Studying the quality of the fund mobilization activities at commercial bank of vietnam lang son

Cohort 2015 – 2017 MASTER’S THESIS STUDYING THE QUALITY OF THE FUND MOBILIZATION ACTIVITIES AT COMMERCIAL BANK OF VIETNAM- LANG SON AUTHOR: LAI VAN TOAN SUPERVISOR: Dr PHAM THI LIEN Hanoi, June 2017 ACKNOWLEDGEMENT I declare that this master’s thesis is my own research and the data and the material used in this thesis have clear sources and references to all the sources The result of this thesis is honest and derived from the actual situation of the organization In order to complete this master’s thesis I owe many people many thanks for their supporting First, I would like to express my endless thanks and gratefulness to my supervisor Dr Pham Thi Lien Her kindly support and continuous advices went through the process of completion of my thesis Without his assistance, the thesis would have been done effectively So far, I would like to thank all the lectures and staffs of International school – Vietnam National University Hanoi and University de Nantes for their teaching and supporting me to achieve knowledge and experience My special thanks to all staffs and management’s branch of Vietinbank- Lang Son branch; for their kind assistances and support in providing me data and advices to complete the research Finally, I would like to express my special thanks to my parents for their endless love and motivation Thank you! TABLE OF CONTENTS INTRODUCTION CHAPTER 1: THEORETICAL BASIS FOR FOR FUND MOBILIZATION ACTIVITIES OR COMMERCIAL BANKS The concept of commercial banks 1.1 What is a commercial bank? 1.2 Basic operations of commercial banks 1.1.1 Mobilization of fund activities 1.1.2 Lending activity 1.1.3 Investment activities 1.1.4 Other service activities 1.2 Quality of fund mobilization 1.2.1 Definition of quality of fund mobilization 1.2.2 Size of mobilized capital 1.2.2 The growth rate of fund mobilization 1.2.3 Structure of mobilization of fund 1.2.4 Cost of fund mobilization 1.2.5.Other indicators: 10 1.2.6 Ensuring the safety of mobilized fund: 10 1.3 Factors affecting the quality of capital mobilization 11 1.3.1 Objective factors: 11 1.3.2 Subjective factors 12 Chapter II: Assessment of the quality of mobilization fund activities of VietinbankLang Son 14 2.1 General introduction of VietinbankLang Son 14 2.1.1 Overview: 14 2.1.2 Business performance of VietinbankLang Son 15 business activities of Vietinbank Lang Son in the period 2013 - 2016 15 2.2 Fund raising in Vietinbank Lang Son 22 2.2.1 Fund mobilization growth rate 22 2.2.2 Structure of mobilized fund 23 2.2.3 Market share of mobilized fund 27 2.3 Assessing the quality of fund mobilization of Vietinbank Lang Son 28 2.3.1 Result 28 Chapter III: Proposion of solutions to improve the quality of capital Mobilization of Vietinbank Lang Son 36 3.1 Development orientation and orientation of fund mobilization strategy of Vietinbank Lang Son 36 3.2 Solutions to improve the quality of fund mobilization at Vietinbank Lang Son 38 3.2.1 For the objective reasons 38 3.2.2 For the subjective reasons 39 3.2.3 Recommendations to improve the quality of fund mobilization 44 Conclusion 46 List of references: 47 Assessment of Master thesis 49 ABBREVATIONS Vietinbank FM MCR Vietnam Joint Stock Commercial Joint bank for Industry and trade Fund mobilization Mobilization Capital resources LIST OF TABLES Table 2.1 Some major indicators reflect the results of business activities of Vietinbank Lang Son in the period 2013 - 2016 Table 2.2 Growth rate and structure of mobilized fund of Vietinbank Lang Son Table 2.3 Balance of funds in 2015 -2016 Table 2.4 Growth rate and loan structure of Vietinbank Lang Son in the period 2013 - 2016 Table 2.5 Overdue debt and overdue debt ratio at Vietinbank Lang Son in the period 2013 -2016 Table 2.6 International Payment Sales in the period 2013 - 2016 Table 2.7 Data on the share of deposits by currency Table 2.8 The average mobilizing interest rate of Vietinbank Lang Son in the period 2013 -2016 Table 2.9 The average lending interest rate of Vietinbank Lang Son in the period 2013 -2016 Table 2.10 Difference in interest rates on loans and deposits Table 2.11 Relationship between fund mobilization and lending of Vietinbank Lang Son LIST OF FIGURES Figure2.1 Fund growth of Vietinbank Lang Son in the period 2013-2016 Figure 2.2 Scale of capital mobilized by customers Figure 2.3 Mobilized fund according to the deposit period 2013-2016 Figure 2.4 Vietinbank Lang Son’s fund mobilization in 2016 INTRODUCTION The necessity and meaning of the research thesis Commercial banks are a financial intermediary In each country, financial intermediaries are divided differently However, there is always a common point that the role of commercial banks and the contribution of assets and importance to the economy.With that role, the profit is first element for Commercial banks and only tool that helps commercial banks get profit is capital It can be said that the banking and financial market in Vietnam has been strongly fluctuated by the establishment and development of domestic and foreign banking organizations It is the rapid development of the banking system that makes business in the bank more difficult and fierce competition Capital is one of the key factors that determine the competitiveness of the banks The fact has shown that the capital size, professional skills and modern technical means are prerequisites for attracting capital, and large capital sources will create favorable conditions for banks to expand their credit relations with other banks and economic composition in terms of size, volume of credit, initiative in terms of time and interest The result of increasing is to help multifunctional banks in the market, disperse risk, create more capital for banks and then inevitably in the market competitiveness of the bank will increase From the end of 2013 to now, the business situation of Commercial banks have been extremely difficult because of the impact of Vietnam's economy that lead to the loss of liquidity, higher bad debt, high potential loss of capital, professional ethics harm and inconsistent regulations with the growth of the market They are main causes that affected the operation and effectiveness of the banking sector and Vietnam Joint Stock Commercial Joint bank for Industry and trade – Lang Son branch is not exception As a branch, based on the development orientation of the system as well as the annual business plan assigned, the Lang Son branch - Vietnam Joint Stock Commercial Bank for Industry and Trade has developed a business plan for implementation Good business task In particular, the mobilization of capital for the next stage is necessary for Vietinbank Lang Son in the area to survive and develop in accordance with the strategy and direction of the system Coming from the practice of the branch combining with the knowledge learned in the training program Master of Finance – Banking - Insurance (Southeast Asia), combining between the International School - VNU and the University of Nantes, I would like to select the topic "Studying the quality of fund mobilization activities at Vietnam Joint Stock Commercial Bank for Industry and Trade- Lang Son branch" (shorted: Vietinbank Lang Son) "for my graduation thesis Objectives of the study This is an important task to contribute to the development of the strategy for Vietinbank Lang Son Objective 1: Theoretical framework on fund mobilization of commercial banks Objective 2: Assessing the quality of fund mobilization activities of Vietinbank Lang Son Determining the strengths, weaknesses, opportunities and challenges that Vietinbank Lang Son has to face in mobilizing fund Objective 3: Proposing the solutions to improve the quality for fund mobilization of Vietinbank Lang Son Methodology of the study Qualitative method for case study of Vietinbank Lang Son Data: Primary and secondary (from other sources such as journals, banking statements, statistical report, internet ) Method for data collection: Mainly collecting secondary data for research purposes The data is used in the research process such as annual reports, financial statements and business situation review report of the year 2013, 2014, 2015 and 2016 of Vietinbank Lang Son Data analysis: After collecting data were researched and analyzed The results of the analysis will be used to assess the quality of fund mobilization, professionalism of fund mobilization officers, possibilities and opportunities of market access of staff to fund mobilization activities Vietinbank Lang SonOn the basis of the information obtained from the financial reports, the business plan of Vietinbank Lang Son with the competitors in the area Scope of the study Thesis focuses on the analysis of fund mobilization situation of Vietinbank Lang Son from 2013 back, so it can evaluate the quality of fund mobilization at the branch Significance of the study Applied knowledge is learned to have the right solution to increase the amount of capital through fund mobilization activities such as deposit, loan and other operations (trust service, Intermediary payment ) for Vietinbank Lang Son Analyzing and selecting suitable solutions for Vietinbank Lang Son to exploit maximum strength, take advantage of market opportunities (focus resources, the best opportunity) in the capital mobilization A reference situation for other studies 6.Limitationsof the study The topic focused on fund mobilizing at Vietinbank Lang Son; Draw conclusions as well as selective solutions for applying to Vietinbank Lang Son only The structure ofthe study Introduction Chapter I: Theoritical basic for fund mobilization activities for commercial banks Chapter II:Assessment of the quality of fund mobilization activities of Vietinbank Lang Son Chapter III:Proposing the solutions to improve the quality of fund mobilization of Vietinbank Lang Son CHAPTER 1: THEORETICAL BASIS FOR FOR FUND MOBILIZATION ACTIVITIES OR COMMERCIAL BANKS The concept of commercial banks 1.1 What is a commercial bank? A commercial bank is an economic organization that conducts banking activities in the areas of monetary supply, financial services between customers and banks, or vice versa According to the Law on Credit Institutions: commercial banks are credit institutions which are entitled to carry out all banking activities and other related business activities for profit purposes in accordance with the Law on Credit Institutions Use and other provisions of the law (Decree No 59/2009 / ND-CP of the Government on the organization and operation of commercial banks) 1.2 Basic operations of commercial banks Banking activities such as mobilizing capital, lending, discounting, guaranteeing, providing financial services and other related activities 1.1.1 Mobilization of fund activities The business activities of any enterprises must have capital With commercial banks the capital is the entire monetary resources that banks create, mobilize to lend, invest and execute banking services Capital plays a very important role in banking operations Initial capital is the condition for a bank to be permitted to conduct its business in accordance with the law In addition, mobilized capital sources allow the bank to source loans, invest in valuable papers, assets and loans for economic development activities of the country Capital of commercial banks includes: equity, fund mobilized and loans Capital is the capital mobilized from banks and economic organizations In addition, during the operation, the bank also borrowed capital from the State Bank or other credit institutions to ensure liquidity In order to have capital for business activities, commercial banks must mobilize capital Fund mobilization of commercial banks is the use of specific tools, methods, methods and programs to attract the attention of individuals and organizations, and from there to deposit money into banks As a financial intermediary of the economy, fund mobilization plays a very important role for both commercial banks, depositors and the economy Forms of fund mobilization of commercial banks include: fund mobilizing from deposits of economic organizations and individuals throughout the country (including demand deposits, savings deposits, term deposits Mobilizing capital through the issuance of valuable papers, borrowing from other credit institutions, borrowing from the central bank Capital of commercial banks includes Equity and Debt Capital * Equity: Equity accounts for a small share of the bank's total capital, but equity is a legal requirement when starting a bank On the other hand, equity is also considered as a security asset, which creates confidence among customers, maintaining solvency in the case of bank losses * Debt capital and debt mobilization operations: Commercial banks as a major part of the intermediary financial system, receiving idle money or issuing debt instruments such as certificates of deposit, Vote to attract idle capital in the economy Debt capital includes: - Deposit and deposit mobilization: Deposits from customers are important sources of commercial banks Typically, this source accounts for more than 50% of total bank operating capital Based on the purpose of the deposit, can be classified into three types of deposits as belows: + Deposit payment (deposit transactions): These are deposits of businesses or individuals deposited in a bank for banks and payment hold status when required Within the allowable balance, the needs of the business and individual are taken into account by the bank Interest rates on these deposits are very low but account holders can enjoy low-cost banking services + Tenor deposits of enterprises, organizations and social enterprises and social organizations to send a certain amount with a maturity and will be paid after a specified time + Savings deposits of the population: All classes of people have unused temporary savings (savings), which can be deposited in savings accounts in order to achieve the objectives of preservation and profitability His savings Unlike payment deposits, saving deposits are more stable, but higher mobilization and management costs - Deposits from banks, financial institutions, other credit: The commercial banks can deposit money at the bank for the purpose of payment of households - Loans and borrowing activities of commercial banks: These are formed on capital borrowed relations between commercial banks with the Central Bank or the State with other credit institutions 1.1.2 Lending activity Lending is a major activity of commercial banks to finance capital for businesses, individuals and organizations Loans usually account for a large proportion of total assets and provide a major source of income for the bank medium and long term rate of this form of savings is progressively calculated based on the deposit balance - the higher the deposit the higher the interest + Marketing activities are not properly considered, ambitious in both branch offices and transaction offices, not strategic and lack of flexibility in deployment Banks are not interested in promoting brand names, bank products and services in general and products of mobilizing fund in particular with different forms such as giving gifts to customers who deposit money, cards for supermarket, inviting customers to participate in the prize with many high values, sponsoring for the Festival and fairs, advertising on television, newspapers, leaflets, banners + The bank has not promoted the efficiency of the wide network: Vietinbank Lang Son has a large branch network, the second largest in Lang Son Province +In addition, fund mobilization activities are also facing increasing competition from joint stock commercial banks due to the policy of expanding the network, such as Sacombank, Asia Commercial Bank, East Asia Beside the traditional network system, banks are also stepping up the development of modern distribution channels such as ATM, Internet Banking, Phone-Banking to create cross links between products and services to keep and attract new customers The banks leading in this field are Foreign Trade Bank, Asia Commercial Bank + Banking technology has many shortcomings, which does not meet the professional requirements: Technology system of Vietinbank Lang Son is still quite inadequate: INCAS program has been deployed in most of the system, however, the program is not complete, there are many inadequacies Many new forms of mobilization can not be applied because the program can not be developed or has to wait for the second phase + Human resources, especially in fund mobilization, lack of expertise and necessary communication skills in the market mechanism Despite great efforts in human resource policy such as: strengthening new recruitment, training and retraining professional skills for staff Human resources is still a big problem for Vietinbank Lang Son especially the officials who are involved in fundmobilization The traditional policy of Vietinbank Lang Son is to bring out the weakest specialists, the oldest one to work in the savings fund, while the savings fund system is the main source of deposits of banks With this staff, in addition to weak expertise, the ability to consult clients is very limited, inflexible in communication, and much affected by the behavior formed in the former beurocracy mechanism 35 Chapter III: Proposion of solutions to improve the quality of capital Mobilization of Vietinbank Lang Son In comercial banks, fund mobilization and the use of capital are the two main activities that determine the existence and development of the bank Mobilizationis a precondition for the use of fund It is the decisive factor to the profitability of bank, if the business use the fund effectively, it has a positive impact on the bank's fund mobilization Through the analysis of the actual situation of fund mobilization at the Branch of Vietnam Joint Stock Commercial Bank - Lang Son Branch achieved much success, contributing to meet the capital needs for production and business, serving the economic development of the city But the target of the branch in the coming time is to continue to increase mobilized fund and expand credit operations 3.1 Development orientation and orientation of fund mobilization strategy of Vietinbank Lang Son Vietinbank Lang Son strives to become a modern bank, one of the best banks in the province, capable of providing modern banking services to meet the needs of users Service, in accordance with international practice With the motto "Development, safety, sustainable efficiency for the prosperity of customers and the community", Vietinbank Lang Son with business strategy to 2020 become a versatile, modern and active bank Effective on the fields of banking, accordingly, Vietinbank Lang Son builds the following specific strategy with the following contents: - Maintaining and consolidatingits position as one of the top three leading banks in Vietnam, implement leading banking strategy in retail banking with low cost and highquality - Building Vietinbank Lang Son as amodern and multi-functional bank; enhancing the financial capacity, modernizing the banking techniques and technology - Reforming the model of business organization to be come a modern comercial bankmodel with aneat and efficient apparatus; training and developing human resources to have resources to meet immediate and long-term needs - Improving the quality and diversification of products and services in the direction of improving and perfecting traditional products, researching and developing new services, expanding existing markets and potential markets 36 -The financial and operational objectives from 2015 to 2020 of Vietinbank Lang Son as follows: Targets 2015 2020 Capital adequacy ratio CAR 6% 8% Ratio of Income After Tax / Asset (ROA) 1% 1% 10 - 13% 13 - 15% 20% 15% 75 - 80% 65 - 70% Overdue debt / Total outstanding loans ratio 5% 3% Liability / Asset 10%