Tóm tắt luận án Development of commercial bank's non-Credit services in vietnam

THE MINISTRY OF EDUCATION & TRAINING THE STATE BANK OFVIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY

 PHAM ANH THUY DEVELOPMENT OF COMMERCIAL BANK'S NON-CREDIT SERVICES IN VIETNAM SUMMARY OF FINANCIAL AND BANKING PHD THESIS HO CHI MINH CITY, 2013 2 2 THE MINISTRY OF EDUCATION & TRAINING THE STATE BANK OFVIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY

 PHAM ANH THUY DEVELOPMENT OF COMMERCIAL BANK'S NON-CREDIT SERVICES IN VIETNAM SUMMARY OF FINANCIAL AND BANKING PHD THESIS RESEARCH FIELD: BANKING AND FINANCE CODE: 62.34.02.01 SCIENCE INSTRUCTOR: PROF., DR. TRAN HOANG NGAN HO CHI MINH CITY, 2013 3 3 INTRODUCTION 1. PhD Thesis's necessity and importance Vietnam officially became the 150th member of the World Trade Organization (WTO). This WTO membership will bring both opportunities and challenges for commercial banks (commercial banks) in Vietnam requiring the commercial banks to implement their enormous reforms to maintain and develop their roles in the fiercely competitive business environment. In Vietnam the banking competition is rather fierce. All banks throughout the country are currently doing business with their great excitement. For every minute, the banks are competing with each other by launching new products and services, offering low interest rates, process improvement, modern banking technology application ... In 2012, when Vietnam Government removed some restriction in field of bank finance, the foreign banks performed their business with more free access. So far, for commercial banks, the main source of income is credit operations especially in respect of medium and long term credit, real estate credit.... Due to the credit operation is in possible risks and the State Bank of Vietnam (SBV) firmly decided to set the maximum growth rate, the commercial banks were forced to increase their income from non-credit operation. However, this is not easy way for commercial banks in the current period. It is one of financial restructuring activities of credit institutions in the master plan "Credit institutions restructuring for the period of 2011-2015" approved by the Prime Minister at Decision No. 254/QD-TTg dated 01 March, 2012 that : To gradually restructure the business model of commercial banks with less reliance on credit operations and more income from non-credit services. The non-credit services development is of socio-economic significance making the safe, accurate and fast payment; restricting corruption, illegal trafficking ... In addition, non-credit products will create more stable and safer income for commercial banks, although these banks have been facing with hard competition in the fierce business environment. Therefore, Vietnamese banks have to prepare the appropriate steps in the near future to keep their existence and sustainable development meanwhile the state protectionism for domestic banks is step-by-step removed. Moreover the development of non-credit services provides many positive social and economic impacts as more effective capital accumulation; safer, more accurate and easier monetary transactions; tightly- controlled illegal income... Based on the above approach, with a desire to participate in the development of commercial bank's non-credit services in Vietnam, I choose this PhD thesis "Development of commercial bank's non-credit services in Vietnam" for my financial economics and banking subject. It is hoped that this PhD thesis will contribute to the development of Vietnam commercial bank's services in the near future. 4 4 2. Overview: According to the author, up to now there is no thesis on the development of commercial bank’s non-credit services in Vietnam. In recent years, there are a lot of scientific studies, research articles on non-credit services in various aspects, with diversified methodologies and at different time. As the result, this PhD thesis is completely not same as the previous research studies. In particular, for this thesis, the author applied the new methodology of combined two research methods including qualitative methods (studying scale of non-credit service development) and quantitative methods (studying quality of non-credit service development). As qualitative research, the author conducts a data survey and analysis in 38/40 commercial banks in Vietnam. It is the new point in his research on scale of Vietnam commercial bank's non-credit services development that the allocation of general operating expenses by operation type (types of credit service, non-credit service and other services) and the cost of provision for credit losses is itemized in the cost of credit operation. As the result, the author calculates the contribution of each type of service to the profit before tax showing the real effectiveness of non-credit service development. As quantitative research, the author conducts a customer survey for non-credit services in a number of commercial banks in Vietnam and SPSS software application to identify the impacts on the customer satisfaction. 3. Objectives To study the non-credit services development on two aspects of scale and quality for identification of both advantages and limitations to the development of commercial bank's non-credit services in Vietnam. On that basis, the thesis proposes solutions for commercial bank's non-credit services development in Vietnam. 4. Subject and Scope of study Subject: Commercial bank‘s non-credit services in Vietnam. Scope of study: Commercial bank‘s non-credit services in Vietnam 5. Methodology The thesis is based on methods of statistics, analysis, synthesis, logic, comparison, inductive, synthesis, dialectical materialism, comparison between theory and practice, combined qualitative and quantitative researches and reference. The fact study was performed in two steps: preliminary and official studies. Preliminary study is performed basing on qualitative methods with expert opinions for adjusting QoS reference point for non-credit services and its impact on customer satisfaction. Official studies are carried out basing on quantitative methods of direct interview and survey via Internet. 6. Thesis Content Apart from the introduction, conclusion, list of abbreviations, a list of tables, list of references ... The thesis consists of 03 chapters as follows: Chapter 1: Theory of commercial bank's non-credit services 5 5 Chapter 2: Current development of Viet nam commercial bank’s non-credit services Chapter 3: Solutions for developing Viet nam commercial bank's non-credit services CHAPTER 1: THEORY OF COMMERCIAL BANK’S NON-CREDIT SERVICES 1.1. OVERVIEW OF BANKING SERVICES 1.1.1. Definition Banking services are banking operations providing customers services as required including deposit saving, lending, payment and foreign exchange trading, guarantee, advisory services, ... 1.1.2. Characteristics of banking products and services 1.1.3. Classification of banking services in term of income source 1.1.3.1. Credit Services 1.1.3.1. Non-credit services + Deposit saving, payment accounts and treasury services + Card Service + E-banking services + Foreign Currency Trading + Guarantee service (fee-based ) + Trust Service + Advisory Service + Banking supervision + Money brokerage + Other non-credit services 1.2. OVERVIEW OF NON CREDIT SERVICES 1.2.1. Definition Non-credit services are bank services creating income apart from interest and from the account payment services, treasury services, fee-based collection services, advisory services, trust services, foreign currency exchange ... 1.2.2. Development of non-credit services 1.2.2.1. Background The author's views: + Development both in scale and quality : Each bank initially builds its investment plan of non-credit services development. It is necessary to improve existing non-credit services with the application of international standards and practices, the maximum exploitation to strengthen customer confidence and optimizing investment. On the other hand, it is required to access to new technologies for developing the customer and market networks. However, the investment capital should not be wastefully and inefficiently allocated. It is essential to harmonize the diversification with quality + Development in line with control capacity and market demand: The bank itself can control the arising risks to meet the customer needs. The massive and out-of-controlled development can lead to unsafe condition at one unit, section or affect the bank's entire operations. 1.2.2.2. The need to develop commercial bank’s non-credit services 6 6 + For Banks - Non-credit service is highly profitable for banks because of its low cost. - Non-credit service not require banks to use more capital - Non-credit service helps banks reducing potential risks as its safe and low-risk level - Non-credit service to help banks in recruiting and staff retraining - Non-credit service to help banks in public relation, brand name promotion and market survey - Non-credit service development is consistent with the trend of banking sector development - Non-credit service to help bank cooperation for development + For the economy - To meet the rising demand for banking service in the economy - Required banking modernization to develop a modern economy 1.2.2.3. Impacts on the non-credit service development The impacts on the development of commercial bank’s non-credit services is classified into two types + Internal impacts First, the financial capacity Second, the information technology infrastructure Third, governance capacity and effective human resources strategy Fourth, the distribution channels Fifth, customer policy + External impacts First, the legal basis Second, the level of international economic integration and intra competition Third, economic growth and social environment Fourth, the political situation and social order and security Fifth, the client's needs Sixth, the government's policy Seventh, competitors 1.2.2.4. Criteria for the non-credit service development The level of non-credit service development is rated basing on the following criterion. First, the criterion for the scale of non-credit service development + Sales and income increase + Customer and market share increase + Number of services Second, the criterion for the quality of non-credit service development + Increased benefits and safety of bank products + Response to customer demand 7 7 + Bank brand name and reputation The criteria evaluation and measurement of banking service quality can be represented upon the model and customer perception of banking services quality. According to previous studies, the banking service quality is often measured by the SERVQUAL model (five-component model) RVPERF model and FSQ & TSQ models. - SERVQUAL model (five components) Reliability Responsiveness Tangibles Capability Empathy 1.2.3. Risks of developing non-credit services 1.2.3.1. Liquidity risk 1.2.3.2. Interest rate risk 1.2.3.3. Exchange rate risk 1.2.3.4. Operational risk 1.2.3.5. Technology and operational risks 1.3. EXPERIENCE ON NON- CREDIT SERVICE DEVELOPMENT OF FOREIGN BANKS AND LESSONS FOR COMMERCIAL BANKS IN VIETNAM 1.3.1. Experiences of some international banks 1.3.1.1. Hang Seng Bank (Hong Kong) 1.3.1.2. Standard Chartered 1.3.1.3. Citibank (Japan) 1.3.2. Lessons for Vietnamese commercial banks First, to improve the legal environment for banking services, especially e-banking services. Second, to create the necessary infrastructure for the banking service development, especially the information technology-based and associated tools and means. Third, to develop governance capacity and professionalism of bank staff, employees. Fourth, to diversify bank products and services, modernizing traditional services in parallel with developing up-to-date services. Fifth, to pay reasonable attention and develop the appropriate banking network. Sixth, to pursue the right customer policies. Seventh, to focus on advertisement, public relation, introduction of banking services benefits . Eighth, to set up reasonable prices. Conclusion of chapter 1 : For Chapter 1, the thesis systematically presents the basic theory of commercial bank services, non-credit service, experiences on developing non-credit services in the world and lessons for commercial banks in Vietnam. For the overview of banking services, the thesis presents banking service concepts, the characteristics of banking products and services and income-based service classification. For the overview of non-credit services, the thesis presents the concept of 8 8 non-credit service, development of non-credit services (in terms of scale and quality of service) and the risks of non-credit services performance for commercial banks in Vietnam. In particular, regarding to the development of non-credit services, the author points out the widely applied models for rating banking service quality and customer satisfaction to build the theory framework for quantitative study shown in Chapter 2. In addition, the thesis refers to the experiences of non-bank credit services development in the world to draw out 8 key valuable lessons for reference for commercial banks in Vietnam. The above arguments help to form basical theory for the realization of task- oriented thesis. CHAPTER 2: CURRENT DEVELOPMENT OF VIETNAM COMMERCIAL BANK’S NON- CREDIT SERVICES 2.1. CURRENT OPERATION OF VIETNAM COMMERCIAL BANKS As of 31 December, 2011, the Vietnam banking system consists of 01 Development Bank, 01 Bank for Social Policy, 5 state-owned commercial banks of which 03 state-owned equitized commercial banks, 35 joint-stock commercial banks, 50 branches of foreign banks, 05 100% foreign invested banks, 4 joint-venture banks. Thus, currently the total number of Vietnam commercial banks is 40. Vietnam banking system is continuously expanded and diversified in terms of scale, ownership and business. However, the weakness of the Vietnam banking system are shown as following: First, a very high level of debt with bad debt compared to the economic growth level; Second, liquidity problem in respect of interest racing for the past time; Third, weak management of corporate and risk, business losses and inefficiency. 2.1.1. Financial capacity 2.1.1.1. Capital and capital adequacy ratio of commercial banks + Capital of commercial banks In 2011, the average chartered capital of commercial banks in Vietnam is VND 6043 billion (equivalent to USD 290 million - as the average inter-bank exchange rate announced by the State Bank of Vietnam on 31 December, 2011). Now there are 14/40 banks with chartered capital of over VND 5,000 billion, of which 7 banks with over VND 10,000 billion in capital namely as Vietnam Bank for Agriculture and Rural Development (VND 21,511 billion), Vietnam Joint Stock Commercial Bank for Industry and Trade (VND 20,230 billion), Joint Stock Commercial Bank for Foreign Trade of Vietnam (VND 19,698 billion), Joint Stock Commercial Bank for Investment and Development of Vietnam (VND 12,947 billion), the Vietnam Export Import Commercial Joint Stock Bank ( VND 12,355 billion), Saigon Commercial Joint Stock bank (VND 10,740 billion), Saigon commercial bank (VND 10,584 billion). Till 31 December, 2011, three small banks with capital of less than VND 3,000 billion as Petrolimex Group Commercial Joint Stock Bank (VND 1,000 billion), Bao Viet commercial bank (VND 1,500 billion) and Saigon commercial bank for Industry and Trade (VND 2460 billion). + CAR Ratio 9 9 Table 2.4: CAR Ratio of Vietnam commercial banks Unit : % Category Year 2008 2009 2010 2011 CAR Ratio 8,94 9,53 11,02 11,92 Source : The securities company analysis [12] 2.1.1.2. Equity In recent years, the commercial bank credit operation have been blooming out of control especially in respect of medium and long-term loan for real estate projects causing economic threat of bad debt in Viet Nam. Table 2.7: Bad Debt ratio of Vietnam commercial banking system Unit : % Category Year 2007 2008 2009 2010 2011 Bad Debt Ratio 1,6 2,1 2,6 3,0 3,3 Source: Annual Reports of State Bank of Vietnam [42] 2.1.1.3. Business Performance Results + First, the income statement Table 2.9: Business Performance of Vietnam commercial banks Unit: VND million Category Year 2007 2008 2009 2010 2011 1. Income from credit operation 46.291 52.466 54.932 84.969 132.067 2. Net gain from non-credit service 8.377 10.722 11.743 14.202 12.707 3. Net gain from other operations 5.674 7.658 12.698 12.364 6.470 4. Total income (1+2+3) 60.342 70.846 79.373 111.535 151.244 5. Total operating expenses 17.016 21.041 29.844 43.945 57.926 6. Net operating profit before provision of credit losses (5-6) 43.326 49.805 49.529 67.590 93.318 7. Cost for provision of credit losses 28.016 26.488 14.650 23.237 37.296 8. Profit before tax (6-7) 15.310 23.317 34.879 44.353 56.022 Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11] The year of 2011 is a difficult year for commercial bank's operation in the monetary market. However, as shown in the business performance of a number of commercial banks, the commercial banks 's profit have increased over the years. Second, the operating income structure of Vietnam commercial banks Figure 2.1: The operating income structure of Vietnam commercial banks 10 10 76,7 13,9 9,4 74,1 15,1 10,8 69,2 14,8 16,0 76,2 12,7 11,1 87,3 8,4 4,3 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % 2007 2008 2009 2010 2011Năm Lãi thuần từ các hoạt động khác Lãi thuần từ hoạt động phi tín dụng Thu nhập từ hoạt động tín dụng Source: Annual Reports of 38 Commercial Banks in Vietnam and the author's analysis [8, 10, 11] Table 2.11: Net gain from non-credit service of Vietnam commercial banks Unit: VND million Category Year 2007 2008 2009 2010 2011 1. Net gain from payment service 1.236 2.331 3.739 5.687 6.208 2. Net gain from treasury service 145 238 355 765 882 3. Net gain from guarantee service 547 1.098 1.599 2.018 2.752 4. Net gain from trust service 26 53 101 397 303 5. Net gain from advisory service 15 6 150 112 24 6. Net gain from other services 1.822 2.199 2.560 3.338 2.332 I. Total net profit from services (1->6) 3.791 5.925 8.504 12.318 12.500 II. Net profit from foreign currency trading operations 4.586 4.797 3.239 1.884 207 III. Net profit from non-credit services (I+II) 8.377 10.722 11.743 14.202 12.707 Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11] Table 2.12: Proportion of net profit from non-credit services of Vietnam commercial banks 11 11 Unit : % Category Year 2007 2008 2009 2010 2011 Net gain from payment service 14,8 21,7 31,8 40,0 48,9 Net gain from treasury service 1,7 2,2 3,0 5,4 6,9 Net gain from guarantee service 6,5 10,2 13,6 14,2 21,7 Net gain from trust service 0,3 0,5 0,9 2,8 2,4 Net profit from advisory service 0,2 0,1 1,3 0,8 0,2 Net gain from other service 21,8 20,5 21,8 23,5 18,4 Net profit from foreign currency trading operations 54,7 44,7 27,6 13,3 1,6 Total net gain/loss from non-credit services 100 100 100 100 100 Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11] As shown in Table 2.12 in respect of proportion of net profit from non-credit activities, payment, treasury, guarantee