Current Status of Foreign Currency Business Development in the International Market of Vietnamese Commercial Banks

CONCLUSION OF CHAPTER 1

Foreign exchange trading is one of the important activities of commercial banks, which is indispensable in the operating conditions of a modern bank. Developing foreign exchange trading of commercial banks is not only meaningful for banks but also for the economy. Developing foreign exchange trading of commercial banks through foreign exchange trading activities aims to stabilize exchange rates, reduce the tension of foreign exchange supply and demand, promote the development of investment activities and other activities of the economy to develop accordingly. At the same time, developing foreign exchange trading brings profits to banks, enhances the position of banks in the banking community, expands relationships with new customers, thereby helping banks exploit funding sources from banks, foreign financial institutions and capital sources in the international financial market. This is also an opportunity for banks to modernize banking technology and integrate with the banking community. Therefore, to achieve success, Vietnamese commercial banks flexibly and creatively apply foreign exchange trading experience of banks around the world to Vietnam's conditions to gain the highest profits.

CHAPTER 2. CURRENT STATUS OF FOREIGN CURRENCY BUSINESS DEVELOPMENT IN THE INTERNATIONAL MARKET OF VIETNAMESE COMMERCIAL BANKS

2.1. General overview of Vietnamese commercial banks

2.1.1. The formation and development process of Vietnamese commercial banks

On May 6, 1951, the Vietnamese banking industry was established. From its establishment until 1986, the Vietnamese banking industry mainly served the war and restored the country.

During the period 1860-1990, the banking industry gradually separated the state management function from the monetary business function and orientations for two-level banking activities were formed.

In particular, in 1990, an important milestone in the banking industry was the establishment of four state-owned commercial banks and the promulgation of two State Bank ordinances, officially transforming the operating mechanism of Vietnamese banks into two levels: the State Bank and the Vietnamese commercial banking system. Accordingly, the State Bank (SBV) performs the task of state management of currency, payment credit, foreign exchange management, is the only bank allowed to issue, is the bank of banks, is the state bank. Vietnamese commercial banks carry out currency business and banking services.

In 1991-1992, with the participation of joint stock commercial banks, joint venture banks, branches and representative offices of foreign banks in Vietnam, the development of Vietnam's banking industry became more diverse.

After more than 20 years of establishment and development, the Vietnamese commercial banking system has continuously developed in terms of scale, quality and operational efficiency. By the end of 2011, the Vietnamese commercial banking system included: 5 state-owned commercial banks (Agribank, BIDV, Vietinbank, VCB and MHB), 35 urban and rural joint stock banks, 50 foreign bank branches and 4 joint venture banks.

State-owned commercial banks Joint-stock commercial banks Foreign bank branches NHLD

5 5 5 5 5 5

2005

2006

2007

2008

2009

2010

2011

2012

Chart 2.1 Number of commercial banks in Vietnam

(Source: Annual Report of the State Bank of Vietnam for the period 2006-2011)

In addition to the development of the network, the scale of commercial banks' operations also grew strongly. The scale of equity of Vietnamese commercial banks in the period 2006-2011 increased over the years. In particular, the scale of Agribank's equity increased dramatically in the period 2006-2011. If in 2006, the scale of this bank's equity was only at a low level of 2,565 billion VND, in 2011 this figure reached 40,575 billion VND. Techcombank is the bank with the lowest equity among the six banks, in 2011 it was only at 11,234 billion VND.

By the end of 2011, the equity of Vietnamese commercial banks within the scope of the study reached 144,288 billion VND, more than five times higher than in 2006. Total assets of Vietnamese commercial banks in 2011 reached 2,199,399 billion VND.

2.1.2. Main business activities of Vietnamese commercial banks

2.1.2.1. Capital mobilization activities

Capital mobilization is an important activity, deciding the success or failure in banking business. Banks that mobilize large amounts of capital at reasonable costs are the first step to achieving success. Therefore, all commercial banks

Vietnam pays great attention to capital mobilization activities, which is reflected in the capital mobilized by banks which has continuously increased over the years, with an average increase of 23.3% in the period 2006-2011. In particular, capital mobilization of credit institutions has a clear differentiation, with a strong increase for the group of joint-stock commercial banks, while the increase is only moderate for the group of state-owned commercial banks. Accordingly, by the end of 2011, the capital mobilization growth rate of the group of joint-stock commercial banks reached 22.4%, and the group of state-owned commercial banks reached 15.3% (compared to 2010).

Table 2.1 Capital mobilization of Vietnamese commercial banks

Unit: Billion VND

Bank

2006	2007	2008	2009	2010	2011
Agribank	231,826	305,671	375,033	434,331	475,011	504,425
BIDV	113,612	141,857	181,048	203,298	280,206	358,664
VCB	152,125	177,906	196,507	230,953	267,856	277,050
Vietinbank	129,805	155,466	174,906	220,436	339,699	431,905
ACB	39,736	74,943	91,174	134,502	183,132	234,503
Techcombank	14,636	35,149	51,582	83,295	123,358	140,751
Add	681,740	890,992	1,070,250	1,306,815	1,669,262	1,947,298

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(Source: Annual Report of Vietnamese Commercial Banks 2006-2011)

Vietnamese commercial banks mobilize capital from the economy and the interbank market. For commercial banks in Vietnam today, capital mobilized from customers always accounts for the largest proportion, on average in the period 2006-2011 at 75.1%, in which Agribank, VCB have the highest mobilization from customers at 80.1% and 80.4% respectively and Vietinbank has the lowest capital mobilization at 64.5%. The average growth rate of customer deposits in the period 2006-2011 of the selected commercial banks for research is 26.7%. This growth can be explained by the fact that in the fierce competition with each other, banks have to offer quite flexible forms of savings mobilization and interest payment, which are somewhat suitable for the different needs of the public, at the same time.

Banks also expand and improve the quality of payment activities to attract more deposits from businesses.

Table 2.2 Capital mobilization ratio from customers of Vietnamese commercial banks

Unit of measure %

Bank

2006	2007	2008	2009	2010	2011	TB
Agribank	42.1	76.0	89.8	84.5	80.0	89.0	80.1
BIDV	80.0	67.6	79.0	77.8	87.3	67.1	76.1
VCB	73.6	79.6	79.9	73.2	89.9	81.9	80.4
Vietinbank	70.5	72.5	69.5	67.3	60.6	59.6	64.5
ACB	74.0	73.8	82.4	81.0	75.3	60.6	72.4
Techcombank	65.4	69.6	76.8	74.9	65.3	66.0	69.0
TB	63.2	74.3	81.6	77.6	77.3	72.3	75.1

(Source: Annual Reports of Commercial Banks for the period 2006-2011)

In addition to capital mobilized from customers, which accounts for the largest proportion, the bank's capital is also mobilized from issuing promissory notes and bonds; and borrowing from the State Bank and other credit institutions.

The growth in scale helps Vietnamese commercial banks improve their financial capacity. The average capital adequacy ratio of state-owned commercial banks has increased significantly since. In the coming time, the trend of capital increase of Vietnamese commercial banks will continue to increase, especially the state-owned commercial banks.

Table 2.3 Capital adequacy ratio of Vietnamese commercial banks

Unit: %

Bank

2006	2007	2008	2009	2010	2011
Agribank	5	7.2	8.5	-	6.4	8.0
BIDV	5.5	6.7	8.94	7.55	9.32	10.1
VCB	9.3	9.2	8.9	8.11	9.0	11.14
Vietinbank	5.18	11.62	8.0	9.0	8.02	9.0
ACB	10.9	16.19	12.44	9.97	8.9	9.25
Techcombank	17.28	14.3	13.99	9.6	12.3	11.43

(Source: Annual Reports of Vietnamese Commercial Banks for the period 2006-2010)

Circular 13/2010 of the State Bank of Vietnam on safety ratios in banking business stipulates: the minimum capital safety ratio of banks must reach 9%. Through Table 2.2, we can see the efforts of commercial banks, especially state-owned commercial banks, in raising the CAR ratio in accordance with regulations. In the period 2006-2009, most of the banks in the six banks selected for research achieved the minimum CAR ratio of 8%. However, by 2010, with the promulgation of Circular 13, it placed great pressure on domestic commercial banks to raise the CAR ratio to a minimum of 9%. Banks mostly chose the solution of increasing equity to increase CAR. In 2010-2011, commercial banks had a sudden increase in equity compared to 2009, with an average increase rate of over 30%. Despite many efforts to increase equity in 2010, among the six banks selected for research, three banks, Agribank, Vietinbank and ACB, did not meet the regulations. In 2011, Vietnamese commercial banks made outstanding efforts to increase capital safety ratios, except for Agribank.

2.1.2.2. Credit activities

Credit to the economy grew slowly in the first four months of 2010, but then credit growth began to increase rapidly, averaging over 2%/month. With the efforts of the State Bank, the total credit of the banking system to the economy was 31.19% (lower than the growth rate of 37.53% in 2009).

Table 2.4 Outstanding credit balance of Vietnamese commercial banks

Unit: Million VND

Bank

2006	2007	2008	2009	2010	2011
State-owned commercial banks	459,409	578,175	687,768	861,105	1,044,521	1,097,896
Joint Stock Commercial Bank	131,361	286,423	337,744	452,495	592,769	630,232
NHLD	8,711	12,331	16,542	14,568	15,703	16,292
External Bank	55,751	83,221	124,164	123,231	133,335	145,388
Whole system	655,232	960,150	1,166,218	1,451,399	1,786,328	1,889,808

(Source: Annual Report of the State Bank of Vietnam 2006-2011)

Total credit growth of credit institutions is quite good, with an average increase of 23.6% in the period 2006-2011. The group of joint stock commercial banks maintained the highest credit growth in the entire system, reaching 36.8%, the group of commercial banks and foreign bank branches reached 20.2%. The group of foreign commercial banks reached 19%. (Appendix 1)

State-owned commercial banks Joint-stock commercial banks Foreign commercial banks

140.0%

120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

2006

-20.0%

2007

2008

2009

2010

2011

Chart 2.2 Credit growth of Vietnamese commercial banks

(Source: Annual Report of the State Bank of Vietnam 2006-2011)

Regarding the currency structure, in 2011, VND credit grew by 10.2%, lower than in 2010 (in 2010 it increased by 27.24%), foreign currency credit grew by 18.7%, lower than in 2010 (in 2010 it increased by 45.8%). Thanks to the tight monetary policy, foreign currency credit in 2011 decreased but was still higher than VND credit growth.[6]

In 2011, the banking industry has continuously experienced many fluctuations, especially in interest rates and credit in a direction that is not beneficial to the operations of commercial banks. The State Bank of Vietnam continuously adjusted operating interest rates in a tightening direction and set a ceiling on VND and USD mobilization interest rates in order to control inflation and stabilize the macro economy. Credit growth was slow in the first 8 months of 2011, due to the lack of proper regulation and circulation of capital. However, Circular 13 has been adjusted by removing the 80% restriction on the lending rate from mobilization in order to

overcome the above problem. By the end of 2011, the interest rate level is expected to decrease and the legal environment will continue to improve. However, exchange rate pressure still exists and the bad debt ratio still tends to increase.

Table 2.5 Bad debt ratio of Vietnamese commercial banks

Unit: %

Bank	2006	2007	2008	2009	2010	2011
1	Agribank	1.9	2.5	2.68	2.6	6.7	6.0
2	BIDV	9.6	3.9	4.02	2.8	2.8	2.7
3	VCB	2.7	3.87	4.61	2.47	2.83	2.03
4	Vietinbank	4.36	2.3	1.81	0.61	0.66	0.75
5	ACB	0.1	0.9	0.4	0.3	0.34	0.89
6	Techcombank	3.1	1.4	2.56	2	2.29	2.6
	Medium	3.63	2.48	2.68	1.8	2.1	3.39

(Source: Annual Reports of Vietnamese Commercial Banks 2006-2010)

Credit quality has been improved thanks to the simultaneous application of solutions to enhance the capacity of credit institutions to self-control credit quality; inspection and supervision of bad debt handling. The bad debt ratio of commercial banks has gradually decreased from 3.5% in 2008 to 2.5% in 2010. Some state-owned commercial banks have significantly reduced bad debt ratios in the period 2006-2010. For example, BIDV in 2010 decreased by 6.8% compared to 2006, Vietinbank decreased by 3.7%. For the group of joint-stock commercial banks, the bad debt ratio is lower than the group of state-owned commercial banks such as ACB with a bad debt rate of 0.34%, Techcombank with a rate of 2.29%. In 2011, the bad debt ratio of the entire commercial banking system was 3.29%, higher than in 2010. The bad debt ratio of Vietnamese commercial banks is quite high. While regional countries such as Thailand are 6% and Malaysia are 7%.

The reason for the increase in bad debt ratio is that commercial banks have not proactively limited lending to high-risk areas such as real estate loans, securities investment, etc. while still having to continue to achieve the goal of increasing capital at a high rate.

In short, through the innovation process, the banking industry has made contributions.

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