Introduction of Vietnam Joint Stock Commercial Bank for Industry and Trade - Phu Yen Branch and Deposit Mobilization Activities

CHAPTER 1: INTRODUCTION TO VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE - PHU YEN BRANCH AND DEPOSIT MOBILIZATION ACTIVITIES

1.1 Introduction to Vietnam Joint Stock Commercial Bank for Industry and Trade - Phu Yen Branch

1.1.1 History of formation and development

Vietinbank Phu Yen was formerly the Tuy Hoa Town State Bank Branch, under the former Phu Khanh Province State Bank Branch. The branch operates under the one-tier banking model, which means both management and business. In September 1988, Decree 53 of the Council of Ministers (now the Government) was issued to define the state management function and business function in banking activities. The Tuy Hoa Town Industrial and Commercial Bank Branch was established from the previous Tuy Hoa Town State Bank Branch, under the Phu Khanh Branch of the Industrial and Commercial Bank, only performing the functions of currency trading and banking services, mainly operating in the fields of industry, commerce, construction and services.

Phu Khanh province established two provinces Phu Yen and Khanh Hoa in July 1989. Accordingly, the Tuy Hoa town branch of the Industrial and Commercial Bank was transformed into the Phu Yen branch of the Industrial and Commercial Bank. In March 1993, implementing Decree 388 of the Council of Ministers, the Phu Yen branch of the Industrial and Commercial Bank was re-established. The Phu Yen branch of the Industrial and Commercial Bank changed from mainly operating for the state-owned economic sector to serving the operations and lending to other economic sectors, with conditions to expand its business activities to serve the entire population.

Vietinbank Phu Yen branch is located at 236 Hung Vuong, Ward 7, Tuy Hoa City, Phu Yen Province. Vietinbank Phu Yen consists of 06 functional departments (Accounting Department, Retail Department, Corporate Customer Department, Treasury Department, General Department and Administrative Department). In addition, Vietinbank Phu Yen also has 6 affiliated transaction offices, including 3 transaction offices in Tuy Hoa City: including Bac Tuy Hoa Transaction Office, Nga Nam Transaction Office, Tuy Hoa Market Transaction Office and 3 transaction offices in the districts.

in Phu Yen province are: Song Cau Transaction Office, Dong Hoa Transaction Office and Tay Hoa Transaction Office. According to Decision No. 455B/QD-CNPY-TCHC dated April 20, 2015, Vietinbank Phu Yen has also clearly defined the functions and tasks of each affiliated Department/Team, ensuring effective business operations.

After nearly 30 years of establishment and development, Vietinbank Phu Yen has achieved certain successes, contributing significantly to the socio-economic development of Phu Yen. In addition to performing business tasks, the branch always strictly complies with the Party's guidelines and policies, the State's laws and local leadership.

1.1.2 Main business activities

1.1.2.1 Capital mobilization activities

Capital mobilization is always the main and traditional business activity of each bank. Vietinbank Phu Yen focuses on mobilizing idle capital from individual customers and organizations. The forms of capital mobilization are used in a variety of ways such as: non-term deposits, term deposits, savings deposits, bond issuance, etc. Currently, in addition to traditional deposit products and services, deposit products and services are increasingly focused on to be able to flexibly respond to terms and interest rates to meet the diverse needs of customers.

1.1.2.2 Lending activities

The lending service at Vietinbank Phu Yen is also designed with many product packages divided into short-term, medium-term and long-term terms. The lending products are designed to suit many specific subjects such as: business loans, loans for rural agricultural development, consumer loans for life (buying cars, buying houses, receiving land use rights, buying household items, etc.), loans for employees, and mortgaging savings books. The subjects of lending activities are very diverse: individuals, small and medium enterprises, large enterprises, etc.

With the potential of Phu Yen economic market, lending services also serve many economic fields and industries suitable to the characteristics of socio-economic conditions.

in the area such as: purchasing agricultural products, fishing and aquaculture, lending for business at the market, etc. Borrowers are very sensitive to factors such as interest rates, terms and loan procedures, etc., so Vietinbank Phu Yen is also strongly affected by competition in the market.

1.1.2.3 Card and payment services

Card services play an important role for commercial banks in capital mobilization, service fee collection and enhancing the bank's image in the public. Card products and services go hand in hand with technology application and the ability to connect commercial banks in exploiting the market and taking advantage of information technology infrastructure. Card products that Vietinbank Phu Yen is serving include: international credit cards, international debit cards, ATM cards, personal finance cards, overdraft cards, etc. Payment products and services play an important role in generating profits for commercial banks. Currently, Vietinbank is applying payment methods such as: interbank money transfer, money transfer within the banking system, money transfer via foreign banks and clearing. Forms of payment services include: checks, cards, payment orders. Payment transactions via deposit accounts are an important step forward in banking technology because they help organizations, businesses and individuals make payment transactions conveniently, quickly and safely. At the same time, through this service, it creates conditions for commercial banks to mobilize capital from customers and collect a certain fee.

1.1.2.4 Electronic banking services

The development of information technology systems in recent years has greatly influenced the development of banking technology. Currently, electronic banking services deployed at Vietinbank mainly include: internet banking (Vietinbank ipay) and mobile banking (Vietinbank ipay mobile). Thanks to the convenience in transactions and many promotional programs to attract customers, electronic banking services are increasingly widely used by customers, increasing the number of customers transacting. This is a sales channel that Vietinbank focuses on.

promoted in 2018 with the aim of cross-selling convenient and comprehensive service products to customers.

1.1.2.5 Other business activities

In addition to the above-mentioned products and services, Vietinbank Phu Yen also provides other banking products and services such as: remittance payment, collection and payment on behalf, insurance purchase and sale services, valuables preservation, etc. to meet the increasingly diverse needs of customers and gain more benefits outside of the main business activities.

1.1.3 Business performance results

Table 1.1: Business performance of Vietinbank Phu Yen (2014-2017)

Unit: million VND, %

Target

Results by year				Growth rate (%)
2014	2015	2016	2017	15/14	16/15	17/16
Revenue, in there	379,364	438,563	605,237	519,426	15.60	38.00	-14.18
- Revenue from operations credit	312,819	395,209	519,957	472,625	26.34	31.56	-9.10
- Translation fee service	10,251	11,953	16,325	14,761	16.60	36.58	-9.58
- Other income	56,294	31,400	68,955	32,040	-44.22	119.60	-53.53
Cost, in there:	334,467	371,763	513,929	440,039	11.15	38.24	-14.38
-Cost of mobilization capital mobilization	230,440	183,273	206,912	197,672	-20.47	12.90	-4.47
- Other costs	104,027	188,490	307,017	242,367	81.19	62.88	-21.06
Profit before tax	44,897	66,800	91,307	79,386	48.78	36.69	- 13.06

Maybe you are interested!

(Source: Vietinbank Phu Yen business performance summary report for the period 2014-2017)

Business performance of Vietinbank Phu Yen in the period

2014 to 2016 achieved quite good results, except for 2017 when there was a decline. Pre-tax profit grew continuously and reached 91,307 million VND at the end of 2016, then decreased to 79,386 million VND in 2017. The average annual growth rate of pre-tax profit from 2014-2017 was 24.14% and decreased gradually over the years. In particular, in 2017, the growth rate of pre-tax profit decreased by 13.06% compared to 2016 while the growth rate of the whole system in 2017 was 8.9%.

The main reason is that the credit balance in 2015 and 2016 grew rapidly, leading to an increase in income from credit activities. At the beginning of 2017, due to the competition between credit institutions in the area, lending interest rates were applied at low levels to attract customers, leading to a decrease in income from loans. On the other hand, the results of internal control supervision at Vietinbank Phu Yen in early 2017 also significantly affected the business situation, most of the indicators decreased compared to 2016 because Vietinbank Phu Yen focused on training, ensuring safety and quality in business activities. Profits still depend heavily on credit activities and deposit mobilization activities (revenue from credit activities contributes an average of more than 85% to Vietinbank Phu Yen's revenue, capital mobilization costs account for an average of more than 58% of total costs). Revenue from service activities in 2017 decreased compared to 2016 and accounted for a small proportion of total revenue. Therefore, Vietinbank Phu Yen needs to focus on rapidly developing services and diversifying products to increase non-interest income and minimize risks in operations.

In general, the business performance indicators of Vietinbank Phu Yen still grow relatively stable. Although the economy still has many potential instabilities, businesses face many difficulties and competition from many other banks in the area, Vietinbank Phu Yen has made efforts to conduct business activities effectively and develop safely.

1.2 Manifestations of problems related to capital mobilization activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - Phu Yen Branch Vietinbank Phu Yen is one of the banks that has performed well in the work of

Mobilizing deposits in the area with the market share of deposit mobilization always ranked second in the area and the scale of capital mobilization continuously growing until 2015. However, in the past years of 2016 and 2017, the scale of capital mobilization and the growth rate of deposit mobilization of Vietinbank Phu Yen tended to decrease sharply compared to previous years and was still behind other commercial banks in Phu Yen. The market share of deposit mobilization of Vietinbank Phu Yen is also facing the risk of having to share with other commercial banks when the number of commercial banks in Phu Yen is continuously increasing and the growth rate of capital mobilization of these banks is tending to increase. With its position and brand that has been affirmed for more than 10 years in Phu Yen, this is a warning sign that Vietinbank Phu Yen is facing great competitive pressure and facing many difficulties in capital mobilization. This shows that the unit's ability to access capital from the population and institutional customers is not good and there is no reasonable customer care policy, leading to a decrease in the number of existing deposit customers. Vietinbank Phu Yen needs to make more efforts to focus on attracting capital to mobilize deposits from new customers and retain existing customers.

At the same time, the quality of deposit products and services provided by Vietinbank Phu Yen has not been highly appreciated by customers compared to other commercial banks. Transaction staff have a passive and unprofessional style, are not aware of taking good care of customers, and sometimes do not have a good grasp of the profession, so they often make some operational mistakes. Customer care for deposits is often slower than other commercial banks. This significantly affects the mobilization of deposits at the branch.

On the other hand, in order to meet the capital ratio to ensure safety in business operations as prescribed by the State Bank, Vietinbank in general and Vietinbank Phu Yen in particular need to have active measures and plans according to a suitable roadmap to solve the problem.

Resolve existing issues, ensure attracting deposits and increase profits in the coming time.

1.3 Overview of deposit mobilization activities at commercial banks

1.3.1 Concept of deposit mobilization activities

The capital of a commercial bank is the monetary value that the bank mobilizes or creates to lend, invest and perform other banking services. The capital of a commercial bank includes the equity capital that the commercial bank initially creates, which is privately owned by the bank, reflecting the financial strength of the bank; mobilized capital is the capital that the bank mobilizes from the public, which is temporarily managed and must be repaid promptly and fully when requested by customers through the implementation of deposit, loan, payment and other business operations; borrowed capital is the capital obtained from borrowing relationships on the interbank market and other capital sources through the provision of payment means and investment trust services (Nguyen Dang Don, 2009).

Deposits usually account for a large proportion of a bank's total liabilities. This shows the difference between banks and other businesses when capital mobilized from deposits accounts for the largest proportion of the bank's total capital. Banks mainly use capital mobilized from deposits to carry out other business activities and generate profits.

According to the Law on Credit Institutions No. 47/2010/QH12 issued by the National Assembly on June 16, 2010, receiving deposits is the activity of receiving money from organizations and individuals in the form of demand deposits, term deposits, savings deposits, issuing certificates of deposit, bills of exchange, promissory notes and other forms of receiving deposits on the principle of full repayment of principal and interest to depositors as agreed. According to another definition in the online financial dictionary at the website: www.investopedia.com, “deposits are kept in an account at a bank, in the form of demand deposits, term deposits, savings deposits and other forms. The account holder has the right to withdraw money according to the provisions of the agreed terms”.

From the above concepts, it can be generalized that "The deposit mobilization activity of commercial banks is the activity in which commercial banks attract idle capital from individuals and organizations in many forms of demand deposits, term deposits, savings deposits, issuance of deposit certificates, promissory notes, treasury bills and other forms of receiving deposits for business purposes and according to the principle of fully repaying principal and interest to depositors according to the agreement".

1.3.2 Principles of capital mobilization from deposits at commercial banks

When carrying out deposit mobilization activities, commercial banks must comply with the following principles:

- Comply with and implement in accordance with legal regulations on deposit mobilization activities such as deposit ceiling interest rates, ratio of mobilized capital to equity capital, etc. (Nguyen Dang Don, 2009)

- Balance capital and reserves reasonably and stably, ensure timely bank liquidity, avoid affecting customer psychology when there is false information, leading to customers withdrawing money en masse, causing the risk of system collapse.

- Diversify deposit product portfolio to minimize risks in business operations and meet customers' needs and tastes.

1.3.3 Forms of capital mobilization from deposits at commercial banks

Capital is mainly mobilized through two methods: deposit mobilization and mobilization through the issuance of valuable papers. Of which, deposit mobilization is still the most classic and important activity, accounting for a large proportion of the total mobilized capital in each commercial bank.

Basically based on the nature of operations, deposit mobilization can be classified into the following forms:

1.3.3.1 Non-term deposits

- Payment deposit : is the amount of money that customers deposit for the purpose of using payment services of commercial banks. Customers can withdraw at any time when needed, so the stability is low. Therefore, this account is often not paid.

Comment