Overview of Vietnam Commercial Banks and Research Design

In the study of mergers and acquisitions (M&A) after the enactment of the Chinese SOX Act, Leng, J. & Zhao, P., (2013) selected 126 non-financial M&A companies listed on the Shanghai and Shenzhen Stock Exchanges in 2010 from the China Securities Market & Accounting Research (CSMAR) database. The study found evidence that acquirers requiring higher quality internal control systems are more likely to benefit from M&A activities, creating more value for the company and its shareholders. The study used the content analysis method of the COSO internal control framework to construct a scorecard measuring the quality of internal control systems. The scorecard is based on the 2010 COSO Internal Control System Assessment Questionnaire (ICQs), which is based on the guidance on monitoring corporate internal control systems published by COSO in 2009. The components are included in the internal control system assessment in the form of content indexes for each component and are given a score of “0, 1 and 2”, and then the average score for all the content indexes surveyed is calculated. The quality of the internal control system is measured by the average score of the 5 components of the internal control system (control environment, risk assessment, control procedures, information and communication systems, monitoring activities) and whether or not the internal control system information is disclosed by the independent auditor as required by the China SOX Act. Research results indicate that the quality of the internal control system is positively related to business performance, and event research results also show that the quality of the internal control system positively affects stock repurchases [95].

The study examines the relationship between the quality of the internal control system and the performance of the companies that have been acquired and acquired by using the multivariate regression analysis method. The independent variable is the quality of the internal control system and some other control variables, the dependent variable used in the model is ROE and EPS. The research results indicate that the quality of the internal control system as required by the acquirers of the company has a positive relationship with the financial performance of the company, specifically ROE and EPS. A better quality of the internal control system will help the acquirers of the company to have

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are more likely to benefit from M&A activities and create more value for companies and shareholders [95].

Fanta, AB et al. (2013) mainly based on agency theory, studied corporate governance mechanisms and their impact on the performance of commercial banks in Ethiopia. The study assessed the relationship between the mechanism of the internal control system and the external governance tools of commercial banks affecting the performance of commercial banks measured by the variables ROE and ROA. The author used a regression model to analyze the factors affecting ROE and ROA including: number of managers, existence of Audit Committee, capital adequacy ratio, capital ratio, loan risk provision ratio, loan to deposit ratio, using 2 control variables: total assets and ownership characteristics [70].

The results showed that the number of directors and the existence of audit committee on the board of directors had a negative impact on the financial performance of commercial banks, while total bank assets had a significant positive impact on the performance of commercial banks. Similarly, capital adequacy ratio, as a measure of bank risk management mechanism, had a positive impact on the performance of commercial banks. In addition, deep government intervention, lack of awareness of bank governance, absence of national standards on bank governance, as well as lack of accounting, auditing and weak legal framework to protect minority shareholders’ rights were important factors with negative impact on bank governance and commercial bank performance in Ethiopia [70].

Magara, CN (2013) studied the impact of internal control system on financial performance in credit cooperatives (SACCOs) in Kenya. The study is considered important because SACCOs contribute significantly to the economic development of the country through funds and savings mobilization. However, SACCOs face a number of challenges, one of the important challenges is management problems which are mainly caused by weaknesses in the internal control system. The financial performance of SACCOs is also seriously affected due to the weak consequences of internal control system, which will lead to poor financial performance in the operations of SACCOs [97].

The study was conducted on 122 SACCOs in Kenya, based on both primary data collected from interviews and secondary data collected from annual reports of SACCOs. The study draws on agency theory and contextual theory to explain that internal control system is a component of the system of internal governance mechanisms and a contextual control process of the company. Regression analysis was used to examine whether the internal control system established by management affects the financial performance of SACCOs in Kenya. Each independent variable is a component of the internal control system, including: control environment, risk assessment, control activities and monitoring activities. The results of the study show that there are two components of the internal control system (control activities and monitoring activities) that have a positive impact on the financial performance (ROA) of SACCOs in Kenya. The study also implies that if SACCOs improve the effectiveness and efficiency of their internal control systems, the financial performance of SACCOs will be significantly improved [97].

The objective of Musya, FA (2014) study was to examine the relationship between the components of the internal control system and the revenue of the County Governments in Kenya. The study aimed to determine whether the internal control system is significant in increasing the revenue of the County Governments. The study was conducted based on primary data collected through a questionnaire with 47 samples answered. The study used the agency theory to explain the relationship between the internal control system and the revenue of the County Governments, applied the COSO framework to analyze the internal control system into 5 components, and used the linear regression method to analyze the data [100].

The study results show that for the internal control system to function, it is necessary to have five components of the internal control system according to COSO including: control environment, risk assessment, control activities, information and communication, and monitoring activities. Although not statistically significant, the components of the internal control system have a significant impact on revenue collection in the County Government in Kenya. The study also points out the weakness of the internal control system in the information and communication system, collusion has created opportunities for fraud, embezzlement and loss of revenue [100].

In summary , foreign studies on the components of the internal control system and the effectiveness of the internal control system mainly assess the effectiveness (existence) and efficiency of each component of the internal control system, as well as the impact of the internal control system on the control objectives of the company, more specifically commercial banks. The authors mainly rely on the concepts and components of the internal control system according to the framework of COSO, COBIT, CoCo, the SOX Act and some other frameworks, building a model to evaluate each component of the internal control system and the impact of the internal control system on the control objectives including: operational efficiency, reliable financial statements, and compliance with regulations. The variables of the internal control system are mainly determined from primary data, based on interview questionnaires on the components of the internal control system and the effectiveness of the internal control system. The questions were formulated based on the analysis of the internal control system content index or the COSO internal control system assessment questionnaire, which were mainly measured by the nominal scale “Yes” or “No” and the distance scale “Likert”. The performance variables were determined from primary data (interviews) or secondary data (profit, ROA, ROE, liquidity, EVA). The variables measuring the reliability of reports and compliance with regulations mainly used primary data. Some studies used agency theory or contextual theory to identify a number of variables for the mechanisms of the internal control system including: board of directors characteristics, board of directors characteristics, corporate strategy, company size, and corporate operating environment. The main research methods: case study, descriptive statistics, correlation analysis, Chi-square test, multiple regression analysis and SEM structural equation modeling analysis.

The research results mainly assess the level of application of the internal control system in companies, especially in commercial banks. In addition, some studies have assessed the impact of the internal control system on the performance of companies and commercial banks; as well as the impact of the internal control system on the reliability of financial statements, compliance with relevant laws and regulations. From there, policy implications are given based on the research results. This is the premise for the author to conduct further studies on the internal control system in Vietnamese commercial banks.

1.3.2.2. Domestic studies

The study by Tuan, N and Hung, D.N. (2015) reviewed the literature on the internal control system and the impact of the internal control system on control objectives at companies and commercial banks. The study relied on agency theory to explain the internal control system as an internal governance mechanism within the company to help achieve the company's goals and relied on contextual theory to explain the diversity of the internal control system in practice. The study built a theoretical model of the impact of the internal control system on 2 control objectives, specifically the impact of 5 components of the internal control system according to the COSO and Basel frameworks on 2 performance objectives measured by the ROA index and risk management objectives measured by the Z-Score index at Vietnamese commercial banks [34].

The study by Tuan, N. (2016) analyzed the impact of the components of the internal control system according to the COSO and Basel framework on the performance (ROA) and risk (Z-Score) of Vietnamese commercial banks. The author built two independent research models: model (1) studied the 5 components of the internal control system according to the COSO and Basel framework affecting the ROA of Vietnamese commercial banks; model (2) studied the 5 components of the internal control system according to the COSO and Basel framework affecting the Z-Score of Vietnamese commercial banks. In addition, in the research model, the author used 1 pure control variable "Level of application of the internal control system according to Circular 44/2011/TT-NHNN". The results of OLS linear regression analysis show that both research models above are statistically significant, the built regression model is suitable for the collected data set, there are some components of the internal control system in each model that affect ROA and Z-Score are statistically significant, but the effect of the control variable "Level of application of the internal control system according to Circular 44/2011/TT-NHNN" on ROA and Z-Score is not statistically significant [35] [102]. The study of Vu, HT (2016) analyzed the impact of the components of the internal control system according to the COSO and Basel frameworks on the effectiveness of the internal control system of Vietnamese commercial banks through 3 control objectives (efficiency, compliance, reliability), in addition, the study added 2 independent variables: "political institutions" and "benefits".

group” into the research model of the impact of the internal control system on the effectiveness of the internal control system of Vietnamese commercial banks. The results show that the independent variables “components of the internal control system”, the variables “political institutions” and “group interests” have statistically significant effects on the effectiveness of the internal control system [131].

Some studies by Ngo Tri Tue (2004) on "Building an internal control system with strengthening financial management at Vietnam Posts and Telecommunications Corporation", Pham Binh Ngo (2011) "Organizing an internal control system in budgeting companies under the Ministry of National Defense", Nguyen Thu Hoai (2011) "Improving the internal control system in cement manufacturing enterprises under Vietnam Cement Industry Corporation", Bui Thi Minh Hai (2011) on "Improving the internal control system in Vietnamese garment enterprises", Ngo The Chi and Pham Tien Hung (2013) "Improving the quality of research and evaluation of the internal control system of State-owned economic groups during the audit process conducted by the State Audit", Nguyen Thi Lan Anh (2013) on "Improving the internal control system at Vietnam Chemical Group", Nguyen Thanh Trang (2015) "Improving the internal control system in state-owned economic groups" oil and gas technical service enterprises in Vietnam", Dinh Hoai Nam (2016) on "Improving the internal control system at enterprises in the Housing and Urban Development Investment Corporation", Nguyen Thanh Thuy (2017) on "Solutions to Improve the Internal Control System of Vietnam Electricity Group", Bui Thi Tinh (2018) on "Improving internal control in Vietnamese paper manufacturing enterprises", Nguyen Thi Thanh (2019) on "Improving internal control in small and medium-sized paper manufacturing enterprises in northern Vietnam", have systematized and developed general theoretical issues on the internal control system; Researching the current status of internal control system organization in companies, mainly based on qualitative research methods (including: document review method, expert method, descriptive statistics method), the research results have proposed directions and solutions to improve the internal control system in companies [2] [3] [7] [8] [16] [19] [26] [30]

[32] [33] [36]. Research by Nguyen To Tam (2014) "Improving the control organization to enhance the quality of financial accounting information of listed companies"

listed on the Vietnamese stock market" has built a regression model to analyze the impact of the internal control system on the quality of financial accounting information of companies listed on the Vietnamese stock market. Based on the analysis results, the study has proposed solutions focusing on the goal of ensuring the reliability of financial statements of the internal control system of companies listed on the Vietnamese stock market [23]. Some studies by Le Phuong Hong (2006), Phan Thuy Thanh Thao (2007), Pham Huynh Nhu Suong (2010), Nguyen Thi Hue (2011) and Tran Thi Lan Huong (2011); have systematized the theory on the concept, objectives, principles and content of the internal control system. In addition, the studies have systematized the theory of the internal control system according to COSO and Basel standards; According to the COSO framework, the internal control system is determined to consist of 5 components, the Basel framework divides the 5 internal control components into 13 principles for designing and evaluating the internal control system of banks. At the same time, the studies have generalized the theory of the internal control system with risk management in commercial banks. The studies have presented some experiences in perfecting the internal control system at some commercial banks in the world and lessons for Vietnamese commercial banks. The studies have concluded that an effective internal control system in a bank according to COSO and Basel standards must include all 5 components. Based on the research results, the author makes some policy recommendations to perfect the 5 components of the internal control system in order to achieve the goals of commercial banks: the goal of effective operation, the goal of compliance with state laws, the goal of reliable financial statements.

trust [10] [11] [13] [22] [27].

In summary , domestic studies have initially succeeded in applying the components of the internal control system according to the COSO and Basel frameworks to the banking sector. However, in general, studies mainly rely on qualitative research methods: historical research methods of relevant documents, case study methods, descriptive statistical methods; assessing the current status of the internal control system of commercial banks and proposing policy solutions from the synthesis of documents, opinions of experts, employees, bank managers and some descriptive analysis, comparison of data at commercial banks to conclude for

scientific arguments. In addition, there are not many quantitative studies on the internal control system in commercial banks in Vietnam and the quantitative studies are mainly based on the OLS linear regression model.

1.4. Research Gap

After conducting an overview of previous studies related to the internal control system in companies and commercial banks in the world and in Vietnam, it is possible to draw out some theoretical and practical gaps for the research situation on the internal control system in commercial banks in Vietnam as follows: (1) Foreign studies mainly use the COSO framework to analyze the components of the internal control system of companies and banks; there are not many studies approaching the Basel framework guiding the internal control system for the banking sector; or domestic studies using the Basel framework to study the internal control system of banks but with qualitative research methods including: historical research, document review, descriptive statistical research and case study. (2) Studies only approach the internal control system framework separately according to COSO or according to Basel, there is no combination between the two internal control system frameworks. (3) There are not many studies based on agency theory and contextual theory to explain the internal control system in commercial banks in Vietnam. (4) Research on improving the internal control system in companies and commercial banks in Vietnam mainly relies on qualitative research methods, there are not many quantitative studies, there are studies on OLS linear regression models, especially there are no studies on SEM linear structure modeling to analyze the components of the internal control system in Vietnam. This is a limitation of previous studies that serves as a basis for the author to develop quantitative research to improve the internal control system of commercial banks in Vietnam. (5) Research on improving the internal control system in commercial banks in Vietnam often conducts case studies for a specific bank, this is a limitation when suggesting policies applicable to commercial banks in Vietnam.

Based on the above research gaps, the thesis will develop research on the internal control system at Vietnamese commercial banks. The thesis will use a combination of qualitative and quantitative research methods to conduct the research.

Research on the internal control system in Vietnamese commercial banks. Specifically, the study assesses the current status of the internal control system in commercial banks, finds differences in the internal control system and control objectives in commercial banks, uses the SEM linear structure model to analyze the components of the internal control system in Vietnamese commercial banks. From these assessments and analyses, the thesis uses expert methods to make recommendations to improve the internal control system in Vietnamese commercial banks.

With the research plans in the thesis, it will contribute to overcoming the gaps in research on internal control systems in Vietnamese commercial banks. It will add diversity in research contexts, research methods and research results in the field of internal control in general and the internal control system in Vietnamese commercial banks.

Chapter 1 Summary

This chapter uses agency theory as the foundation for research on the internal control system in commercial banks, uses contextual theory to aim at the internal control system framework according to COSO and Basel; synthesizes the concept of the internal control system, and identifies the principles of the internal control system according to the COSO internal control system framework and the Basel internal control system framework of commercial banks. At the same time, this chapter provides an overview of domestic and foreign studies related to the topic to identify research gaps. Studies on the components of the internal control system, the effectiveness and efficiency of the internal control system, as well as studies on the impact of the internal control system on control objectives have helped the author have scientific arguments for choosing to research on the internal control system in commercial banks. Based on the research overview and research gaps, this chapter serves as a foundation to inherit and develop previous studies to build a theoretical basis, research model, research framework and research process for the thesis on perfecting the internal control system in Vietnamese commercial banks.

CHAPTER 2: OVERVIEW OF VIETNAMESE COMMERCIAL BANKS AND RESEARCH DESIGN

Introduce

This chapter provides an overview of commercial banks, classifies Vietnamese commercial banks, and analyzes the operations of commercial banks. In addition, it develops research hypotheses and research models to analyze the components of the internal control system in Vietnamese commercial banks. It designs a scale to measure the 5 components of the internal control system and control objectives in the research model, discusses the scale of research variables, and builds a survey questionnaire. It identifies the research methods used in the thesis. It identifies the research framework and research process.

2.1. Overview of Vietnamese commercial banks

2.1.1. Concept of commercial bank

Commercial banks are formed, exist and develop in association with the development of the commodity economy. The development of the commercial banking system has had a great influence on the development process of the commodity economy. On the contrary, the commodity economy develops strongly to its highest stage, which is the market economy, the more commercial banks are perfected and become indispensable financial institutions.

In the commodity economy, from the early days, many organizations appeared whose activities were similar to banking activities. Along with the development of the economy, these credit organizations have increasingly developed, operated more diversely and modernly. Commercial banks operate in the field of currency trading and banking services, which contributes to promoting the development of the socio-economic sector. The activities of commercial banks in the field of currency and credit are called a special type of financial institution of the market economy. Commercial banks were born in the condition that the commodity economy developed to a certain level. At the same time, through the process of existence and development for many centuries, the commercial banking system has been increasingly perfected and become one of the indispensable institutions of the market economy, promoting the development of the economy. Along with the development of commercial banks to meet the increasingly high demands of society, the concept of commercial banks

are also given in accordance with each historical period and each national territory.

In the US, a commercial bank is a company that operates in the monetary sector, operating in the financial services industry; specializing in providing financial services such as receiving deposits, transferring money, making payments, lending, investing, exchanging money, buying and selling foreign exchange and other services related to money such as: storage, trust, acting as a domestic and international agent [14]. The Banking Act of the French Republic 1941 defined commercial banks as establishments whose regular occupation is to receive money from the public in the form of deposits, or in other forms, and to use those resources for themselves in discount, credit and financial operations [9].

According to Walter Leaf, “A commercial bank is an individual or a company that accepts deposits from the public and pays the deposits on demand by cheque.” Horace White conceptualized a commercial bank as a credit factory and facilitates foreign exchange. According to Kinley, a commercial bank is an institution established to help individuals deposit money when not needed and lend money to individuals when needed, ensuring the safe execution of transactions [124].

According to Wikipedia, a commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and providing basic investment products. According to Investopedi, a commercial bank is a financial institution that provides services such as: accepting deposits from individuals and organizations, lending to individuals and companies, making mortgage loans, and providing basic investment products such as opening savings accounts and savings certificates of deposit.

Thus, it can be concluded that a commercial bank is a business organization in the monetary sector whose main and regular activities are receiving deposits, granting credit and providing payment services in the economy.

Commercial banks are a type of financial institution that offers the widest range of financial services; especially credit, savings and payments; and performs the widest range of financial functions of any business organization in the economy [114].

Commercial banks are banks that transact directly with companies, social organizations and individuals, by mobilizing capital in the form of receiving demand deposits, periodic deposits, money from issuing bills and bonds, and at the same time using

Use mobilized capital to lend, discount, provide means of payment and provide banking services to the above subjects [4] [9].

Decree 59/2009/ND-CP 2009, Law on Credit Institutions 2011, “A commercial bank is a bank that is allowed to carry out all banking activities and other related business activities according to the provisions of law with the aim of profit” [1] [21].

In short, commercial banks are an intermediary financial institution in the market economy, with the activities of monetary business and banking services. Commercial banks play an important role in the financial market. Thanks to the existence and operation of commercial banks, idle money sources in society are concentrated and transformed into capital to meet the needs of companies, economic organizations, households and individuals in society.

Commercial banks are financial intermediaries between people with excess money and people with shortage of money; between the state and the people, companies and between commercial banks. Commercial banks are considered a type of company. In essence, commercial banks are a special company that operates in the monetary and banking services business with the regular content of receiving deposits (demand and term deposits), using this money to grant credit, providing payment services, discounting and performing various business operations for the purpose of profit and general development of the entire economy. Therefore, banking activities are very diverse and rich in terms of operations as well as the products and services that banks provide, at the same time, banking activities are comprehensive and decisive to the entire economy.

Through the concepts of commercial banks, we can draw 3 conclusions about the nature of commercial banks, specifically:

- Commercial banks are a type of company. Because commercial banks were established to do business, the purpose of operation is for profit. It is said that commercial banks are a company because they have the structure and organization of a company equal in economic relations with other companies, are financially autonomous and have the obligation to pay taxes to the state budget. Moreover, the financial structure of commercial banks is the same as that of other companies; to do business, commercial banks must have capital, must be financially autonomous; especially business activities need to achieve the ultimate financial goal of profit and the business activities of commercial banks are also not

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