foreign language classes, combining with the informatics center to ensure the operation of computer network 4.3 Recommendations: 4.3.1 Recommendations to Vietinbank Vietnam: Being the management agency, Vietinbank has responsibility in term of the making of policies, construct the regulation and development plan of overall Vietinbank network It is the fundamentals for branches to drafting the business plan and capital mobilization plan Therefore, in order to improve the quality of mobilizing funds activity , VTN needs the supporting of Vietinbank such as: - Assisting the training and retraining tasks both inside and outside Vietinam, having in time the documents to expand products, services, travel cheque, e-payment service and so on - Supplementing the staffs to finish the tasks, restricting the overload working state, facilitate time for officers to learn and upgrade the professional skills - Improving the infrastructure, ensuring the transaction premises, reinforce the technical equipment in the modern standard - Organizing regularly the seminar about exchanging the operation experiences between branches, collecting contribution ideas and recommendations It is the fundamentals to propose the documents adapting the reality conditions - Establishing the business strategy direction for whole banking industry which corresponds for the realities of each local area such as : geographic condition, economic environment, disaster bearing areas, and so on - Intensifying investment for equipments, research the application of informatics technology, modernizing the banking technology step by step The modernizing banking technology task cannot be executed by each branch because lack of capital and lack of synchronization Hence, Vietinbank must take responsibility to direct the mission of researching and modernizing - Perfecting the compulsory financing mechanism for each branch This is the important motivation for the business activity of branches In the present, branches are managed by Vietinbank by this mechanism Vietinbank manages and regulates the income and expense, distributes the fixed capital Hence, this mechanism must be executed between branches in the impartial way to ensure the development of them 4.3.2 Recommendations to State bank of Vietnam: - Constructing the banking network and financial institutions which have strong capital sources and stability in organization structure, modernizing technology, propagandize about laws of state bank and laws of financial institutions, improving and expanding the payment types step by step, propagandizing resident classes to make payment by deposit accounts in order to form the habit of using payment tools through banking services, caring regularly and enhancing the effectiveness of each banking service, fortifying the purchasing power of money, stabilizing prices and exchange rate, strengthening the prestige of banking network - Perfecting the monetary market and stock market, fortifying and expanding the credit relationship between bank s and customers, requiring banks to continuously improve and enhance the operation quality, improving the quality of interbank market, regulating between shortage capital and surplus capital in a effective way - Expanding the foreign relations with foreign institutions, exploiting the support and sponsorship capital with low interest rate, enhancing the credit relationship, diversifying the foreign currency activities, participating in the interbank market of foreign currency, managing the exchange rate VND in a flexible way - Performing well at central management function, enhancing the inspection activities, correcting and solving in time the behaviors losing the government capital, making the banking activities into standard, improving constantly the prestige of the whole banking network in the economy - Cleaning up the banking network, improving the state management quality, synchronize the mechanism that prevent possible risks 4.3.3 Recommendations to the Government: - Stabilizing the macroeconomic environment Stable macroeconomic environment is vital factor for commercial banks Hence, Government must make the long-term directions and strategy, provide the unwavering economy, restricting inflation and deflation, stabilizing the purchasing power of money, encouraging the investment inside and outside the country, enhance the coordination relation with countries over the world, exploit the capital sources of foreign financial institutions, and facilitates the business activities of commercial banks - Fortifying the sound legal environment step by step, drafting the laws in the synchronized way, ensuring the investors and enterprises’ benefits , instructing the folks to consume in the economical way, encouraging investment inside and outside Vietnam, making impartially punishment with the case of peculation - Caring about banks’ benefit, encouraging commercial banks to mobilize medium and long-term funds because this is important capital which provides infrastructure for the country modernization and industrialization missions CONCLUSION Capital mobilization is a crucial factor that determines commercial banks’s activities in term of its size and position in the financial market Understanding this issue, VTN has mobilized the considerable capital with the appropriate size and structure, and has provided the capital needs including sponsorship for long-term projects with large size and long period of capital reclaim However, in the current environment, the branch still has to face with many difficulties from competitive financial market Therefore, it must increase the effectiveness of capital mobilization in order to ensure other business activities Hence, the thesis research “ Solution to increase the effectiveness of capital mobilization in Vietinbank Thai Nguyen “ has been carried out The following issues have been mentioned in this thesis:  Theoretical framework of capital mobilization activities in commercial banks  Overview of VTN, its real situation of capital mobilization activity, and evaluation of capital mobilization activity effectiveness: achievements, drawbacks and causes of drawbacks  Solutions to increase the effectiveness of capital mobilization in VTN, recommendations to Vietinbank, State Bank of Vietnam, and Government to strengthen the effectiveness of funds mobilizing activity in VTN REFERENCES Vietnamese: Phan Thị Thu Hà(2009),Quản trị ngân hàng thương mại,Nhà xuất giao thong vận tải English: Peter S.Rose (Eight Edition).Bank Management and Financial Services.MacGraw-Hill Irwin Magazines: - Tạp chí kinh tế - Thời báo kinh tế Việt Nam - Vietnam news Website: - Economy.com.vn ... SITUATION OF CAPITAL MOBILIZATION EFFECTIVENESS IN VIETINBANK TN 3.1 Overview of Vietinbank Thai Nguyen: 3.1.1 History of foundation and development: Vietinbank Thai Nguyen, who is a member of the. .. choose the topic: “Solution to increase the effectiveness of capital mobilization in Vietinbank Thai Nguyen branch ” for my graduation thesis 1.2 Research objectives: The objectives of this thesis... reports of Vietinbank Thai Nguyen in 2009, 2010, 2011) In recent years, the total mobilized capital from individual and business institutions have the stable increase, especially the total capital