Summary of economic doctoral thesis: Investment in enhancing competitive capacity at joint stock commercial bank for foreign trade of Vietnam

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Research objectives: Developing and systemizing the theoretical issues in terms of investment in enhancing competitive capacity at commercial banks; through theory and practice, confirming a extremely critical role of investment in enhancing competitive capacity for development of them in general and VCB in particularly. Depending on each period, development strategy, competition strategy and characteristics, banks implement appropriate investments; finding out the solutions for investment inenhancing competitive capacity to bring the highest effect to VCB.

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Nội dung Text: Summary of economic doctoral thesis: Investment in enhancing competitive capacity at joint stock commercial bank for foreign trade of Vietnam

1 MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMIC UNIVERSITY Do Thi To Quyen INVESTMENT IN ENHANCING COMPETITIVE CAPACITY AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM Speciality: Development Economics (Investment Economics) Code: 62.31.05.01 SUMMARY OF ECONOMIC DOCTORAL THESIS Hanoi, 2014
2 This work has been completed at: National Economic University. Instructor: 1. Prof. Dr Tran Tho Dat 2. Asso.Prof.Dr Nguyen Bach Nguyet Judge 1: Asso.Prof.Dr Dao Van Hung Judge 2: Asso.Prof.Dr Trinh Thi Mai Hoa Judge 3: Dr Le Thanh Tam The Thesis shall be defended in front of the State level Thesis Assessment Council held at: National Economic University, No. 207 Giai Phong, Hai Ba Trung, Ha Noi At on The Thesis can be found in the library of:
3 PREFACE 1. The imperativeness of the Subject The effectiveness and stability in the system of commercial banks in Vietnam are under immense pressure after going through the economic recession. At the same time, they have to face increasing greater challenges in the open financial market. Therefore, the competitive capacity of domestic commercial banks should be re- evaluated carefully from both theoretical and practical aspects. Joint Stock Commercial Bank for Foreign Trade of Viet Nam (VCB) is one of the major banks and holds significant market shares in key products, but it still have to compete intensely against others and is at risk of a decline in market shares. Hence, enhancing its competitive capacity is an urgent requirement for VCB. The solutions often proposed to raise the competitive capacity for VCB are building a business plan, developing the financial potential, modernizing technology, diversifying products, and enhancing customer service quality, boosting promotional campaigns and branding… However, these solutions need investment to be carried out. Therefore, investing in enhancing competitive capacity is considered the basic and essential task for VCB. The issue arising to VCB is how to build the investment strategy, mobilize and allocate capital into the appropriate assets and fields… to bring the most probable effects to VCB’s competitive capacity. VCB, the pioneer in the banking system as well as a typical bank that not only represents the state-owned bank but also carries new features of a joint stock bank, is an adequate and active example to do research on the issue of investing to enhance the competitive capacity. For this reason, I choose the subject of “Investment in enhancing competitive capacity at Joint Stock Commercial Bank for Foreign Trade of Vietnam” for my doctoral thesis. 2. Overview In recent times, there have been many researches on the issue of competition and competitive capacity of commercial banks in Vietnam, such as: Home researches: “Competitive capacity of commercial banks on the trend of integration” of Nguyễn Thị Quy, economic doctoral thesis “Solutions for commercial banks to enhance their competitive capacity and integrate by 2010” of Trịnh Quốc Trung, economic doctoral thesis “Solutions for commercial banks in Vietnam to enhance their competitive capacity in the context of global economic integration” of Lê Đình Hạc, doctoral thesis “Competitive capacity enhancement of commercial joint stock banks in Ho Chi Minh City in the context of integration” of Đoàn Đỉnh Lam… Those researches only focus on describing and evaluating factors in competitive capacity. However, the origin of those factors were not analysed and quantified specifically and scientifically. Those researches, thus, do not point out the role of
4 investment in enhancing the banks’ competitive capacity but just indirectly mention it while investment is the origin of many factors in competitive capacity. Foreign researches: The research of Professor Michael Poter is outstanding one about competitive capacity. It can be applied to all levels and sectors. However, his research is highly level. It should have flexible uses when applying to a certain subject and role of investment has not also been studied directly in his research. Therefore, this thesis focuses on investment in enhancing banks’ competitive capacity. It includes analysis and evaluation investment in enhancing bank’s competitive capacity through specific and typical figures of VCB, building the criteria for result and effect evaluation of these operations, proposal of the solutions for investment in enhancing competitive capacity to bring the hightest effect to VCB. 3. Research objectives - Developing and systemizing the theoretical issues in terms of investment in enhancing competitive capacity at commercial banks . - Through theory and practice, confirming a extremely critical role of investment in enhancing competitive capacity for development of them in general and VCB in particularly. Depending on each period, development strategy, competition strategy and characteristics, banks implement appropriate investments. - Finding out the solutions for investment inenhancing competitive capacity to bring the highest effect to VCB. 4. Research subjects and scope The research subjects are investment in enhancing VCB’s competitive capacity, results and effects gained from these operations. The research scope is investment in enhancing VCB’s competitive capacity in the last period (mainly 2005-2012). 5. Method for research Many scientific methods including analysis, synthesis, comparison, statistics, mathematics, logical deduction, etc. are applied in this thesis. In addition, the thesis combines description and analysis of the actual data to evaluate investment in enhancing VCB’s competitive capacityin the quantitative and qualitative manner. 6. New scientific contributions of the thesis - In theories: The thesis develops theoretical issues regarding to investment in enhancing banks’ competitive capacity systematically. Concepts, characteristics, roles, influencing factors of these operations are associated with characteristics of commercial banks. The thesis shows that operations of investment in enhancing banks’ competitive capacity depends on competition strategy, competitive tool the bank uses at each period. For this reason, competition strategy also influences capital mobilization and structure of capital. For purpose of showing close relationship between investment and banks’ competitive capacity at the same time evaluating effect of these operations, the thesis builds process of investment in enhancing banks’ competitive capacity, critera for results and effects of investment in enhancing banks’
5 competitive capacity, including direct and indirect criteria, qualitative and quantitative criteria. - In practice: The actual situation of investment in enhancing competitive capacity at VCB is summarized and assessed by applying theories and practice on multiple angles. With the current characteristics, competitive position, the thesis points out that investment in enhancing VCB’s competitive capacity should attach special importance to improvement of technology, human resource and development brand and sales promotion. In the last time, structure of investment in enhancing competitive capacity at VCB was not irrational because investment has not been made right in the main points. The mobilization of capital with methods in accordance with VCB, management and supervision investment on the process, strategies also are the critical factors. By calculating criteria, the thesis shows that investment in VCB’s competitive capacity makes a positive impact on competitive capacity; but there still exists some limitations. Based on analysis of limitations, causes, the thesis puts forward the practical solutions to promote effect of investment in enhancing VCB’s competitive capacity. 7. Structure of the thesis Besides introduction, conclusion, the thesis consists of the following three chapters: Chapter 1: Basic contents of investment in enhancing competitive capacity at commercial banks. Chapter 2: The actual situation of investment in enhancing competitive capacity at Joint Stock Commercial Bank for Foreign Trade of Viet Nam. Chapter 3: Some solution of improving investment in enhancing competitive capacity at Joint Stock Commercial Bank for Foreign Trade of Viet Nam. CHAPTER 1: BASIC CONTENTS OF INVESTMENT IN ENHANCING COMPETITIVE CAPACITY AT COMMERCIAL BANKS 1.1. Competition and competitive capacity of commercial banks 1.1.1. Overview of the commercial banks 1.1.1.1. Concept and functions of commercial banks The commercial bank is financial institution that provides a list of the most diverse financial services, especially credits, savings, payment services and its business is for profit. The commercia bank plays an important role for economy because it has the following three basic functions: financial intermediaries, creating the means of payment, payment intermediaries. 1.1.1.2. Activities of commercial banks The commercial bank is a firm that provides a list of financial services to individuals and organizations. Thus, besides specific activities of a bank, the
6 commercial bank is also a firm with full normal activities like other firms, including investment in improving competitive capacity. 1.1.2. Theories of competition and competitive capacity of commercial banks 1.1.2.1. Concept of competition and competitive capacity of commercial banks There are many concepts of competition and competitive capacity in the different ranges, different angles. In my opinion, competition between banks is that the banks create and utilize the comparative advantages of supplying product and service in the same business environment to achieve the specific targets such as profits, sales or market share, enhance its position on the market in comparison with other banks. Bank’s competitive capacity is capacity the bank creates, maintains and continuously enhances its advantages to gain higher level of product and service quality than average level and/or have ability to reduce the relative costs, allowing the bank to increase profits, market share and ensuring its operations safely, healthily. Competition between banks carries many specific characteristics because the banks operate in financial services field which is sensitive and requires high stability, transparency: competing within cooperation; competing healthily; competing within the framework, regulation and supervision of the state bank through policies each period; competing under many diverse and sophisticated forms. 1.1.2.2. Competitive tools in banking Depending on business characteristics, competition strategy in each period and current competitive capacity, the bank selects the following competition tools: competition on prices; competition on products; competition on distribution system; competition on brand; competition on sales promotion programs. 1.1.2.3. Critera of commercial bank’s competitive capacity - Criteria for financial capability: scale of charter capital, equity, total assets, profit after tax, return on total assets (ROA), return on equity (ROE), capital adequacy ratio (CAR), non-performing loan ratio. - Criteria for operational capacity: sales, quality and market share of the products; ability to develop products and services. - Governance capacity: governance levels and monitoring capabilities of the board; response capability of the operating mechanism for market movements; quality and validity of implementing business policies and processes, processes of risk management, internal control; organizational structure; level of coordination between divisions and capability of adaptability, change of structure. - Technological capability: technological innovation ability; the level of meeting technology in supporting development of product, distribution channels, management, etc. - Staff capacity: scale, qualifications, number of trained personnel; professionalism, service attitude; rationality and effect of the labor structure.
7 - The capacity of the distribution channel system: a number of transaction points; distribution; the reasonableness of the distribution channel. 1.2. Investment in enhancing competitive capacity at the commercial banks 1.2.1. Concept and role Investment in enhancing competitive capacity at the commercial banks is that the bank uses the current resources (money and other sources) to continuously enhance the competitive advantages to achieve higher level of product and service quality than average level and/or have ability to reduce the relative costs, allowing the bank to increase profits, market share, ensuring safety, health in its operations. Investment in enhancing competitive capacity plays a vital role for each bank, helps the bank have competitive capacity and ability to win when competing through impacts improving the basic factors such as financial resources, operational capacity, technological capability, governance capacity, etc. 1.2.2. Characteristics - Using a large amount of capital. - Usually taking place because bank’s positions and competitive environment are changeable. - Including many operations but requiring a reasonable structure, depending on competition strategies. - Being influenced by external factors. - Taking place as process. 1.2.3. Operations of investment in enhancing competitive capacity at the commercial banks Depending on competition strategies, competition tools at each period, investment in enhancing competitive capacity may include the following operations : Investment in infrastructure development; Investment in technology improvement; Investment in human resource qualification improvement; Investment in development brand and sale promotion. 1.2.4. Investing capital for enhancing competitive capacity at commercial banks Equity consists of: initial capital, capital formed during business such as retained earnings, funds, etc. 1.2.5. Model and process of investment in enhancing competitive capacity at the commercial banks The model expresses close relationship, continuous interaction between competitive position of the bank and investment in enhancing competitive capacity. From this competitive position, through establishment of competitive strategy, the bank will identify capital scale and make capital allocation as target. Conversely, investment in enhancing competitive capacity makes decision of competitive position
8 of the bank which is result and effect of investment in enhancing competitive capacity . This relationship is ongoing because of changeable position of the bank and a process with repetitive steps including: Step 1: Assessing the competition situation. Step 2: Building competitive strategies, strategies and plans for investment in enhancing competitive capacity. Step 3: Performing investment. Step 4: Assessing the results and effects of investment in enhancing competitive capacity. 1.2.6. Criteria for result and effect of investment in enhancing competitive capacity at commercial banks 1.2.6.1. Criteria for result Depending on the targets of investment in enhancing competitive capacity at each period, the appropriate criteria in the following system will be used when assessing the results: (1) Group of criteria reflecting direct results: Criterion 1: Annual increase in trained staffs (∆ĐT) ∆ĐT = ĐTi – ĐTi-1 (1.6) Criterion 2: Changes in staff structure on qualifications Criterion (1) and (2) reflect changes in staff capacity. Criterion 3: Annual increase in number of transaction points (∆ĐGD) ∆ĐGD = ĐGDi – ĐGDi-1 (1.7) Criterion 4: Annual increase in number of automatic transaction points (ATM and POS) (∆ĐGDTĐ) ∆ĐGDTĐ = ĐGDTĐi – ĐGDTĐi-1 (1.8) (2) Criteria reflecting indirect results: Criterion 1: Annual increase in charter capital (∆VĐL) ∆VĐL = VĐLi – VĐLi-1 (1.9) Criterion 2: Annual increase in equity (∆VCSH) ∆VCSH = VCSHi - VCSHi-1 (1.10) Criterion 3: Annual increase in total assets (∆TTS) ∆TTS = TTSi – TTSi-1 (1.11) Criterion 4: Annual increase in profit after tax (∆LNST) ∆LNST = LNSTi – LNSTi-1 (1.12) Criterion 5: Annual increase in profitability ratios ∆ROA = ROAi – ROAi-1 và ∆ ROE = ROEi – ROEi-1 (1.13)
9 Criterion 6: Changes of capital adequacy ratio (∆CAR) ∆ CAR = CARi – CARi-1 (1.14) Criterion 7: Changes of asset quality (∆TLNX) ∆ TLNX = TLNXi – TLNXi-1 (1.15) Criterion 8: Changes of annual sales of main products (∆DS) ∆DS = DSi – DSi-1 (1.16) Criterion 9: Changes of annual market share of the main products (∆TP) ∆TP = TPi – TPi-1 (1.17) Criterion 10: Changes of income structure from business operations of the bank. (3) Group of qualitative assessment includes: Changes of technological capability; changes of governance capacity; changes of service quality. 1.2.6.2. Criteria for effect Criterion 1: Increased sales compared with investment capital (∆DS/Iv) ∆DS/Iv = (DSi – DSi-1)/ Ivi (1.18) Criterion 2: Increased market share compared with investment capital (∆TP/Iv) ∆TP/Iv = (TPi – TPi-1)/ Ivi (1.19) Criterion 3: Increased profit compared with investment capital (∆LN/Iv) ∆LN/Iv = (LNi – LNi-1) / Ivi (1.20) 1.3. Factors influence on investment in enhancing competitive capacity at commercial banks - Competitive strategies of the bank, - Resources of the bank, - Management level and experience of the leaders, - Corporate culture and awareness of staffs, - Policies and regulations of the State, - Overall development of national society and economy, - Level of competition and strategies of competing banks, - Openness of financial markets. Identifying influencing factors enables the bank to control investments avoid passive investment with ill effect or violation of the policy, guidelines of the State on its own initiative. 1.4. Experiences of investment in enhancing competitive capacity of Banks of China, Malaysia and lessons for Vietnam commercial banks Lessons learned from experience of the banks of China, Malaysia are:
10 - Improving capital mobilization for investment through effective channels such as: equitization, stock issuance, bond issuance into international markets. - Having strategies sticking closely on market, being flexible, not avoiding competition. - Powerfully investing in human resource and technology that is a bottom line to compete with foreign banks. Investing in the staffs to limit brain drain and increase quality of customer service. Investing in technology and scientific researches to develop modern banking services, wait in front of market. CHAPTER 2: SITUATION OF INVESTMENT IN ENHANCING COMPETITIVE CAPACITY AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM 2.1. The needs of investment in enhancing VCB’s competitive capacity 2.1.1. Overview of VCB Through 50 years of operation, VCB is considered as a reputable bank in Vietnam in sectors of forex trading, import and export payment and other banking and financial services. On basis of standing position of a wholesale bank and promoting retail operations, VCB has transferred from a wholesale bank into a universal bank. VCB, an equitized state-owned commercial bank, makes application of operating model and organizational structure towards separating retail and wholesale business from policy department, customer department, management and supervision department. The business operation result of VCB is satisfactory in the last time, and VCB is one of the most profitable banks. 2.1.2. Characteristics of VCB influencing on investment in enhancing competitive capacity 2.1.2.1. Characteristics of models and organization: In spite of being a joint- stock bank, the State is still a controlling shareholder holds more than 77% shares, which influences orientation, competing objectives, competitive tools, etc; VCB is owned by many shareholders including strategic shareholders, so there should be unity and harmony in interests of the parties for investment decisions; VCB is a large bank with network across the country, which requires consideration of regional factors, geographical location when investing. 2.1.2.2. Characteristics of business operations: VCB has changed significantly through many periods. From a specialized bank, VCB transferred to multi-state commercial banks and then to commercial joint stock banks and occupied monopoly position in long time. In addition, VCB is a traditional bank with strengths in the sectors of wholesale, has good relationships with many partners, international organizations; however, its retail sector has not had many strengths. 2.1.2.3. Characteristics of competitive position
11 Two competitive tools VCB utilizes effectively consist of product quality and price. However, other competitive tools such as distribution channels, brand, sales promotion, and promotion have not been effectively untapped. (1) Financial Capability: In spite of being one of the four most large-scale banks on capital and total assets and fairly high business efficiency, financial resource of the VCB has still been limited in comparison with other banks in the same region. (2) Operational Capacity: VCB is strong in traditional sectors, wholesales but its market share tends to decrease. For other retail operations, VCB is under stiff competition with joint-stock banks. (3) Governance capacity of the VCB has not kept up with the requirements of modern banking. (4) Technological capability: Although VCB has still improved its technology, it has not met requirements of product development and management in the current competitive conditions. (5) Staff capacity: Human resource capacity of VCB is judged to be of high quality, but it has been beyond international standards, professional business etiquette. (6) Distribution system capacity: In spite of fairly large traditional distribution channels, modern distribution channels has not been untapped in the maximum and effective manners. Considering brand strength index, competition matrix through assessment of experts shows that leading position of VCB is under threat and fierce competition with several large banks and its many sectors decrease competitiveness. Competitive strategies VCB is pursuing are: consolidating its position of traditional business sectors, at the same time promoting retail services; improving of product quality competitive tools, at the same time promoting use of competitive tools through brand, promoting sales. The key point to enhance competitive capacity is that VCB must invest in technology as a basis for diversifying the product, improving features and utility of the product and investing in staff qualification improvement, brand development, sales promotion. 2.2. The situation of investment in enhancing competitive capacity at VCB 2.2.1. Process Investment in enhancing competitive capacity at VCB is managed, monitored quite closely through mechanisms, decentralized administration and ensures rational process. 2.2.2. Investing capital Large amount of investment capital was spent for investment in enhancing competitive capacity. In general, this amount tends to increase over years because VCB is focusing on technology investment and branch network expansion.
12 Table 2.1: Capital for investment in enhancing competitive capacity at VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 1.Iv for technology improvement 337.98 277.00 351.60 270.90 392.30 252.50 528.80 594.10 (billion VND) Density (%) 67.90 54.59 66.06 60.60 51.58 24.30 21.99 25.79 2.Iv for brand development and sales 21.41 26.85 31.15 35.52 30.34 33.00 41.95 68.00 promotion (billion VND) Density (%) 4.30 5.29 5.85 7.95 3.99 3.18 1.74 2.95 3.Iv for staff qualification 4.87 5.01 7.81 3.43 13.89 14.01 17.15 22 improvement (billion VND) Density (%) 0.98 0.99 1.47 1.44 1.83 1.35 0.71 0.95 4. Iv for infrastructure development 133.5 198.6 141.7 134.2 324 739.6 1,816.8 1,619.9 (billion VND) Density (%) 26.82 39.14 26.62 30.02 42.60 71.18 75.55 70.31 Total Iv (billion VND) 497.76 507.46 532.26 447.05 760.53 1,039.11 2,404.70 2,304.00 Growth (%) - 1.95 4.89 -16.01 70.12 36.63 131.42 -4.19 (Source: Annual report of VCB in 2005 – 2012) Investment capital was allocated in four operations in which the highest density is investment capital for technology improvement, mainly machinery and equipment. The density of investment development brand and sales promotions, staff qualification improvement are small; investment in infrastructure development are relatively large. Investment capital of enhancing competitive capacity at VCB was primarily mobilized from equity, supplemented from retained earnings, funds, issuance of convertible bonds in 2006, mobilized capital from equitization in 2007, etc. 2.2.3. Operations of investment in enhancing competitive capacity The critical objectives of VCB in competing include: diversification and improvement of product quality, products and services features towards focusing on wholesale sector, at the same time development of modern retail services; promotion of the brand and image position, transformation of sales promotion into provided invaluable support tool for competition. For these reasons, VCB should focus on technology improvement; staff training in a basical manner; development brand and sales promotion. (1) Investment in improvement technology Investment capital for technology was carried out on foundation of approved technology projects, needs for purchasing machinery and equipment for the whole system.
13 Table 2.2: Capital for Investment in improvement technology at VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 1. Iv for machinery and equipment 331.00 243.20 303.90 269.30 372.00 189.00 424.60 477.10 (billion VND) - Growth (%) -26.53 24.96 -11.39 38.14 -49.19 124.66 12.36 - Density (%) 97.93 87.80 86.43 99.41 94.83 74.85 80.30 80.31 2. Iv for software 6.98 33.80 47.70 1.60 20.30 63.50 104.20 117.00 (billion VND) - Growth (%) 384.24 41.12 -96.65 1168.75 212.81 64.09 12.28 - Density (%) 2.07 12.20 13.57 0.59 5.17 25.15 19.70 19.69 3. Total Iv for Technology 337.98 277.00 351.60 270.90 392.30 252.50 528.80 594.10 (billion VND) Tăng trưởng (%) -18.04 26.93 -22.95 44.81 -35.64 109.43 12.35 (Source: Annual report of VCB in 2005 – 2012) Annually, VCB spent around $ 20 million of capital which is relatively large amount in comparison with other commercial banks, for hardware and technology solutions. However, investment capital for technology was very small in total investment and development capital of the VCB. Investment structure on technology components still had a lot of irrationality, especially investment capital for machinery and equipment accounted large density (over 80%) while for software solutions was low. For software technology, VCB attached special importance to deep investment towards: centralizing the handling operation systems; developing application programs to provide new products on basis of modern technology such as ebank, internet banking, SMS banking, be in online connection with securities companies, provide payment services for e-commerce transactions; modernizing technology for some subsidiaries. Besides that, solutions and systems of supporting Bank administration such as human resource management, financial management and establishment of reserve center were also considered to invest. (2) Investment in development Brand and Sales promotion Investment in development Brand and Sales promotion includes many varied activities, belongs to an overall project and are closely connected. The development of products that is suitable for the needs and gains a solid position on the market is an important method to build the brand. Besides that, to invest in brand development also consists of activities to be invested towards professionalization, specialization. Investment capital tended to significant increase from 2007 (see Table 2.1) because VCB carried out equitization and started to operate on model of a joint-stock corporate, which led to implementation of activities to develop its images, innovate system of brand identity, and enhance foreign affairs. Promotional activities were
14 carried out synchronously and uniformly throughout the system. In addition, VCB establised and carried out system of VCB cultural standards. Moreover, VCB was also interested in organizing activities of approaching individual customers and businesses, offering products in a increasingly professional and effective process, exploiting of customer data to approach customers and to provide the products to meet the right demands. Besides that, promotional activities, gifts, customer policy were performed increasingly to attract new customers and remain old customers. However, these investment operations at VCB have not really held a proper position, and its professionalism and synchronization have not met requirements of a large and modern bank. (3) Investment in improvement of staff qualification VCB attaches special importance to invest in training and fostering staffs. Training costs for improving staff qualification at VBC as a whole increased over the years (see Table 2.1). Investment in training and improving staff qualification consisted of organizing home and foreign courses about banking operations, foreign language, operations expanded or related which are long-term or short-term; organization of study tours in foreign banks; organization of seminars, conferences about operations. VCB has established a Training Center that is responsible for implementation of training operations since 2006. The Training Center launched helps to make activities serving staff training professionally and methodically. (4) Investment in Infrastructure Investing in infrastructure made an impact on competitive capacity of VCB by building distribution system, facilities, working conditions for staff, supporting transactions, contributing in building its image, appearance of the bank. Table 2.6: Capital for investment in infrastructure at VCB Unit: billion VND Year 2005 2006 2007 2008 2009 2010 2011 2012 Purchasing house and architectural items, Land 25.30 101.50 27.80 26.20 39.70 214.00 807.30 912.60 use right Purchasing Fixed Asset 18.00 17.50 28.90 25.30 56.50 40.20 72.20 67.4 Fundamental building 90.20 79.60 85.00 82.70 227.80 485.40 937.30 639.90 Total 133.5 198.6 141.7 134.2 324 739.6 1,816.8 1,619.9 Growth (%) - 48.76 -28.65 -5.29 141.43 128.27 145.65 -10.84 (Source: Annual report of VCB in 2005 – 2012) Investment in infrastructure as a whole increased annually, particularly from 2010, which is because VCB significantly invested in purchasing, building headquarter and expanding its branches. For infrastructure investment, items that accounted a large density was items of fundamental building and purchasing house
15 and architectural (including land use rights). This was the valuable items that was usually present in long-term plans of the bank and was associated with network development plan. In the last years, these investment confirmed role of supporting, created facilities, infrastructure foundation to meet increasing demands and requirements of works, impacted on competition capacity of VCB positively. 2.3. Assessment of the situation of investment in enhancing competitve capacity at VCB 2.3.1. Criteria for result of investment in enhancing competitve capacity In the last time, investment in enhancing competitive capacity at VCB have aimed at the following contents: improving technology in concentrating and modern direction; methodically improving human resource qualification; developing the brand, developing measures of sales promotion modernly and professionaly. Thus, the results of investment in enhancing competitive capacity will be reflected through the criteria: Criterion Annual increase in a number of trained staffs (∆ĐT) Table 2.7: Annual increase in a number of trained staffs at VCB Unit: person Year 2005 2006 2007 2008 2009 2010 2011 2012 Annual number of 1,976 2,096 2,714 2,930 3,129 3,560 5,000 5,800 trained staffs (Source: Annual report of VCB in 2005 – 2012) Besides the direct results, investment in enhancing competitive capacity at VCB improve important financial indicators through positive impact on product quality, consolidation of brand advantages, effective application of sales promotion tools. Table 2.8: Criteria reflecting indirect results of investment in enhancing competitive capacity impacted on financial capability of VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 Unit 1. Authorized 4,279 4,357 4,429 12,101 12,101 13,224 19,698 23,174 Capital Increase in Authorized capital 73 78 72 7,672 0 1,123 6,474 3,476 (∆VĐL) Billi 2. Equity 8,416 11,228 13,528 13,945 16,710 20,669 28,639 41,553 on Increase in Equity VND 1,236 2,812 2,300 417 2,765 3,959 7,970 12,914 (∆VCSH) 3. Total Essets 136,456 167,128 197,363 222,090 255,496 307,496 366,722 414,475 Increase in total 15,026 30,672 30,235 24,727 33,406 52,000 59,101 47,753 assets(∆TTS) 4. Profit after tax 1,293 2,861 2,390 2,728 3,945 4,236 4,217 4,427
16 Increase in profit 189 1,568 -471 338 1,217 291 -19 210 after tax (∆LNST) 5.1. Return on 1.01 1.88 1.31 1.29 1.64 1.50 1.25 1.13 Asset ROA Increase in ROA 0.87 -0.57 -0.02 0.35 -0.14 -0.25 -0.12 (∆ROA) 5.2. Return on 16.54 29.11 19.23 19.74 25.58 22.55 17.08 12.61 Equity ROE Increase in ROE 12.57 -9.88 0.51 5.84 -3.03 -5.47 -4.47 (∆ROE) % 6. Capital Adequacy ratio 9.50 9.30 9.20 8.90 8.11 9.00 11.14 14.83 CAR Change in CAR -0.2 -0.1 -0.3 -0.79 0.89 2.14 3.69 (∆CAR) 7. Non-performing 3.40 2.70 3.87 4.61 2.47 2.83 2.03 2.4 loan ratio (NPL) Change in NPL -0.70 1.17 0.74 -1.14 0.36 -0.8 0.37 (∆NPL) (Source: Annual report of VCB in 2005 – 2012) Investment in enhancing competitive capacity as a whole make a fairly positive impact on financial targets of VCB. Investment in enhancing competitive capacity influence operational capacity of VCB. With increasingly diverse products, quality, brand reputation and widely deployed sales promotion, VCB’s sales and market share of products had many positive changes shown at the criteria: Table 2.10: Changes in annual sales of the main product of VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 1. The balance of capital mobilization 108,313 120,695 144,810 159,989 169,457 208,320 241,700 303,942 (billion VND) Additional balance of capital mobilization -1,829 12,382 24,115 15,179 9,468 38,863 33,380 62,242 (billion VND) 2. Loan balance 61,043 67,743 97,631 112,793 141,621 176,814 209,418 241,163 (billion VND) Additional loan balance (billion 7,439 6,700 29,888 15,162 28,828 35,193 32,604 31,745 VND) 3. Import-export payment turnover 21.00 22.80 26.30 32.50 25.62 31.00 38.8 38.81 (billion USD)
17 Additional import- export payment 4.58 1.80 3.50 6.20 -6.88 5.38 7.80 0.01 turnover (tỷ USD) 4. Turnover of foreign currency 24.00 30.20 26.10 46.00 39.42 35.20 34.5 24.1 trading (billion USD) Additional turnover of foreign currency 6.20 -4.10 19.90 -6.58 -4.22 -0.70 -10.40 trading (billion USD) 5. Issued cards (unit) 887,153 912,673 868,711 966,244 1,104,002 1,110,000 1,180,000 Additional issued 23,567 25,520 -43,962 97,533 137,758 5,998 70,000 cards (unit) 6. Turnover of international payment 386.3 452.7 642.63 567 741 1,000 1,200 cards (million USD) Additional of turnover of 66.4 189.93 -75.63 174 259 200 international payment cards (million USD) 7. Registered-SMS Banking customers 5,000 73,000 128,794 230,745 338,308 507,059 672,442 (person) Additional registered 68,000 55,794 101,951 107,563 168,751 165,383 customers (person) 8. Registered- Internet Banking 30,500 52,000 54,711 113,370 121,511 205,626 293,183 customers (person) Additional registered 21,500 2,711 58,659 8,141 84,115 87,557 customers (person) (Source: Annual report of VCB in 2004 – 2012) Table 2.11: Changes in annual market share of the main product of VCB Unit: % Year 2005 2006 2007 2008 2009 2010 2011 2012 1. Market share of 9.89 9.12 8.4 8.25 8.3 8.33 8.54 capital mobilization Additional market -0.77 -0.72 -0.15 0.05 0.03 0.21 shares 2. Market share of 9.8 9.1 8.9 8.5 8.11 8.1 8.84 credit Additional market -0.70 -0.20 -0.40 -0.39 -0.01 0.74
18 shares 3. Market share of import and export 30.00 27.00 24.10 22.70 20.40 20.00 19.2 17 payment Additional market -3.00 -2.90 -1.40 -2.30 -0.40 -0.80 -2.20 shares 4. Market share of 29.67 27.50 25.00 21.00 25.00 24.00 24.00 debit card issuance Additional market -2.17 -2.50 -4.00 4.00 -1.00 0 shares 5. Market share of international credit 23.12 19.30 32.00 30 29 28 30 card issuance Additional market -3.82 12.70 -2.00 -1.00 -1.00 2.00 shares 6. Market share of international 69.90 57.60 59.70 53.00 50.00 51.00 53.00 payment cards Additional market -12.30 2.10 -6.70 -3.00 1.00 2.00 shares 7. Market share of 29.00 26.00 19.80 16.00 14.00 14.20 14.70 ATM Additional market -3.00 -6.20 -3.80 -2.00 0.20 0.50 shares (Source: Annual report of VCB in 2004 – 2012) In general, impact of investment in enhancing competitive capacity at VCB increased turnover of the main products (excluding foreign currency trading), but the market share tended to decrease or little change. Table 2.12: Income structure of VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 Interest income (%) 77.25 72.17 65.51 74.07 69.98 71.05 83.00 73.00 Non-interest income (%) 22.75 27.83 34.49 25.93 30.02 28.95 17.00 27.00 (Source: Annual report of VCB in 2005 – 2012) Under the impact of investment in enhancing competitive capacity which made product diversification, in the recent years, there was a positive change in income structure of VCB towards increase in the proportion of non-interest income to meet target of diversifying income sources. Besides quantitative criteria, the results of investment in enhancing competitive capacity were reflected over qualitative assessments:
19 (1) Changes of technological capability: Technology foundation of the VCB was strengthened and developed. VCB was built a Informatics Center with IT staffs from headquarters and branches; transactions were processed in the automatical and online direction; many new technology projects carried out supported operations and management positively. (2) Changes of governance capacity: Managing business operations was in active nature and close to market movements. Along with the business operations, risk management capabilities were also improved gradually by completing management system, monitoring credit risk, market risk and operational risk, with processes and modern management tools. (3) Changes of service quality: Service quality was significantly improved: attitude and way of service as well as sales skills, advisory capacity of transaction staffs were increasingly assessed; transaction places were arranged synchronously, spaciously and comfortably to facilitate and make a good impression to customers. 2.3.2. Criteria for effect of investment in enhancing competitive capacity Assuming in calculation of performance targets that investment capital in the year will promote its efficiency in the same year. - Criterion 1: Additional sales turnover compared with investment capital (∆DS/Iv): showed that how unit of turnover of each product was increased from a million VND of investment capital for competitiveness Table 2.14: Criterion of additional sales turnover in comparison with investment capital in some main products of VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 Ivi (billion VND) 497.76 507.46 532.26 447.05 760.53 1039.11 2,404.70 2,304.00 1. Mobilized balance (billion 108,313 120,695 144,810 159,989 169,457 208,320 241,700 303,942 VND) ∆DS/Iv 24.40 45.31 33.95 12.45 37.40 13.88 27.01 2.Loan balance 61,043 67,743 97,631 112,793 141,621 176,814 209,418 241,163 (billion VND) ∆DS/Iv 13.20 56.15 33.92 37.91 33.87 13.56 13.78 3. Turnover of import and export 21,000 22,800 26,300 32,500 25,620 31,000 38,800 38,810 payment (million USD) ∆DS/Iv 3.55 6.58 13.87 -9.05 5.18 3.24 0.0043 4. Turnover of forex trading 24,000 30,200 26,100 46,000 39,420 35,200 34,500 24,100 (million USD) ∆DS/Iv 12.22 -7.70 44.51 -8.65 -4.06 -0.29 -4.51 5. Number of 1,110,000 1,180,000 887,153 912,673 868,711 966,244 1,104,002 issued cards (card) ∆DS/Iv 47.95 -98.34 128.24 132.57 2.49 30.38
20 6. Turnover of International 386.3 452.7 642.63 567 741 1,000 1,200 payment cards (million USD) ∆DS/Iv 0.12 0.42 -0.10 0.17 0.11 0.09 (Source: Annual report of VCB in 2005 – 2012) In general, criteria of additional turnover out of total investment capital of VCB was often > 0 (excluding forex trading) and that of some service products gained a relatively high level - Criterion 2: Additional market share compared with investment capital (∆TP/Iv): showed how % of market share of each product was increased from a billion VND of investment capital for improving competitive capacity. Table 2.15: Criterion of additional market share compared with investment capital of some main products of VCB Year 2005 2006 2007 2008 2009 2010 2011 2012 Ivi (billion VND) 497.76 507.46 532.26 447.05 760.53 1039.11 2,404.7 2,304 1. Mobilized market 9.89 9.12 8.4 8.25 8.3 8.33 8.54 share ∆TP/Iv -0.0014 -0.0016 -0.0002 0.0000 0.0000 0.0001 2. Loan market share 9.8 9.1 8.9 8.5 8.11 8.1 8.84 ∆TP/Iv -0.0013 -0.0004 -0.0005 -0.0004 0.0000 0.0003 3. Market share of import and export 30 27 24.1 22.7 20.4 20 19.2 17 payment ∆TP/Iv -0.006 -0.005 -0.003 -0.003 0.000 0.000 -0.001 4. Market share of 29.67 27.5 25 21 25 24 24 debit card ∆TP/Iv -0.004 -0.006 -0.005 0.004 0.000 0.000 5. Market share of 23.12 19.3 32 30 29 28 30 credit card ∆TP/Iv -0.007 0.028 -0.003 -0.001 0.000 0.001 6. Market share of International payment 69.9 57.6 59.7 53 50 51 53 cards ∆TP/Iv -0.023 0.005 -0.009 -0.003 0.000 0.001 (Source: Annual report of VCB in 2005 – 2012)