Capital Growth and Profit of Some Joint Stock Commercial Banks in Ho Chi Minh City

- The financial and monetary market in Vietnam and Ho Chi Minh City in particular is still limited in terms of scale, goods and operations. The market segments and participating members are fragmented.

- The activities of the money market are still not professional, so

Low circulation, easily leading to local congestion or excess or lack of available capital.

, situational solutions are used more frequently.

The government bond and corporate bond markets are still in their infancy, small in scale with government bonds accounting for about 2% of GDP (see chart 2.2). Currently, although the financial market has been formed with basic components, it still lacks some important financial institutions such as: support investment funds, venture capital funds, credit rating companies... and derivative financial instruments have not been strongly developed (Swaps, forwards, futures, options) [1,61]

Chart 2.2: Vietnam bond market share by 2011

(Source: author's synthesis) [61]

Especially recently, the monetary market has been unstable when capital does not go into production of goods but circulates mainly in the interbank market. The monetary market is deeply affected by the weakness of the stock and real estate markets. The State Bank's policies and regulations are not seriously implemented by commercial banks, especially in terms of interest rates, exchange rates, credit and even investment trust. The supervision function of the state management agency has not been completed, causing the monetary market to develop in a distorted manner, seriously affecting economic growth in general and the banking and financial system in particular.

2.3.3. Limitations on organizational structure and personnel

The human resources and organizational structure of the local commercial banks still have issues that need to be adjusted from different perspectives, which first of all originate from the bank managers. Due to the intertwined mergers, the human resources often encounter situations such as:

- The Board of Directors has many concurrent members. They are both members of the Board of Directors and Chairmen of the Board of Directors or General Directors of other commercial banks, so it is difficult to focus on bank management.

- Not all managers are fully trained, experienced and have a thorough understanding of banking operations.

- Conflicts between bank managers and other shareholders arising from group interests, awareness levels, and expertise can lead to weakened operational capacity and loss of customer confidence.

- Another problem is that up to now, the banking system still does not have any ethical or professional standards for its staff while human resource risks are increasingly serious.

Regarding organizational structure, most Vietnamese commercial banks have a traditional organizational structure. Accordingly, the division of departments according to business type

services such as: credit department, foreign exchange department, international payment department, accounting department, while according to the model of TC-NH groups in the world, the organizational model is structured according to customer objects, taking customers as the center of service. The organizational model of classifying departments according to functions proves to be quite effective in the condition that the scale of operations of commercial banks is still small, but with the rapid growth rate, increasingly large scale, increasingly complex volume and nature of work, the above model gradually shows unreasonable points, internal control is reactive and risk management is not effective.

Regarding management capacity, according to the assessment of the state management agency, many bank leaders currently do not know the exact number of bad debt ratio of their bank (bad debt ratio is an indicator showing the level of safety or reflecting the credit risk of the bank). Not knowing the exact bad debt is a sign of very high risk because even the bank itself cannot control the level of bad debt, so it cannot be completely handled. The reason for the weakness is due to the experience and awareness of the management levels. This is not difficult to explain because Vietnamese commercial banks have been established for more than 20 years, Vietnam's economy has just joined the WTO and the level of the market economy is not yet complete, so it is difficult for joint stock commercial banks to have an excellent team, deep understanding of the bank as well as the ability to effectively manage risks. In general, the management and administration model of commercial banks still has many issues that need to be reformed and rearranged to be more scientific and approach the scientific management methods of large banks in the world.

2.3.4. Limitations on financial capacity of joint stock commercial banks

The financial capacity of Vietnamese commercial banks in general and joint stock commercial banks in Ho Chi Minh City in particular has grown quite well in recent times, but there are still many limitations reflected in the equity capital and profitability indicators of each joint stock commercial bank.

First of all, in terms of capital, with a small capital scale, the average equity capital of a joint stock commercial bank is about 5,000 - 10,000 billion VND, equivalent to about 500 million USD. After many times of capital increase, including selling shares to foreign investors and domestic public shareholders, Sacombank by the end of 2011 had only about 500 million USD, ACB was similar and Eximbank was also only about 600 million USD. The total charter capital of the joint stock commercial bank system in Ho Chi Minh City is equivalent to 8 billion USD, while Maybank of Malaysia alone has about 4 billion USD, Bangkok Thailand about 9 billion USD or DBS bank of Singapore also more than 9 billion USD.

In terms of total assets, the total assets of the Vietnamese banking system to GDP are only about 70%, much lower than Thailand (145.8%), Malaysia (193.5%) and only 1/3 of China (211.1%)[59]

If commercial banks are the core, when forming a TC-NH group, the total capital of the entire group still cannot compete with banking groups in the region because Vietnam does not have companies or corporations with capital of tens of thousands or hundreds of thousands of billions of VND, except for state-owned corporations such as Vinashin, Post and Telecommunications, Electricity, etc. If the members are founded by commercial banks, the capital will be even less because of the limitation of capital contribution to banks due to constraints by state regulations.

Table 2.11: Capital growth and profit of some joint stock commercial banks in Ho Chi Minh City

Unit: %

Bank	Growth rate compared to 2008		Rate of increase compared to 2009		Rate of increase Compared to 2010
Bank	Charter capital	Profit	Charter capital	Profit	Charter capital	Profit
1	ACB	22.7	10.8	20	9.3	-	35
2	EAB	186	12	32	8.9	-	46.3
3	Eximbank	21.8	58.2	20	55	17	70
4	Sacombank	31	74	37	27.6	17	15
5	SaigonBank	47	28	64	216	23.3	-0.5

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(Source: State Bank of Vietnam, Ho Chi Minh City branch, Summary report 2000-2011 and synthesis

by the author) [22,61]

Small capital size limits the following problems:

- Firstly , capital scale greatly affects the overall operation of the bank. It limits the ability to expand the network internationally, as well as the ability to invest in developing modern banking technology.

- Second, because the capital scale is still small, it limits the bank's ability to provide capital to customers and the economy. With the condition that lending to a customer does not exceed 15% of equity capital as prescribed, all 5 largest joint stock commercial banks in the area only provide syndicated loans to a customer of a maximum of about 5,000 - 7,000 billion VND - a number that is not much for key projects of the economy.

- Third, small capital scale also creates higher risks in bank business operations because it is difficult to ensure operational safety according to the CAR coefficient.

Regarding profitability, as stated in section 2.2.2.2, the business efficiency of the banking system is not high. Profitability is low, the average net profit after tax on total assets (ROA) is only 1%. In Ho Chi Minh City since 2011, ROA has shown signs of decline due to high bad debt that has not been resolved, banks have to set aside more credit risk provisions.

Meanwhile, the ROA rate of Southeast Asian countries is 1.5%. If comparing the average ROA with the world's ROA, in Vietnam it only reaches 88%. The average return on equity (ROE) of Vietnamese commercial banks is only 11.86% compared to the international standard (average from 12% - 15%) [59]

2.3.5. Restrictions on banking products and services

Compared to before, the banking product and service system has increased in both quality and quantity but cannot be compared with the products and services of countries in the region and other developed countries.

Banking products and services are still heavily focused on transaction forms and complicated procedures, which is a weakness of current joint stock commercial banks. In terms of quantity, some large banks such as ACB and Sacombank only have more than 100 banking products and services, both traditional and derivative. Such quantity is still not enough to meet domestic demand as well as the ability to compete with foreign banks because these banks themselves have more than 1,000 different products and services [30] (see table 2.9).

Vietnamese commercial banks still focus on providing traditional products such as: capital mobilization in the form of deposits (accounting for 94% of total mobilized capital) and credit granting (credit revenue accounts for over 80% of total income).

Modern banking products related to securities (lending for enterprise equitization, lending for securities trading, securities advance lending, options and futures contracts), related to insurance (export credit insurance, goods and property insurance, guarantees, collection and payment on behalf of customers)

insurance premiums...), or related to investment activities (consulting, trust, brokerage, investment management, research, wholesale banking...)... have not developed strongly due to incomplete guidance. Revenue and profit from these operations account for a small proportion of bank revenue and profit.

Regarding the quality of banking services, the basic criterion for evaluation is customer satisfaction, which most have not achieved. The speed of service implementation is better but still cannot be compared with foreign banks. This is also a reason why customers are increasingly turning to foreign banks. According to the survey results of the United Nations Development Program, 45% of customers will switch to foreign bank loans, 50% choose foreign bank services, 50% choose foreign banks to deposit money [21,61] .

Domestic banks have not yet had a close connection in providing retail banking products and services, especially card products. Although banks have recently joined banknet and smartline to use a common card payment system, previously there were problems due to incompatible software and data.

2.3.6. Limitations on asset quality

Bank asset quality affects the capacity and performance of commercial banks, including both assets and liabilities of commercial banks.

Regarding assets, the quality of assets of local commercial banks largely depends on the quality of credit, guarantees and investments. According to the report of the State Bank, in recent years, the credit growth rate of commercial banks in Ho Chi Minh City has always been above 25%, and in 2011, it decreased according to the direction of the State Bank. Bank credit in recent times has contributed to promoting economic growth and increasing bank income, but it has also revealed dangerous risks, which are excessive concentration on real estate, securities and especially the deviation in granting credit to the wrong subjects, giving priority to "the yard".

shareholders, which has increased systemic risks. This is reflected in the increasing trend of overdue debt ratio of joint stock commercial banks in the area, weakening the asset quality of joint stock commercial banks themselves (see chart 2.1).

Chart 2.1: Bad debt ratio of banking industry 2005 – 2011 (%)

(Source: State Bank of Vietnam, Ho Chi Minh City branch, Summary report 2000-2011) [22] Report of State Bank of Vietnam, at the end of 2011, bad debt of banks accounted for

3.3% according to credit classification and Vietnamese accounting standards, however

Credit classification has not fully reflected the actual credit quality because commercial banks are concerned about the impact on their operations and shareholders, so according to the estimates of many experts as well as Fitch Rating, the bad debt of the whole system is about 11% of the total outstanding debt, which is about 270,000 billion VND, more than 3 times higher than the announced rate. Similarly, in Ho Chi Minh City, it can be predicted that bad debt of joint stock commercial banks also accounts for no less than 10%, which is an inevitable consequence of the overheated credit growth in previous years, combined with the fever of massive real estate and securities lending in the period of 2006-2007.

As for debt assets, most of them depend on deposits from the population in the economy. Most commercial banks focus on mobilizing deposits from the population and businesses and have not boldly issued bank bills or other debt assets to increase capital.

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