Vietcombank Analysis

I. Macro-environment 1. Economic One of the biggest successes of 2007 was the annual economic growth rate reaching an impressive 8. 48 per cent. This high growth creates an important premise for Vietnam to move to a higher development plan in the coming years. 10. 6 percent growth rate of the industrial sector shows the economy’s ability to develop sustainable. (Ministry of foreign affairs) The economic growth of the Viet Nam relied on chiefly into contribution the number of investment element.

It is estimated that at the end of November 2007 total lending account outstanding and investment in banking increase nearly 34% (Vietnamnet). This number shows that the banking industry is concerned by a lot of financial institution, big company and so on. 2. Demographic The country’s population was last recorded at 84. 16 million in 2007. According to the statistics, about 65 percent of the Vietnamese populations are in the working age group (15-59 years old) (Vietnamnet). These figures indicated that there are a great number of Vietnamese people who have ability to earn and save the money. . Technological element Nowadays, Vietnamese banks have applied new technology: Host (the internal network and international network to connect all Banks’ branches over sea. ) Besides, each bank also uses an information management system to control all branches’ database. Preventable risk system was established because the experiences from the past. A lot of banks could not survive when they lost a lot of money which customers loaned and did not pay. In April 2004, USAID experts assessed the bank’s information technology systems and recommended improvement.

Integrating ATMs, credit, debit cards and e-banking into existing services make the transactions between the customers and bank become more comfortable and easier. (USAID) 4. Social/Culture Many Vietnamese people have traditional thinking is that they deposited their money into bank just for safe and interest. 5. Legal/ Political Reforming foreign exchange control policies to liberalize current transactions, prudently relaxing capital transactions to better meet the requirements of a market economy and increase the convertibility of the

Vietnam dong(Vietnam Law & Legal forum). The foreign exchange control policies have been gradually renewed to be more open and liberal. Unreasonable limitations on international payment and money transmission, purchase, sale, investment and savings in foreign currencies and inward remittances have been gradually abolished in order to liberate current accounts and facilitate international commercial and investment transactions.

Moreover, Vietnam has made great strides in opening the banking service market, creating opportunities for foreign credit institutions to enter the market and expand their operations in Vietnam. In terms of operation, licensing and distribution network, joint-venture banks, wholly foreign-invested and joint-venture financial companies and financial leasing companies now enjoy fundamentally equal treatment with domestic credit institutions.

Limitations on the acceptance of deposits by foreign banks’ branches have been abolished step-by-step. Foreign bank branches operating in Vietnam are now allowed to accept demand and time deposits and savings in Vietnam dong from Vietnamese legal entities and natural persons with which they do not have a credit relationship in a ratio of no more than 50% of paid-in capital (compared to 25% previously). Vietnam Law & Legal forum) In addition to, the equitization of State-owned commercial banks aims to increase their equity as well as bring minimum capital safety ratios up to international standards; make their operations more healthy, effective and competitive. (Vietnam Law & Legal forum) II. Industry and competition analysis 1. Industry analysis 1. 1. Bargaining power of customers : low

Price: the customers has no considerable effects because the bank has the advantages in setting the price for their transactions High demand of customers: In the future demand for banking services is likely to increase as: demographics and population increase, especially in urban areas, and adapt to urban lifestyles, banking services will be in higher demand: + An increased number of Vietnamese nationals will work overseas resulting in demand for monetary transfers via banks + Domestic incomes rise there will be a need for the development of banking services + Growing economic investment and cooperation between

Viet Nam and other countries and the growth of Vietnamese enterprises will lead to rising demand for banking services; and ongoing infrastructure development, especially in telecommunications, will enable more diversity in banking services and in the development of banking services Characteristic of product: transaction through banks vital to do business so the customer is the one who need the bank’s service. Therefore, the power of customers is low but increasing because of low switching cost and limited services of some banks (bank customers can choose to use the services at a bank that best suit their needs) 1. 2. Bargaining power of suppliers: low (Facilities, human resource, capital… )

High Degree of concentration: If there are a lot of suppliers in the market the banks can easily switching among them therefore may be they have to accept the disadvantages. Low Degree of investor standardization: there is no particular standard for investment so this will lead to a competition among the suppliers and therefore reduce their power. Substitute inputs are not rare so the company can choose and don’t have to rely on the suppliers 1. 3. Threat of new entrants: high Economies of Scale is high. Vietnamese commercial banks can increase profits thanks to the economy of scale: the more transactions the bank has the less that its costs for additional one.

Pioneer advantage is low due to low differentiation and switching costs, new banks still have high growth rate Since the reform policy in 1986 the Legal Barriers is lower. After joining WTO from 1/4/07 Vietnamese banking market free open, which leads to the appearance of other competitors: joint venture banks, foreign banks branches, 100% foreign-owned banks penetrate in Vietnamese banking market as independent banks. Although they don’t have the advantages in understand domestic market, customers and relationship beforehand, however, they have particular strengths in global brand name, risk management, marketing strategy, professional service style….. hich Vietnamese banks are lack of and need the help from the foreign partners. In sum, high Market attraction (25% banking growth rate) along with low Switching cost (only 100000 VND to open a new bank account) and the above points have contributed to the increase in the threat of new entrants. 1. 4. Threat of substitute products Investment area: threat degree is high (A new source of competition comes from non-bank financial institutions such as insurance, corporate bond and other financial instruments: investment bank, real estate, gold, stock market… ). This kind of competition is mainly on the saving mobilization side and for long term funding.

This results in funding costs rising and banks having to search for new sources of funding through new borrowing instruments such as certificates of deposit and more customized saving products Transaction area: threat degree is low because there is almost no substitute in this area, people from different areas can’t do business with each other without having transaction through bank. 1. 5. Rivalry : high + 25% growth rate (2004-2006), with such a high growth rate like this, many companies want to penetrate this lucrative market. + Great number of banks in the market: 5 SOBs (Vietcombank, Incombank, Agribank, BIDV va Mekong Delta Housing Bank) hold 70% market segments. This advantage mainly bases on the strength of scale, network and the amount of customers on hand. 6 commercial banks only make up 16% total asset, (among that ACB and Sacombank take the lead). Although they don’t have advantages beforehand like others SOBs, commercial banks are step by step improve both financial capacity, facilities, technology and human resource. Besides that, they are little by little advance operation ability through cooperating with foreign partners like Techcombank and HSBC, Eximbank and Sumitomo… 39 foreign banks (ANZ, HSBC, Standard Chartered… ) and a lot of new commercial banks have been established (12/07: Bao Viet, FPT, Lien Viet, Petro) ? This grows the competition degree (? marginal interests may reduce) and also creates a competition in HR attraction to new banks. Low degree of differentation: Vietnamese banks still mainly provide such simple services, products as receiving and lending the money through traditional distribution channel. The complex products like asset management, investment list management, electronic distribution channel: ATM, e-banking, phone banking haven’t developed. According to Economic Unit, a transcontinental bank provides an average of 2,000,000 products while in Vietnam it was only 200 products. Therefore, this will be the disadvantages in competition. + Low switching cost: increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers. Buyer demand: the number of banking account currently is just 8 mil, rather small in comparison with the population of 80 mil people and still low if just compared with urban population. Here are some reasons for increasing number of customers: (1) The urbanization process with increased average rate >3. 5% pa from 2000 to 2006 (2) Young population structure (>30% of the population is between 15 and 30 years old) ? The competition to remain the amount of current customers and attract new ones will no longer favorable if the banks don’t really advance both the service quantity and style passively, especially the SOBs 2. Competitor analysis 2. 1. Asia Commercial Bank(ACB)

Asia Commercial Bank ,which came into being in 1993, is now the largest bank by asset size in the Commercial joint-stock system and also is one of Vietnam fastest growing banks. Since its establishment, ACB has made considerable move and attained remarkable achievements. ACB possesses the factors ensuring the competitiveness, particularly in terms of quality human resource. ACB has professional staffs who serve customers in the most pleasant way. Importantly, competitive service price is a strength of company to attract customers. Nevertheless, in comparison with the other commercial banks, ACB also shows its weakness: focusing on retail services & lending to small-and medium-sized enterprises, having small and medium-scale and small distribution network.

Hence,it would not make full use of abilities to get maximum profits. 2. 2 The HongKong and Shanghai Banking Corporation (HSBC) In foreign-invested bank system, the HongKong and Shanghai Banking Corporation (HSBC) is the largest foreign bank in terms of investment capital, network, product range, staff and customer base. HSBC Vietnam is only one member in the HSBC Group , one of the largest banking and financial services organisations in the world. ,which includes about 10,000 offices in 83 countries, 210,000 shareholders, 330,000 staff and 128 million customers worldwide. Therefore, HSBC Vietnam firstly has strength in brand name, which is very important to bring success to the company.

Secondly, with the long-time history of development, it takes huge advantages on expert experience compared to Vietcombank. Full range of service, professional service quality and modern technology are also the advantage over the other banks in general and Vietcombank in detail. However, besides its great strengths, HSBC Vietnam still has its own weaknesses. That is the difficulties in understanding and penetrating the local market, which are also the strengths of Vietnamese commercial banks. III. SWOT analysis 1. Strength: Being the oldest commercial bank for external affairs in Vietnam, Vietcombank is one of the most strong and prestigious brand names in exchange activities, import-export payment and other financial, banking services.

One of the strengths of Vietcombank is the big share of the market including 15% of bank lending and capital mobilization, more than 40% of debit and credit card in VN, 27% of foreign trade payment, 30% of commercial sponsor… The services and products of Vietcombank have had highly appreciated by foreign financial institutions: Being awarded by the “Asian money” in 1995, “the Banker” in 2000, 2001, 2002, 2003 and 2004” and being recognized for 8 consecutive years (1996, 1997, 1998, 1999, 2000, 2001, 2002 and 2003) as the bank having the best service quality in terms of internationally standardized Swift Payment Go along with being the oldest foreign trade bank in Vietnam, Vietcombank lead the industry in term of experience staff.

Vietcombank holds a big number of powerful customer, especially is big state-owned corporations such as: PetroVietnam, EVN, Vinashin, Vinafood,… Besides, being a state-owned bank, Vietcombank have so many chances to be selected as a major bank to manage and serving the Government’s loans and aids and many ODA projects in Vietnam. Vietcombank has the largest international transaction net compare with other banks in Vietnam. It is one of advantage make Vietcombank more competitive. 2. Weakness: – The limitation of working time compare to other banks. Vietcombank works only from 8 am to 5 pm weekdays while some others work in Saturday morning also. – The profit of company is from some main products. About 50% of total revenue is from credit and 20% is from loans. The concentration make the company sensitive with changes of interest rate in market and FED’s policy.

It is said that another disadvantage of Vietcombank is the shortage of high level expert, specialist such as money expert, CFA (Chartered Financial Analysis)… Finally, the staff of Vietcombank has non-professional working style. Sometimes, they have not good attitude with customer, do transactions slowly, and so on… 3. Opportunity Joining WTO is an opportunity for Vietnam to increase foreign trade, as a result, international payments rise and Vietcombank can get more profit from this area. – High industry growth rate (10. 6%/year) and banking industry growth rate (20%/year) are positive factors for Vietcombank to develop more and more. Those create more abilities to mobilize capital from many sources of investment. – The domestic market penetration is low with only more than 5 million bank accounts in 2006, equal to 6% of the total population.

Hence, the Vietnamese banking market is still at the early stage of development and predicts the potential to promote – As Vietnamese economy is forecasted to achieve high growth rate, the average personal income of citizens is expected to be higher and higher in the next coming years, therefore, the demand for using banking services in the retail sector will be more likely to increase. – Card products remain a potential area of expansion for the bank. The trend of many companies nowadays is paying salaries for employees through card services and the consumers themselves are used to paying bills with this services to be more convenience and safer. 4. Threat – Being the member of WTO not only brings about chances but also challenges to VCB.

More and more banks, both domestic and foreign ones, will jump into this attractive market. Banking market will be more competitive to all the banks . Moreover, in comparison with foreign banks; VCB has disadvantages in terms of amount of capital, service quality and information technology system, etc – Weak legal system increases the difficulty in recovering bad debts via the courts. Especially, State-owned companies accounting for 40 percent of total account outstanding of banks makes it harder to recover. – The blossom of stock market and real estate attract investment funds out of bank, which affects directly to the amount of capital and business of Vietcombank. The 12. 63% inflation rate (2007) is also one of the reasons leading to decrease in number of customers. Clients tend to withdraw the money to exchange VND to foreign money or invest in gold, gemstone, real estate and stock market, other business. IV. Conclusion and recommendation This part will focus on describing in details about some suggestions that VCB could consider to restrict the present weaknesses and overcome the coming threats. •Improve services and product quality to better serve customers’ needs: – Stretch their working time from 8 am to 8 pm everyday to solve the limited one now, which is also a competitive factor to other banks.

For example, ACB staffs work from …. to…. – Give more training course for staff, especially the clerks to improve both communication skill and working skill. Training in Tam Viet centre may be a suggestion to improve communication skill of the employees. During the course, the employees can learn how to serve customers in effective ways, how to serve different customers in different situations, etc. Those all have a purpose to satisfy customers’ demand and strengthen VCB brand name. In terms of enhancing working skill, it is suggested that VCB may invite professor who give situations for these staff to deal with and also set programmed decisions in foreseen situations. Hold customers’ festival to not only increase understandings between company and customers but also get their opinion to better meet their expectations. In this meeting, VCB can collect clients’ opinions and suggestions about the current and coming products. •Set clearer and more specific plans in PR to improve image and prestige. -Advertise through high viewing rate TV channel such as VTV1, VTV3, HTV, HTV7 or HTV9 in high viewing time such as 7 pm, 9 pm. Advertising on TV is costly, therefore, VCB should allocate into brief period to both saving and effective. -Put poster on bus, bus stop and public area to attract more care of people. New products or programs will easily approach customer by this way. -Sponsor for the game show.

Many people are interested in game shows nowadays, therefore, advertising through the high-interest game shows such as “Who will be the millionaire? “,”Excellent investor”… is a good way to enhance the VCB’s image. -Corporate celebrities (movie stars, pop stars,…) to introduce the new products of business. Well-known people often have great influence on people’ believes and also catch customers’ attention in a very fast way. •Suggest clearer and closer laws to help recover bad debts. Difficulty in recovering bad debts hastens VCB promptly to suggest to the Government to set closer laws to recover bad debts and give methods to minimize future bad debts. •Corporate with other banks

Inflation rate increasing remarkably causes many difficulties to not only VCB in particular but also other banks and the whole economy in general. In short, it affects to every aspects of the social life. Hence, to decrease this high rate, that is the duty of Government, businesses and the citizens as well. In the abilities of VCB, this bank should corporate with other banks to find the best solution that banks can handle. Increasing interest rate to acceptable rate or up to ceiling price can be a good solution for VCB in short term in this situation. This helps VCB to keep their own customers, attract others and remain the considerable capital in the bank. It also helps reduce the excess amount of money in the market.