STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty ---------- GRADUATION THESIS RESTRUCTURING BANKING SYSTEM – A CASE STUDY OF VIETNAM Lecturer : Tran Thi Hai Ly (M.A) Student :Nguyen Quynh Mai Class : K14 – ATCD Student Code : 14A7510149 Hanoi, May 2015 Graduation Thesis Banking Academy ACKNOWLEDGEMENTS After about 4 years of studying in specialized financial and linguistic conditions at Banking Academy, I have been given oppotunity to review and dig deeper my theoretical understanding into practise. This graduation thesis is one of the most essential foundations for me to perform my effort, and paves the way to make it come into fruition thanks to the ceaseless devotion of lecturers at this university. I am greatly indebted to those who succored me to achieve this graduation thesis. First, the very profound thanks are reserved for all of my lecturers in Banking Academy, especially those of Foreign Language Faculty with their invaluable lessons and motivation as well.
In particular, I would like to express my sincere gratitude to my instructor, Mrs Tran Thi Hai Ly, who has poured thorough assistance, and useful recommendations whenever I am in difficulties. I would like to send my wholehearted thanks to my family and my friends for the encouragement and inspiration they provided me during my process. Without their tremendous support, I believe that this thesis will forever uncompleted. Hanoi, 20thMay 2015 Student Nguyen Quynh Mai Nguyen Quynh Mai –K14 ATCD Page i Graduation Thesis Banking Academy ABTRACTS The primary aims of this graduation thesis are to systematize restructuring commercial banks theories, analyze the situation of restructuring of commercial banks in Vietnam from 2008 to 2014 and propose measures to promote restructuring of Vietnam banking system in the upcoming years.
With a purpose of achieving goals above, the author has synthesized the literature review for restructuring banking system through commercial banks classification; restructuring concept; the reasons for restructuring; its advantages and disadvantages. Moreover, various international experiences of restructuring banking system in America and some Asia countries also are discussed which have drawn priceless lessons in the process of restructuring for Vietnam conditions. On the basis of such theoretical framework, graduation thesis generates the formation and development of Vietnam banking system along with operations of Vietnam commercial banks. Subsequently, the thesis focuses on analyzing and assessing the restructuring process of Vietnam commercial banks through four aspects including financial restructuring, operational restructuring, administrative restructuring and ownership restructuring.
In the final step, the writer gives out two groups of recommendations to accelerate the process of restructuring Vietnam commercial banks. However, sadly enough, restructuring banking system in Vietnam is a extremely extensive issue that a graduation thesis is fail to cover all related-problems due to the lack of data, massive workload and limited time. Nguyen Quynh Mai –K14 ATCD Page ii Graduation Thesis Banking Academy TABLE OF CONTENT Supplementary cover Acknowledgements Table of content List of tables and charts List of abbreviations Table of Contents I – INTRODUCTION. Motivations to do the research.
Scope of the study and limitations. Structure of the study. Research methods and instruments. Data collecting procedure.
4 II – THEORETICAL FRAMEWORK ABOUT BANKING SYSTEM RESTRUCTURING. Restructuring banking system. Definition of restructuring banking system. Types of restructuring banking system.
Reasons for restructuring banking system. Advantages of restructuring process. Risks and difficulties. Cases of Asian countries.
Case of America. 19 Nguyen Quynh Mai –K14 ATCD Page iii Graduation Thesis Banking Academy 2. 20 III – RESTRUCTURING BANKING SYSTEM – CASE OF VIETNAM. Reasons for the restructuring of banking system in Vietnam.
Performance of banks and financial institutions. The restructuring of banking system in Vietnam. Reasons leading to constraints. To State Bank of Vietnam.
Enhancing managing role. Completely equtizing SCBs. Adjusting foreign ownership restriction. Supplementing financial laws.
To commercial banks. Solving liquidity risk. Focusing on technology and human resources. 44 CONCLUSIONS REFERENCES APPENDICES Nguyen Quynh Mai –K14 ATCD Page iv Graduation Thesis Banking Academy LIST OF TABLES AND CHARTS Figure 3.1 Organizational model of Vietnam commercial banks.
The growth rate of outstanding loans in Vietnam banking system from 2008 to 2014. EBT of some Vietnam commercial banks in 2014. Percentage of operating profits in Vietnam CBs from 2008 to 2014. Restructuring banking system of some ASEAN nations.
Lehman’s balance sheet before bankruptcy .1 The number of banks in Vietnam from 2008 to 2014 .2 Charter capital of Vietnam commercial banks from 2008 to 2014 .3 CAR of typical CBs in Vietnam from 2008 to 2014 .4 Foreign strategic shareholders participated in Vietnam banking system from 2008 to 2014 .5 Some prominent M&A deals from 2008 to 2013. 34 Nguyen Quynh Mai –K14 ATCD Page v Graduation Thesis Banking Academy TABLE OF ABBREVIATIONS ATM Automatic Teller Machine CAR Capital Adequacy Ratio AMC Asset Management Corporation CB Commercial Banks CPI Consumer Price Index DIC Deposit Insurance Corporation IBRA Indonesian Bank Restructuring Authority IR Interest Rate JSB Joint-Stock Commercial Bank M&A Merger and Acquisition NPL Non-performing Loan SCB State-Owned Commercial Bank SME Small and Medium Enterprise SOE State-Owned Enterprise SBV State Bank of Vietnam USD United States Dollar VND Vietnam Dong WTO World Trade Organization Nguyen Quynh Mai –K14 ATCD Page vi Graduation Thesis Banking Academy CHAPTER I – INTRODUCTION 1. Motivations to do the research Over the past 20 years, Vietnam banking system has completed its tasks outstandingly and always played an important role of being the lifeline of national economy. In other words, it is considered to be an indispensible factor affecting all activities of the society as it generates capital resources for the national development.
The glorious socio-economic achievements Vietnam has gained along with greater role and position of Vietnam in international market are stunningly attributed to the banking sector. Also for its importance, banking operations are very sensitive and easily trigger serious influence to the economy if under-standard condition is created. The opening offinancial and banking market is an inevitable tendency under the context of international integration, especially since Vietnam joined the WTO which has brought a lot of opportunities and challenges for Vietnam banking system. Commercial banks in Vietnam have to confront more intensive competition with foreign banks from the developed financial areas such as the United States, Europe, Singapore, Japan are more affected by the volatility of international financial markets.
The financial crisis and global economic downturn which lasted from 2008 have still left their consequences in many countries until now. One of the main culprits derived from the weakness of the banking system which then forced the nations to pay more attention and re-evaluate all activities of commercial banks. The restructuring of the banking system has become widespread and urgent in each separated country to ensure that banks can adapt to brand new requirements in the volatile situation of the world’s economy. In Vietnam, when the stock market has not developed yet, the banking system seemed to be the only one who was responsible for the burden of capital.
Therefore, keeping the system stable and profitable requires more effort than ever. So far, social statistics have shown that Vietnam economy and banking system, to a certain extent, have overcome the financial crisis. However, its consequences still left behind some instability problems in the banking sector, namely: the liquidity difficulties, increasing bad debts, limitations in controlling capacity, poor services and products, primarily profit from credit operations whose risks affect the systematic safety and so on. In addition, cross- ownership issues and banking network which are growing at a high speed with large number Nguyen Quynh Mai –K14 ATCD Page 1 Graduation Thesis Banking Academy but low quality also negatively affect banking system and monetary market negatively.
Therefore, if there is no timely intervention, potential risks may arise and lead to systematic instability. To stabilize and improve the economy efffectively and sustainably, the 11th Plenum III (October, 2011) has emphasized the need for restructuring the economy in which the restructuring of the banking system and financial institutions is one of three key domains. This is a vital strategy illustrating determination of government to reform the economy and to hinder negative effects of the world economic crisis. Rooted from recognizing the importance of restructuring banking system and the desire to come up with useful solutions to the successful process of restructuring Vietnam banking system, the writer chose the topic: "Restructuring banking system – A case study of Vietnam "for the graduation thesis.
Equally important, the author hold onto the hope of adjoining and offering the most complete view on restructuring Vietnam banking system within the period 2008 - 2014 so as to build up a reliable knowledge foundation for researches of the similar topic in the future. Impressively, by clarifying the forms of restructuring as well as pointing out the valuable lessons of international experience, the thesis puts forward practical and comprehensive proposals which may generate stunning contributions to the success of the restructuring process. Scope of the study and limitations Due to limited time as well as the writer’s restricted knowledge and experience, the study can hardly cover all specific issues involved in restructuring banking system. Moreover, there are various governmental policies which have just come into effect.
As a result, the evaluations on their influences and effeciency are far from comprehensive. Additionally, along with the unforeseeable movements in the financial market, the updated collection and estimation of data may confront with obstacles. Consequently, this thesis only discusses the restructuring of commercial bank system in Vietnam within the period from 2008 to 2014; suggests some recommendations and offers oppotunities for further studies. Structure of the study Apart from acknowledgements, abstract, table of content, list of abbreviations, list of charts and tables, list of references and conclusion, the chief content of graduation thesis includes 04 chapters as follows: Nguyen Quynh Mai –K14 ATCD Page 2 Graduation Thesis Banking Academy Chapter 1: Introduction This chapter gives a general background of the study in cluding the motivations to do the research and the problem statement.
Accordingly, difficulties and limitations arising in doing the research are also mentioned clearly. Chapter 2: Theoretical framework about restructuring banking system This is an essential part which reviews literally on the entire content involved in the topic. Issues stated in chapter 2 include: selectively generalized and systematized basic information about commercial banks and restructuring banking system. Based on that, author straightened out the causes of restructuring the banking system and some international experiences in order to generate lessons for the case of Vietnam.
Chapter 3: Restructuring banking system – The case of Vietnam By virtue of reliable and updated sources of data, the thesis analyzes operational condition of Vietnam's commercial banks as well as the restructuring banking system between 2008 and 2014 before identifying achievements, constraints and the causes of the limitations in the process of restructuring the system of commercial banks in Vietnam. All of these will be obvious foundation for the solution to restructure Vietnam banking system. Chapter 4: Recommendations With a view of enhancing Vietnam commercial banks in the future and restructuring the banking system as a governmental strategy, the thesis proposes 2 groups of solutions to help the process of restructuring the banking system Vietnam achieve positive results. Research methods and instruments The study is based on a variety of methods such as statistics, description, comparison, synthesis, logic, theoretical and practical combination.
Bar charts, line graphs, pie charts and historical figures are used to illustrate and determine the pattern of changes in particular events. Research participants The list of subjects for this study are as follows: State Bank of Vietnam, 6 state-owned commercial banks, 35 joint-stock commercial banks (JSCBs), 5 foreign banks and 4 joint- ventured banks. The writer uses data and documents collected from these banks because Nguyen Quynh Mai –K14 ATCD Page 3 Graduation Thesis Banking Academy they are the direct components involved in the restructuring of Vietnam banking system (until 31/12/2014).