(Luận văn thạc sĩ) analysis, evaluations and solutions for improving effectiveness of the foreign currency business operation of the vietnam bank for agriculture and rural development

V IE T N A M N A T IO N A L U N IV E R S IT Y HANOI SCHOOL OF BUSINESS DANG VIET ANH ANALYSIS, EVALUATIONS AND SOLUTIONS FOR IMPROVING EFFECTIVENESS OF THE FOREIGN CURRENCY BUSINESS OPERATION OF THE VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT M ajor: Business Adm inistration Code: MASTER OF BUSINESS ADMINISTRATION THESIS SU P E R V IS O R : HOANG ANH TUAN H A N O I, 2004 TABLE OF CONTENTS A B S T R A C T Ui TÓM T Ắ T IV A C K N O W L E D G E M E N T S V P R E F A C E .vi TA BLE O F C O N T E N T S ix PART I: BASIC CONCEPTS OF THE FOREIGN CURRENCY BUSINESS OPERATION AND INTERNATIONAL PAYMENT 10 1.1 FO R EIG N E X C H A N G E M A R K E T .10 1.1.1 B asic concepts o f the foreign exchange m ark et 10 1.1.2 Participants in the foreign exchange m a rk e t 11 1.1.3 F unctions o f th e foreign exchange m a rk e t 12 1.2 SO M E B A S IC D E F IN IT IO N S O F T R A N S A C T IO N S O N T H E FO R EIG N E X C H A N G E M A R K E T 12 1.2.1 Spot foreign exchange tra n sac tio n 12 1.2.2 Forw ard tra n s a c tio n 13 1.2.3 Sw ap tra n sa c tio n 13 1.2.4 Futures tra n s a c tio n 13 1.2.5 O ptions tra n s a c tio n 14 1.3 IN T E R N A T IO N A L PA Y M E N T O P E R A T IO N S 14 1.3.1 D efinition o f international p a y m en t 14 IX 1.3.2 Role o f international paym ent tow ards operations o f com m ercial banks 15 PART II: OVERVIEW OF FOREIGN CURRECY BUSINESS OPERATION AND ITS ENVIRONMENT .18 2.1 SO C IA L E C O N O M Y E N V IR O N M EN T A N A L Y S IS 18 2.2 B U SIN E SS E N V IR O N M E N T A N A L Y SIS 19 2.2.1 M a rk e t 19 2.2.2 M arket s h a r e 20 2.2.3 C om petition in the bank finance m ark et 21 2.2.4 SW O T a n a ly s is 24 PART III: THE FOREIGN CURRENCY BUSINESS REAL SITUATION OF AGRIBANK 27 3.1 A C H IE V E M E N T S A FT E R 12 YEARS ( 1992-2004) IM PLEM EN T T H E FO R EIG N CURRENCY B U SIN ESS O PERA TIO N IN A G R IB A N K SY STEM 27 3.2 A G R IB A N K ’S RESTR IC TIO N S IN TH E FO R EIG N CU R R EN C Y B U SIN ESS O P E R A T IO N 29 3.3 REA SO N S O F R ESTRICTIO N S IN FO REIG N C U R R E N C Y O PERA TIO N OF A G R IB A N K 34 PART IV: RECOMMENDATIONS AND CONCLUSIONS 43 O B JE C T IV E S 43 R E C O M M E N D A T IO N S 46 C O N C L U S IO N S LIST O F R E F E R E N C E S A PPE N D IX E S 10 PARTI BASIC CONCEPTS OF THE FOREIGN CURRENCY BUSINESS OPERATION AND INTERNATIONAL PAYMENT 1.1 FOREIGN E X CH AN G E MARKET The foreign markets are truly global in that they trade the currencies o f the majority of nation states The foreign exchange markets never close; som ew here in the world participants are trading currencies twenty-four hours a day The price o f one currency relate to another (that is, the exchange rate) changes all the time As new economic, political, financial and social information is released to the markets, dealers reassess the value o f a currency 1.1.1 Basic concepts o f the foreign exchange market The foreign exchange market is place where execute trade m oney o f the different countries There are tw o types to organize foreign exchange market: - Exchange Trading Floor: this type has specific place and time o f transactions were also defined specifically - Over The C ounter (OTC): Market where transactions are conducted over the telephone and computer network o f dealers, rather than on the floor o f an exchange The derivative product transactions as swap, futures and options are traded at over the counter market !1 Spot foreign exchange and forward transactions are also traded at over the counter market on the w orldw ide scope; operate continuously during 24 hours by uneven time zone between different areas Thus when a market closed, other market is still operating The operation schedule o f some big foreign exchange market following will show operation continuously o f the foreign exchange market GMT 12 16 20 24 -► T o k y o p Frankfurt ► < London - ► < New York The big foreign exchange transaction centers o f the world are London, New York and Tokyo Daily turnover o f foreign exchange transaction following1: - England 30% - Hong Kong 6% - The United States 16% -S w iss 6% -Japanese 10% -G erm any 5% - Singapore 7% - France 4% 1.1.2 Participants in the foreign exchange market The core members o f the foreign exchange market including: BIS Central Bank Survey 1995 ► Central Bank - Commercial Bank and financial institution - Companies The Central Bank participates in the foreign exchange market to maintain the foreign currency reserve; exchange rate stabilization, monitor exchange rate and intervene to restrict the changing o f exchange rate The commercial banks participate in the foreign exchange market to serve payment demand o f custom ers, insure the exchange rate risks and perform the foreign currency business The companies participate in the foreign exchange market to serve demands about investment and commerce operations 1.1.3 Functions o f the foreign exchange market Foreign exchange market exists and develops to serve the following demands: - Trade and investment demand: the import export companies need foreign currency to serve the payment demands - Hedging demand: the members participate in the foreign exchange market with purpose is exchange rate risks reducing - Speculation demand: entrepreneurs exploit the exchange rate changing to get profit 1.2 SOME BASIC DEFINITIONS OF TRANSACTIONS ON THF FOREIGN EXCHANGE M ARKET 1.2.1 Spot foreign exchange transaction 13 Spot foreign exchange is the purchase or sale o f an amount o f one foreign currency against an am ount o f another currency, the exchange rate is determ ined at transaction date, for which settlement takes place one or two business day(s) later depending on the currencies involved 1.2.2 Forward transaction Forward contracts are agreements directly entered into between a buyer and a seller, calling for delivery o f a specified amount o f a specified asset at a specified, future date The exchange rate is determined at transaction date The buyer and the seller are direct contractual counterparties to one another 1.2.3 Swap transaction This term is used in many contexts In general it is the simultaneous purchase and sale o f foreign exchange or securities, with the purchase being affected at once and the sale back to the same party to be carried out at a price agreed upon today but to be com pleted at a specified future date Swaps include interest rate swaps, currency swaps, and credit swaps A "swap rate" is a forward foreign exchange quotation expressed in terms o f the num ber o f points by which the forward rate differs from the spot rate 1.2.4 Futures transaction An agreement to buy or sell a set amount of a commodity or security in a designated future month at a price agreed upon today by the buyer and seller A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction A future is pan o f a 14 class o f securities called derivatives, so nam ed because such securities derive their value from the worth o f an underlying investment 1.2.5 Options transaction An option is a contractual agreement that gives the holder the right to buy (call option) or sell (put option) a fixed quantity o f a security or commodity (for example, a commodity or commodity futures contract), at a fixed price, within a specified period o f time May either be standardized, exchange-traded, and government regulated, or over-the-counter custom ized and non-regulated 1.2.5.1 Call option An option that gives the buyer (holder) the right, but not the obligation, to purchase a specific asset or obtain a long futures position at a fixed price w ithin a specified period o f time 1.2.5.2 Put option An option that gives the option buyer the right, but not the obligation, to sell the underlying futures contract at a particular price on or before a particular date 1.3 INTERNATIONAL PAYM ENT OPERATIONS 1.3.1 Definition o f international payment International paym ent is currency payment obligations which arise from the economic relations, commerce and other relations betw een subjects o f countries Different with local payment, international payment has special features following: 15 - Subjects participate countries Each in the international payment operation at various international payment transaction relates at least two countries - International paym ent operation relates legal system o f various countries, even contrast Thus each subject usually selects unify the legal procedures and accordance w ith international standards Popular language is used in the international paym ent is English International paym ent operation requests high professional ability and technology have to match with international 1.3.2 Role of international payment towards operations o f com m ercial banks 1.3.2.1 International paym ent creates condition to attract custom er, expand the business market share o f commercial banks The commercial banks are financial middleman, execute the business functions in currency field, credit and provide the banking services Through the business operations, commercial banks established relationships not only organizations, local customers but also other international business organizations and becom e a subject participate in the international payment operation In the international paym ent field, commercial banks are not only payment middleman but also consultant for customers about payment conditions, ask management Agribank expanded to serve for international payment Up to now the correspondent bank system reached 854 at 110 countries and territory areas Thus, Agirbank should continue maintain and expand more correspondent bank system in according with transaction amount o f Agribank Carry out evaluating and classify the correspondent banks to have suitable relation policy as credit limit, deposit, foreign currency business Agribank had the wide branches system in Vietnam, especially transaction bureau model thus A gribank has capability to mobilize capital and contribute direct credit for customer In the next period, A gnbank will select each province as Hue, DaNang, HoiAn one or two places, HaNoi and HoChiMinh two or third places to build “Western Union transaction places” with large scale equal as ACB bank to increase attract customer 4.2.2 Technology Agnbank should invest an advanced technology system which contnbutes to develop more new banking services, increase service quality, hasten the payment process, and create advantage condition in transaction with customer Up to now, Agribank participated in the telegraph system which has high secunty Nowadays, electronic commerce became a new business form; it created remarkable alteration in trade field Development o f electronic commerce made the new payment form in the banking system Develop trade and build electronic banking is becoming a trend of trade and world finance In the near future Agribank should expand and increase service quality of international card payment Although international card payment is very popular in the world but it is not usual in Vietnam It concentrates mainly on businessman and international tourist Thus, although international card payment has many advantage but it don’t create actually effectiveness for Vietnamese Now, the banks are leading in the international card payment field in Vietnam include Vietcombank, ACB and A N Z Develop the international credit card in Vietnam is very prospect because Vietnam economy is developing stability, banking technology is interested, V ietnam 's banks created confident towards Vietnamese On the other hand, telecommunications industry is developing quickly; it is one o f the importance factors to apply electronic commerce for Agribank, including international card payment 4.2.3 Human resource training plan Agribank should build good relationship with training organizations in local and international to train Agribank’s staffs become experts who satisfy business demand in the near future 4.2.3.1 Recruit staffs to meet the training requirements - A gnbank should invite consultative company recruit staffs to meet the training requirements towards each detail operation: foreign currency business staffs, international payment staffs, project credit staffs 53 - Reinforce staffs who are recruited by consultative company for the departm ent of headquarter to meet the foreign currency operation management requirements Priority for staffs who have experience worked in the foreign banks in foreign currency business field - Supplement operation staff work in the foreign currency credit field, international payment for the importance places as (industrial zones, export processing zones, urban areas, tourist areas, international airports ), priority for staffs who graduated foreign trade m ajor 4.2.3.2 Define training demand - Operations should be trained o The evaluation methods about financial ranking towards the financial institutions (to evaluate the correspondent banks, build the investment limits) o The business operation on the capital market, foreign exchange o The export sponsor operations (design the project sponsor structure, international payment, guarantee ) - The subjects should be trained: Agribank should concentrate on train the new service operations, preference for the departments in headquarter to consult for Leader Board 4.3 Customer policy To maintain and develop operations of A gribank, one o f the operations that Agribank should be interested is foreign currency business operation A gnbank 54 should build a long-term strategy about customer policy In these, include a customer attraction plan, create the close relationship with customer, apply a flexible policy and increase service quality A customer ranking plan is not only basis on the credit relationship effectiveness but also depend on custom er’s prestige in transaction implement process with Agribank 4.4 Build a strong brand name Agribank’s prestige at local and international financial market is importance element include: service quality, operation treatment technique, payment ability A bank has high prestige is very importance to customer (or their partners) select transactions Thus, brand name o f this bank is also rise, reduce risks and customer is decreased charges because don’t pay other charges arise from a bank which has poor brand name This is one o f the importance conditions for Agribank attract more customer, increase transactions and expand market share On the other hand Agribank should continue research markets to open representative offices at counties which have regular relations and transact with large amount 55 C O N C L U S IO N S Agribank changed from planning mechanism, subsidy to the market mechanism in 1992, together with other banks as: Vietcombank, Incombank, BIDV w ere allowed to carry out the foreign exchange business operations by the Governor o f the State Bank, created the legal status to expand the new business operations become the m odem commercial banks, intensity com petitive advantage, attract foreign currency capital from international financial organizations and satisfy demand o f the customers However, compare with requirements of integration process and development, to become a m odem bank keep pace with the big banks in the world, Agribank have to surmount quickly weakness and promote the achievements and have plan to develop the foreign exchange business operation Especially foreign currencies that are absolute advantage o f competitors who are foreign banks operate in Vietnam 56 L IS T OF REFERENCES a Christopher Vinev Financial institutions, instruments and market (4th Ed) b Don M.Chance 1989 Options and Futures New York: Dryden c Training centre o f Vietnam Bank for Agriculture and Rural Development 2003 D ocument fo r operation giuding about foreign currency, foreign exchange and paym ent by SW IFT system Hanoi d Richard M Levich 1998 International financial markets: Price and Policies New York: Irwin McGraw-Hill e Zvi Bodie, Alex Kane, and Alan J.Marcus 1999 Investments (4' Ed) New York: Irwin M cGraw-Hill f Vietnam Bank for Agriculture and Rural Development 2004 Annual Report 2003 Hanoi g Vietnam Bank for Agriculture and Rural Development 2002 Charter on the organization and operation o f the Vietnam Bank fo r Agriculture and Rural Development Hanoi h State Bank of Vietnam 2003 Annual Report 2003 Hanoi 57 Appendixes Appendix A5 : Stansnc data of foreign currency business operation Table 1: Foreign currency mobilization achievement o f Agribank for the period 1995-2000 Criterion 1.Foreign currency mobilization - Fixed time-limit - Non fixed time-limit 2.Loans from State Bank - Short-term - Medium and Long term 1998 1995 1996 1997 1999 2000 319.26 189.97 129.29 324.67 159.12 165.56 798.12 466.51 331.61 223.25 192.64 107.44 83.62 84.43 85.57 223.25 192.64 107.44 83.62 84.43 85.57 95.65 78.64 1,677.48 2,055.93 2,554.08 1,408.26 1.747.98 1,519.76 269.22 307.95 982.60 3.Loans from financia 605.97 1,309.76 992.61 715.10 organizations 4.Investment mandate 602.51 1,169.38 1,711.64 2,868.01 1,164.12 1,205.02 Unit: VND billion T able 2: Loan foreign currency for the 1999-2000 Criterion 1995 1996 1997 1998 1999 2000 - Short term - Medium and long term - Investment mandate 816.0 927.0 1,252.2 879.6 749.25 579.15 575.1 1.371.0 749.25 546.15 1,033.5 741.30 521.6 58.61 916.05 926.25 840.9 568.35 1,912.54 3,177.00 2,917.5 2,352.0 Total A gribank’s reports 2,625.0 1,888.80 Unit: Billion VND 58 Table 3: Guarantee and open letter o f credit available by deferred payment for the period 1996-2000 Percentage o f increasing or decreasing Year Turnover 1996 52 362 200 1997 38 364 300 -26% 1998 19 224 000 -49% 1999 2000 2001 777 600 424 700 160 100 -75% +97% -66% Note M edium and long term M edium and long term Unit: USD T able 4: Turnover o f import-export payment for the period 1996-2000 Year ' Criterion Export | Import ! Currency transfer i Total 1996 1997 1998 1999 231.62 228.36 226.14 685.12 389.16 582.11 281.10 1,252.37 368.29 1,088.75 250.78 1,707.83 285.82 2,110.99 289.75 2,868.56 2000 2001 65.99 72.98 2,420.11 1,387.18 354.24 474.51 2,847.32 1,927.68 Unit: Million USD T able 5: Turnover o f foreign currency business for the period 1996-2000 Year Criterion Buv Sell Total 1996 1997 1998 1999 645.89 654.76 1,300.64 571.48 570.09 1.141.57 633.52 628.34 1,261.86 1,558.86 1,593.28 3,152.13 2000 2001 2,259.68 1,926.08 4,185.76 4,215.54 Unit: Million USD 59 Table 6: Turnover o f cross border settlement — ^Y ear C riterioii~~~~~^ : Export I Import Currency transfer ! Total 1997 1998 1999 i 2000 2001 i I 22.77 17.40 1,168.03 1,208.20 126.61 269.01 2,443.19 2,838.81 140.05 ! 290.08 556.61 625.83 3,063.93! 2,899.64 3,760.59i 3.815.54 449.37 762.62 3,345.98 4,557.97 Unit: Billion VND Table 8: International payment turnover o f the commercial banks up to 2000 (USD million) Year Bank Vietcombank Incombank BIDV* | Agribank Other Total 1995 1996 8,415 1,146 250 637 2,291 12.731 9,161 1,416 391 1,223 6,207 18.398 1997 1998 9,479 9,151 1,801 1,080 452 667 1,641 1,708 6.812 8,135 20.155 i 20,741 * Bank for Investment and development of Vietnam 1999 9,512 1,066 1,045 2,686 8,853 23,162 2000 10,244 ! 1,190 1,465 2,701 10,200 25,800 Table 9: Market share about international payment o f banks up to 2000 (%) Year j Bank Vietcombank ! Incombank I BIDV 4.Agnbank i Other bank j Total 1995 66 1% 9.0% 1.9% 5.0% 18.0% 100% 1996 49.8% 7.7% 1% 6% 33.8% 100% j 1997 1998 1999 2000 ! 47.0% 8.9% 2.2% 8.1% 33.8% 100% 44.1% 5.2% 3.2%» 8.2% 39.3% 100% 41% 4.6% 4.6% 11.6% 38.3% 100% 39.7% I 4.6% i 5.7% i 10.4% 39.6% 100% 60 A ppendix B6: List of transaction centre, tier-1, representative offices, subsidiaries and administrative entities o f Agribank (up to June, 2002) No Name A ddress Transaction Centre H anoi City Ha Giang H a Giang Cao Bang Cao Bang Tuyen Quang Tuyen Quang Larm Son Lang Son Lai Chau Lai Chau town Son La Son La town Hoa Binh H oa Binh town Lao Cai Lao Cai town 10 Yen Bai Yen Bai 11 Thai N^uyen Thai Nguyen City Bac Can Bac Can town 12 C ity Ị 13 ! Quang Ninh Ha Long city 14 Vinh Phuc Vinh Yen town 15 Phu Tho Viet T n city 16 Bac Giang Bac Giang town 17 Bac Ninh Bac Ninh town 18 Hai Phong Hai Phong city ! - - ■ -i '* C harter on the organization and operation o f the Vietnam Bank for A sjic u ltu rc and Rural D evelopm ent June 2002 61 19 Ha Tay H a D ong Town 20 Hai Duong Hai Duong Hung Yen Hung Yen town 99 Thai Binh Thai Binh town 23 Nam Dinh N am Dinh city 24 Ha Nam Phu Ly town 25 Ninh Binh N inh Binh town 26 Thanh Hoa Thanh Hoa city 27 Nghe An Nghe Anh citv I Ỉ -^8u Ha Tinh Ha Tinh town 29 Quang Binh Quang Binh town 30 Quang T n Dong Ha town Thua 'rhien Hue Hue city 32 Da Nang Da Nang city 33 Quang Nam Tam Ky town 34 Quang Ngai Quang Ngai town 35 Phu Yen Tuy Hoa town Khanh Hoa Nha Trang city 37 Ninh Thuan Phan Rang - Thap Cham town 38 Binh Thuan Phan Thiet town Gia Lai Plav Ku city 40 K on Turn Kon Turn town 41 Dac Lac Buon Me lliu a t ciự 21 : i 31 ! i ! 36 I - 39 Ị j 62 42 Lam Dong Da Lat city 43 D ong Nai Bien Hoa city 44 Tav Ninh Tav Ninh town 45 Binh Duong Thu Dau Mot town 46 Binh Phuoc Dong Xoai town 47 Ba Ria-Vung Tau Ba Ria town 48 Long An Tan An town 49 D ong Thap Cao Lanh town 50 An Giang Long Xuven town 51 Tien Giang My Tho town 52 Ben Tre Ben Tre town 53 Vmh Long Vinh Long town 54 Tra Vinh Tra Vinh town 55 Can Tho Can Tho cirv ' 56 Soc Trang Soc Trang town 57 Kien Giang Rach Gia town 58 Ca Mau Ca Mau city 59 Bac Lieu Bac Lieu town 60 Binh Dinh Quy N hon city 61 Senculture bank Bao Loc town, Lam Dong Ha Noi Ha Noi city 63 Thang Long Ha Noi city ' 64 Lang Ha I 62 | 24 Lang Ha, Ha Noi c:rv ! 63 65 South Ha Noi Ha Noi cirv 66 North Ha Noi Ha Noi city 67 Soc Son Soc Son town, Ha Noi city 68 Thanh T n Van Dien town, Ha Noi city 69 Gia Lam Sal Dong town, Ha Noi city 70 Dong Anh Dong Anh town, Ha N oi city 71 Tu Liem Cau Dien town, Ha Noi city Sam Son Sam Son town, Thanh Hoa city 50 Ben Chuong Duong District 1, Ho Chi Minh city 74 Bmh Chanh Bmh Chanh, Ho Chi Minh city 75 Hoc Mon Hoc Mon town Ho Chi Minh citv 76 Cu Chi Cu Chi town, Ho Chi Minh city 77 Nha Be Nha Be town, Ho Chi Minh citv 78 ! 79 i 80 Can Gio Can Gio town, Ho Chi Minh city Thu Due Thu Due town Ho Chi Minh city Tan Binh ! : — -» j J ! SI G o Vap Tan Binh district Ho Chi Minh cit\r ' Go Yap district, Ho Chi Minh C1H’ Ị 82 Quan 10 Quan 10 district, Ho Chi Minh city 83 Binh Thanh Binh Thanh district, Ho Chi Minh city ! 84 Mac Thi Buoi District 1, Ho Chi Minh citv 85 Cho Lon District 5, Ho Chi Minh city 86 Quang Trung District 12, Ho Chi Minh cir.’ 64 87 Sai G on District 1, Ho Chi Minh citv 88 Ho Chi Minh Disưict 9, Ho Chi Minhcitv 89 South Sai Gon District 7>Ho Chi Minh ein* 90 East Sai G on District 1, Ho Chi Minh citv A P P E N D IX C 7: A g rib a n k ’s org an izatio n al chart HE AD OFFICE TRANSACTION CENTRE REP RE S EN T A TIV E OFFICES SUBSID IA RIES ADMINISTR ATIVE ENTITIES TIER-II BRANCH T RA N S A CT IO N FIELDS SU B B R A N C H ES _r r SAVJNG FU NDS TIER-1 BRANCH TRANSACTIO N FIELDS SAVING FUNDS L TIER-III B R A N C H SA VIN G FU NDS TRANSACTION FIELDS ( li a r t e r o n th e o rg a n iz a tio n anil o p e tio n o f th e V ie tn a m B a n k for A g ric u ltu re an d R u ral D e v e lo p m e n t: J u n e 0 ... the new foreign currency business operations as the foreign currency credit; foreign projects; international of payment; guarantee; foreign currency mobilization; foreign currency business; and. .. Hanoi g Vietnam Bank for Agriculture and Rural Development 2002 Charter on the organization and operation o f the Vietnam Bank fo r Agriculture and Rural Development Hanoi h State Bank of Vietnam. .. participated in the foreign currency business on the foreign exchange market including: (i) foreign currency business with custom er’s payment demand; (ii) foreign currency business with purposes as foreign