Development Orientation of Commercial Banks to 2015 and Vision to 2020

According to the research results, the size of outstanding loans has a negative correlation with the profits of commercial banks. This result is consistent with the research results of Deger Alper and Adem Anbar (2011) in Türkiye who also found a negative correlation between loans and profits.

In theory, the higher the bank's outstanding debt, the higher its profit because the bank enjoys a larger interest rate difference between lending interest rates and capital mobilization interest rates. However, in the period 2008-2013, due to subjective and objective reasons, the credit quality of Vietnamese banks declined sharply, with group 02 debt and bad debt skyrocketing. In particular, some banks had a very large group 05 debt (debt with the possibility of losing capital) leading to very high risk provisions, seriously affecting profits. Therefore, although overall credit balances increased, the ratio of group 02 debt and bad debt remained high, so the profits of banks did not improve.

Therefore, the negative correlation between loan balance and bank profits in the study is consistent with the actual situation of Vietnamese banks in the period 2008-2013.

 Customer deposit size (measured through DP variable)

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The size of customer deposits has a negative correlation with the profits of commercial banks and is statistically significant at the 5% significance level in model (2.1). This result is contrary to initial expectations as well as previous studies. However, this result is consistent with the practical situation in Vietnam in recent times.

During the period 2010-2011, when market liquidity faced many difficulties, some banks faced liquidity difficulties and increased capital mobilization from economic sectors with very high interest rates (most notably, Techcombank set a record in 2010 when it mobilized at an interest rate of up to 18%/year). The interest rate race between banks forced banks that were not lacking in liquidity to push up their mobilization interest rates to retain customers.

The increase in deposit interest rates means an increase in lending interest rates, which has led to some banks lending at interest rates of up to 20%/year. The lending interest rates are too high, causing many customers to not dare to borrow because they cannot afford to pay, so at some banks there has been a phenomenon of excess capital, interest expenses have increased while interest income has decreased, causing capital use efficiency to decrease.

Similarly, in the period of 2012-2013, when the liquidity of the system began to stabilize, some banks began to lower interest rates to stimulate lending. However, due to the general difficulties of the economy, investment channels such as real estate and securities were ineffective, making bank deposits the safest and most profitable investment channel. Therefore, the capital mobilized by banks continuously increased while the demand for credit was low, leading to excess capital in banks, causing banks to lose income.

 Income-cost structure (measured through NIM and NII variables)

Net interest income ratio (NIM) and net non-interest income ratio (NII) are both positively correlated with banks' profits. The NIM variable is statistically significant at the 1% level and the NII variable is statistically significant at the 1% level in both models (2.1) and (2.2). In particular, the net non-interest income ratio (NII variable) has a greater impact on ROA and ROE than the net interest income variable (NIM). This shows that banks with higher non-interest income such as income from service activities, securities trading, gold trading, foreign exchange trading, income from capital contribution to buy shares, etc., have higher profits. This research result is consistent with the research result of Fadzlan Sufian (2011) in Korea, which shows that banks with high non-interest income ratio such as income from derivatives, income from securities trading, and income from service fees will have higher profits.

The research results have accurately reflected the current situation of Vietnamese banks. While interest income depends largely on many macroeconomic factors, banks have begun to pay more attention to non-interest income. Recently, banks have continuously increased investment in infrastructure and technology.

The development of modern banking services and convenient services for customers not only helps banks reduce costs compared to traditional services but also collect service fees. Many banks have recently promoted fee sources: payment service fees, treasury service fees, trust service fees, agency fees, guarantee fees, trade finance, fees from card services and electronic banking... These types of services have significantly increased the bank's income in addition to traditional income sources.

 Economic growth rate (GDP)

Economic growth rate has a positive correlation with bank profits and is statistically significant in both models (2.1) and (2.2). The research results show that the higher the economic growth rate of Vietnam, the higher the profits of banks. When the economy grows, the demand for credit and other banking products and services will increase, banks will have more abundant and diverse sources of income, making the profits of banks increase. This research result is consistent with previous research results of Bourke (1989), Molyneur & Thornton (1992), Pasiouras and Kosmidou (2007), Kosmidou (2008) ...

 Inflation (INF)

Inflation has a negative correlation with bank profits and is statistically significant in both models (2.1) and (2.2). This result shows that the higher the inflation rate in the economy, the lower the bank profits. This shows that when inflation increases, banks have a faster growth rate of input costs than the growth rate of income, causing the bank profits to decline.

CONCLUSION OF CHAPTER 2

Chapter 2 presents the current status of business operations of the banks in the research sample; at the same time, it also presents the research model and research results on the impact of factors on the profits of Vietnamese commercial banks in the period 2008 - 2013.

The research results show that 7 factors: equity size, outstanding loan size, customer deposit size, net interest income ratio, net non-interest income ratio, economic growth rate and inflation rate have positive or negative correlations with banks' profits. The remaining factor, total assets, has an impact on banks' profits but is not statistically significant. Of which, the net non-interest income ratio is the factor with the greatest impact on ROA and ROE.

The current situation and research results in Chapter 2 will serve as a premise to propose a number of groups of solutions to help increase the profits of Vietnamese banks in Chapter 3.

CHAPTER 3

SOLUTIONS TO IMPROVE PROFIT OF VIETNAMESE COMMERCIAL BANKS

3.1. Development orientation of commercial banks to 2015 and vision to 2020

General development orientation for Vietnamese commercial banks to 2015 and vision to 2020 focuses on the following main contents:

 Continue to comprehensively restructure the commercial banking system, strengthen institutional capacity, reorganize the organizational structure, expand the scale of operations while enhancing self-inspection and risk management capacity.

 Strengthen financial capacity, improve management capacity to meet international standards through perfecting the operating model, gradually implementing the risk management system, and applying Basel standards to banking operations.

 Credit growth must be reasonable and consistent with the State Bank's orientation in each period. Credit quality must be strictly controlled, debt classification and provisioning must be carried out according to international standards.

 Promote capital mobilization activities in line with the State Bank's interest rate management policies to effectively utilize idle capital in the economy. Focus on changing the capital mobilization structure, increasing the proportion of low-cost mobilized capital to reduce input costs, helping to increase operational efficiency.

 Innovate and develop Technology platform, Corebanking system. Ensure a stable system, capable of supporting the management and business activities of the Bank.

 Improve the quality of human resources through building recruitment mechanisms, evaluating and measuring work performance and promoting staff training.

 Focus on solutions to improve operational efficiency and competitiveness.

3.2. Solutions to improve profits of Vietnamese commercial banks

3.2.1. Group of solutions implemented by the Bank

3.2.1.1. Increase interest income

Currently, banks need to have a reasonable capital management policy to increase capital efficiency, helping to increase interest income. In a period when the economy is facing many difficulties, businesses and people are reluctant to borrow from banks because they cannot afford to pay. Banks need to have support policies or preferential product packages to help businesses and people access bank capital for production and business to promote economic growth.

Regarding capital mobilization, due to the stability of the system’s liquidity, most banks have excess capital. Therefore, banks need to base on their actual situation to calculate and adjust mobilization interest rates to a reasonable level as a premise to reduce lending interest rates. Thus, banks can reduce the burden of interest payments for customers and increase the efficiency of capital use.

3.2.1.2. Increase non-interest income

According to the research results analyzed above, non-interest income has the strongest impact on banks' profits. Therefore, banks that want to increase profits need to promote the development of other activities such as providing modern banking services, gold and foreign currency trading, securities trading, capital contribution to buy shares... In which, the most notable is the promotion of services such as payment services via electronic banking, agency services, entrustment, services provided to the financial derivatives market, cross-selling activities... These are areas that foreign banks pay great attention to promoting while for Vietnamese banks these are still quite new areas.

 Card/POS Services

In the process of international integration, non-cash payment activities are growing strongly. Therefore, Card business is an activity that needs to be further promoted by banks in the coming time. In addition to strengthening the modernization of technical facilities to diversify utility products on a high-tech platform, it is necessary to focus on promoting the connection between banks and international Card organizations to form a convenient and effective card payment system not only domestically but also abroad to save costs and facilitate customers to use cards. To implement the above orientation, Banks need to focus on the following specific measures:

+ Proactively approach businesses to use payroll services via accounts linked to Bank Cards. Strengthen the development and expansion of the system of card acceptance units (POS) into a widespread network, creating conditions for customers to use cards to purchase goods, pay for services (pay bills for electricity, water, telephone, food, entertainment, travel, etc.)

+ Research on the application of modern technology to improve and increase the convenience of using cards in parallel with strengthening risk management in the context of international integration and increasing high-tech crime.

+ Strengthen relations with international card organizations and other banks to learn and exchange experiences to develop cards and coordinate together to prevent international crimes in the card field.

 Electronic banking services

E-banking services are a service sector with the potential to bring high income to foreign banks in the near future. Nowadays, with the booming trend of information technology, e-banking services are increasingly diverse and bring many benefits to customers. Some outstanding services are: Internet banking (banking transactions on the Internet), Mobile banking (banking transactions on the phone), SMS Banking (account balance monitoring services, interest rate and exchange rate inquiries via SMS messages) ...

In order to develop this service well, banks need to invest in a modern technology system because service quality and information security are the top priorities for the e-banking sector. Therefore, the inevitable trend is that Vietnamese commercial banks invest in advanced technology and learn from the experience of foreign banks to develop and improve the quality of e-banking services.

In addition to increasing service fees, if e-banking services are effectively deployed, banks can cut costs compared to when customers come to transact at the counter (printing costs, document storage costs, etc.) and at the same time reduce operational pressure at the counter to minimize operational risks.

 Derivative financial services

In the context of international economic integration, international trade activities are developing very strongly, so the risk related to exchange rates and interest rates will be greater, affecting the business activities of enterprises. Therefore, the demand for derivative financial services is increasing. The development of derivative financial services not only helps banks have a source of service fee revenue but also prevents risks related to interest rates and exchange rates for the banks themselves.

The derivatives market and derivative instruments are very diverse and complex, requiring banks to train qualified staff who are knowledgeable about derivatives techniques, proficient in analytical techniques, and techniques for forecasting market trends in order to use appropriate derivative instruments, thereby being able to advise and guide customers. In addition to the issue of qualifications, the issue of banking technology is also a factor that needs attention. Derivative instruments are calculated and designed based on quite complex algorithms, so banks need to have modern software to process them. Therefore, banks need to expand cooperation with banks around the world to take advantage of support in knowledge, skills and banking technology for providing derivative services.

 Other activities

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