lUẬN văn THẠC sĩ NÂNG CAO HIỆU QUẢ HUY ĐỘNG vốn tại BIDV CHI NHÁNH NAM hà nội GIAI đoạn 2008 2012 en

THESIS SUBJECT:
IMPROVING THE CAPITAL MOBILIZATION EFFICIENCY AT BIDV’S
SOUTHERN HANOI AFFILIATE IN THE PERIOD OF 2008 - 2012

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INTRODUCTION
1. The subject’s importance
2011 was a stormy year for the economy of Vietnam in general and for
enterprises in particular. The efforts made by the Government have helped
Vietnamese economy partially overcome difficulties in 2011. However, there are
still challenges facing Vietnam economy in the year of 2012.
In 2012, Vietnam's economy has still been facing difficulties due to the
global economic crisis and the impact of the fall in foreign direct and indirect
investments. To achieve the target of growing GDP from 6 to 6.5% in 2012, onedigit inflation rate, the state budget deficit below 4.8% and credit growth from 1315%, it is necessary to the Government to monitor flexibly. Besides, it can be seen
that the State Bank of Vietnam and the Ministry of Finance will tighten their
monetary and financial policies. Accordingly, the three industries, which are
predicted to face a great number of difficulties, include real estate, stock market and
commercial banks.
Effective business performance is vital for any enterprise. In order to
establish a business and operate its activities, capital is a prerequisite condition to
maintain and develop production activities and reflects the financial resources
invested in the production process and business. The hunger for capital is one of the
pressing issues facing enterprises, particularly nowadays, when businesses expect to
invest to expand their production and diversify their services to enhance their
competitiveness after Vietnam joined World Trade Organization (WTO). Capital
determines the competitiveness of every enterprise of which CBs are not the
exception. Efficient capital mobilizing (or fund-mobilizing) is the prerequisite for
banks to survive and grow. Like lending, capital - mobilization is a major and
typical profession of a commercial bank (CB).

In the process of socio-economic development in Vietnam today, capital
demand is always among top priority issues before starting a new fiscal year. This

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fact is mentioned since the socio-economic development and the enterprises’
development strongly depend on capital. Particularly, CBs - financial institutions in
financial markets which do business in the field of money and currency, capital
plays a more important role comparing with other organizations. In the context of
harsh competition in the banking sector nowadays, the efficiency of capital
mobilization is one of the factors that help banks to improve their competitiveness
in the market. The main activity of CBs is lending, i.e. providing loans and
collecting interests. Therefore, in order to meet the market capital needs, CBs must
raise capital externally. In other words, capital mobilization plays a key role for
banks that want to survive and develop. On the other hand, the development of
credit institutions, especially CBs is the prerequisite for the development of the
capital market, which facilitates the development of the social economy. Those said
analyses explain the importance of CBs’ capital mobilization to the current
economic development and clarify why CBs’ capital mobilization profession should
be studied and explored.
Given the difficulties that CBs must face in 2012 in addition to the target of
controlling the credit growth and quality and limiting bad debts, the capital
mobilizing target is placed on top by CBs.
Banking is a unique industry with its unique products and services since its
equity accounts for a small percentage of the working capital. Therefore, the more
funds CBs can mobilize from economic entities, the easier their activities are. Only
by mobilizing capital can CBs have funds for lending and further improve their
other activities. That is the reason why a great number of banks mutually vie with
others by increasing their interest rates for their effective capital mobilization.

The global financial crisis and economic downturn in the mid-2008 have had strong
impact on the capital mobilization activities of Vietnamese CBs in general and of
BIDV (Bank for Investment and Development of Vietnam) in particular.
The current international economic integration has created a great deal of
challenges for CBs in Vietnam. In fact, Vietnamese CBs seriously lack of funds due

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to their limited competitiveness in mobilizing capital and the low quality of services
that do not really meet customers’ demands. This results in their ineffective business
performance.
The capital issue has always been a top priority for BIDV Southern Hanoi
affiliate over the past years. Capital mobilization is considered effective when
banks’ capitals are abundant and available to meet the needs of withdrawing cash as
well as borrowing among inhabitants, enterprises and other organizations. With its
motto “Considering capital mobilization is an important stage and create space for
firm capital growth”, BIDV Southern Hanoi affiliate has attempted to diversify
fund mobilization forms through expanding its transaction network as well as
improving the quality of banking services subject to the following criteria: "Fast,
accurate and convenient for customers." However, capital mobilization is still a
"hot" issue for BIDV Southern Hanoi Affiliate. The economic fluctuations, the
increase or decrease in gold prices and exchange rates have influenced most
people’s psychology. An illustration is that the increase in gold prices results in the
trend in which almost all people tend to withdraw their deposits in banks to
purchase gold for short-term and quick earnings. Real estate market can also help its
dealers earn much money. Therefore, with the current low interest rates, it is
difficult for banks to attract funds from individuals as well as businesses.
Accordingly, when banks are short of capital, it is not easy for them to ensure an
abundant money supply to individuals and organizations.

According to the above-mentioned theoretical and practical analyses, I
decide to select my MBA thesis subject namely "Improving the capital
mobilization efficiency for BIDV’s Southern Hanoi Affiliate". The thesis
objectives are raising my own theoretical awareness, knowledge and practical
experience and partially contributing to strengthen the capital mobilization
efficiency for the Affiliate. The purposes and roles of the thesis are to clarify some
fundamental issues on capital mobilization and present recommendations to
improve its efficiency.

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2. Research thesis purposes
• Explain the basic theories relating to the capital mobilization efficiency for
CBs in the market economy.
• Analyze and evaluate the efficiency of mobilizing capital at BIDV Southern
Hanoi Affiliate Hanoi and look into its achievements, shortcomings and reasons.
• Propose solutions to improve the capital mobilization efficiency at the Bank
Affiliate in the context of harsh competition in Vietnam today.
3. The subject and scope of the research thesis
• Research thesis subject: the efficiency of CBs’ capital mobilization
• Research thesis scope: covers the efficiency of BIDV’s Southern Hanoi
Affiliate in 2008-2012 stage and proposing relevant solutions and recommendations
to improve the capital mobilization efficiency for next periods.
4. Research thesis approach
This thesis applies the following research methods:
- Qualitative analysis,
- Quantitative analysis,
- Method of collecting information and data: data are collected from:
+ Report on the operation performance of BIDV’s Southern Hanoi Affiliate

in 2008-2012 period,
+ Relevant documents, newspapers and professional journals.
- Methods of analysis and synthesis:
+ Chronological analysis and synthesis (2008-2012)
+ Subject analysis and synthesis (compared with other CBs)
+ Analysis and synthesis of subject groups and issue groups.
- Comparison method
5. Structure of the thesis
In addition to the introduction and the conclusion, the thesis content consists
of three chapters:

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Chapter I. FUNDAMENTAL THEORETICAL BASIS FOR CAPITAL
MOBILIZATION EFFICIENCY OF CBS
Chapter

II.

MOBILIZATION

SITUATION ANALYSIS
EFFICIENCY

AT

OF ACTUAL CAPITAL

BIDV’S

SOUTHERN

HANOI

AFFILIATE
Chapter III. SOLUTIONS TO THE IMPROVEMENT OF CAPITAL
MOBILIZATION

EFFICIENCY

AT

AFFILIATE

6

BIDV’S

SOUTHERN

HANOI


CHAPTER I
FUNDAMENTAL THEORETICAL BASIS FOR CAPITAL MOBILIZATION
EFFICIENCY OF CBS
1.1. CBs’ capital and capital mobilization
1.1.1 Capital and the need of capital mobilization
In economics, capital is a relatively complex category and it is difficult to

find a consistent definition among viewpoints. In his work namely Capital, Karl
Marx outlined the categories of capital. According to Marx, capital brings surplus
value. This definition fully reflects the nature of capital:
1) Capital represents a certain type of property;
2) Capital always circulates and makes profit during its circulation;
3) Capital is a commodity and like other commodities, it has actual purpose.
In short, capital is a property that is used in production in order to create
more properties.
All in all, capital is a social property used to invest in future efficiency.
Therefore, in the market economy, regardless of any field or industry in which a
company is doing business, capital plays an important role that determines its
efficiency. Banks, too, would like to work business effectively, leads to high
efficiency is the command capital needs to be attention.

Banks are not the

exception: in order to effectively operate, they must pay sound attention to their
capital mobilization.
1.1.2. Capital of CBs
1.1.2.1. The CB concept
CB system is regarded as the result of long formation and development
process of the commodity economy and the commodity and currency relations.
Although the concept of CBs is various in different nations, CB is regarded a
professional monetary enterprise, a financial intermediary which transfer funds
from abundant subjects to those are short of funds.

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In Vietnam, the Ordinance on Banks, Credit Cooperative and Financial

Corporation dated 1990 defines CB as follows: "CB is a monetary organization of
which the main activity is to receive its customers’ deposits. These deposits would
be refunded to customers and used for loans, discounts and used as a method of
payment.”
There are several CB definitions depending on legal norm of each nation.
Vietnam is in the process of building and developing a financial market model of
which the core part is CBs operated under the nation’s macro-regulation. Thanks to
the transition from a bureaucratic centralized economy to a market one with the
country’s management, Vietnamese bank system has been significantly innovated. A
fundamental change in the bank organization model is the separation of the
monetary and credit management function from the monetary trading function.
Other changes include the diversification of bank types, the gradual removal of the
monopoly and the turning point to the competition model under the control of the
government. Two-level bank system has been formed in Vietnam since 1988. This
system was officially legalized by two Ordinances on banks including Ordinance on
State Bank and Ordinance on Credit Cooperative Bank and Financial Corporation
dated 1990. Since then, the bank system model’s components have been as below:
- State Bank: is a state management organization in the monetary, credit and
banking industry.
- CBs: are enterprises that do monetary business.
Accordingly, in order to strengthen management, guide the activities of
banks and other credit institutions, and create favorable conditions for the
development of the economy while protect the legitimate interests of relevant
organizations and individuals, Article 20 of the Law on the Organization of Vietnam
was issued in 1997/10th National Assembly. The Article states: "CBs are now
established under the provisions of this law and other legal regulations on
monetary trades, banking services relating to customers’ deposits. These banks’

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responsibilities are to refund deposits to customers and use deposits for discount
and payment services. "
As being defined above, CBs are businesses operating in the monetary
sector, have the accounting of revenue and expenditure, take the performance
business into account and always seek ways to maximize their profitability through
the follows:
- Deposits of customers including businesses, individuals, organizations and
state agencies, and
- Using deposits for loans and discounts.
Besides, CBs have other services including guarantee, collection, and
payment, etc. The development of CBs is associated with the development of
financial markets. At the early stage, CBs’ organization and operations were quite
simple but they are increasingly complex and professional. Nowadays, CBs tend to
further and comprehensively expand their operation scale and diversify with a
variety of services and mobilize most social idle funds for loans. The development
of the CBs is no longer limited within the domestic market but start to expand into
international markets. Some examples of international banks are the World Bank
(WB), Banks Asian Development Bank (ADB), etc. The application of information
technology and modern equipment system makes banks’ activities more complete.
While CBs have function of receiving money to lend, and play the role as financial
intermediaries, they have to comply with the state management and are under the
control of the State Bank of Vietnam. Through this management system, CB system
performed its functions in the economy.
1.1.2.2. CBs’ features
CBs share these following characteristics:
1. CBs are enterprises that make profits through interests. Their main aim is
the pursuit of profit. The business type of CBs is unique with the right of using
money and non-physical-products and activities being associated with the
circulation of currency.

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2. A CB is a business type of higher risk levels than with other forms of
business and often has profound effects on other sectors and the whole economy.
Therefore, in order to avoid risks, control and minimize damages resulting from
banks’ bankruptcy, the government has issued special laws to ensure that the banks’
operations are safe and effective.
3. CBs are typical financial intermediaries:
- CBs are intermediaries between those have abundant funds and those need
funds.
- CBs are intermediaries between the central bank and both individuals and
the economy.
1.1.2.3. Roles of CBs
In the current conditions of our country, the state budget is limited so it
cannot be entirely relied on. Besides, the stock markets, which have recently been
formed with scarce goods and low performance, cannot fully meet the capital
demands. Therefore, in the next periods, mobilizing capital for the development of
the economy is mainly made through financial intermediaries, particularly banks.
That is the reason why banking activities are an important factor promoting the
development of the economy. Several important roles CBs are as follows:
- Thanks to their capital mobilizing and lending activities, CBs address
temporary capital lacks in the economy and help organizations operate more
effectively.
- Operations of CBs contribute to enhance enterprises’ business performance,
thereby contribute to the development of the economy.
- CBs allocate funds among regions; thereby create the conditions for the
uniform economic developments among different regions within a country.
- Effective activities of CBs contribute to the implementation of the national

monetary policies such as price stabilization, inflation control, job creation and
economic growth.
- CBs are bridges spanning nations.

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1.1.2.4. The functions of CBs
CBs have the below functions:
- Functions of financial intermediaries,
- Payment intermediary, and
- Money creation.
1.1.2.5. Capital of CB definition
- Capital of CB definition:
Capital is the premise of business in the whole society in general and of each
business in particular. Every business needs a huge capital to operate and grow. CB
is a financial intermediary with the basic functions of credit and payment
intermediaries and money creation. In order to perform these functions and
operate effectively and profitably, CBs must have a certain amount of working
capital.
Capital of CBs plays an important role not only in business but also in the
process of socio-economic development. So, what is the capital of CBs?
Economists define capital of CBs as follows:
Capital of CBs is the monetary value generated or mobilized by CBs, used to
lend, invest or implement other business activities.
As being defined above, the capital mobilized by CBs is a part of the profits
or funds contributed by shareholders every year or mobilized as part of national
income, which is temporarily idle during the production, distribution and
consumption. This idle income is deposited in banks for different purposes. In other
words, customers transfer their right of using fund to banks and then receive an

income from the said transfer of the right. Therefore, banks’ role is collecting and
allocating funds to the economy in the form of currency that results in the more
abundant flow of capital, improves services and all business activities. Capital
mobilized by banks plays an important role in the development of every business in
particular and the economy in general. At the same time, these activities are also
factors deciding the existence and development of banks.

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- Roles of capital:
A bank is also an enterprise, so the first role of capital at CBs is the factor
deciding the scope, power and the ability to expand the scale of the bank. In the
economic perspective, it is possible to generalize the role of capital in the operations
of a CB under some of the following aspects:
+ Capital is the basis of banking activities: banks must have capital to
operate. Capital reflects banks’ ability of doing business.
Banks must have legal capital in order to obtain legal permit so that they can
be entitled to establish. In order to perform their roles, banks must pay attention to
increase their capital regularly.
+ Capital of CBs decides their scope and ability of expanding their business:
The scope of banks is mirrored through their total assets (cash, securities, loan size,
fixed assets, etc.), if capital is large  high value of assets.
Scale: if their capital is large, banks can expand their affiliates into a great
deal of location Large operation area.
+ Capital of CBs decides their liquidity as follows:
If the capital is large  large actual reserve create favorable conditions for
banks to collect funds and timely response to situations in which customers
withdraw more cash than initial expectation.
If the capital is large  banks can diversify their portfolio (investment in the

stock market: secondary reserve)  spread risks safer business.
If the capital is large  banks will build up good reputation in the market 
in case CBs are short of funds for payments, they can favorably borrow and fill the
liquidity shortage, etc.
If their capitals are large, it is common fact that CBs get supports from the
government since if big CBs go bankrupt, the state monetary system and economy
will be seriously affected.
+ Capitals of CBs determine their competitiveness. When their capitals are
large, they will have competitive advantages:
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Price competition:
Large capital helps banks create advantages of scale  reduce the average
cost  facilitate their price competition.
Conditional large capital to help banks deal with large clients high value of
transactions  average transaction costs per contract is low  reduce the average
cost  price competition.
Large capital helps banks minimize risks cut costs for risks.
Product/service competition:
Large capital helps CBs to diversify their products and services and apply
new technologies.
Large capitals help CBs improve their product quality and increase their
number of clients.
1.1.2.6. Funds of CBs
General funds of the CBs mainly originate from the follows:
- Equity
- Mobilized capital
- Borrowings
- Others

Each capital has its nature and specific role in the total capital of CBs and
have less impact on the business activities of CBs. All of the above-mentioned
particulars of capital influence CBs’ operations and business activities.
a. Equity
* Definition: As established by the CBs create funds, private-owned CBs.
Equity is the capital type that is self-established and owned by a bank.
* Features:
- Equity accounts for a very small proportion of the total capital of a bank
(about 5 - 10%) but is critical to the formation and existence of that bank
- This kind of capital is highly stable (because it is owned by the CB and
they have no obligation to refund any party)
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* Roles:
- Equity ensures safe operation of CBs
- Equity as a self-financing source: purchase fixed assets, build technical
infrastructure, enable the bank to organize all business activities.
- Equity as a self-financing source: adjust all the bank's business activities
(scope, fixed assets’ value, asset structure, etc.)
* Components:
Equity of CBs includes:
+ Charter capital:
Before conducting business, according to legal requirements, the bank must
have a certain amount of capital, which is called legal capital (or charter capital).
Charter capital can be provided by the state (if the bank is state-owned), by the
bank’s shareholders (if the bank is a stock enterprise), by relevant parties (if the
bank is a joint-stock enterprise) and by an individual/individuals (if the bank is a
private company).
The charter capital is the initial capital of a CB. According to the decision

No. 327/QD- NH5 dated 04/10/1997 of the Governor of the CB of Vietnam,"the
legal capital of CBs is the minimum capital required for the establishment of the
bank", and "the charter capital of a CB is capital contributed by shareholders and is
stated in the charter of the bank's activities." Bank's charter capital must always be
bigger than or equal to the legal capital and can be formed from many different
sources depending on the form of ownership.
+ Additional equity in the operation:
Equity of banks constantly increases over time thanks to the additional
capital. This additional source can originate from profit or public offerings,
financing, etc. Characteristics of this form of HDV is not regular, but helps banks
have large equity in times of need. This kind of equity is not regular. However, it
helps banks have large equity when necessary.
+ Funds:

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In the operation process, banks have a great number of funds. Each fund has
its own purpose: investment and development fund, provident fund, reserve, welfare
and bonus fund, etc. These funds are formed from the bank’s income including
additional charter capital and reserve funds. Additional equity is a part of the banks’
self-financing source. This kind of equity can form special funds such as reserve
fund, technical development fund, welfare and bonus, etc.
+ Debts that can be converted into shares:
The medium and long-term loans which are stable and can be converted into
shares shall be considered as a part of the bank's equity. Banks can use this kind of
capital for such purposes as investing in real-estate, land and sometimes do not have
to pay these debts when they are mature.
b. Mobilized capital.
* Definition:

Mobilized capital is the largest part of the total capital of CBs. Through
capital mobilization, banks have the right to use these funds and take responsibility
of refunding them and their interest to depositors. Banks can raise funds from
individuals, socio-economic organizations, etc with different methods. Mobilized
capital is not owned by CBs but is a very important factor in the bank's business
activities. Mobilized capital of CBs is regarded as the value of the currency that
banks monilized from economic organizations and individuals in the society
through the implementation capital mobilization services/professions and is used as
working capital.
* Features:
- Mobilized capital is not owned by CBs.
- Mobilized capital is highly unstable (so banks need to reserve)
- Mobilized capital accounts for the largest proportion in the total capital of
CBs.
- Mobilized capital has various origions, durations, values and types of
mobilized funds.

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* Roles:
Mobilized capital is the main capital source of CBs. It helps banks meet most
of the credit demands.
* Components:
Banks can use several different tools to raise mobilized capital:
Deposits:
+ Demand deposits
+ Time deposits
Savings:
+ Call savings

+ Term Savings
Other mobilized sources:
Banks can obtain mobilized capital by issuing valuable papers such as bank
bonds, bank bills, certificates of deposit, etc.
c. Loans.
* Definition:
Loans are banks’ capital that originates from banks’ relationship for lending
on the interbank market and set-up loan funds.
* Features:
- Loans are not under banks’ ownership.
- Loans do not account for a large part of the total capital (banks do not
heavily depend on this source of capital for business)
- Loans are of higher stability than mobilized capital.
- Loans are of high cost and their interest rates are sensitive to changes in the
market.
- Loans have short term (days or weeks).
* Roles:
Loans play a special role for the business of CBs (quickly deal with demands
of large quantities).

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* Components: Loans from the Central Bank and other CBs.
When the mobilized capital is not enough while the demands for payment
and refunding to customers increase, CBs must lend in order to meet the said
requirements. These loans originate from the relationship of the CB with the Central
Bank and other credit institutions. The loans are commonly used when a CB uses up
its available funds and do not have enough funds for its operation. Normally, a CB
is to borrow other domestic credit institutions before borrowing the Central Bank.

When CBs borrow from the Central Bank, we can call this case a form of
discount and rediscount to offset shortfalls in payment and supplement reserve
capital, etc. Since the State Bank strictly monitors these borrowings, CBs must
comply with certain guarantee and control requirements when borrowing.
d. Others.
* Definition:
This type of capital is formed in the process of providing banking services to
customers.
* Features:
- This type of capital is not under the ownweship of CBs.
- Its scope is small.
- Its expenses are not high.
- Its stability is low.
* Roles:
Like other types of capital, this one serve CB’s activities.
* Components:
- Investment trust fund.
- Funds for payment.
- Other capital sources: foreign loans and borrowing holding company (if
any), etc.
CBs can create capital for their business through the implementation of such
operations as being payment intermediary, issuance of debt tools like bills, bonds or

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paper credit, doing agent services, etc. Accordingly, banks can use a significant
amount of temporarily idle capital in the process of collection or payment. These
loans play an important part of supplementing other sources of deposits, meeting
loan demands and medium and long term investments. In other words, these loans

are solution to difficult situations.
In short, mobilized capital is the largest proportion of the total capital of
CBs. That follows the theoretical basis because banks are always regarded as
enterprises doing capital business and use borrowings for loans. Mobilized capital is
the main tool which is very important to CBs’ operations and determines their
benefits and reputation.
1.1.3. Capital - mobilization at CBs
1.1.3.1. The concept of capital - mobilization
Banks carry money tradings by mobilizing capital for loans, investments and
providing other banking services. Capital - mobilization which is creating funds for
CBs plays an important role and influences the quality of CB activities: It is
considered the vital factor of CBs, especially banks of large scope. Mobilizing
capital can be considered as one of the earliest activity among the activities of CBs.
In the early stages of banking activities, the activity was simply storing valuable
assets to ensure their security. Therefore, the depositors had to bear charges, not
banks. At that time, deposits were considered consignments and did not play a role
as a part of banks’ capital. Money at that time could not be circulated and make
profit. Since credit demands grew, banking services has developed and the situation
has reversed, i.e.the banks have had to bear charges (interest rates – credit price)
and deposits has become usable and the largest source of CBs’ capital. Therefore, in
contrast to the past, banks have to go begging depositors today. While previously,
banks were a passive party, almost all banks today have policies and methods to
attract deposits. Therefore, methods of mobilizing capital become increasingly
important, rich and diverse. It can be said that at present, mobilization of capital is
one of the most important activities and relates to the survival of CBs.

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The following definition can be provided: "Capital - mobilization is the

activity in which banks seek funds available from other entities for the purpose of
doing business and ensuring normal operation and efficiency of itself in accordance
with the law ".
1.1.3.2. Objectives and principles of mobilizing capital at CBs
a. Objectives of mobilizing capital at CBs:
The objective of capital mobilization is the basis for the formulation of plans
and strategies on banks’ capital resources. Banks’ capitals are quite diverse, include
many components of which some are unstable but are of high transaction capability
and low interest rate (which means lower cost of mobilizing capital) whereas some
components limit the possibility of issuing cheque and are highly stable but of high
interest rates (which mean high funding costs). Therefore, capital’s good structure,
low cost, high stability and long-term duration are the objective that CBs are aiming
at. These are important factors in the implementation of "safe and effective target".
- First objective: is seeking cheap capital.
- Second objective: is creating appropriate capital structure and stability.
- Third objective: is building capital’s scope and stable growth
- Fourth objective: is effectively managing capital sources.
b. Principles of mobilizing capital
The first principle: capital - mobilization must be based on the demand for
loans. Banks must calculate loan demand to determine their necessary capital.
Banks must ensure the balance between capital - mobilization and its use in terms of
size and duration to improve the efficiency of their capital.
The second principle: Banks receive deposits from customers (including
private enterprises, state-owned enterprises, state agencies, social organizations and
citizens). Banks are responsible for fully and duly refund these deposits and their
interests subject to the agreements between their customers and them. Accordingly,
a bank is not allowed to raise more than 20 times its total capital and reserve funds.

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The third principle: Banks are not entitled to issue bonds, which give bonds’
owners the right of managing the bank directly or indirectly.
1.1.3.3. The forms of capital - mobilization
When its own capital is not enough for transactions and payments, a CB
must raise external capital. Normally, this external source of capital accounts for a
large part of the total capital structure and ensure the CB’s effective operation. The
main forms of external capital are as follows:
Deposits:
Deposits in CBs have two typed namely demand deposits and time deposits:
+ Demand deposits (payment deposit, transaction deposit):
Demand deposit is the deposit type that can be withdrawn by customers any
time without prior notice to the bank. The purpose of this deposit type is to ensure
the safety of property and make payments for production and business activities of
the enterprise or for personal consumption. Another purpose is to minimize costs of
payment, store and transport cash. Since this part of capital is unstable, banks must
reserve a large proportion of it to meet their customers’ requirement so this kind of
deposit has lower interest rate.
+ Time deposit: is the deposit type that cannot be withdrawn for a certain
term or period of time as per the agreement between a bank and a depositor. Due to
the harsh competition in the industry, however, banks allow depositors to withdraw
their deposits before their maturity. In this case, the interest rate is the same as that
of demand deposits. Time deposit is a very stable source of banks’ capital as they
when time deposits are withdrawn. Therefore, banks often offer a variety of terms in
order to meet customer demands.
Savings:
In essence, savings are a part of individuals’ idle income which is consigned
in banks for the purpose of safe accumulation and earning interest. This is the
traditional form of mobilizing capital of banks. Savings are confirmed on savingsbooks and enjoy relevant interest rate as per regulated by the bank receiving them

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and are insured as per regulated by laws on savings. The purpose of savings is to
earn interest and accumulate. In the market economy, savings develop into two
forms namely: demand savings and time savings.
+ Demand savings: A type of deposits that can be withdrawn at any time but
are rarely used for the purpose of payment.
+ Time savings: that cannot be withdrawn for a certain term or period of time
as per the agreement between a bank and a depositor (usually have higher interest
rates than demand savings).
Mobilizing capital by issuing debt instruments:
+ Bank bonds: are a long-term debt instrument (commonly 5 to 10 years)
that is publicly issued by a bank. Par value, interest rate and maturity date are
clearly stated on these bonds. Bank bonds’ interest rate is generally higher than or
equal to government bonds. This mobilized capital is stable, the and large but its
cost is also quite large.
+ Bank bills: this is the form of capital mobilization with shorter term and
higher interest rate than savings form. Bank bills are easily converted into cash
when necessary so this is the preferable choice of investors .
+ Certificates of deposit: This is the certificate of banks’ borrowings. These
certificates indicate their interest rates, amounts of borrowings and maturity dates.
Previously, interest rates of these certificates were fixed. In order to adapt to
changes in the market, however, bills’ interest rates are negotiated and agreed by
both banks and depositors. This form is a kind of short-term investment that attracts
small business owners and households. Besides, thanks to their fixed maturity, bills
brings many benefits to banks.
The issuance of bank bonds and bills depends on both the purpose of
mobilizing capital of CBs and the approval of the State Bank. These bonds and bills
have the higher interest rates than those of deposits and savings and high stability.

Mobilizing capital from borrowings (borrow Central Bank and other CBs)

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Nowadays, borrowings account for a larger and larger proportion of CBs’
capital. CBs’ borrowings can be formed from several supplies of which main ones
are as follows:
+ Borrowings from the Central Bank.
CBs seek profits by converting borrowings to loans. Mobilizing capital is
essentially a form of borrowing from the population, economic organizations and
enterprises. CBs must pay interests on these borrowings. Subsequently, banks use
these borrowings to lend at a higher interest rate to use the capital mobilized to
higher interest rates and earn profits from the difference between interest rates.
However, no matter how cautious in lending, the situation in which banks lack of
ability to pay or payment for customers is unavoidable. In that case, after having
made the necessary financial measures, the ultimate solution is to borrow the
Central Bank. As the Bank of banks, the Central Bank will become the savior for
CBs in case they are short of funds for payment.
In our country today, CBs borrow from the central bank in the major forms
below:
- Additional short-term borrowings: is a CBs’ capital-mobilization form in
which they ask for approval to borrow additional short-term funds. With this
capital-mobilization form, CBs are entitled to borrow once their line of credit is not
exceeded as per negotiated previously.
- Re-financing is a capital - mobilization form in which the Central Bank
lends CBs through valuable papers. These papers can be converted into cash when
necessary. Refinancing can be made in two forms: secured loans and rediscount
loans.
- Payment borrowings are relatively short-term funds that are used by banks

to cover their temporary shortage in payment.
+ Borrowings from other credit institutions on the interbank market.

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When facing financial difficulties, to ensure the prestige of the Bank, the best
solution is to borrow. CBs can borrow from other credit institutions on the interbank
market or the currency market and abroad.
- Other forms of capital - mobilization:
In addition to the above forms of capital - mobilization, banks can attract idle
capital from the population, from the economy through the fiduciary activities of
social services like club services, being payment intermediate or a stock agent for
companies, etc. Thanks to these forms of capital - mobilization, banks can use a
significant amount of temporarily idle capital in the process of collection or
payment.
1.1.4. The role of mobilized capital for business activities of CBs
CBs are special enterprises of which the major business is in the monetary
field. In the context of a changing economy, CBs have gradually shifted to business
accounting, take responsibilities of their operation performance, and are no longer
subsidized as previously. Banks tend to develop comprehensively. The funds
mobilized are to determine the scope and direct activities of CBs. Banks rely on
their mobilized capital to perform credit transactions, investment services, etc.
- Capital is the basis and the foundation of business activities of CBs.
- Capital determines the competitiveness of CBs.
- Capital ensures CBs’ liquidity and prestige.
- Capital determines the scope of CBs’ business activities.
- Mobilize capital also influences the operation performance of CBs.
In essence, CBs do business in monetary market, i.e. using borrowings for
loans. In other words, capital that is mobilized by CBs will be used for lending

individuals and other organizations. Therefore, capital - mobilization plays a
fundamental role in CBs’ business and existence. Accordingly, capital mobilization
accounts for a large number of banks’ activities and determines their success or
failure.

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1.2. The efficiency of CBs’ capital mobilization
1.2.1. The concept of capital mobilization efficiency
"Business Efficiency” is the highest goal, a destination that every business
owner wants to reach and CBs are not the exception. Their business efficiency is
always paid much attention. In order to achieve effective business, the first
requirement for a bank is the effective capital mobilization. Capital mobilization is
the first activity in the business process of CBs. It determines their survival and
development.
The efficiency CBs’ capital mobilization is a correlation between the results
of activities to raise capital and its costs. The mobilized capital meets the relevant
demands while maintains acceptable costs, ensure safety in doing business and
helps banks earn profits.
In order to achieve the above-mentioned targets, the bank must have the
appropriate and effective capital mobilization procedures and activities.
1.2.2. The need to improve the efficiency of capital mobilization
Capital is among the basic inputs in the business processes of each
enterprise. It can be stated that it is impossible to achieve the overall socioeconomic objectives of the nation in general and the business objectives of a
specific enterprise in particular without capital. As an enterprise, a monetary
intermediary, CBs’ capital plays such a very important role that it can be said to be a
top concern.
On the social perspective, to achieve the nation’s industrialization and
modernization targets, it is necessary to have a huge amount of capital as

prerequisite to set up materials, infrastructure, technologies and businesses.
On the bank perspective, to be able to conduct business effectively, diversify
business models to improve the competitiveness and profitability of banks, banks
need a large amount of capital mobilized from domestic sources most of which are
households’ savings. Moreover, the capital of the socio-economic organizations is
not always used on a regular or seasonal basis. Therefore, the amount of idle capital

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in organizations is also very large. A huge task of each bank is to focus and attract a
large capital in order to invest in production and business activities, the socioeconomic buildings and infrastructure and turn their capital into socio-economic
benefits.
• Mobilized capital accounts for a large proportion in the business capital
of CBs.
The business capital of CBs include equity, capital, charter capital, mobilized
capital, borrowings, etc of which mobilized capital accounts for a large
proportion (commonly more than 70%) of banks’ business capital. On the other hand,
due to limited equity, in order to ensure their smooth operations and meet the demand
for capital in the economy, banks need to foster their capital mobilization practices,
especially when idle capital in the population is still "potential".
• The efficiency of capital mobilization reflects the qualification and ability
to raise capital at low costs and high performance
Mobilizing capital at low costs will save business costs and increase profits
for banks. Therefore, improving the efficiency of mobilizing capital is a vital issue
of CBs.
• Ensure sufficient capital for banks’ business
Ensuring sufficient capital takes not only quantity of capital but also the
balance of different currencies (USD, USD, EUR, etc.) as well as the duration of
capital (short, medium and long term). At the present, the major form of mobilizing

capital is short-term one. However, the demands for medium and long- term loans
are significantly large. Therefore, banks face plenty of risks which easily results in
their inability to cover payments if they use short-term capital to expand the
medium and long term investment with a high proportion (about or more than 30%
of the total capital). Accordingly, this will lose depositors’ in the banking system.
• Meet customer demand for loans.
CBs are the main subject meeting businesses’ capital needs. Using their
mobilized funds in the form of loans to the economic sectors and individuals, CBs

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