LV Thạc sỹ_Solutions to improve fund mobilization at BIDV

NATIONAL ECONOMIC UNIVERSITY ADVANCED PROGRAM ******************************* BACHELOR’S THESIS IN FINANCE SOLUTIONS TO IMPROVE FUND MOBLIZATION AT BIDV – TRANSACTION CENTER ACKNOWLEDGEMENT This thesis can’t be done with the helps and contributions of many people Firstly, I want to thank my instructor: M.Sc … for guiding me in writing the thesis Secondly, I would like to show my gratitude to Mrs … for helping me in internship, providing me the necessary knowledge and data I would also want to thank the staff in Customer Relationship Department for enthusiasm and kindness during my internship Finally, I would like to extend my gratitude to all lectures teaching me in the 4-year course at the NEU ABSTRACT The thesis represents my research about fund mobilization of commercial banks in general, and BIDV Transaction Center in particular I’m very interested on the issues of fund raising, particularly difficulties of small banks concerning this aspect Therefore, I decide to internship at the BIDV Transaction Center in order to learn more about fund mobilization The thesis contains theories, current situation of the Center, limitations, and recommendations In this thesis, I focus on fund mobilization produces and actual operation in order to point out limitations and its cause on the fund mobilization in the Center Based on that, I suggest solutions for BIDV headquarter and recommendations to other agencies to improve the situation I hope that my solutions will be helpful in solving limitations not only in Transaction Center but also in other Vietnamese banks TABLES OF CONTENTS ACKNOWLEDGEMENT ABSTRACT TABLES OF CONTENTS ABBREVIATION LIST OF TABLES LIST OF DIAGRAMS INTRODUCTION .10 1.Rationale 10 2.Research objectives 11 3.Research methodology 11 4.Research scope 11 CHAPTER 1: FUND MOBILIZATION IN COMMERCIAL BANKS 12 1.1.Funding sources of commercial banks 12 1.1.1.Equity .12 1.1.2.Deposit 13 1.1.3.Borrowing 14 1.1.4 Other funding sources 14 1.2.Commercial bank’s fund mobilization 14 1.2.1 Definition and importance of fund mobilization 14 1.2.2.Fund mobilization classification 15 1.2.3.Objectives of fund mobilization .21 1.3.Mobilization procedures in commercial banks .22 1.3.1 Planning 22 1.3.2.Implementation 23 1.3.3.Monitoring and Evaluation .24 1.4.The influent factors of fund mobilization .24 1.4.1 External factors .24 1.4.2 Internal factors 26 CHAPTER 2: FUND MOBILIZATION IN THE BIDV – TRANSACTION CENTER 28 2.1.Overview of BIDV – Transaction Center 28 2.1.1.History 28 2.1.2.Organizational structure 30 2.1.3.Overview of business performance 32 2.2 Fund mobilization procedures in the Center 37 2.2.1.Planning 37 2.2.2.Implementation 39 2.2.3.Monitoring and evaluation .40 2.3.Mobilized capital in the Center over the recent years 41 2.3.1.Mobilized capital by type of mobilization 42 2.3.2 Mobilized capital by term structure .45 2.3.3 Mobilized capital by type of currency 47 2.4.Assessment of fund mobilization in the Center 48 2.4.1 Achievements 48 2.4.2 Limitations 49 2.4.3 Limitation causes 50 CHAPTER 3: SOLUTIONS TO IMPROVE FUND MOBILIZATION IN THE BIDV-TRANSACTION CENTER 53 3.1.Development orientations of fund mobilization at the BIDV – Transaction Center 53 3.2 Solutions to improve fund mobilization in Transaction Center 54 3.2.1.Improving marketing activities 54 3.2.2.Improving banking technology 54 3.2.3.Providing better services for customers 55 3.2.4.Improving evaluation process 55 3.2.5.Expanding network 55 3.2.6.Staff training 55 3.2.7.Building detail customer policies 56 3.3.Recommendations to other agencies 56 3.3.1 Recommendations to government 56 3.3.2.Recommendations to State bank of Vietnam (SBV) .57 3.3.3.Recommendations to BIDV headquarter 57 CONCLUSION 59 REFERENCES 60 COMMENTS .61 ASSESSMENT .62 ABBREVIATION BIDV ODA ATM CR Bank for Investment and Development of Vietnam Official Development Assistance Automatic Teller Machine Customer Relationship LIST OF TABLES Table 2.1: Operating result of BIDV - Transaction Center branch …………… 31 Table 2.2: Loan portfolio at BIDV – Transaction Center branch …………… 31 Table 2.3: Loan outstanding by sectors of Transaction Center in 2011 Table 2.4: BIDV individual deposit products in 2011 ……….32 ………………………… 37 Table 2.5: Components of BIDV – Transaction Center 1’s fund mobilization in 2009, 2010 and 2011 ……………………………………………40 Table 2.6: Term structure of BIDV- Transaction Center from 2009 to 2011 … 44 Table 2.7: Currency structure of BIDV Transaction Center …………………46 LIST OF DIAGRAMS Diagram 1.1: Fund mobilization planning in commercial banks ……………… 21 Diagram 2.1: Organizational structure of BIDV- Transaction Center ………….28 Diagram 2.2: Net service revenue of Transaction Center branch ……………….33 Diagram 2.3: Fund mobilization allocation for 2011 plan in Transaction Center : ……………………………………… 36 Diagram 2.4: Fund mobilization of Transaction Center …………………… 39 10 INTRODUCTION Rationale Fund mobilization is very important in commercial banks By definition, fund mobilization is the amount of money that banks raise various sources from the economy as liabilities, and it includes deposit and borrowing Historically, most of traditional commercial banks’ revenue is from loan, the most basic products of banks And the main source of fund for loan is from fund mobilization Therefore, attracting more fund mobilization would increase the capacity of banks to make loan and increase banks’ profit Nowadays, commercial banks have expanded their service menu with other products as credit card, L/C, the core business of banks is still credit In summary, fund mobilization is very important in the banking business today Vietnamese banks are aware of the importance and take many activities to attract more fund In fact, we can see that many banks have promotions for depositors For example, Techcombank raised the interest rate for deposit from 14 to 16%, BIDV run the sweepstakes promotion in which the special prize is high-value car In spite of efforts to attract more fund, some banks had difficulties in maintaining proper level of fund The signal of the problem is the interest war in 2011, which lead to interest rate ceiling imposed by the State Bank of Vietnam Therefore, I have chosen the topic for my thesis as ”Solutions to improve fund mobilization at BIDV- Transaction Center 1” The thesis contains main parts:  Chapter : Fund mobilization in commercial banks  Chapter : The current situation of fund mobilization in the BIDV – Transaction Center  Chapter : Solutions to improve fund mobilization in the BIDV – Transaction Center 48 2.4 Assessment of fund mobilization in the Center 2.4.1 Achievements Generally, the overall performance of fund mobilization in BIDV – Transaction Center is very good The fund well supported the growth of outstanding loan, and it enables the centre to operate effectively to bring profit, stability to BIDV Firstly, the total fund mobilization well supported the outstanding loan growth in recent year The target ratio of loan to fund mobilized is 50% The actual result is ranged from 20.08% to 50.5% is within the target This is very important in current unfavorable economic condition, which makes many banks in Vietnam struggle to maintain proper liquidity Those many banks used up almost all their loan capacity, therefore they are difficult to make new loan, even with good customers With that fund, BIDV Transaction Center can retain good customers, so when the economic recovers, the Center has better growth prospects Secondly, the fund at BIDV – Transaction Center generally has lower cost than other banks The reason is that the Center has cheap source deposit fund from big companies, while other banks struggle to find fund mobilization from individuals at all cost For example, interest rate ceiling at the time of the report was 14%, BIDV- Transaction Center paid only 14% interest rate for their depositors (other fees are small), while other banks paid not only 14% interest rate but also out of the book fee, staff fee, marketing fee The cheap cost of capital passed to borrowers in form of lower borrowing rate With lowering rate, borrowers tended to take more safe projects, which mean they are less likely to have problem with the loan This could be one of the reason that bad loan ratio at BIDV –transaction branch is 0.4% lower the BIDV and industry average Lower cost of fund also means the Center has more profit and better business prospects Thirdly, the total fund mobilization contributes to the stability of BIDV With the excess fund mobilization, the Center lends it to BIDV headquarter, and BIDV headquarter passes it to other branches It is very important source of fund for those 49 branches because some branches have difficult attract fund Furthermore, BIDV system can lend the excess fund to other banks, and earn profit Therefore, the fund mobilization in Transaction Center contributes to the stability and performance of BIDV system Fourthly, BIDV transaction Center had great effort to improve customer care program Those programs improve the image of the Center in customers’ thought In summary, the overall performance of fund mobilization activities is good, which enable the Center to develop in the future 2.4.2 Limitations Although BIDV Transaction Center has great achievements in mobilization activities, the Center also has some limitations such as: instability, term mismatch Those problems currently not heavily influent the operation of the Center, but they will affect the future prospects Firstly, the major limitation of fund mobilization in Transaction Center is the instability The result indicates that fund mobilized is below the target In 2011, the actual amount is only equal 81.4% of target plan This limitation seriously affects the development plan of Transaction Center Less fund mobilization mean less loans and less profit Furthermore, it affects BIDV because Transaction Center is a big branch in BIDV The fund of the Center is equal around 8% of total BIDV mobilization fund Secondly, another limitation in fund mobilization in the Center is duration mismatch between the term of outstanding loan and fund mobilization In 2011, the long-term and medium loan is VND 5,965 billion while long-term fund is VND 1,411 billion Although banks in Viet Nam are permitted to use 30% of short term loan for medium and long term, duration mismatch results in unfavorable effects: reducing profit when interest rate increases The first effect occurs when interest rate increases and long-term loan rate stays the same Therefore, interest rate expense increases and interest rate revenue stays the same results in loss of profit This issue can be solved by floating interest rate in long-term loan, which now 50 widely used in the Center However, in the future, the excess short-term fund will cost interest expense, hence reduces profit of the Center, in the case the fund can’t be lent or lent at lower interest rate to other financial institutions In summary, the duration mismatch problem is constantly solved and has little effect on the Center, but the instability fund mobilization problem has serious effects on the operation of Transaction Center in the future 2.4.3 Limitation causes External causes:  High inflation rate: One of the external causes is the high inflation rate in Vietnam Despite high interest (up to 18%) rate offered by banks in Vietnam, the high inflation rate, for example: 18.6% in 2011, wipeouts all the interest rate earned by the deposit in banks Eventually, the real interest rate may be negative Therefore, many customers avoid make deposit in the bank and switch to other form of investment such as gold, real estate  Economic environment: Economic environment also plays critical role in fund mobilization in the banks When the economic slowdown, velocity of money decreasing makes people have less money This condition happened in Vietnam in 2011 The result is not surprising: fund mobilization decreased  Customer related problems: As a result of history, BIDV transaction Center has strong customers base, which are many big state-owned companies, and the customers generated a great of fund However, the change in market environment makes this type of fund is not as reliable as before Some companies work badly, their account balance sink, and some go bankrupt Some companies go through equitisation process, the shareholders demand board of direct to make use of the idle fund In other words, 51 they prefer to invest in somewhere other than bank deposit Even some companies switch bank for better benefits All of these changes affect the fund at the Center significantly, and they are the reasons why institutional deposit went down sharply  Competitions: In the period of 2007 to 2009, many banks and other financial institutions entered market Therefore, every participant has less market share than before In 2011, as a result of fund mobilization problem, many banks had more incentives and benefits which drive away customers from BIDV Internal causes:  Marketing limitations As noted in implement process, BIDV has many individual deposits products in order to attract fund mobilization The BIDV headquarter expects those products to serve customers better and to increase fund mobilization In reality, customers rarely know about such products, instead, they ask for traditional deposit products such as time deposits, saving deposits  Banking Technology The internet banking in BIDV is limited to viewing account balance and transaction history It does not include any other services such as transferring money, automatically payment Furthermore, the ATM and banking system sometimes freeze and customers must wait in order to make any transactions This inconvenience may cause customers to switch to other banks  Others services Although BIDV have many services other than deposits, the using of those services of customers is limited because of complex registration process and lack of marketing activities For example: Viettel mobile payment service is very helpful service in order to help customers automatically pay for subscription mobile services However, in order to use the service, customers must fill a lengthy form 52 and it takes time to travel to the bank The limitation in others services reduce profit and fund mobilization  Evaluation process limitations The award and penalty for fund target is smaller than credit target For example: the award on who achieves fund target is only VND million while other award for credit target is around VND 10 million Therefore, employees concentrate on credit section, not fund mobilization The result is outstanding credit growth while fund mobilization decrease  Networks Transaction Center has only transaction offices and saving counters while other BIDV branches have 8-9 ones, even some branches have more than 12 Because individual customers often go to transaction offices to deposit money, the lack of transaction offices and saving counters limit the ability to attract individual deposit of the Center  Staff Many employees in customer relationship departments are young and inexperienced Although they are very enthusiastic, their lack of experience may reduce their productivity and affect the fund target  Customer policies BIDV Transaction Center has great customer care program such as gift for women day, customers’ birthday Those programs are appreciated by customers and have positive effect on fund However, when problem appears, it takes long time for employees to solve Sometimes the solutions are not satisfactory and lead to further problem This may lead to dissatisfaction 53 CHAPTER 3: SOLUTIONS TO IMPROVE FUND MOBILIZATION IN THE BIDV-TRANSACTION CENTER 3.1 Development orientations of fund mobilization at the BIDV – Transaction Center In order to improve the fund mobilization, the board of director of BIDV – Transaction Center issues some orientation developments Fund mobilization grow rate is at 3-5% higher the growth of outstanding loan This ensures safe and stable growth of the Center In order to cope with the instability of institutional customers, the Center orients to reduce the dependence on some big customers This plan increases proportion of individual customers and decreases that of business customers Through the customers diversification process, the Center will reduce the instability of fund mobilization as stated in the limitation The Center also has retail banks orientation This target is increasing the proportion of retail activities up to 30% of all total operations The Center focuses on expanding the ATM, Point of sale, credit cards services All of these activities bring not only fee revenues to the BIDV- Transaction Center but also a great amount of fund The focus group of customers is the group of people have stability source of income and good education This group of people will have higher chance to use higher level of banking services The later plan is focusing on VIP customers who have high income and higher education in Vietnam Finally, the Center plans to improve competitive advantages The strategy includes focus on particular group of customers, segment of market with specific 54 products This strategy will position BIDV- Transaction Center in the market Therefore, improve the marketing as stated in the limitations 3.2 Solutions to improve fund mobilization in Transaction Center Currently, BIDV- Transaction Center has made great effort to improve the fund mobilization activities and solve some limitations However, I think the plan is too general, and employees may not know what extract to After research, I propose some possible solutions for the limitations as stated above 3.2.1 Improving marketing activities The marketing activities of BIDV – transaction Center must followed by the BIDV headquarter, with the same products, same interest rate Therefore, room for improvement is narrow However, there are some ways to improve it One way is marketing to current customers Because the Center has strong relationship with many big business customers, there are many opportunities to marketing specific products effectively For example: some customers send their children abroad for study, the Center should marketing the study aboard product to them If the Center doesn’t marketing, customers may not know whether BIDV has such service or not, and eventually select other famous banks as Vietcombank, for example Another way is persuading current customers to invite new customers, if the invites is successfully, both of them will receive some gift 3.2.2 Improving banking technology Transaction Center should propose to BIDV head quarter to improve internet banking, ATM, and banking system The internet banking should include transferring money, buy prepaid cards and other services On the other hand, as errors are unavoidable in computers, the Center should provide back-up method in case of system freeze to increase customers’ satisfaction 55 3.2.3 Providing better services for customers As noted in the limitation cause, individual customers are not familiar with other services other than withdraw money from ATM As a result, some of customers withdraw the money immediately after their account has received money In that case, the fund that the Center gains from these customers is nearly zero In order to make customers uses more services, the Center should not only marketing activities as stated above but also make it easier to access services For example, if customers apply for credit card services, customers no longer fill a lengthy form includes: name, address, phone number that already recorded in bank computer system The employees should print forms that already had available data, customers should only fill the necessary information such as signature This practice not only saves time for the Center but also attracts more customers to use services In addition, cancellation of services should be very easy, customers only fill signature to cancel the service or make a phone call This is very important because if the cancellation process is complex, customers will be reluctant to future services 3.2.4 Improving evaluation process Transaction Center should increase the penalty and award for fund target so that it equals the credit target Furthermore, employees that complete both fund and credit target should receive more bonus and opportunities 3.2.5 Expanding network In order to attract more individual deposit, the Center should open at least transaction offices and saving counters However, there are already many BIDV transaction offices in Hanoi The Center should carefully choose the location for the new transaction office in order to get efficiency 3.2.6 Staff training Staff training is very important because staff is the representative of the Center communicating with customers Good staff means good image of the Center and more customers will come Staff at BIDV- Transaction Center is very friendly and 56 helpful but many of them are young and inexperienced, therefore BIDV – Transaction Center should implement more training in order to increase the productivity of employees 3.2.7 Building detail customer policies In order to speed up solving problems process, the Center should build detail customer polices These polices should include common problems, questions and how employees should answer, or where employees should redirect in case of complex problems These save time for employees because many cases are solved fast and correctly As a result, customers’ satisfaction increases 3.3 Recommendations to other agencies 3.3.1 Recommendations to government Firstly, the government must stabilize the economy and the VND currency As stated above, high inflation rate makes deposit products less attractive to customers, and customers switch to other form of investment such as real estate, gold Stabilizing the economy will make all markets less fluctuated, which eliminate chance of scalpers Reducing inflation rate of VND will make real interest rate increase Hence attract more people to deposit money in banks Secondly, the government should create and regulate money and capital market environment In fact, in the US and some Europe countries, these markets are very actively traded and it useful for both traders and issuers For issuers (the banks), if they want specific amount of fund mobilization, they can issue the certificate of deposit, or other instruments Unlike deposit, banks are no longer worry about early withdrawn They only need to fully repay the principal and interest when instruments expire For buyers, they can buy instruments when they want to earn safe interest and simply resell it in secondary market when they want Thirdly, the government should encourage people to make transaction by banks, not by cash For example: people often trade house with cash, if a law 57 requires that all these large transaction must go through banking system, people will store money in banks Therefore, fund mobilization of all banking system will increase Moreover, this policy will make Vietnam has more control of illegal activities Finally, the government should enable banks to work internationally Vietnamese banks can raise fund mobilization outside the border, which more diversification and safety However, the government must setup the rating agency to build credibility Vietnam has bad image about the Vinashin bond Therefore, recovering the image of Vietnam is very important 3.3.2 Recommendations to State bank of Vietnam (SBV) State bank of Vietnam is in charge of managing commercial banks of Vietnam Therefore, SBV has deep understanding of banks and help their development Firstly, SBV should help the government to stabilize the inflation rate of local currency by monetary policy In theories, reducing money supply will cause the inflation rate to decrease However, it also slowed down the economy Therefore, SBV should process monetary policy carefully Secondly, SBV should submit proposal, research to open the money and capital market trading floor in Vietnam As stated above, these markets bring benefits not only to banks but also to investors Currently, these markets are available but they are small and their effectiveness is limited Thirdly, SBV should continue their effort to create fair competitive environment For example, when the ceiling interest rate is implemented, the bank break the rule will be heavily fined 3.3.3 Recommendations to BIDV headquarter Firstly, BIDV should improve marketing activities As noted above, the complex individual deposits not as effective as BIDV board of director’s 58 expectation Therefore, BIDV should simplify its products to make it easy for employees to fully understand and effectively marketing activities to customers Furthermore, BIDV should invest more on modern marketing technique such as social network, mobile For social network, the bank need a page on facebook, twitter, zing me and other popular social network This type of marketing is not only inexpensive but also effective As a result of the program, customers understand more about the bank Secondly, in order to make customers use more BIDV services, BIDV should improve banking technology BIDV internet banking should offer more automatically services such as fund transfer, payment services than only viewing account statement BIDV also should make automatically fund transfer to other banks in ATM and internet banking system The bank also needs to develop application for smart phone such as: iPhone, Android phone Because people tend to work more and more on smart phone, these applications will attract more customers Therefore, fund mobilization will increase as well 59 CONCLUSION Banking industry is very important in modern economy As the whole economy advance, banks also increase their size in term of capital and number of services This growth must be support by strong fund mobilization The report has shown the fund mobilization in theories, the current situation of fund mobilization BIDV Transaction Center The assessment shows that major problem of fund mobilization in Transaction Center is the instability, which cause by some factors: economic conditions, high inflation rate, marketing, staff, networks, customer policies and services limitations Therefore, the report suggests possible solutions for BIDV and Transaction Center to solve these limitations Moreover, the report shows some recommendations for government and SBV which can bring benefit not only BIDV but the overall banking industry 60 REFERENCES - Annual report of BIDV in 2009, 2010, and 2011 - Annual report of Transaction Center branch in 2009, 2010, and 2011 - Bank management & financial services – eighth edition by Peter S Rose and Sylvia C Hudgins - Fundamental of financial management – 12 th edition by Eugene F Brigham and Joel F Houston Website: - www.bidv.com.vn - www.vneconomy.com.vn 61 COMMENTS 62 ASSESSMENT ... order to meet the fund mobilization plan 1.4 The influent factors of fund mobilization 1.4.1 External factors  Inflation rate High inflation rate makes deposits less attractive because customers... a big branch in BIDV The fund of the Center is equal around 8% of total BIDV mobilization fund Secondly, another limitation in fund mobilization in the Center is duration mismatch between the... deposits products in order to attract fund mobilization The BIDV headquarter expects those products to serve customers better and to increase fund mobilization In reality, customers rarely know about