LUẬN văn THỰC TRẠNG HOẠT ĐỘNG HUY ĐỘNG vốn của các NGÂN HÀNG THƯƠNG mại VIỆT NAM e

INTERNATIONAL EXECUTIVE
MASTER OF BUSINESS ADMINISTRATION PROGRAM

THESIS

PRACTICAL SITUATION OF CAPITAL MOBILIZATION
OF VIETNAM’S COMMERCIAL BANKS - THE CASE
STUDY OF JOINT STOCK COMMERCIAL BANK FOR
INVESTMENT AND DEVELOPMENT OF VIETNAM
(BIDV) - BRANCH OF TUYEN QUANG PROVINCE

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TABLE OF CONTENT
INTRODUCTION......................................................................................................................................... 1
CHAPTER 1: LITERATURE REVIEW OF CAPITAL MOBILIZATION ACTIVITIES OF COMMERCIAL
BANKS......................................................................................................................................................... 3
...................................................................................................................................................................... 3
1.1. BASIC CONCEPTS OF COBA IN MARKET ECENOMY....................................................................3

1.1.1. Definition of COBA..................................................................................
1.1.2. Types of COBA.........................................................................................
1.1.3. Functions of COBA...................................................................................
1.1.3.1. Financial intermediary...........................................................................
1.1.3.2. Payment intermediary............................................................................
1.1.3.3. Money generating.................................................................................
1.1.4. Basic operations of COBA........................................................................
1.1.4.1. Capital mobilization..............................................................................
1.1.4.2. Capital utilisation..................................................................................
1.1.4.3. Other intermediary activities..................................................................

1.1.5. Risks in COBA’s activities.........................................................................
1.1.5.1. Internal risks.........................................................................................
1.1.5.2. Systematic risks due to the impact of banking market...........................
1.2. CAPITAL MOBILIZATION OF COBA................................................................................................ 10

1.2.1. Definitions...............................................................................................
1.2.2. Role of capital mobilization activities.....................................................
1.2.2.1. For clients...........................................................................................
1.2.2.2. For the economy..................................................................................
1.2.2.3. For COBA...........................................................................................
1.2.3. Capital mobilization methods of COBA..................................................
1.2.3.1. Classification by terms........................................................................
1.2.3.2. Classification by sources of capital......................................................
1.2.3.3. Classification by the nature of capital mobilization activities................
1.2.4. The factors affecting capital mobilization................................................
1.2.4.1. External factors...................................................................................
1.2.4.2. Internal factors....................................................................................
1.3 EVALUATION OF CAPITAL MOBILIZATION EFFECTIVENESS OF COBA...................................21

1.3.1. Capital mobilization effectiveness...........................................................
1.3.2. Capital mobilization evaluation KPIs......................................................
1.3.2.1. The stable development of capital mobilization in terms of time and
quantity............................................................................................................
1.3.2.2. Capital mobilization versus banking operations....................................
1.3.2.3. Cost of capital mobilization/scale of capital mobilization.....................
1.3.2.4. Returns and interest cost difference /Cost of interest:............................

v

1.3.2.5. Other KPIs:.........................................................................................
CHAPTER

2:

PRACTICAL

SITUATION

OF

CAPITAL

MOBILIZATION

OF

VIETNAM’S

COMMERCIAL BANKS - THE CASE STUDY OF JOINT STOCK COMMERCIAL BANK FOR
INVESTMENT AND DEVELOPMENT OF VIETNAM (BIDV) - BRANCH OF TUYEN QUANG..........24
2.1. PRACTICAL SITUATION OF CAPITAL MOBILIZATION OF VIETNAMESE COMMERCIAL
BANKS IN RECENT YEARS..................................................................................................................... 24

2.1.1. Overview.................................................................................................
2.1.2. Growth of mobilization of Vietnamese Commercial Banks in
2010-2012..........................................................................................................
2.1.2.1. Year of 2010........................................................................................
2.1.2.2. Year of 2011........................................................................................
2.1.2.3. Year of 2012........................................................................................

2.1.3. Advantages and disadvantages of mobilizing capital...............................
2.1.3.1. Advantages..........................................................................................
2.1.3.2. Disadvantages.....................................................................................
2.2. SITUATION OF CAPITAL MOBILIZATION OF BIDV TUYEN QUANG..........................................29

2.2.1. Introduction.............................................................................................
2.2.1.1. History of foundation and development...............................................
2.2.1.2. History of foundation and development of BIDV Tuyen Quang............
2.2.1.3. Business situation of BIDV Tuyen Quang............................................
2.2.2. Situation of capital mobilization of BIDV Tuyen Quang.........................
2.2.2.1. Forms of capital mobilization of BIDV Tuyen Quang..........................
2.2.2.2. Structure of capital mobilization of BIDV Tuyen Quang......................
2.2.2.3. Analyze efficiency of capital mobilization of BIDV Tuyen Quang
........................................................................................................................
2.2.3. Assess capital mobilization situation of BIDV Tuyen Quang..................
2.2.3.1. Business results...................................................................................
2.2.3.2. Difficulties..........................................................................................
Chapter 3: SOLUTIONS TO ENHANCE CAPITAL MOBILIZATION OF BIDV BRANCH OF TUYEN
QUANG....................................................................................................................................................... 53
3.1. DIRECTIONS AND TARGETS OF BIDV TUYEN QUANG...............................................................53

3.1.1. Strategic direction of BIDV in period of 2013-2015 and vision to
2020...................................................................................................................
3.1.2. Directions and Targets of BIDV Tuyen Quang from 2013 to 2015
[7]......................................................................................................................
3.1.2.1. Directions............................................................................................
3.1.2.3. Plan of mobilizing capitals in 2013 and targets to 2015........................
3.2. SOLUTIONS TO STRENGTHEN CAPITAL MOBILIZATION IN BIDV TUYEN QUANG...............55

3.2.1. Have reasonable and flexible policies of interest rate..............................

3.2.2. Expand business network.........................................................................
3.2.3. Improve quality of human resources........................................................
3.2.3.1. Perform recruitment work well............................................................

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3.2.3.2. Training and Re-training......................................................................
3.2.3.3. Have reasonable policies for personnel management and treatments
........................................................................................................................
3.2.4. Enhance marketing activity.....................................................................
3.2.4.1. Market research...................................................................................
3.2.4.2. Perform better customer caring services...............................................
3.2.4.3. Build up a budget for marketing activity..............................................
3.2.5. Other solutions.........................................................................................
3.2.5.1. Develop new products.........................................................................
3.2.5.2. Reform and modernize banking technologies.......................................
3.2.5.3. Improve efficiency of lending..............................................................
3.2.5.4. Build up “Corporate Culture”..............................................................
3.3. RECOMMENDATIONS....................................................................................................................... 63

3.3.1. To Government........................................................................................
3.3.2. To the State Bank.....................................................................................
3.3.3. To BIDV Headquarter..............................................................................
REFERENCES............................................................................................................................................ 67

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LIST OF ABBREVIATIONS AND ACRONYMS

BIDV

Joint Stock Commercial Bank for Investment and

BIDV Tuyen Quang
COBA
IPO
KPI
USD
VBSP
BSPT
VND

Development of Vietnam
BIDV Branch of Tuyen Quang Province
Commercial Bank(s)
Initial Public Offering
Key Performance Indicators
U.S. Dollar
Vietnam Bank for Social Policies
Bank of Social Policies of Tuyen Quang
Vietnam Dong

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LIST OF TABLES
Page
Table 2.1: Banks and non-banking credit institutions in Vietnam
Table 2.2: Market share of Vietnamese commercial banks

Table 2.3: Business result of BIDV Tuyen Quang in 2010 - 2012
Table 2.4: Capital mobilization Result of banks in Tuyen Quang province
Table 2.5: Branch network of banks in Tuyen Quang province
Table 2.6: Payment Deposits
Table 2.7: Number and Average Balance of Individual Payment Deposit

24
25
33
33
34
35
37

Accounts of BIDV Tuyen Quang
Table 2.8: Savings
Table 2.9: Deposits of economic organizations
Table 2.10: Issuing valuable papers
Table 2.11: Situation of mobilization of BIDV Tuyen Quang
Table 2.12: Mobilization structure of BIDV Tuyen Quang by Currencies
Table 2.13: Mobilization structure of BIDV Tuyen Quang by Terms
Table 2.14: Mobilization structure of BIDV Tuyen Quang by Customers
Table 2.15: Mobilization result of BIDV Tuyen Quang in 2010 - 2012
Table 2.16: Situation of Mobilization and Loans
Table 2.17: Balance between short-term mobilized capitals and loans
Table 2.18: Balance between mid- and long-term mobilized capitals and loans
Table 2.19: Mobilization cost of BIDV Tuyen Quang in 2010-2012

36
37

38
39
40
41
42
44
45
46
46
47

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LIST OF FIGURES AND CHARTS
Page
Figure 2.1: Growth rate of capital mobilization and loans of commercial

25

banks in 2010-2012
Figure 2.2: Organizational Structure of BIDV Tuyen Quang
Figure 2.3: Mobilization share of BIDV Tuyen Quang
Figure 2.4: Mobilization structure of BIDV Tuyen Quang expressed as

32
32
40

percentage

Figure 2.5: Mobilization structure of BIDV Tuyen Quang by Terms
Figure 2.6: Mobilization structure of BIDV Tuyen Quang by Customers

41
43

x


INTRODUCTION

1. Rationale
Capital has always played a vital role in making or breaking businesses in
general and commercial banks (COBA) in particular. Capital is the financial
resource, one of the prime factors for business activities and liquidity of banks.
Having been well aware of the importance of capital mobilization for the past
few years, the Joint Stock Commercial Bank for Investment and Development of
Vietnam - Branch of Tuyen Quang Province (BIDV Tuyen Quang) has implemented
a range of policies, methods and forms to raise its capital, which has grown
continuously at a high rate. However, capital mobilization capacity of the branch is
still low, compared to the total capital mobilised in the entire province, and lower
than its perceived potentials. This leads to the question of how to improve the
capital mobilization capacity at a reasonable and stable cost, and to utilise potential
capital sources of economic organisations and residents. This will ensure the diverse
sources, creating an optimal capital structure for the course of socioeconomic
development of the province and the industry.
This drives me to the theme “The practical situation of capital mobilization
of Vietnam’s Commercial banks - The case study of Joint Stock Commercial
Bank for Investment and Development of Vietnam - Branch of Tuyen Quang
Province” for my final thesis.

2. Objectives
Following are main objectives in this research:
- To study and provide the literature review on capital mobilization and
capital mobilization methods of COBA,
- to analyse the practical situations in capital mobilization at BIDV Tuyen
Quang,

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- and to recommend ways to improve capital mobilization capacity of BIDV
Tuyen Quang.
3. Subjects and Scope
- Subject of the study: capital mobilization activities of commercial banks.
- Scope of the study: capital mobilization activities BIDV Tuyen Quang.
- Time of the study: From 2010 to 2012.
4. Research methods
Basing on data provided by State Bank of Vietnam, Tuyen Quang - Branch
State Bank, BIDV Tuyen Quang and on relevant books and documents, the author
has used different methods for the research including statistics, collecting,
comparing and analysing financial figures.
5. Structure of the thesis
Apart from the introduction and conclusion, the thesis consists of three
chapters:
Chapter 1: Literature review of capital mobilization activities of commercial
banks.
Chapter 2: Practical situations of COBA in Vietnam, the case study of BIDV
Tuyen Quang.
Chapter 3: Solutions to enhance capital mobilization of BIDV Tuyen Quang

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CHAPTER 1: LITERATURE REVIEW OF CAPITAL MOBILIZATION
ACTIVITIES OF COMMERCIAL BANKS

1.1. BASIC CONCEPTS OF COBA IN MARKET ECENOMY
1.1.1. Definition of COBA
In the US and many other countries, “banks are financial institutions that
provide the highest diversity of financial services – especially credit, savings and
payments, and practise the most financial functions among any other businesses in
an economy. [22]
In Vietnam, The Law on Credit institutions passed by the Assembly Meeting
XII on June 16, 2010 defines “COBA is a type of bank which is entitled to perform
the entire banking operations and other relevant business activities under this Law
for capital profit” and “Banking activities are monetary business activities and
banking services of regularly taking deposits and using such deposits for granting
credit and providing payment services”.
As defined, COBA is a financial institution characterised by financial
services focusing on deposit taking, loaning, payment services, and other services to
meet the greatest needs for products and services of a society.
The table below provides a comparison between COBA and other non-bank
credit institutions:
COBA

Non-bank credit institutions

- a type of credit institutions

- is a type of credit institutions

- entitled to perform the entire banking - entitled to perform a number of
operations

banking operations

- entitled to take demand deposits (deposit - not entitled to take demand deposits
institution)

(nondeposit institution)

- entitled to provide payment services

- not entitled to provide payment
services

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1.1.2. Types of COBA
According to different criteria, COBA can be categorised into many types.
- Basing on ownership:
+ State-owned COBA: is a bank that is established by 100% capital of
the State. In order to raise their capital and match the financial globalisation,
State-owned COBA in Vietnam have been issuing bonds to for capital
mobilization; and completely or partially privatised

to increase their

competitive advantages against foreign banks’ branches and Joint Stock COBA.

Banks of this type include Agribank, Vietinbank, BIDV, Vietcombank, MHB.
+ Joint Stock COBA: is a bank that is established as a joint stock
company, certain percentage of shares of which is owned by an individual or
a legal entity according to regulation set by the State Bank of Vietnam.
Popular banks of this type are Asia Commercial Bank, Orient Commercial
Joint Stock bank, DongA Joint Stock Commercial Bank, Military bank.
+ Joint venture COBA: is a bank that is established from capital
contributed from a Vietnam–based venture between a Vietnamese COBA and
a foreign COBA, operating under Vietnam Government's regulations. Such
banks are INDOVINA BANK LIMITED, Vietnam Russia Bank,
Shinhanvina, VID PUBLIC BANK, and VINASIAM BANK.
+ Branches of Foreign banks of CITY BANK, BANGKOK BANK,
SHINHAN BANK, DEUSTCH BANK,...
+ COBA with 100% foreign capital: is a bank established in Vietnam
with 100% foreign capital; over 50% of the Charter capital must belong to a
foreign bank (parent bank). COBA of this kind is establised as a limited
Company of one or more members, is a Vietnamese legal entity,
headquartered in Vietnam. Examples are ANZ, Standard Chartered, HSBC.
- Basing on business strategies:
+ whole sale bank: is a bank that only deals with clients as corporates,
not individuals.

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+ Retail bank: is a bank that deals with clients as individuals.
+ Retail and whole sale bank: is a bank that deal with both corporates
and individuals.
- Basing on operations:
+ Specialised Bank: is a bank that specifically deals in a business

sector such as agriculture, import and export, or investment.
+ Comprehensive Bank: is a bank dealing in all business sectors and
performing almost all banking operations as set in the Law.
1.1.3. Functions of COBA
1.1.3.1. Financial intermediary
Financial intermediary is considered the most important function of a COBA.
With this function, COBA plays the role of the link between potential capital
suppliers and demanders. COBA is playing as both borrower and lender and gain
profits from the gaps between interest rates on deposits and loans. This creates
benefits for all relevent parties: depositors, and loan borrowers and the COBA.
1.1.3.2. Payment intermediary
COBA plays the role of the treasurer for individuals and corporates, making
payment under the requests of clients such as deducting money from their saving
account to pay for a product or service, or adding into their saving account money
from selling a product or service or other payables as requested by clients. COBA
provides convenient forms of payment such as checks, order for payment, ATM
cards, credit cards, debit cards. Depending on their needs, clients can decide on their
suitable payment methods. This brings to economic bodies some benefits in their
trading of goods: no needs to bring large amount of cash for a transaction, money
can be transferred by a payment order through the bank to the seller. The buyer can
also pay by credit card or payment card… The seller does not need to check, count
and store their banknotes. Therefore, economic subjects can save time and energy,
and safeguard the payment for their trading.

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This function invisibly accelerates the flow of goods, raises the speed of
payment and capital circulation, hence contributing to the development of a country.
1.1.3.3. Money generating

Generating money is another important function, reflecting the nature of a
COBA. For the purpose of profit making as the source for its existence and
development, COBA with their specialised business characteristics has invisibly
generated money for the economy. This function is operated on the basis of two
functions namely credit and payment. By implementing the intermediary
function, taking deposits and using such deposits for granting credits, clients then
use the loans to pay for what they buy. COBA grant credits to businesses, bank
loans, if unused by business can be deposited back to the COBA. COBA can pump
such capital for the capital circulation of the economy.
Therefore, COBA is generating money for the economy and increase
payment methods in the economy, meeting the needs for payment of the whole
society.
1.1.4. Basic operations of COBA
Modern COBA run 3 major operations: Liabilities (capital mobilization);
Assets (capital utilisation) and banking services such as Consultation, payment, safe
custody of valuables. These 3 major operations are interrelated, supporting one
another to develop, building the reputation and competitive advantanges for COBA.
They are also integrated in the daily operations of the COBA, making the COBA an
integrative body of banking activities.
1.1.4.1. Capital mobilization
Capital mobilization is the core banking activity, considered the most
important and influential to banking quality. COBA can do their capital
mobilization activities in different ways:
- Taking deposits from organisations, individuals and other credit institutions
in the forms of non-term or term deposits…

6


- Issuing valuable papers: debentures, certificates of savings, bonds, shares

(in case of joint stock COBA)
- Making Interbank loans
- Making Short term loans from State Bank of Vietnam
- Others as State Bank’s regulations
On such basis, COBA grants make loans and credits to meet the the need of
production development, for the local and national economic development
objectives. Widening capital mobilization range results in the better reputation,
greater’s activeness in business operations, developing credit rapport with economic
units and residential organisations, and ultimately profit for the coba.
In general, a COBA must base its capital mobilization methods on national
and local economic goals and objectives so that the most method can be decided
(e.g. short, medium or long term capital mobilization and so on) for the camo’s
capital needs.
1.1.4.2. Capital utilisation
COBA’s Assets consist of:
- Loans.
- Investment.
- Reserves.
- Other Assets.
Making loans is the most significant banking activity, statistically accounting
for 60 – 70% of the total money mobilised by a coba. The making or breaking of a
coba depends on the implementation of credit plans and strategies. Loans are
classified under different criteria such as goals, guarantee methods, terms, sources
and payment methods.
In the course of development, there comes a wide range of needs. Operating
in the service sector, it is necessary for coba to have update information and diverse
activities to pump capital into the economy. Beside loans, coba uses their mobilised
money to invest. Investment can be made in two ways:

7

+ Investment into stocks and shares with enterprises.
+ Investment into banking facilities.
Most economic units run for profit. However, there are also a variety of
factors to take into account, safety is one of which. Banking is a business of risk
where safety can not be ignored. Therefore, together with profit making, COBA
must reserve part of its capital to guarantee its own liquidity, and pursuant to
Government’s regulation on Compulsory reserve rate.
Capital used effectively will help improve COBA’s role and reputation as
well as its competitiveness. As a result, it is likely to attract more clients, enabling
the COBA to expand its capital mobilization activities. Therefore, it is COBA’s
mission is to strictly and closely follow economic development targets of a region,
an industry or the whole country… so that proper and effective forms of investment
can be drawn out. On the basis of market research, analysing needs for capital
utility of the society, COBA can grant credits to investment projects, production
programs or other needs.
1.1.4.3. Other intermediary activities
Intermediary activities are those carried out by COBA as the trustee such as
follows:
- Reimbursement (money transfer, checks, credit cards and payment cards)
- Safe custody of the public’s valuable assets, important papers
- Safe custody or trading in securities on clients’ behalf.
- Trading in foreign currency, gold and gems.
- Finacial consultation and support for corporates in issuing their
securities/bonds…
The diversification of services will increase COBA’s revenue as well as its
images and competitiveness. There is an upward trend that revenue from
intermediary services account for higher and higher proportion of the total revenue
from banking activities of a bank. Simultaneously, COBA increase capital in

circulation while reducing the use of cash in business transactions, hence, this

8


generally helps the society save circulation costs.
1.1.5. Risks in COBA’s activities
Potential risks in COBA consist of two types: internal risks and systematic
risks due to the impact of banking market.
1.1.5.1. Internal risks
Internal risks can be one or all of the following.
- Credit risks appear when customers are not able to pay loans in the due date
or even for good. This results from customers using capital uneffectively or have no
ability to pay, or don’t want to pay for the bank. Another reason maybe the failure in
the bank’s project assessment, inappropriate credit policies, or failure in controlling
the loan process;
- Liquidity risks occur when changes in secondary market make it difficult
for the bank to transfer assets into money to meet payment demands. This kind of
risk appears when transaction fee increases, or transaction time is lengthened. The
bank might suffer losses because of the unexpected expenses to look for other
payment sources;
- Interest risks occur when changes in the market’s interests cause losses.
Risks of this kind happen in case the market’s interests increase then the bank’s
loans and invesment will decrease in value. Another case of interest risks relates to
the decrease of market’s interests, which forces the bank to invest and lend money
mobilized with high interests into property with low profit bearing ability;
- Exchange risks can be the case where the bank’s losses is caused by the
exchange rates changing exceeding estimation.
- Bankrupt risks happen when owner capital is insufficient to supply for the
sudden fall in property value compared to the loan value. This is caused by other

risks’ results, lack of macro management, economic decline, rate of small quantity
of mobilized money, being mainly based on loans, increase in bankrupts in the loan
list of customers (basically to pay short-term-loans).

9


1.1.5.2. Systematic risks due to the impact of banking market
- Inflation risks;
- Technology risks;
- Changing law environment risks;
- Economic cycle risks; changing market factors risks;
- Risks from natural environment changes which increases frequency and
seriosity of natural disasters and human’s living conditions result in damages for
customers because they cannot pay for the bank…
1.2. CAPITAL MOBILIZATION OF COBA
1.2.1. Definitions
Capital mobilization is one of the primary and vital business activities of
COBA. “COBA is the activity of receiving temporary idle capital from
organisations or individuals in different ways to build operating capital for the
bank”. [2]
Capital mobilization creates inputs for other business activities of a COBA.
From the capital mobilised, the bank can grant credits to serve production
development and regional, industrial economic development targets. These capitals
meet social demands for economic development. In other words, banks are
collecting centers and re-allocating monetary capital, boosting capital circulation,
accelarating all economic activities. At the same time, those activities determine the
existence and development of the bank.
1.2.2. Role of capital mobilization activities
1.2.2.1. For clients

Capital mobilization activities provide clients the as follows:
- Channels of saving and investing, creating capital profits.
- A safe place to keep and store idle money.
- Access to convenient services such as payment, remittance and credit
granting for production or consumption.

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1.2.2.2. For the economy
In the economy, capital mobilization plays the role as:
- A channel of capital circulation.
- Control of inflation
- Provision of products/services to financial markets.
1.2.2.3. For COBA
Capital of a COBA is money value created or mobilised by the COBA, then
used to invest, grant credits or services. Capital structure of a COBA consists of
own capital and mobilised one. Own capital (charter capital and funds) makes up a
minor proportion (usually 5%) of the total capital. Own capital, usually allocated for
installation of equipment and facility, is considered as assets to build up clients’
trust and as a criterion to determine the scope and amount of capital to be mobilised
as well as of loans or guarantees. Mobilised capital, the majority of capital asset of a
COBA (over 90% of the total capital), plays vital part in its existence and
development because:
- It composes major sources of capital for business activities. Without capital
mobilization, COBA can not afford its own operations.
- The volumn of mobilised capital by a COBA can measure its reputation and
clients’s trust in the bank. As a result, the bank is able to work our measures for
improvement of capital mobilization to retain and expand client relations and
networks.

1.2.3. Capital mobilization methods of COBA
An indispensable activity of COBA is capital mobilization that is the
prerequisite for all banking operations. Capital mobilization process seems to be the
same among all banks but the capital mobilization methods are varied, depending
on chosen criteria.

11


1.2.3.1. Classification by terms
Term classification is significant for banks once safety and profitability of
capital mobilization, and time for reimbursement is to take into account. In terms of
term, Capital mobilization is classified as follows:
1.2.3.1.1. Short term
This method of mobilization is implemented by issuing short term debentures
in the financial market, involving short term savings and payment accounts.... Capital
mobilised this way is mainly used for short term credit (within 12 months) or shift the
terms so that medium and long term credits can be granted. As it is short term, the
interest rate is relatively low, together with low level of stability.
1.2.3.1.2. Medium term
This method of mobilisation is implemented by issuing medium term (from 1
to 5 years) debentures or savings in the financial market. This sort of capital is
convenient for COBA to utilise but the interst rate is higher compared to short term
rates. Short term capital mobilization is of high importance for COBA to conduct
investment activities, technological change and granting short term, long term
credits with high interest rates.
1.2.3.1.3. Long term
This is capital mobilization for long terms of a COBA in the capital market,
capital of this kind can be utilised at ease for its high stability (over 5 years), and
accordingly, interest rates the banks must pay are high.

1.2.3.2. Classification by sources of capital
1.2.3.2.1. From residents
Residents are a potential source for banks. Banks mobilise idle money from
residents, then distribute the capitals to meet the demands of those who want to
expand their investment or business. This source of mobilisation is relatively stable.
1.2.3.2.2. From corporates and organisations

12


This source is huge, accounted for the bigger part of the total capital. To
reduce time and cost of payments, corporates, big or small alike, have bank
accounts. They will transfer money to banks after selling products/service and
withdraw whenever they need. Withdrawal intervals are different from corporates to
corporates, from organisations to organisations. Banks, as a result, always hold huge
amounts of money, making favourable conditions for their business activities.
However, the size of these amounts depends on the wide range of client services
banks offer and client value they create. This seems to attach expansion and
improvement of banking services to capital mobilization activities.
1.2.3.2.3. From banks and other credit institutions
During their operations, banks make interbank deposits in others to make it
easier in trading or remittance. Besides, interbank loans increase the volumn of
mobilised capital. Loans of this kind are not regular choice but necessary for any
COBA’s trading activities. Interbank loans are made whenever there is a shortage of
reserves or liquidity risks. This loaning process is credit agreement between two
parties, capital can be mobilised in markets for national currency or foreign
currencies. There is a special body among loan-givers: the Central Bank. This Bank
is the ultimate loan-giver who can save banks from problems.
Capital mobilization in the form of interbank loans is made simple but at the
highest costs because of limited amounts. For that reason this is not a regular

method of capital mobilization.
1.2.3.3. Classification by the nature of capital mobilization activities
This is the most popular type of classification by COBA these days. This
criterion is visibly convenient for COBA in capital mobilization activities. Capital
mobilization types include:
1.2.3.3.1. Capital mobilization by taking deposits
a, Non term deposits
In developed countries whose frequency of non-cash payment is high, nonterm mobilised capital is crucial. The purpose of this kind of deposits is not for

13


profit but for easy payment. Holders of non term accounts are mainly economic
organisations, corporates and businessmen, whose frequencies of business
transactions are high. Depositors can withdraw money anytime to pay the third
party. Withdrawal can be made in cash or checks. In particular cases, depositors do
not need to visit the bank to withdraw their money, they can use ATM. Deposits of
this type is divided as payment account and current account:
- Payment account: This is a deposit that the Bank holds for clients for the
purpose of payment on their behalf. The Bank offers the clients an account for this
deposit which the client can require the Bank to issue payment instruments such as
checks or cards. In general, payment account do offer very low interest rate, even
some banks in the world pay no interest for this kind of deposit. However, this
account is the cheap capital and it occupies high percentage in bank deposit structure.
Therefore, to draw more payment account and improve competitiveness in supplying
such service, some banks pay higher interest rate and include some more favours.
The most advantage of this account is that bank has to pay low interest cost,
however, the clients has the right to withdraw the total amount of money on
demand. Therefore, the bank must consider carefully the using of this kind of
deposit to maintain its permanent operations.

- Current account: The account that can be in debit or credit balance, usually
offers for economic organizations. Debit balance implies that the client has money
in his account, and credit balance implies an overdraft. The main purpose of this
account is to using banking services so the bank also offer a certain low percentage
in interest, or even no interest can be paid. But in case of some countries with low
rate of non – cash transaction, including Vietnam, Banker still offers a certain
percentage of interest. In some period, interest rate for such deposit is as equal as
saving account. The ability of drawing money from this source of capital would be
fairly high if the bank has diversified services and has a large network to satisfy the
clients’ requirements.
b, Term deposits:

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Term deposit is a deposit with a specified term and to be withdrawn after
such term and usually is the deposit drawing from the economic organizations that
have almost stable operating cycle and time of payment. Banker can easily use the
capital therefore a higher interest payment will be required. The clients lend the
deposit not only for the purpose of using banking services but also for profit
earning. So, any changes in interest rate policy will cause a sharp fluctuation on
banker’s capital mobilization.
In Vietnam, capital mobilization in terms of certificates (usually called
purposed treasury bills) for the term of 3 months, 6 months, 1 years, 2 years, etc. are
more and more popularized and showing its important role in structuring banking
capital.
c, Saving account:
- Non-term deposit: As same as saving account drawing with higher interest
rate because of lesser liquidity.
- Term Deposit: This is the most popular form of saving in our country. The

clients deposit their money to the bank for the fixed rate of return during a fixed
term period (1 month, 2 months, 6 months, etc.). The clients have no right to
withdraw their money before the maturity unless they accept a lower rate of interest
based on negotiations with the bankers at the time of deposit. The high stable
characteristic of this capital source requires the bank to offer almost highest interest
rate. However, in our country now, to improve the competitiveness, the banks apply
flexible policies for the clients who need to withdraw the money before the
negotiated date by using the non– term interest rate or paying them their interest for
the real day of deposit.
Saving deposit help the bank more stable and help them to take initiation in
implementing its operations based on fixed term. But, to compete against the
checking acoount, a higher cost is required for using this source of capital.
- Other saving accounts: accumulative saving account, demand deposit
accounts, incentive time deposits, etc.

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1.2.3.3.2. Capital mobilization by issuing loans
This kind of Capital mobilization is becoming more and more important in
nowadays ever changing economic environment. The COBA can take the loans
from some sources:
a, Take the loans from other credit institution:
The bank can take the loans from each other in the interbank market or
capital market. The bank usually keeps good inter - relationships so that they can
take loans from each other instead of the Central Bank
b, Taking loans from the Central Bank:
When the commercial Bank in the situation of having reserve below the legal
requirement or losing its liqidity, the last institution it can ask for is the Central
Bank. The Central Bank lend them the loans by the way of discountabe bill, The

Commercial Bank brings the bill to the Central Bank to ask for loans. However, it
composes some of difficulties because of limitation of rediscounting from the
Central Bank and the national financial Policy.
1.2.3.3.3. Issuing loans note Instruments
Loan note Instruments is a fairly effective capital mobilization way of the
COBA. During the time of operations, at specified time, the bank realizes that it is
necessary to draw more capital to finance attractive opportunities. This means that,
in this case, the Bank draw the capital positively when it know exactly chances of
using the loans. The Bank can identify the scale, volume and the kind of currency
and calculate the reasonable expenses to help successful drawing capital. To draw
the capital, the Bank can issue Bills and Bonds.
a, Bond: Bond is a valuable paper issuing by bank to certify the fund deposit
of the clients at the bank in which the bank confirm about the payment of specified
volume of money on a specified day in the future. Bond can be issued over the
whole bank system mainly to draw the medium and long- term capital.
b, Bill: Bill Is a short- term loan note that the bank issue for capital

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mobilization from the public, mainly to finance the identified operating plans of the
bank such as economic programs or projects.
The branch of bank we are considering is now issuing 2 kinds of valuable
paper: Certificate of Deposit and Shares. In this Bank, certificates of Deposits are
issued more frequent at certain intervals for the term of more than 12 months. And
the Shares are issued at the time of IPO in 2012. For the certificate of deposit, the
bank has a stable source of capital, but in charge of this, the cost it must pay is quite
higher because of longer –term of deposit. For the share, the bank can draw a large
sum of money at that time, but it must share the benefit with its shareholders.
1.2.3.3.4. Other methods of capital mobilization:

To improve drawing idle capital from the public and economic organizations,
Commercial Bank also supply other services such as Bank’s guarantee, share issue
agency, to be intermediator for payment and funding contracts, etc. The more
developed economy, the more such the services improve the capital mobilization to
help the bank do safer and more effective operations.
1.2.4. The factors affecting capital mobilization
1.2.4.1. External factors
These are the factors inside the bank’s operation environment. These factors
exert effect to capital mobilization activities that the Bank should realize, forecast
and find ways to take the advantages and avoid the risks once the factors appear.
These factors include:
1.2.4.1.1. Legislative factors
- The Law (Law of credit institution, Law of State Bank) that stipulate the
Bank operations by issuing the regulations on structure of capital mobilization,
Bonds issuing and the level of loans apply for specified clients.
- The stipulations of Central Bank when implementing the financial and
monetary policy affecting to commercial bank’s interest rate policy can cause effect
on the commercial bank’s capital mobilization operations in both term of

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advantages and disadvantages.
- The State investment policy also a factors that cause influence on
commercial bank’s capital mobilization policy.
1.2.4.1.2. Economic factors
- Inflation is a feature at different level in any economies. The real interest
rate can be calculated by minus the inflation rate from the nominal interest rate.
Therefore, the higher inflation rate is, the lower real interest rate is, and the interest
rate may be negative. But only positive real rate can attract the depositors. Inflation

not only affect the real rate but it also make the real value of the money is
decreasing day by day. Because of such reasons, people tend to keep their savings in
form of strong currency or other commodities.
- Economic cycle also cause effect to commercial bank’s operations. At the
period of developing, bank operations will take advantages and get much profits
while in time of recession, unemployment rate raise, businesses decrease their
operations, therefore, the banks face the disadvantages in its normal operations
included the capital mobilization operation.
- The economic scale as well as its level also causes direct effect to drawing
operations of the Bank. The higher economic scale and level is, the more available
sources of capital for the capital mobilization operations and vice – verse.
1.2.4.1.3. The clients related factors
- Clients’ income: the clients’ financial ability is the factor that fairly affect to
drawing operation. When the clients’ income raise, the demand for expenditure will
raise as well as the raise of savings to deposit into the bank and help increasing the
volume of capital mobilization. But, in case clients’ income decline, demand for
using bank’s services tend to decrease including the demand of depositing their
money in the bank.
- Clients’ phychology and habits: Some of clients prefer to keep their money
or gold in home, while others prefer to make loans in the black market to earn high
rate of interest. These habits cause some difficulties for the bank on drawing capital.

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