Perfecting the Financial Statement Analysis Method at Vietnam Joint Stock Commercial Bank for Foreign Trade

- Plan z analysis z – build z analysis program as detailed as possible

and the more detailed z is, the higher the result of the analysis is :

+ Determine the analysis objective: what information to provide , for what audience.

+ Determine the analysis content: based on the analysis objectives, the analysis content will be determined to summarize the financial situation of the bank or analyze the department depending on the needs, which indicators will need to be used to build the analysis outline later .

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+ Scope of analysis : depending on the requirements and practices of the users to determine whether to analyze the entire bank or only analyze a specific part, analyze a year or the whole period, analyze the entire set of financial statements or only one type of report in it.

+ Time required to complete : preparation time , progress time

z analysis and z analysis completion time .

- Perform analysis :

+ Select the analysis system and combine the analysis types to suit the content and analysis goals .

+ Select the staff to analyze and assign tasks clearly to each person and each department .

+ Monitor the progress of work completion over time to ensure the proposed plan is followed .

+ Discuss the bank's financial problems and optimal solutions to overcome them in order to achieve business efficiency and profit growth .

- End of analysis

+ Complete the analysis work with analysis results report and completion

good analytical record keeping

Process z implements the solution

- In the short term : Drafting a complete financial statement analysis process

and z details need z time to perform. But if the progress status of work z

If the analysis process remains as it is now , the analysis quality will not be guaranteed. Therefore, the immediate solution is that the Support Block can build a summary analysis process , in which a summary analysis framework is built so that the analysis staff can closely follow that basis to perform .

- In the long term: The Support Block needs to issue a set of detailed financial statement analysis procedures , specifying the necessary requirements that must be ensured in the analysis report . After completing the content of the financial statement analysis procedures , the Finance Block needs to issue an internal document on this issue in a detailed and specific manner , requiring all employees to comply with the established regulations. Leaders at all levels closely monitor the implementation of employees to build a habit of working scientifically according to the issued procedures.

3.2.2. Perfecting the method of financial statement analysis at Vietnam Joint Stock Commercial Bank for Foreign Trade

Regarding the method of analyzing financial statements at the Bank , the Bank needs to add the method of analyzing profitability using the Dupont model to analyze the efficiency of using assets or equity of the Bank in relation to other factors , thereby enhancing profitability through influencing those factors .

ROE = Total Assetsx Net revenuex Profit after tax

Equity z Average z Total z Average z Net z Revenue

= Average financial leverage z x z Total asset turnover z x Ratio

profit on net revenue

Thus, we have linked the profitability of equity with average financial leverage , turnover of total assets and profitability of net revenue . On the basis of this relationship, we analyze the efficiency of using equity in the direction of using financial leverage reasonably , increasing the turnover of total assets or improving the profitability of net revenue . Therefore , we can detail many other influencing factors when analyzing in each direction ; and also evaluate the efficiency of using equity on

many different aspects and can be used to develop many measures of z

higher possibility

At the same time, z determines the influence level of z factors on z as follows :

The impact level of financial leverage on the fluctuation of ROE z = The difference z between the analyzed value and the base value of the indicator "Financial leverage " x The number of asset turnovers at the base value z x The profitability of the base net revenue

The influence of the asset turnover ratio on the volatility of ROE = Average financial leverage x Difference between the analyzed ratio and the original ratio of the “ Asset turnover ratio ” indicator x Profitability of the original net revenue

The influence level of the profitability of net revenue on the volatility of ROE = Average financial leverage x Asset turnover ratio x The difference between the analyzed value and the original value of the indicator “ Profitability of net revenue ”

3.2.3. Completing the content of financial statement analysis at Joint Stock Commercial Bank for Foreign Trade of Vietnam

The content of the analysis of the financial statements of the current bank is relatively complete , however , in terms of details , some analysis indicators are still incomplete, some analysis contents are necessary but not mentioned . These shortcomings in many cases can lead to mistakes in the decision - making of managers . The content of the analysis of the financial statements at Vietcombank The bank needs to be completed as follows :

3.2.3.1. Complete structural z analysis

The content of the analysis of Vietcombank's capital structure is quite complete , however , it still lacks some indicators that show the overall structure of the capital. Through this group of indicators , users can grasp the correlation between equity , mobilized capital in total capital or the ability to attract capital of the bank , and the ratio limits prescribed by the State Bank . Typically, the following indicators : Ratio of mobilized capital/ Total capital, Ratio in capital

Equity/Total capital , Proportion of mobilized capital/Equity, Proportion of deposits/Equity...

3.2.3.2. Complete the z-analysis of profitability

Currently, banks only use ratio analysis methods, comparison methods and graphical methods in financial statement analysis . However , to analyze the relationship between financial indicators , the Dupont model is extremely necessary . In particular , to accurately evaluate the bank 's business performance and establish future profit plans , analysts need to deeply examine the relationship between indicators reflecting profitability according to the Dupont method. Analyzing financial ratios according to the Dupont model is the most useful and effective tool to understand the nature of financial indicators as well as the relationship between them and their impact on production and business performance .

3.2.3.3. Completing risk analysis in banking operations

+ Supplementing reports in liquidity risk analysis : Liquidity risk is a permanent risk of the bank, so relying only on financial statements to consider and calculate will only give a view at one point in time. Adding a more detailed and updated liquidity risk report in addition to analyzing financial statements is necessary . That is the Maximum cash flow ( MCO ) report , MCO is a report that calculates the maximum cash flow allowed to leave the bank , by subtracting the cash outflow from the cash inflow for each term of each currency and summarizing the currencies , assuming that the currencies can be easily converted to each other. The results of MCO will be compared with the specific limit set by Vietcombank . A warning will be issued if the MCO exceeds the allowed limit , helping the management to promptly adjust its liquidity . MCO reports must be prepared daily.

The MCO limit is determined z based on z the maximum capital mobilization capacity z from officially committed funding sources , based z on the level z of liquidity

of assets , the flexibility of the market and the subjective will of the person who makes the decision .

banking

MCO is a very good tool that helps Vietcombank's capital managers see the gap in maturity between assets and short-term capital to take timely corrective measures. MCO reports are prepared daily for each maturity group : overnight deposits, 2-7 days, 8-15 days, 16-18 months, 2 months , 3 months... so that within the same day , managers will know what they need to do to close the gap for the coming days based on the allowed limit.

+ Add some indicators in liquidity risk analysis : In addition to the ratios of payment capacity and net liquidity gap , some other liquidity indicators also need to be added so that managers have a more comprehensive and detailed view of the bank 's liquidity situation such as : Cash position index , Government securities index , Hot money index , Deposit structure index , etc.

+ Supplementing the content of interest rate risk analysis: With the support of the current information technology system, banks can and should apply the interest rate sensitivity gap analysis method in their asset - liability management. To be able to calculate the interest rate sensitivity gap , banks need to classify interest rate sensitive assets and interest rate sensitive sources , calculate the interest rate sensitive assets and sources according to each specific term group , then calculate the accumulated interest rate sensitivity gap . Based on that interest rate sensitivity gap , combined with predictions of interest rate trends , banks can calculate the impact of interest rate changes on interest income .

+ Supplement cash flow analysis : Cash flow analysis at the bank to see the ability to pay by net cash flow, income quality , ability to pay for investment activities , ability to generate money from which to make appropriate adjustments .

+ Supplementing the content of currency risk analysis : Currency risk is also a type of permanent risk in banking operations and this content is also mentioned in quite detail in the financial statements of credit institutions. Therefore, currency risk analysis is necessary and can be performed based on the financial statements. Meanwhile, Vietcombank's analysis content still omits this type of risk, so in the process of building solutions to improve the quality of the bank 's financial statement analysis , supplementing the content of currency risk analysis is extremely necessary .

3.2.3.4. Finalize financial forecast

A fairly important part of the analysis is forecasting financial indicators on the financial statements or forecasting financial indicators, which is a tool to check and monitor business performance. This is the calculation in advance of financial indicators that the bank can achieve based on assumptions about the bank 's capacity and business environment in the future . Based on the forecast results , managers can see the bank 's financial prospects in the future to make correct business decisions . Forecasting financial indicators also warns of difficulties that the bank may have to face and helps managers have a basis to accurately assess the bank and its current advantages , difficulties and business environment . On that basis , accurately evaluate the performance of each department in terms of both operational efficiency and operational coordination .

Obviously, the needs of managers do not stop at analyzing the current financial situation, but also need to have a vision of the future to make strategic orientations and short - term and long - term business plans . To meet the needs of managers , improving the quality of financial statement analysis requires adding forecasting activities .

To forecast financial indicators, analysts can rely on past results combined with current conditions and future assumptions to forecast or can base on current conditions associated with

assumptions about the bank 's future operating capacity to forecast

forecasting. Two commonly used forecasting methods include:

- The method based on past research studies indicators reflecting performance results that have occurred over time to find out the relationship between indicators reflecting results . The relationship between indicators is expressed in an equation called a regression equation , based on which managers can predict the values of indicators reflecting future performance results .

- The method based on future assumptions is a method of forecasting indicators reflecting the results of operations that will be achieved in the future based on events that are known with certainty or assumptions that are appropriate to the conditions of the enterprise in terms of production capacity or market. Analysts can use the above methods to forecast the amount of net sales revenue achieved ( in banks, net interest income can be used ) in the future. After that , analysts will rely on the relationship between net revenue ( net interest income) and financial indicators that are likely to change according to changes in net interest income to determine the values of these indicators. This is a fairly simple method but ensures accuracy , allowing forecasting of necessary financial indicators. This

Clearly helps improve the quality of financial statement analysis .

3.3 . Conditions for implementing solutions to complete financial report analysis

3.3.1. For State management agencies

* For the Government:

The State Bank is the agency that directly manages the banking system, but even higher is the Government. In the current difficult business conditions, the Government needs to :

- Encourage foreign direct investment so that banks can have more foreign shareholders . This will help banks in

The country learns more from foreign management systems, including financial statement analysis .

- Building a unified and strict legal environment : Laws in Vietnam are not yet strict , many documents overlap. Rights and obligations between parties cause prolonged situations , many cases are not resolved clearly . The government needs to amend and supplement to suit reality .

- Continue to stabilize the macro economy, control inflation , achieve reasonable growth and improve the quality, efficiency and competitiveness of the economy on the basis of promoting the implementation of three strategic breakthroughs associated with growth model innovation and economic restructuring .

* For the State Bank of Vietnam

The State Bank (SBV) is the agency that manages the policies of the entire banking system , therefore , on a macro basis , the financial statement analysis work of Vietcombank is also subject to the general policies and regulations of the SBV .

Therefore, to improve the quality of financial statement analysis, the support policies of the State Bank are extremely necessary :

- Accelerate the completion of standards related to the financial reporting regime of credit institutions: currently, the State Bank's regulations on the financial reporting regime of credit institutions and related issues are still being revised and supplemented . However, this revision should follow a certain roadmap so that the banking system can change promptly and prepare in advance, avoiding sudden changes that make it difficult for banks to implement in a timely manner .

- Build a system of financial indicators necessary for the bank's operations . These indicators must be both scientific and economically meaningful , helping commercial banks orient their business operations as well as use them as a benchmark to evaluate their own financial performance and that of their competitors in the same industry .

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