Strategic Orientation for Development of Vietnam Banking Industry to 2020:

CONCLUSION OF CHAPTER II

Through Chapter II, students have basic analysis of the current status of dividend policies of listed banks in recent times. It can be said that the banking industry is an economic sector with a very high dividend payout ratio due to relatively good and stable business performance. However, the choice of dividend policy of listed banks in recent times still has many shortcomings that need to be overcome such as: using dividend policy as a tool to polish the bank's image excessively; not paying attention to the bank's liquidity issue; not having a long-term perspective in building dividend policy; not having a plan to effectively use excessively increased capital due to paying dividends in shares, selling preferred shares, bonus shares, etc.

Based on the analysis of the shortcomings in the selection of dividend policies of listed banks in the past, Chapter III will propose some solutions to overcome the above shortcomings, helping listed commercial banks to build and perfect their dividend policies in the coming time.

CHAPTER III

SOLUTIONS TO DEVELOP AND IMPROVE DIVIDEND POLICY FOR LISTED COMMERCIAL BANKS IN VIETNAM

Dividend policy is one of the important policies of any joint stock company. Business leaders must always consider it because this policy must simultaneously meet 3 goals:

 Satisfy shareholders through regular dividend payments.

 Ensure capital for expanded reproduction investment.

 The dividend payment level must be stable to cover even unfavorable business years (because once a high dividend has been paid in one or several previous years, it will be difficult for a business to convince shareholders if the dividend level is lowered the following year).

A commercial bank is a type of bank that is allowed to carry out all banking activities and other business activities as prescribed by this Law with the aim of making profit (Clause 3, Article 4 of the Law on Credit Institutions No. 47/2010/QH12). Therefore, the dividend policy of listed joint stock commercial banks is not outside the above objectives. To be able to do this, banks need to consider the following issues:

3.1 Strategic orientation for the development of Vietnam's banking industry to 2020:

The development orientation of the banking industry is determined based on: the inevitable development trends of the banking system; the desired goals; and the achievable capabilities.

3.1.1 Vision and development goals of the banking industry

After more than 20 years of innovation and development, although the Vietnamese banking industry has achieved certain results, in the coming development period, it is necessary to focus on improving financial capacity and operational capacity to catch up with the development speed of banks in some developed countries in the region. Vietnam by 2020

2020 must ensure the development of a strong, competitive and dynamic banking system, supporting and actively contributing to the development of the economy. At the same time, it must aim for a banking technology platform ready to face the challenges of liberalization and globalization.

A stable, sound and secure banking system is one that can withstand sudden adverse economic and financial shocks from within and outside the system without significantly disrupting its intermediation and economic functions. A stable system requires sound, efficient and effective financial institutions, prudential regulations, a strong supervisory system and a reliable financial infrastructure.

A strong financial institution must have strong risk management, credit skills and corporate governance. Corporate governance will be enhanced through improvements in the quality and accountability of management.

Vision of the banking sector

The banking sector will develop stably, healthily and diversely, develop in depth, enhance the position, role and influence of the banking sector in the national economy, in the financial system of the region and the world to fully meet the diverse needs of the economy and society for financial products and services.

Target

From now until 2020, the Vietnamese banking system will continue to make new breakthroughs, building a stable and sustainable banking system with a scale at the world and regional average level, ensuring financial market stability.

- The State Bank focuses on building and developing into a central bank with a vision and outlook for the benefit of the financial sector; consolidating and enhancing public confidence in the State Bank's policy actions; implementing effective and proactive monetary policy with policy tools.

Market-based monetary (interest rates, exchange rates); gradual liberalization of financial markets; enhancement of inspection and supervision capacity to a new level.

- Credit institutions, especially domestic commercial banks, have made strong innovations in their organizational models, expanded their cross-border operations, and if strong enough, can gradually establish a number of financial groups; innovate and improve their competitiveness, business management capacity, risk management, and financial capacity; build new credit conditions, creating favorable conditions for enterprises, especially small and medium enterprises, to access capital; develop micro-credit, new banking methods to better meet the capital needs and financial services of the economy. This both improves the operational efficiency of the financial system and adjusts the structure of the financial market.

3.1.2 Strategic development orientation

The project on development of Vietnam's banking sector to 2010 and orientation to 2020 approved by the Prime Minister on May 24, 2006 set out the goal: Fundamentally and thoroughly reform and comprehensively develop credit institutions in a modern direction, with multi-functional operations to achieve the average advanced level of development in the ASEAN region with a diversified structure in terms of ownership, types of credit institutions, larger scale of operations, healthy finances, and at the same time create a foundation to build a system of modern credit institutions after 2010, reaching the advanced level in the Asian region, fully meeting international standards on banking operations, and being able to compete with banks in the region and in the world. Ensuring that credit institutions, including State-owned credit institutions, operate according to market principles and for the main purpose of profit. Develop a system of credit institutions that operate safely and effectively based on advanced technology and management level, applying international practices and standards on commercial banking activities. Develop non-bank credit institutions to contribute to the development of a more diverse and balanced financial system. Develop and diversify banking products and services, especially capital mobilization, credit granting, and payment with high quality and a reasonably developed distribution network to provide adequate, timely, and convenient banking services and utilities for customers.

The economy in the period of accelerating industrialization and modernization. Forming a banking service market, especially a credit market with healthy and equal competition between types of credit institutions, creating opportunities for all organizations and individuals with legitimate needs, sufficient capacity and conditions to conveniently access banking services. Preventing and limiting all negative aspects in credit activities.

Continue to promote the restructuring of the banking system. Separate policy credit and commercial credit on the basis of distinguishing the lending function of policy banks from the monetary trading function of commercial banks. Ensure the autonomy and self-responsibility of credit institutions in business. Create conditions for domestic credit institutions to improve their management capacity, professional qualifications and competitiveness. Ensure the business rights of foreign banks and financial institutions in accordance with Vietnam's international commitments. Link banking reform with enterprise reform, especially state-owned enterprises. Continue to consolidate, improve and develop joint-stock banks; prevent and promptly handle, not allowing bank failures beyond the control of the State Bank of Vietnam for weak credit institutions. Put the activities of people's credit funds in the right direction and develop them firmly, safely and effectively.

The motto of the credit institutions is " Safety - Efficiency - Sustainable development - International integration ".

3.2 Solutions to build and perfect dividend policies for listed banks in Vietnam

Dividend policy greatly affects the economic benefits of the bank as well as the shareholders. Dividends are one of the motivations for employees and investors to participate in buying shares, thereby creating attachment and responsibility for the bank. At the same time, this policy will also have an impact on the business capital and net profit earned annually. Therefore, the dividend policy that a bank is about to decide will affect the market value of that bank and indirectly affect the shareholders. Operating a bank effectively and profitably is difficult, choosing an optimal dividend policy

is not simple. In the past, the selection of dividend policies of listed banks still has some shortcomings. Some of the following solutions can help limit those shortcomings and improve the dividend policies of banks in the coming time.

3.2.1 Solution for listed commercial banks:

3.2.1.1 Some basic principles in building dividend policy

There are some principles drawn from the experience of countries around the world that banks need to follow after establishing their own dividend policy:

Firstly, it is impossible to develop a common dividend policy for all banks at all times. Each bank will have its own characteristics; different scale, financial capacity; different shareholder structure and will be affected by different factors. In specific business conditions, banks have different business strategies and perspectives. Banks need to consider choosing a dividend level appropriate to their characteristics, potential and each different stage of the development process. Banks need to understand the impact of the following basic factors in the process of developing a dividend policy:

Table 3.1: Summary of factors affecting dividend policy

1	Legal restrictions	The more	The lower
2	Restrictions	The more	The lower
3	Tax Policy (Tax Rate)	The higher	The lower
4	Liquidity	The higher	The higher

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No. Factor Level of influence

Dividend level

Borrowing capacity and access to markets

capital market

The more the higher

5' Available Capital The More The Higher

6 Income stability The more stable the higher

7 Investment opportunities, the more the lower the growth

Inflationary	The higher	The lower
9	Characteristics of shareholders	The poorer	The higher
10	Protection against price dilution	The higher	The lower

Second, a dividend policy is unlikely to satisfy all shareholders. But the bank must consider the interests of the bank with the interests of each group of shareholders. In addition, the bank must also balance the interests of shareholders and the board of directors, and the interests of shareholders and creditors.

Third, banks can combine different dividend payment methods. When it comes to dividend payment methods, people often think of three methods: cash dividends, stock dividends and property dividends. In addition, some methods such as bonus shares, share buybacks, etc. also have the same nature as dividend payments. Diversifying dividend payment methods not only helps managers be flexible in choosing dividend policies but also helps investors easily choose their stock portfolio to suit their cash flow as well as their short-term or long-term investment strategies. This creates rich, diverse and vibrant trading activities on the stock market.

Fourth, the bank needs to have a safe and consistent dividend policy, even in the event of a decline in operating profits. A safe dividend policy does not mean a low dividend policy. A low dividend policy means increasing the retained earnings ratio. If the cash accumulated from retained earnings is too large, it will make investors think that the bank is stuck in growth and that the bank is wasting money by holding too much cash, which will negatively affect the bank's stock price.

Fifth, there needs to be a reasonable dividend payout ratio that satisfies shareholders' need for a stable, consistent source of income (customer group effect) while ensuring a sufficient retained earnings ratio to finance normal investment needs to maintain the bank's sustainable growth.

Sixth, avoid cutting dividends as much as possible, even if the bank has a great investment opportunity. Shareholders who are interested in a stable and reliable future income stream from dividends will be very concerned about a sudden change in the bank's dividend policy, especially when the dividend is cut with the reason of using retained earnings to invest in a new project that will create added value for the bank in the future. In such a case, in order not to miss this investment opportunity, the bank should choose the solution of raising capital from other sources or issuing new shares. If for some reason the bank cannot raise enough capital from other sources and is forced to cut dividends, the bank needs to provide full information and clearly explain to investors about the upcoming investment program as well as the financial needs necessary to finance that project.

3.2.1.2 Building a dividend payment decision-making process:

The bank's after-tax profit will be divided as follows:

Step 1 : The bank's after-tax profit will first be prioritized for setting up funds according to the regulations of the State Bank and the bank's charter such as: charter capital supplementary reserve fund, financial reserve fund, reward and welfare fund, etc. The remaining after-tax profit will be used for the owner, with the owner deciding on the method of use.

Step 2 : Identify future investment opportunities as a basis for prioritizing profit distribution decisions.

Step 3 : Determine the appropriate cash balance to use as liquidity reserve.

This is one of the top priorities in banking operations.

Step 4 : Determine shareholders' priorities or preferences as a basis for implementing share repurchases or paying cash dividends.