foreign exchange exposure management at viet nam international commercial joint stock bank

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<b>UNIVERSITY OF NICE – SOPHIA ANTIPOLIS IAE School of Business Administration </b>

<b>--- </b>

<b>INTERNSHIP REPORT ON </b>

<b>FOREIGN EXCHANGE EXPOSURE MANAGEMENT AT VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK BANK </b>

<b>Submitted by: Nguyen Kim Phuong </b>

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<b>ACKNOWLEDGEMENT </b>

First I would like to express my gratitude to all the professors in AMI program from Nice and Thang Long University who enthusiastically teach and help me to absorb useful knowledge, skills and awareness in study, work and life as well.

Secondly, I would like to express my profound gratitude to my academic supervisor Assoc. Prof. Dr. Le Thanh Binh, for her patient and kindhearted guidance, without her supports and her encouragement my report could not have been accomplished.

Thirdly, I would like to thank the bank leadership has created an opportunity for me to be in actual employment at the bank. I would like to thank all of colleagues who have were also suggested some issues related to the subject that help me better complete my internship the .

Finally, I would also like to take this opportunity to express my deepest thanks to my family especially my husband, for their support, encouragement, and understanding.

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<b>ABSTRACT </b>

This is the author’s internship report on the autho’s internship at “Foreign exchange exposure management at Vietnam International commercial Joint stock bank” from July 1st to October 5th that is a part of the graduation requirements for the MBA program. This report focuses on the following issues: Firstly, the author gathered information of the company’s background including its structure, organisation and its activities. Then it is the mission of the intern, the tasks and the goal concerning exchange rate management. Finally, it is conclusion, the positive and negative points as well as the recommendations for the company. With different techniques and the help of other team members, the intern has done a good job which can be

<b>considered as a good contribution for the department in the coming year. </b>

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<b>TABLE OF CONTENTS </b>

<b>ACKNOWLEDGEMENT ABSTRACT </b>

<b>INTRODUCTION </b>

<b>CHAPTER 1: COMPANY BACKGROUND ... 1 </b>

<b>1.1 Key Factors of the Company ... 1 </b>

<b>1.2 Company development history ... 1 </b>

<b>1.3.3 International payments service ... 3 </b>

<b>CHAPTER 2: COMPANY STRUCTURE AND ORGANIZATION CHART ... 5 </b>

<b>2.1 VIB’s organization and management ... 5 </b>

<b>2.2 The Inter’s position: ... 8 </b>

<b>CHAPTER 3: THE MISSION: ASSIGNED TASKS AND GOALS ... 9 </b>

<b>3.1 The assigned tasks ... 9 </b>

<b>3.2 Link between the subject matter and mission ... 9 </b>

<b>3.3 The goals to reach ... 10 </b>

<b>3.4 The results which I can contribute to the company ... 11 </b>

<b>3.5 Ally theoretical knowledge to practice ... 11 </b>

<b>CHAPTER 4: DEVELOPMENT ... 13 </b>

<b>4.1 Factors affecting the foreign exchange operations of the VIB ... 13 </b>

<b>4.2 Restrict the exchange rate risk by derivative contract ... 14 </b>

<b>4.3 Survey results ... 16 </b>

<b>4.4 SWOT matrix. ... 19 </b>

<b> 4.5 Suggested solutions ... 21 </b>

<b>4.5.1 Improving the use of derivative contracts:... 21 </b>

<b>4.5.2 Diversifying foreign currencies ... 22 </b>

<b>CHAPTRER V: CONCLUSIONS AND RECOMMENDATIONS...23 </b>

<b>5.1. Measures to Overcome the Problems ... 25 </b>

<b>5.2 Recommendations for the company. ... 26 </b>

<b>REFERENCES ... 27 </b>

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<b>INTRODUCTION </b>

Besides normal traditional credit activities, foreign currency business is a potential business sector in the development of banking services. The current commercial banks, in addition to to meet the transaction needs of customer, trade foreign curency also to make a profit. This activity tends to rise and increasingly occupies an important position in the Vietnam commercial banking system today. Although profits from foreign currency trading activities is huge, but in return, the risk for banks is very high. There are many causes leading to these risks, such as interest rate risk, operational risk, management staff is not professional, poor facilities ... but the main reason causing the risk in this foreign exchange trading activities is the exchange rate risk. Whether a bank operates well or not, gains the high profits or not, lost much or not ... all of which rely heavily on risk management capabilities of banks, especially the exchange rate risk management. So the exchange rate risk management is becoming a permanent concern of the banks in particular and of the economy in general. Realizing the importance of the exchange rate risk management, I would like to choose the topic: "Foreign exchange exposure management at Vietnam International Commercial Joint Stock Bank" for my 4 months internship at the bank.

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<b>CHAPTER 1: COMPANY BACKGROUND 1.1 Key Factors of the Company </b>

 Company name: Vietnam International Commercial Joint Stock Bank.  Abbreviated name: VIB

 Charter capital: 4.25 trillion VND

 Head Office: 1st, 6th and 7th floor, CornerStone Building, 16 Phan Chu Trinh Street Phan Chu Trinh Ward, Hoan Kiem District, Hanoi, Vietnam.

o Phone: 046 276 0068 o Fax: 046 276 0069 o Website: vib.com.vn o Email: o Hotline: 18008180

 Branch & Transaction office: 160

<b>1.2 Company development history 1.2.1 Development milestone </b>

Vietnam International Commercial Joint Stock Bank, abbreviated name International Bank (VIB) was established September 18,1996. Since its inception, the VIB has continuously flourished with outstanding business achievements and been repeatedly recognized as a reputable financial institution.VIB is gradually asserted brand reputation in financial monitory market, providing high quality services to make a difference in the style of service; and implementing social responsibility of enterprises, benefiting the community and adding value for shareholders. After 20 years of operation, the total assets of nearly 86 trillion VND, chartered capital 4,845 billion VND, equity was nearly 9,000 billion VND. VIB has nearly 4,000 employees serving customers in nearly 160 branches and transaction offices in over 27 provinces / cities nationwide focus.

<b>1.2.2 Awards received Year 2015 </b>

• In typical bank "Bank of the Year"

• Top 5 bond trading on Hanoi Stock Exchange

• Top 10 banks to implement Basel II, the bank had capital adequacy ratio (CAR) Highest Basel II implementation

<b>Year 2014 </b>

• Won the Bank has branches in Vietnam Typical 2014 and the "information technology Leadership Excellence" in Southeast Asia organized by IDG.

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• Won the Excellent Brand Award 2012 by Vietnam Economic Times organized.

• Top 500 largest enterprises in Vietnam by the New York Times held in cooperation with the organization Vietnam Report.

<b>1.3 Business activities 1.3.1 Mobilize capital. </b>

Mobilize capital can be understood that the tools, ways and methods, and specific programs to attract the attention of individuals, organizations in order they send money to banks, based on the two sides benefit. So it can easily to see that the funding policy of a commercial banks are also part of the marketing policy which the bank uses. In recent years capital mobilization activities in VIB activity, achieved in large quantities. Specifically over the years as follows:

Fig.1:Capital mobilization of VIB in years 2013- 2015

Unit: Millions Dong

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<b>1.3.2 Credit activities </b>

Pursuant to the Decision No 324/1998 / QD-NHNN of the Governor NHNN1 Vietnam dated 30/09/1998 promulgating regulations on lending by credit institutions to customers, the credit activity of banks VIB focuses primarily on the following areas:

* Lending by investment projects

Banks for borrowers to implement investment projects of production and business development, services and investment projects in service of life. This form applies to the case of medium and long term loans.

* Loan repayment

This form of credit by which banks for borrowers to buy property and goods when the customer does not have enough money to pay once. When borrowers, lenders and customers to identify and agree on the amount of loan interest paid plus the amount of principal repayment is divided according to multiple terms of the loan term. Assets purchased with loans owned by the parties only after they pay the full loan principal and interest owed to the bank. With this form, to get a loan customer must have a plan for repayment of principal and interest feasible by earnings-based solid, stable.

* Lending through the operation of issuance and use of cards

Credit activity is one of the banking operations. This activity brought no small profit to the bank. With this method, the bank allows customers within limits for payment for goods and services at sales establishments accepting card payments or cash withdrawals at automated teller machines. Credit forms that give customers high autonomy and save time.

<b>1.3.3 International payments service </b>

International payments is the implementation of the monetary obligation, arising on the basis of economic activities and non-economic between organizations or individuals with individual organizations or other countries, or between a countries with an international organization, often through the relationship between the Bank of the relevant countries. International payment operations increase the liquidity of banks. When performing the international payment operations, banks can attract foreign currency funds temporarily idle enterprises related international payments with banks in the form of deposits pending payment

<b>.1.4 Business results: </b>

In 2014, although the world economy and Vietnam not many bright spots, however, VIB has achieved positive financial results. VIB continue to promote business activities in the effort to provide superior service to customers while constantly investing in human resources and technology to enhance productivity, efficiency and transport workers operating excellence.

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2014, net profit after tax increased VIB 472 billion VND, and profit before tax was 648 billion VND - equivalent to 201% of the plan.

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<b>CHAPTER 2: COMPANY STRUCTURE AND ORGANIZATION CHART 2.1 VIB’s organization and management </b>

VIB’s organizational structure are shows in the following chart

SHARE HOLDER COMMITTEE

With its monitoring Unit controls the Board of management and Board of director’s competence and activities.

BOARD OF DIRECTOR Board of director has built strategic role in the overall and long-term orientation for banks, set financial goals assigned to Board of Management.

BOARD OF MANAGEMENT Board of management has specified functions overall <small>BOARD OFDIRECTOR</small>

<small>SHARE HOLDER COMMITTEE </small>

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strategy and objectives, with the business plan , to advise the Board of Director on issues of strategy, policy, directly operating all banking activities.

CONTROL BOARD Check, supervise the activities of the VIB system of legal compliance, the legal provisions of the banking sector and the statutes, regulations, business processes of VIB as well as proposals to overcome weaknesses and risks if precautions.

+ The management, direct business

+ The management, recruitment, reorganization, staffing + The management costs, administrative

<small>DEPARTMENT INSURANCE </small>

<small>DEPARTMENT SALES </small>

<small>DEPARTMENT TELLERS </small>

<small>CREDIT DEPARTMENT </small>

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Credit department - Gather information, customer analysis, loan, the appraisal report. - To make proposals and submit reports to competent authorities decide to grant credit, discount, mortgage lending valuable papers according to regulations and business processes of VIB.

- Guide customers complete loan applications.

- To receive and check disbursement records, the proposed disbursement leadership.

- To monitor customer activity, inspection and supervision over the use of loans, collateral loans

- Perform loan classification and credit rating, customer scoring. - Receive and examine the dossier requesting exemption / reduction rate, the proposed exemption / reduction and profit transfer Risk Management Division handled as prescribed.

Tellers - Perform transactions at the counter for customer. - Cash flow management in daily trading room.

Sales department - Find and develop new customer in line with the credit policy of the bank in each period.

- Support customer (VIP customer, Personal customer, Business customer).

- Building a data warehouse of information about customer. - Maintaining and developing relationship with existing customer Insurance department VIB Bank has signed a strategic partnership agreement with the

company limited liability life insurance Vietnam Prudential (Prudential) in the insurance business development bank. The two sides will focus on the traditional life insurance as well as new products in line with existing clients as well as the majority of VIB general customers nationwide.

- Build good relationship with the bank employee to be receiving clients wishing to purchase products from Prudential introduced bank staff

- Perform consulting and explained in detail the benefits, product specifications, regulations and contract terms and customer support insurance contract signed

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- Assist in understanding and choosing locations for expansion advantageous selling point especially in the bank branches and report back to monitor sales at Prudential.

Risk management department

- Analysis, evaluation, measurement and control exchange rate risks, recommended treatment measures and reporting.

- Comprehensive analysis of the records, the proposed credit / investment proposals of the customer; review and assessment of credit risk / investment independently; Establish risk evaluation reports and the approval of the competent authorities.

<b>2.2 The Inter’s position: </b>

When practicing at VIB, I was admitted to practice at Risk management Department. The department devide to 2 fields of which are Credit risk management and Exchange rate risk management. I was join a group Exchange rate risk management. My group had 5 people. People support each other in their work. I was worry when I arrived but the senior was helping and guiding me. After 4 months of practice I was really impressed with the professional working environment VIB as well as inclusion of the staff here.

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<b>CHAPTER 3: THE MISSION: ASSIGNED TASKS AND GOALS 3.1 The assigned tasks </b>

Risk management Department have 2 group. One group take responsibility for Credit risk management, the other for Exchange rate risk management. I am assigned to work as an trainee in Exchange rate risk management and my group have 5 people. The main tasks of our group include:

1. Prepare daily reports on the movement of currency and interest rates on the financial market of the country and abroad. Especially strong currencies such as US dollars. GBP, SGD, JPY ect. to forecast interest rates and exchange rates.

2. Support other concerned departments to prepare daily reports on market risks, especially exchange rate risk

3 Review and update the data for the internal parts of the collection, searching, processing, storage and distribution of data and information of the rates

<b>3.2 Link between the subject matter and mission </b>

My task are collecting data, analyzing the movement of foreign exchange rates, and interest rates , all such things are tightly linked to the topic of “Foreign Exchange Exposure Management At Vietnam International Commercial Joint Stock Bank”. The implementing the tasks is a fundamental step to identify daily monetary market risks for VIB and to find the way to manage the risk, namely:

- Collecting data of foreign exchange rates, and interest rateshelps me to understand movements of strong currencies such as USD. GBP, SGD, JPY ect... and the impacts of the movements on business activities of a bank.

- Analyzing the movement of foreign exchange rates, and interest rates and making daily reports support for drawing general picture of the monetary market with unforeseen fluctuation that are necessary experiences for predicting the threat and opportunities of VIB in the globalization context. Basing on such experiences and analysis we could suggest solution to mitigate the risk for the VIB

- The meetings with all members of the team to discuss about abnormal information of the monetary markets to prepare daily report are precious chances for me to be shared with experiences of the perennial staff of the Bank, which are helpful for me to implement the Topic.

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<b>3.3 The goals to reach </b>

<b>Table 1: The intern’s schedule </b>

Period My own plan Tasks target Activities 1

(1/7/2016 - 30/7/20

16)

Get more information about VIB and the risk management department as well as the coordination between departments.

- Aware of the banking system and apparatus operation

- Get to know about the tasks in risk management department: The number of employees in the department, the specific task of each person.

- Visit the Head office at 16 Phan Chu Trinh street, Hoan Kiem district, Ha Noi city. - Search relate information from different sources such as web, newspaper and another media to know more about VIB.

- Participate in regular discussion and meetings of the department to introduce myself and get suggestions from senior as well.

16)

- Make the Survey results about the concern of enterprises to derivative contracts

- Learn about the common types of risk in banking.

- Understanding data and developments of domestic and international financial market

- Understand operational risk management tools and risk management processe.

- The author has discovered 100 votes, 95 votes recoverable. By means of interviews, collect, aggregate, analyze authors gave the survey results.

- Collect and read relevants risk management department’s documents in recent years.

- Review all analyses. Match results of analysis above with VIB’s actual situation which was studied in the second task to suggest solutions.

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<b>3.4 The results which I can contribute to the company </b>

The data collected from the monetary market research and analysis can gives VIB a deep understanding of the monetary and economic situation in Vietnam as well as in the world. Such data and analysis will certainly help VIB in considering interest rates as well as exchange rate and in hedging risk.

Recommendations from report are useful for the bank in foreign exchange rate risk management.

<b>3.5 Ally theoretical knowledge to practice </b>

During the internship I have been aware of the usefulness of many knowledge acquired from courses of the AMI Master program as listed in the table.

<b>Table 2: The MBA course and their usefulness knowledge applied in the internship </b>

1 International Strategy This course helps me understand more about: strategic planning, competitive strategy and competitive advantage, strategic thinking ... so that strategy theories is applied in my analysis .

2 International Management The course introduces, describes, and explains the international business environment in which a contemporary international business organizations operate and introduces methodsto implement international business strategy of a.

3 Financial Risk management The course provides knowledge in the risk management of business activities, especially in the context of deep international integration. Risk management disciplines are closely linked to the international financial institutionsand multinational companies on issues of exchange rates and the volatility of exchange rates. So I have used many knowledge obtained from this course to my internships.

4 International Economics and Globalization

Analysis and presentation of international economic integration in some areas, countries and regions, with

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particular emphasis on the integration process of Vietnam help me to have the most reasonable and practical look at the adaptation of a country in the context of globalization and international economic integration.

5 International Trade payment options and Risk

Management

This course helpsme to understand about the international payment instruments, the conditions of international payment as well as insurance activities. About Foreign Exchange Rates, Bank’s Accounting System, Foreign Exchange Market.

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