Factors market impact business results of the state owned commercial bank in ho chi minh city

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OPEN UNIVERSITY MALAYSIA


ASSIGNMENT


FACTORS MARKET IMPACT BUSINESS RESULTS
OF THE STATE OWNED COMMERCIAL BANK
IN HO CHI MINH CITY




Associate professor: Dr. NGUYEN THE KHAI
Prepared by: NGUYEN DUY MINH
ID: 14968
Class: MBA.OUM0313–K08B




HCMC AUGUST 2014

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ACKNOWLEDGEMENTS


First of all, I would like to express my deepest gratitude to My lecturer –
Dr.Nguyen The Khai, who spent a lot of time and effort imparting knowledge about
the subject – Business Research Methods to me;

Second of all, I really appreciate all the help which I get from my Colleges of
Finance and Customs located at B2/1a, 385 street, District 9. They are persons who
have been a useful source of support and ideas for me to develop this paper;

At last, I really take this chance to express my thankfulness to my wife, Thai
Tran Van Hanh, who spends much time not only reading and correcting my draft with
great care but also giving a lot of valuable suggestions to me.

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SEMESTER 2014
BMBR5103 – BUSINESS RESEARCH METHODS
ASSIGNMENT (60%)

CONTENTS
CHAPTER 1: OVERVIEW 4
1.1 The necessity of the Assignment 4
1.2 Objectives of the Assignment 4
1.3 Object and scope of research 5
1.4 Research methodology 5
1.5 Layout of the assignment 6
1.6 Novelty of assignment 7

2.1 Overview of market–oriented business result 9
2.1.1 The concept of business result 9
2.1.2 The concept of market orientation 9
2.2 The relationship between business result and market orientation 11
2.3 Research models relates to business results according to market orientation 14
2.4 Research factors in accordance with orienting market impact on business results of
state–owned commercial banks 17
2.4.2 Factors in accordance with market orientation impact business results of the
system's state–owned commercial banks 22
2.4.2.1 Actual business results of Vietnam's banking system 22
2.4.2.2 Factors affecting the business results of the state–owned commercial bank
according to market orientation: 24
2.5 Recommended models and hypotheses 29

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CHAPTER 3: RESEARCH METHODOLOGY 33
3.1 Research Process 33
3.2 Research Methodology 34
3.2.1 Qualitative Research 34
3.2.2 Quantitative Research 34
3.3 The Sample 35
CHAPTER 4: RESEARCH RESULT 37
4.1 The inspection 37
4.2 Database description 43
4.3 Correlation coefficient analysis 44
4.4 Regression method 49
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 61
5.1 Conclusions from the research 61

5.2 Recommendations 61
5.2.1 Customer orientation 61
5.2.2 Competitor orientation 62
5.2.3 Interrelation, cooperation between functional units 63
5.2.4 Profit orientation 63
5.2.5 Response sensitivity 63
5.3 Limitations of the research and the coming study orientation 64
REFERENCE 66
APPENDIX 68

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CHAPTER 1: OVERVIEW
1.1 The necessity of the Assignment
The Vietnam became a member of the WTO Organization on 07/11/2006, which
opened a route of opening of Vietnam's banking system. Therefore, Vietnam's banking
system shall perform its obligations and comply to operation principles in commercial
service. For example, according to most–favored–nation (MFN) – defined in the
General Agreement on Trade in Services, (GATS), Vietnam has obligation to treat
equally to all countries, if Vietnam gives preferential conditions to one country they
must spend that incentives for all member counties. According to principle of National
treatment of equal treatment obligations between domestic and foreign enterprises,
particularly in the banking sector, Providers of foreign banking services can enjoy equal
privileges with providers of Vietnam banking services or foreign credit institutions
licensed to operate in Vietnam will b treated equally with domestic ones etc.
By November, 2011, after 5 years joining the WTO, Vietnam has removed any
limits on the right to accept deposits in Vietnam dong from Vietnam entities. This
required Vietnam banking system in general and state–owned commercial banks in

particular should catch up with the trend, or creating customer demand to improve
operational efficiency and competition capacity according to market principles.
From the practical study on "The market–oriented factors that affect to
business results of the state–owned commercial banks in the Ho Chi Minh City” to
provide recommendations for improving business results to state–owned commercial
banks according to market orientation.

1.2 Objectives of the Assignment
The Assignment focuses on 2 main objectives:
– Identify market– oriented market factors that have impact on business results
of the state–owned commercial banks in Ho Chi Minh City;

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– To propose recommendations for improving business performance through
market–oriented factors for the state–owned commercial banks in Ho Chi
Minh City;
However, with limited time, Assignment only offer research model and run a
number of variables on the basis of SPSS software to analyze and to give research way
to develop the assignment in the next assignments.

1.3 Object and scope of research
The study focused on the study’s object of market–oriented factors that have
impact on business results of the state–owned commercial banks
1
in Ho Chi Minh City
including:
The survey was conducted on the hierarchical management and direct sales staff
of the state–owned commercial banks in Ho Chi Minh City;

– Director/Deputy Director of Transaction Department/Branch
– Head/Deputy Head of Business Unit of Transaction Department/Branch
– Head/Deputy Head of Transaction office
– Credit expert/Officer/Credit Support/Teller
These are objects that have strong impact on strategy planning and
implementation of market–oriented activities as well as those who interact directly with
customers. Moreover, the knowledge and experience of these above objects are suitable
for research goals.

1.4 Research methodology
The study was carried out over 2 stages and included the combination of


1
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qualitative and quantitative research methods.
– In the qualitative study stage, basing on theory of market orientation, students
used qualitative research methods to explore and find out the factors needed
to impact business results in the field of banking and finance. These methods
include group discussions, in–depth interview some senior leaders of the
banks in Ho Chi Minh City, as well as expert opinion collection method
based on the market –oriented factors affecting to business performance.
The goal of qualitative surveys to calibrate scales measuring relationship

business results and the market –oriented factors. The scales applied in research are
scales of (Narver, JC and Slater, SF, 1990), (Deng, S. and Dart, J., 1994), (Gray, B., et
al., 1998) and (Wua, SF and Cavusgil, T., 2006).
– Stage 2, quantitative research, which was carried out by quantitative research
methods used to test the scale of the market–oriented factors affecting to business
results that have been explored and found during qualitative study period.
– Formal questionnaire after adjusting scale in qualitative research phase is
applied to conduct direct quantitative survey with respondents. Next students
start measuring the impact of these factors to the business results of some
State–owned commercial banks. The qualified questionnaire will be entered
directly on SPSS software to create analysis data for the research project.
The scales used in this study was assessed through Cronbach’s alpha reliability
coefficient. SPSS 17 and Excel 2013 is used to analyze the data.

1.5 Layout of the assignment
Chapter 1: Overview
This chapter gives a brief overview on the assignment, objectives, objects, scope,
methodology and content of the assignment.
Chapter 2: Theoretical Foundations of market–oriented factors affecting to
business results

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Chapter 2 introduces the theoretical basis on market oriented factors, business
performance and measuring methods for these factors to improve business results and to
propose research model and hypotheses of the assignment. It also provides an overview
of researches on the impact of market orientation to business performance in the
enterprise.
Chapter 3: Research Methodology

Chapter 3 introduces the methodology, research process and preliminary
quantitative research results to calibrate scale. On the theoretical basis presented in
Chapter 2 and preliminary quantitative research results, the study proposes calibration
scale and formal questionnaires to measure market–oriented factors affecting business
performance of State–owned commercial banks in Ho Chi Minh City.
Chapter 4: Research results
This chapter presents analytical methods, analysis process and official
quantitative research results to verify scale and study model as well as hypotheses. The
results of research are saved on SPSS 16 software and Excel 2013 version.
Chapter 5: Conclusions and Recommendations
The final chapter of the thesis summarizes the main results of the study, the
contribution and the implications for improving business performance in the State–
owned commercial banks according to maket–orientation and at the same time give the
limitations of the study and direction for further research.

1.6 Novelty of assignment
The concept of market orientation is not a new concept which has been research by
the world and Vietnam researchers for over 50 years in most fields from manufacturing to
service, from business organizations to non–profit organizations. However, partly due to
the slow equitization process of the State–owned commercial banks compared with the life
history of this concept, no study for the Vietnam State–owned commercial banks in general
and in Ho Chi Minh City in particular has been conducted.

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The assignment is not aim to build a new theory of market orientation, business
performance in the financial and banking sector, but focus on the market–oriented
factors really affecting to business results in State–owned commercial banks in Ho Chi
Minh City, then to propose recommendations to help the bank improve business results

during the integration period.

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CHAPTER 2: THEORETICAL FOUNDATIONS OF MARKET–ORIENTED
FACTORS AFFECTING TO BUSINESS RESULT

2.1 Overview of market–oriented business result
2.1.1 The concept of business result
Business Result is defined as the achievement of the enterprise’s goals and is a
measure of business performance in each period. Business result is measured by
achieved profit, growth, market share, sales and other strategic goals (Homburg, C. et
al., 2007); (Yeniyurt, S., et al., 2005). (Hughes, M., et al., 2007) in their study give 2
ways to measure business result such as: customer performance and product
performance. In which, customer performance is often measured by customer attraction
and customer retention (Hansotia and Behram, 2004); (Jayachandran, S., et al., 2004);
(Chandon, P. et al, 2005). Therefore, according to (Hughes, M., et al., 2007)
performance measurement is based on what effect the enterprise create to create the
attraction, retention, the reuse of the customer and create loyal customers. Meanwhile,
the product performance is measured by the success of the enterprise relying on sales
and market share of product/service provided into the market.
Business effectiveness is defined as the degree on which achieved objectives
based for addressed issues. In contrary to the performance, effectiveness is determined
without taking into account cost. While performance means “correct performance”,
effectiveness means “doing right work”.
2.1.2 The concept of market orientation
Market orientation is one of the most important concept of modern marketing
(Pandelica, A. et al., 2009). This term was first known in developed countries from the

years of 1957 – 1960 but only understand academically and theoretically (McKitterick,
1957); (T. Levitt, 1960); (Deng, S. and Dart, J., 1994).
Baker and Sinkula in a 1999 study showed that market orientation is a guideline
for handling information obtained from the market of the enterprise. At the same time,

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they also considered how this factor will be used in business strategy (Baker, WE and
Sinkula, JM, 1999). Meanwhile, Jaworski defined market orientation as a combination
of the upcoming actions and activities related to the production, dissemination and
coping with market information. Market orientation leads to an outward focus that
directed mainly to customers and competitors (Jaworski, BJ and Kohli, AK, 1993).
Furthermore, market orientation will define value of the response to customer (Kohli
AK, et al., 1993) or the existence of market orientation based on the continuous
assessment of enterprise capacity and interact with the customers’ and competitors’
feedback (Baker, WE and Sinkula, JM, 1999).
According to Lafferty et al, market orientation has 5 schools (Lafferty, B. and
Hult, G., 2001):
School of approach towards decision making, market orientation is a decision–
making process of the enterprise, which emphasizes the commitment of the executive
board on sharing information with functional parts. The strong linkage in the
organization will create clear communication, a sustainable combination and high–
leveled commitment (Shapiro, 1988). However Sapiro only stopped at the level of
decision making, rather than showing the combination to create value for customers and
not mentioning competitive factors on the market while the competition is one of the
important factors of the principle of market orientation.
Behavior school of Kohli and Jaworski considered “market orientation” as a
term to develop the application of marketing idea (Kohli, AK and Jaworski, BJ, 1990).
Accordingly, market orientation is defined as a process of creating the market

information relating to current and future customers’ need; the synthesis and popularity
of such information to the departments; planning and implementing synchronous
coordination among functional departments within the enterprise to respond to the
market opportunities. Thus, market orientation include (i) Creating information, (ii)
Spreading information and (iii) Responding to customer demand.
School of approach towards enterprise’s culture of Narver, Slater said that
market orientation is a kind of business culture which can create a foundation for better
value generation for our customers and the enterprise’s success (Narver, JC and Slater,

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SF, 1990). This culture is a combination of three components: (i) customer orientation,
(ii) competitor orientation and (iii) The interfunctional coordination. Strategy–focused
approaching school of Ruekert, baseing on the study of Kohli & Jaworski and Narver
& Slater to focus on analysis of economic unit rather than analyzing individual markets.
According Ruekert external environmental factor which has biggest influence to the
market orientation is the client (Ruekert, 1992).
School of approach according to customer orientation of Deshpande and his
colleagues considered market orientation similar to customer orientation. They also
refuted the factor of competitor orientation in concept of orientation market factors and
recognized the interfunctional coordination suitable with customer orientation and is
one part of a customer–oriented. Deshpande’s research team also considered customer
orientation is one part of the overall corporate culture (Deshpande, R., et al., 1993).

2.2 The relationship between business result and market orientation
Market orientation is always valuable to enterprise because it will guide them to
create superior value for customers (Slater, SF and Narver, JC, 2000) and has been
proved to have positive impact to the enterprise’s business operation results (Jaworski,
BJ and Kohli, AK, 1993); (Baker, W.E. and Sinkula, J.M., 1999); (Baker, W.E. and

Sinkula, J.M., 1999). Furthermore, a good business result always shows a deep and
insight understanding about customers of the enterprise (Clark, KB and Wheelwright, S.
C, 1993)
Narver and Slater, in a study in 1990, also said that market orientation is (i) to
meet the customer's change (ii) to meet the competitors’ change and (iii) the
interfunctional coordination is pivotal for the enterprise’s success (Narver, JC and
Slater, SF, 1990).
Market orientation is an element of the enterprise’s culture and it is base for
necessary and effective activities in order to create better value for customers as well as
the enterprise’s success.
Factors used to measure market orientation are interpreted as follows:

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Customer orientation and Competitor orientation includes all activities such as
gathering information about customers and competitors in the target market and
disseminating this information to each functional department.
Customer orientation is to understand the customers’ need to continuously create
superior value for customers (or, according to (T. Levitt, 1980) continuously create
"offered products"). Market–orientation requires the salesperson to understand the
customer's value chain (Day, SG and Wensley, R., 1988), not only at the moment time
but also in the future time according to the market change.
A salesperson create value for a customer only in 2 ways: increasing benefit to
customers bigger than the cost that the customer spend and reducing customer’s cost
compared to benefit that customers receive. Further customer benefits should be
understood not only to be the immediate cost and benefits of direct customers but also
be a customers' customer. Therefore, the businessman is required to know about both
pressures in economics and politics at all levels of the distribution channel. With
support of the work’s standard frame, a salesperson can understand who is the potential

customers now and in the future, what customers expect today and in the future as well
as what customers feel at this time and can feel the latter to satisfy their need.
Competitor orientation is explained as a salesperson can understand the strengths
and short–term weaknesses and three behavioral components of market orientation (for
example: (Houston, 1986); (Kohli, AK and Jaworski, BJ, 1990). To survive long term
from the current competitive situation, the enterprise must think about further prospect.
To prevent their competitors from surpassing in creating added value for customers, the
enterprise must be persistent in creating and providing added value for customers, this
requires suitable investment and strategy. (Anderson, 1982) emphasized that a long–
term investment perspective should be interpreted as a market orientation.
The Interfunctional coordination is a combination of the enterprise’s resources to
create superior value for target customers. Any stages in the customers’ value chain
create opportunities for salesperson to provide value to customers. So any individual in
any the enterprise’s functional units can also potentially contribute to the creation of
value for customers (Porter, 1985), and this effort is a specific effort of all functional

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units not from any one unit separately (Webster, 1988). This was also shared by
M.Porter when he came Vietnam that one of the biggest weaknesses of Vietnamese
enterprise is too internal competition.
The interaction among the enterprise resources in creating added value for
customers has a close relationship with both market orientation and competitor
orientation. Starting from the nature of creating superior value for customers, the
mutual dependence of the marketing function with other functional units must be
coordinated systematically according to the enterprise’s marketing strategy (Wind, Y.
and Robertson, TS, 1983).
Once the functional units in the enterprise do not have good tradition of
interaction, supporting and leader must implement the way to erase the barrier between

functions. The achievement of interfunctional coordination and other factors requires
the unit arrangement and the creation of the functional independence of each unit so
they can perceive their own advantages in cooperation with the others. If the enterprise
reward for any unit, which contributes to the creation of superior value for customers,
self–interest will attract all unit to participate fully (for example: (Ruekert, RW and
Walker, OCJr, 1987A) (Ruekert, RW and Walker, OCJr, 1987b); (Wind, Y. and
Robertson, TS, 1983). To develop interfunctional coordination effectively, Marketing
departments or any supporting ones shall express their sympathy and enthusiasm to the
knowledge and need of all the departments in the enterprise (eg (Anderson, 1982)).
In terms of conceptualization, market orientation is a high–order construct concept,
which consists of many components, in which most of authors based on three fundamental
components stated by JC Narver and SF Slater in 1990 as discussed above. However,
basing on the business environment in the banking sector, and on the results of many
domestic and foreign studies, we can add 2 other factors into this study: profit orientation
(Deng, S. and Dart, J., 1994) and sensible response (Gray, B., et al., 1998), namely:
Profit orientation, this factor is probably paid attention by most of enterprises.
However, most of them only focus on short–term benefit not on long–term interests of
the sector as well as economic benefits and social benefits. Profit orientation requires
the enterprise to define profit target according to customer groups, for each

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product/service line as well as different business units in the various business areas.
Sensible response, to survive and develop sustainably, the enterprise need to
focus on collecting information, analyzing and forecasting of the changes from
macroeconomic environment, from sector’s environment to the enterprise’s internal
environment and especially changes in more and more diverse customer demand to
implement suitable responses timely. The global financial crisis starting from 2007 and
continuing complexly to now is a big challenge for Vietnam's banking system,

especially state–owned commercial banks, which are considered as less sensitive with
the change.

2.3 Research models relates to business results according to market orientation
Currently, there are many researches about the impact of market orientation on
business performance of enterprises all over the word. Some typical research models
are as follows:
– Research 1: An in–depth study of the relationship between market orientation
and business performance ("A meta–analysis of Relation between Market
Orientation and Business Performance: Evidence from five Continents"),
Cynthia Rodriguez Cano, Francois A.Carrillat, Fernando Jaramillo (2003).
The objective of this study was to clarify the relationship between market
orientation and business performance relationship is positive and constant
throughout the world. One of the unique contributions of this study is that the
sampling was carried out in 23 countries throughout 05 continents. The effect
diminishes with objects such as business (profit and non–profit), type of
industry (manufacturing and services), social and economic development
(GDP, HDI and measuring individual culture by Hofstede). Stronger
correlation of the relationships between market orientation and business
performance has been explored toward non–profit organizations compared
with profit ones and production compared with services.
Research model of Cynthia Rodriguez Cano and his colleagues focused on

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testing the relationship between market orientation and business performance, the
authors offer the hypothesis as follows:
 There is a positive relationship between market orientation and business
performance

 The relationship between market orientation and business performance in
collectivist cultures is more strongly individualistic culture
 The relationship between market orientation and business performance in
the non–profit organization is stronger business organization
 The relationship between market orientation and business performance in
the service sector is stronger manufacturing sector
 The relationship between market orientation and business performance as
measured by MRTOR scale is greater scale MARKOR
– Research 2: The effect of market orientation on the profitability of the
business ("The Effect of a Market Orientation on Business Profitability",
John F.Slater C.Narver & Stanley, 1990). The aim of authors is to develop a
consistent way of measuring market orientation and analyze its impact on the
profitability of the business. First the author discussed the relationship
between sustainable competitive advantage and market orientation and the
reasons why market orientation is business culture and this culture generate
superior value for customers efficiently, most performance. The authors also
hypothesize about the 4th component of market orientation. In addition, the
author expects the relationship between market orientation and profitability
of business operations as well as the relationship between the control 8
variables and profitability.
The hypothesis given by the author is the more market–oriented, the more
possible profitability of the business is, in the condition the other factors are constant.
– Research 3: Measuring market orientation: Synthesis and generalizations
("Measuring Market Orientation: generalization and Synthesis", Rohit
Deshpande & John U.Farley, 1997). The study was carried out uniformly and

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through many countries in order to generalize and retest the measurement

tools of market orientation of enterprise developed by 03 different researcher
groups in the late 1980s. This based on the new research of the author over
82 managers from 27 companies in America and Europe. The author has
discovered that all three scales are reliable and consistent. The scales seem to
be generalized globally, both in terms of reliability and performance
prediction. Finally, the author has compiled a scale to measure 10 variables
based on a more detailed definition of market orientation as "the set of
processes and activities directly multifunctional creating and satisfying
customers through reviews price needs on an ongoing basis”
– Research 4: Improving the efficiency management of enterprise in the
hospitality sector according to market orientation, Lai Van Tai and Hua
Kieu Phuong Mai, 2007 to assess the level of management according to the
market orientation of tourism hotel businesses in Ho Chi Minh City and also
determine the effect of each market orientation component on business
performance of enterprise.
In which Lai Van Tai and Hua Thi Kieu Mai tested the following hypotheses:
 There is a positive correlation between customer orientation and business
performance;
 There is a positive correlation between orientation competitor orientation
and business performance;
 There is a positive correlation between the interaction of the functional
units and business results;
 There is a positive correlation between profit orientation and business
performance;
 There is a positive correlation between response sensitivity and business
results;
Regression analysis results of this study show that, in the hospitality sector, of
the components of market orientation, sensitive response is component having the most

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significant impact on business results, while customer orientation, competitor
orientation and interaction between the functional units have weak effects and unstable.
2.4 Research factors in accordance with orienting market impact on
business results of state–owned commercial banks
2.4.1 Overview of the banking system in Vietnam
1

The development process of Vietnam's banking system since 1975 can be
divided into the following stages:
Period 1975–1985: After 1975, the National Bank of Vietnam in the South has
been nationalized and merged into the State Bank system of Vietnam, performed the
same task that unified currency throughout the country, issued a new kind of money,
revocated old money in both the South – North in 1978.
From 1986 to 1990: This is the infancy of the initial reforms, as prerequisite for
the formation and development of a system of Vietnam Bank to be more comprehensive
and fundamental.
From 1991 to present: This is the stage that Vietnam's banking system has a lot
of transformation gradually indirection of a modern two–tier banking system through
the following major milestones:
– Since 1991, when the Bank Ordinance took effect, branches, representative
offices of foreign banks began to establish in Vietnam. During this period,
four joint venture banks of four state–owned commercial banks with foreign
banks were established in Vietnam. The joint–stock commercial banks began
to be established;
– 1993: Normalizing relations with International Monetary financial
institutions (IMF, WB, ADB);
– 1997: the 10
th

National Assembly passed the Law on the State Bank of
Vietnam and the Law on Credit Institutions (dated 12/02/1997) and takes


1
Website: www.sbv.gov.vn/introduce.asp

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effect from October 1, 1998; established House Development Bank of
Mekong Delta (Decision No. 769/TTg, dated 18.09.1997). This is also the
year when the financial crisis in East Asia happened, which had a negative
impact on Vietnam's banking system, after this period, a number of joint–
stock banks operating weak were rearranged. From more than 50 joint–stock
commercial banks, by the end of 2004 only left 37 banks;
– 2000: Restructuring finance and operation of state–owned commercial banks
and the joint–stock commercial banks. In particular, there was companies in
the commercial banks;
– 2001: Bilateral Trade Agreement Vietnam–the United States was signed. In
this agreement, Vietnam has committed to open banking and finance market
under a certain route;
– 2002: Liberalization VND lending interest rates of credit institutions – The
final step fully liberalized credit market interest rates on both input and
output;
– 2004: Amending the Law on Credit Institutions Vietnam;
– During this period, there was a very important event affecting Vietnam's
banking system in particular, the financial system in general, which is
Bilateral Trade Agreement Vietnam – the United States was signed. Under
this agreement, banking and finance markets Vietnam has been gradually

opened for business of the United States and by 2010, the financial
institutions of the United States are treated as equal members of the Vietnam
financial institutions. These are good conditions for Vietnam's financial
market development, but also a huge challenge for domestic financial
institutions, especially commercial banks;
– June 16, 2010: the XII National Assembly formally adopted the Law on the
State Bank of Vietnam and the Law on Credit Institutions and has taken
effect since January 1st 2011. Law the State Bank in 2010 had a number of
important changes compared to the one in 1997, which clarified the legal

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status of state–owned banks, as well as defined the functions and duties of
state–owned bank as the central bank, performed the functions of state
management in the field of monetary and banking operations, confirmed
close relationship between two important functions of a central bank:
implementing monetary policy and monitoring the safe operation of the
system of credit institutions. Meanwhile, compared with the old Law,
significant changes in the Law on Credit Institutions 2010 is stipulating that
the credit institution must not operate any business other than banking
activities, which means that the capital raising activities similar to bank of
non–bank institutions in the field of securities, finance investment services
would be terminated since the beginning of 2011.
According to the Law on Credit Institutions Vietnam in 1997, which was
amended in 2004 and 2010, the system of Vietnam credit institutions include:
– Credit institutions are enterprises established under the provisions of the Law
on Credit Institutions and other provisions of law for banking activities;
– The bank is a type of credit institution having right to perform all banking
activities and other business activities being concerned. The nature and

operational objectives, the types of banks include commercial banks,
development banks, investment banks, policy banks, cooperative banks and
other types of banks;
– Non–bank credit institution is a kind of credit institution that performs some
banking activities such as regular business content, but must not receive
money deposits or provide payment services. Non–bank credit institution
include finance companies, leasing finance companies and other non–bank
credit institutions;
– Foreign credit institution is credit institution established under foreign law;
– Cooperation credit institution is organization that trades currency and does
banking services and is established by organizations, individuals and
households voluntarily for banking operations with the main aim of mutual

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assistance, developing production, business and life. Cooperative credit
institution include cooperative banks, people's credit funds and other forms;
– The types of credit institutions (as owner): Credit institution is established
under the laws of Vietnam including state credit institutions, shareholding
credit institutions, cooperative credit institutions, venture credit institutions,
credit institutions with 100% foreign capital. There is also a branch or
representative office of a foreign bank in Vietnam;
There are 45 banks and 53 branches of foreign banks in Vietnam currently,
including:
– 06 large commercial banks, in which 04 largest banks, each bank has
chartered capital of over $ 1 billion and total assets of 15–25 billion dollars,
Agrinbank is the largest bank (excluding Mekong Delta Housing
Development Bank and policy bank). Among them the Joint Stock
Commercial Bank for Investment and Development of Vietnam equitizated

on April 30, 2012.
– 34 private equity commercial banks, in which 3 biggest banks are in order:
Eximbank, Sacombank and ACB, while other banks are small (chartered
capital from 3,000 billion to 5,000 billion and mainly be back pitch of the
enterprises.
– 53 branches of foreign banks and banks with 100% foreign capital.
– 5 banks with foreign partnership
– There are also 18 finance companies, 12 financial leasing companies and
1,202 people's credit funds
In Vietnam, the banks (commercial) is allowed to participate in all activities of
investment securities, buys controlling stake in another bank establishes financial and
non financial companies, deposit–taking, lends gold, products and trades gold, whereas
non–financial companies are also allowed to establish banks (Vietnam Credit Law in
2010), while in the developed financial markets, such as the United States, the purpose
and function the ability of the organization to be specified as follows: while in the

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developed financial markets, such as the United States, the purpose and function of
above organizations to be specified as follows:
Commercial Banks: The purpose of the commercial banks in addition to pay for
the sale of goods and services (by check or online) is to attract deposits of numerous
customers (especially individual customers) and lend customers (business or personal)
to trade and consume.
Investment banks: The purpose of the investment banks is that finance
companies help businesses raise capital by selling shares or bonds (debentures) on the
market, investment banks must not receive the consignment (deposits). Investment
activities in shares, bonds and other financial instruments are risky activities, so
investment banks must use their own capital (equity capital is contributed by

shareholders, that is the main capital of the risks investors) to invest in the stock market
(stocks, corporate bonds, etc.). However investment banks are mainly in charge of
issuing stocks and bonds for companies being in need of capital to expand operations.
To do this task, investment banks have underestimated the ability of production and
development of companies that want to issue shares and must be able to mobilize other
financial companies to associate and guarantee minimum value of securities. This is
activities that hide high risk.
Insurance companies: There are 2 types of insurance, (i) health insurance or
accident insurance collectively referred to as non–life insurance (non–life) base on the
law that large numbers of people use the contribution to buy premium (premium) to to
pay for the victims and the rest to cover expenses for the company's operations and
make profitability for stake members. (ii) Life Insurance (life insurance) is the form that
people save money. The companies attract money contributed by individuals to invest
(usually financial investments) in order to increase total assets of above donations and
pay under the contract fixed prior as the contributing person is at limit certain age.
Pension Fund: Total assets are mobilized to the fund forming huge financial
resources in many countries. If people know the right management, it not only solves
retired problem but also raises capital for development, because the pension fund, in
principle, is the same as life insurance is saving money form of the public. The

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difference is that pension fund, is usually held no profit purposes, is operated as an
independent fund from hired management, operate under the direct supervision of the
Board of Directors designated by the Government, business owner or union. The
organizations of pension fund in different country are not the same. In Vietnam,
pensions based on worker’s working years and last salary (known as defined benefits)
and the payment of retirement can be a burden for the budget or company if it is
carefully considered, especially the number of people working for the government or

company lives longer and young working population is declining.
Other financial companies (excluding financial companies introduced above): Include
companies primarily act as brokers for financial companies. They may be intermediate to sell
securities in the secondary market for customers, selling insurance contracts to insurance
companies for commission, offering credit card, leasing financial etc…
2.4.2 Factors in accordance with market orientation impact business
results of the system's state–owned commercial banks
2.4.2.1 Actual business results of Vietnam's banking system
Interest rate in Vietnam was high rate level in late 2011 and continued higher in
the first 4 months of 2012, deposit rate of up to 14% – 16%, while lending rate
sometime at 20% – 22 %. To control and overcome this situation, the State Bank of
Vietnam began to apply the interest rate ceiling of 14% from the end of September
2011. The ceiling interest rate then continuously adjusted decreasing according to
inflation developments closely down to 8% at the end of 2012, from June 2013 until
now; the ceiling interest rate is 7% per year.
Lending rates also decrease gradually, but the rate of decline is slower than
deposit rates in the early stages by introducing a cap on deposit rates, many banks still
mobilize over ceiling and race interest rate to solve liquidity problems. However, from
the second half of 2012, when the State Bank conducted strict supervision measures,
and required commercial banks to reduce lending rates of existing loans to a maximum
of 15%, interest rate to new loans decline markedly. This is also a time when banks
began to realize the sharing difficulties with manufacturing businesses to maintain
operations themselves and tend to narrow the ratio of net interest income (NIM).

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Figure 2.1: The Evolution of ceiling deposit rates up to now

Source: SBV

Although much lower interest rate, deposit growth remained strong over 20% as
banks race interest rate, push up interest rates and appeal depositors, while other
investment channels such as real estate, securities have difficulty. In contrast to the
mobilization and credit in 2013 remains low growth compared with the previous year,
reaching 8.91% by the end of the year. This is mainly due to (i) the interest rate is too
high from the end of 2011 and until 2013 under the impact of tighter monetary policy, it
has led business operations of many businesses get stuck, leading to an increase in
dissolution and outage corporate rate, so the demand for a loan to expand production
and corresponding declines; and (ii) the bad debt ratio increased due to declining
repayment capacity of the business and consequent of the hot credit growth in the
previous year, so the banks are more careful in new lending.
Consequences of mobilization increased more than credit is excess liquidity
phenomenon in the banking system, especially in large banks. Do not push up credit
growth, many banks have stepped up investment in valuable papers (bonds, government
treasury bills and government guaranteed) in order to partially offset the decline in
interest income from credit activities. However, bond rates can not fully compensate for
the rate of credit interest income while still accounting for a large share of the income

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structure of banks (70% – 80%). In addition, bad debt increased from 3.2% in 2011 to
over 8% by the end of 2012 and in 2013 was 7% had made provision for the cost of
banking risks increase.
The main reasons outlined above made profit of the banking system in 2013
significantly reduced in this context. In this context, the advantageous situation belongs to
the banks that are large, have strong financial strength and good risk management systems.
When the system falls into the difficult situation, the negative issues were
gradually revealed. Typically in 2012 and 2013, a series of violations of the bank staff,
typically at Agribank, Vietinbank and a number of other joint–stock commercial banks

in lending, deposits, related to fraud and misappropriating assets cases and cross–
ownership relationship among banks and between bank and business, making mistakes
of a few senior officials of the bank be affect the whole system systems. Currently, the
relevant banks continue to deal with the aftermath of this incident.
State Bank also stabilizes the foreign exchange market and reduces dollarization
through (i) require all commercial banks to finalize gold mobilization before June 30,
2013, (ii) lowering foreign currency deposit interest rates to 2%/year, (iii) strengthening
of foreign currency reserves, and (iv) indirect exchange rate stability through effective
inflation control in 2012 In the early months of 2013, State banks pledged to stabilize
the foreign exchange market and commitment of VND discount (if any) below 3%, and
this was realized when the exchange rate stabilized in both 2013.
According to statistics from State Bank, the total banking industry profit in 2013
was 28.600 billion. Situation of bleak profit in 2012 ended the golden years of the
banking crisis rates. Most banks are declined profit very sharply, even the big banks
like Vietcombank, Vietinbank, BIDV, did not have significant growth over the previous
year, despite being the leader of the whole sector in profit.
2.4.2.2 Factors affecting the business results of the state–owned
commercial bank according to market orientation:
Customer Orientation: The State retains the power to govern in the majority of
shares of the bank. Most of the state–owned commercial banks have advantages in