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

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OPEN UNIVERSITY MALAYSIA ASSIGNMENT FACTORS MARKET IMPACT BUSINESS RESULTS OF THE STATE OWNED COMMERCIAL BANK IN HO CHI MINH CITY Associate professor: Dr. NGUYEN THE KHAI Prepared by: NGUYEN DUY MINH ID: 14968 Class: MBA.OUM0313–K08B HCMC AUGUST 2014 BUSINESS RESEARCH METHODOLOGY ACKNOWLEDGEMENTS First of all, I would like to express my deepest gratitude to My lecturer – Dr.Nguyen The Khai, who spent a lot of time and effort imparting knowledge about the subject – Business Research Methods to me; Second of all, I really appreciate all the help which I get from my Colleges of Finance and Customs located at B2/1a, 385 street, District 9. They are persons who have been a useful source of support and ideas for me to develop this paper; At last, I really take this chance to express my thankfulness to my wife, Thai Tran Van Hanh, who spends much time not only reading and correcting my draft with great care but also giving a lot of valuable suggestions to me. BUSINESS RESEARCH METHODOLOGY Page 1 SEMESTER 2014 BMBR5103 – BUSINESS RESEARCH METHODS ASSIGNMENT (60%) CONTENTS CHAPTER 1: OVERVIEW ........................................................................................... 4 1.1 The necessity of the Assignment .............................................................................. 4 1.2 Objectives of the Assignment ................................................................................... 4 1.3 Object and scope of research .................................................................................... 5 1.4 Research methodology ............................................................................................. 5 1.5 Layout of the assignment.......................................................................................... 6 1.6 Novelty of assignment .............................................................................................. 7 2.1 Overview of market–oriented business result .......................................................... 9 2.1.1 The concept of business result ............................................................................. 9 2.1.2 The concept of market orientation ....................................................................... 9 2.2 The relationship between business result and market orientation .......................... 11 2.3 Research models relates to business results according to market orientation ........ 14 2.4 Research factors in accordance with orienting market impact on business results of state–owned commercial banks ....................................................................................... 17 2.4.2 Factors in accordance with market orientation impact business results of the system's state–owned commercial banks ........................................................................ 22 2.4.2.1 Actual business results of Vietnam's banking system ................................ 22 2.4.2.2 Factors affecting the business results of the state–owned commercial bank according to market orientation: ............................................................................... 24 2.5 Recommended models and hypotheses .................................................................. 29 BUSINESS RESEARCH METHODOLOGY Page 2 CHAPTER 3: RESEARCH METHODOLOGY........................................................ 33 3.1 Research Process .................................................................................................... 33 3.2 Research Methodology ........................................................................................... 34 3.2.1 Qualitative Research .......................................................................................... 34 3.2.2 Quantitative Research ........................................................................................ 34 3.3 The Sample ............................................................................................................. 35 CHAPTER 4: RESEARCH RESULT ......................................................................... 37 4.1 The inspection......................................................................................................... 37 4.2 Database description ............................................................................................... 43 4.3 Correlation coefficient analysis .............................................................................. 44 4.4 Regression method ................................................................................................. 49 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ............................. 61 5.1 Conclusions from the research ............................................................................... 61 5.2 Recommendations .................................................................................................. 61 5.2.1 Customer orientation .......................................................................................... 61 5.2.2 Competitor orientation ....................................................................................... 62 5.2.3 Interrelation, cooperation between functional units ........................................... 63 5.2.4 Profit orientation ................................................................................................ 63 5.2.5 Response sensitivity ........................................................................................... 63 5.3 Limitations of the research and the coming study orientation ............................... 64 REFERENCE ................................................................................................................ 66 APPENDIX .................................................................................................................... 68 BUSINESS RESEARCH METHODOLOGY Page 3 CHAPTER 1: OVERVIEW 1.1 The necessity of the Assignment The Vietnam became a member of the WTO Organization on 07/11/2006, which opened a route of opening of Vietnam's banking system. Therefore, Vietnam's banking system shall perform its obligations and comply to operation principles in commercial service. For example, according to most–favored–nation (MFN) – defined in the General Agreement on Trade in Services, (GATS), Vietnam has obligation to treat equally to all countries, if Vietnam gives preferential conditions to one country they must spend that incentives for all member counties. According to principle of National treatment of equal treatment obligations between domestic and foreign enterprises, particularly in the banking sector, Providers of foreign banking services can enjoy equal privileges with providers of Vietnam banking services or foreign credit institutions licensed to operate in Vietnam will b treated equally with domestic ones etc. By November, 2011, after 5 years joining the WTO, Vietnam has removed any limits on the right to accept deposits in Vietnam dong from Vietnam entities. This required Vietnam banking system in general and state–owned commercial banks in particular should catch up with the trend, or creating customer demand to improve operational efficiency and competition capacity according to market principles. From the practical study on "The market–oriented factors that affect to business results of the state–owned commercial banks in the Ho Chi Minh City” to provide recommendations for improving business results to state–owned commercial banks according to market orientation. 1.2 Objectives of the Assignment The Assignment focuses on 2 main objectives: – Identify market– oriented market factors that have impact on business results of the state–owned commercial banks in Ho Chi Minh City; BUSINESS RESEARCH METHODOLOGY Page 4 – To propose recommendations for improving business performance through market–oriented factors for the state–owned commercial banks in Ho Chi Minh City; However, with limited time, Assignment only offer research model and run a number of variables on the basis of SPSS software to analyze and to give research way to develop the assignment in the next assignments. 1.3 Object and scope of research The study focused on the study’s object of market–oriented factors that have impact on business results of the state–owned commercial banks1 in Ho Chi Minh City including: The survey was conducted on the hierarchical management and direct sales staff of the state–owned commercial banks in Ho Chi Minh City; – Director/Deputy Director of Transaction Department/Branch – Head/Deputy Head of Business Unit of Transaction Department/Branch – Head/Deputy Head of Transaction office – Credit expert/Officer/Credit Support/Teller These are objects that have strong impact on strategy planning and implementation of market–oriented activities as well as those who interact directly with customers. Moreover, the knowledge and experience of these above objects are suitable for research goals. 1.4 Research methodology The study was carried out over 2 stages and included the combination of 1 Source: http://www.sbv.gov.vn/portal/faces/vi/vilg/vilgpages_hethongtctd/nhtmnhanuoc?_afrLoop=25977364233226 &_afrWindowMode=0&_afrWindowId=2cz7fka93_1#%40%3F_afrWindowId%3D2cz7fka93_1%26_afr Loop%3D2597736423322600%26_afrWindowMode%3D0%26_adf.ctrl–state%3D2cz7fka93_129 BUSINESS RESEARCH METHODOLOGY Page 5 qualitative and quantitative research methods. – In the qualitative study stage, basing on theory of market orientation, students used qualitative research methods to explore and find out the factors needed to impact business results in the field of banking and finance. These methods include group discussions, in–depth interview some senior leaders of the banks in Ho Chi Minh City, as well as expert opinion collection method based on the market –oriented factors affecting to business performance. The goal of qualitative surveys to calibrate scales measuring relationship business results and the market –oriented factors. The scales applied in research are scales of (Narver, JC and Slater, SF, 1990), (Deng, S. and Dart, J., 1994), (Gray, B., et al., 1998) and (Wua, SF and Cavusgil, T., 2006). – Stage 2, quantitative research, which was carried out by quantitative research methods used to test the scale of the market–oriented factors affecting to business results that have been explored and found during qualitative study period. – Formal questionnaire after adjusting scale in qualitative research phase is applied to conduct direct quantitative survey with respondents. Next students start measuring the impact of these factors to the business results of some State–owned commercial banks. The qualified questionnaire will be entered directly on SPSS software to create analysis data for the research project. The scales used in this study was assessed through Cronbach’s alpha reliability coefficient. SPSS 17 and Excel 2013 is used to analyze the data. 1.5 Layout of the assignment Chapter 1: Overview This chapter gives a brief overview on the assignment, objectives, objects, scope, methodology and content of the assignment. Chapter 2: Theoretical Foundations of market–oriented factors affecting to business results BUSINESS RESEARCH METHODOLOGY Page 6 Chapter 2 introduces the theoretical basis on market oriented factors, business performance and measuring methods for these factors to improve business results and to propose research model and hypotheses of the assignment. It also provides an overview of researches on the impact of market orientation to business performance in the enterprise. Chapter 3: Research Methodology Chapter 3 introduces the methodology, research process and preliminary quantitative research results to calibrate scale. On the theoretical basis presented in Chapter 2 and preliminary quantitative research results, the study proposes calibration scale and formal questionnaires to measure market–oriented factors affecting business performance of State–owned commercial banks in Ho Chi Minh City. Chapter 4: Research results This chapter presents analytical methods, analysis process and official quantitative research results to verify scale and study model as well as hypotheses. The results of research are saved on SPSS 16 software and Excel 2013 version. Chapter 5: Conclusions and Recommendations The final chapter of the thesis summarizes the main results of the study, the contribution and the implications for improving business performance in the State– owned commercial banks according to maket–orientation and at the same time give the limitations of the study and direction for further research. 1.6 Novelty of assignment The concept of market orientation is not a new concept which has been research by the world and Vietnam researchers for over 50 years in most fields from manufacturing to service, from business organizations to non–profit organizations. However, partly due to the slow equitization process of the State–owned commercial banks compared with the life history of this concept, no study for the Vietnam State–owned commercial banks in general and in Ho Chi Minh City in particular has been conducted. BUSINESS RESEARCH METHODOLOGY Page 7 The assignment is not aim to build a new theory of market orientation, business performance in the financial and banking sector, but focus on the market–oriented factors really affecting to business results in State–owned commercial banks in Ho Chi Minh City, then to propose recommendations to help the bank improve business results during the integration period. BUSINESS RESEARCH METHODOLOGY Page 8 CHAPTER 2: THEORETICAL FOUNDATIONS OF MARKET–ORIENTED FACTORS AFFECTING TO BUSINESS RESULT 2.1 Overview of market–oriented business result 2.1.1 The concept of business result Business Result is defined as the achievement of the enterprise’s goals and is a measure of business performance in each period. Business result is measured by achieved profit, growth, market share, sales and other strategic goals (Homburg, C. et al., 2007); (Yeniyurt, S., et al., 2005). (Hughes, M., et al., 2007) in their study give 2 ways to measure business result such as: customer performance and product performance. In which, customer performance is often measured by customer attraction and customer retention (Hansotia and Behram, 2004); (Jayachandran, S., et al., 2004); (Chandon, P. et al, 2005). Therefore, according to (Hughes, M., et al., 2007) performance measurement is based on what effect the enterprise create to create the attraction, retention, the reuse of the customer and create loyal customers. Meanwhile, the product performance is measured by the success of the enterprise relying on sales and market share of product/service provided into the market. Business effectiveness is defined as the degree on which achieved objectives based for addressed issues. In contrary to the performance, effectiveness is determined without taking into account cost. While performance means “correct performance”, effectiveness means “doing right work”. 2.1.2 The concept of market orientation Market orientation is one of the most important concept of modern marketing (Pandelica, A. et al., 2009). This term was first known in developed countries from the years of 1957 – 1960 but only understand academically and theoretically (McKitterick, 1957); (T. Levitt, 1960); (Deng, S. and Dart, J., 1994). Baker and Sinkula in a 1999 study showed that market orientation is a guideline for handling information obtained from the market of the enterprise. At the same time, BUSINESS RESEARCH METHODOLOGY Page 9 they also considered how this factor will be used in business strategy (Baker, WE and Sinkula, JM, 1999). Meanwhile, Jaworski defined market orientation as a combination of the upcoming actions and activities related to the production, dissemination and coping with market information. Market orientation leads to an outward focus that directed mainly to customers and competitors (Jaworski, BJ and Kohli, AK, 1993). Furthermore, market orientation will define value of the response to customer (Kohli AK, et al., 1993) or the existence of market orientation based on the continuous assessment of enterprise capacity and interact with the customers’ and competitors’ feedback (Baker, WE and Sinkula, JM, 1999). According to Lafferty et al, market orientation has 5 schools (Lafferty, B. and Hult, G., 2001): School of approach towards decision making, market orientation is a decision– making process of the enterprise, which emphasizes the commitment of the executive board on sharing information with functional parts. The strong linkage in the organization will create clear communication, a sustainable combination and high– leveled commitment (Shapiro, 1988). However Sapiro only stopped at the level of decision making, rather than showing the combination to create value for customers and not mentioning competitive factors on the market while the competition is one of the important factors of the principle of market orientation. Behavior school of Kohli and Jaworski considered “market orientation” as a term to develop the application of marketing idea (Kohli, AK and Jaworski, BJ, 1990). Accordingly, market orientation is defined as a process of creating the market information relating to current and future customers’ need; the synthesis and popularity of such information to the departments; planning and implementing synchronous coordination among functional departments within the enterprise to respond to the market opportunities. Thus, market orientation include (i) Creating information, (ii) Spreading information and (iii) Responding to customer demand. School of approach towards enterprise’s culture of Narver, Slater said that market orientation is a kind of business culture which can create a foundation for better value generation for our customers and the enterprise’s success (Narver, JC and Slater, BUSINESS RESEARCH METHODOLOGY Page 10 SF, 1990). This culture is a combination of three components: (i) customer orientation, (ii) competitor orientation and (iii) The interfunctional coordination. Strategy–focused approaching school of Ruekert, baseing on the study of Kohli & Jaworski and Narver & Slater to focus on analysis of economic unit rather than analyzing individual markets. According Ruekert external environmental factor which has biggest influence to the market orientation is the client (Ruekert, 1992). School of approach according to customer orientation of Deshpande and his colleagues considered market orientation similar to customer orientation. They also refuted the factor of competitor orientation in concept of orientation market factors and recognized the interfunctional coordination suitable with customer orientation and is one part of a customer–oriented. Deshpande’s research team also considered customer orientation is one part of the overall corporate culture (Deshpande, R., et al., 1993). 2.2 The relationship between business result and market orientation Market orientation is always valuable to enterprise because it will guide them to create superior value for customers (Slater, SF and Narver, JC, 2000) and has been proved to have positive impact to the enterprise’s business operation results (Jaworski, BJ and Kohli, AK, 1993); (Baker, W.E. and Sinkula, J.M., 1999); (Baker, W.E. and Sinkula, J.M., 1999). Furthermore, a good business result always shows a deep and insight understanding about customers of the enterprise (Clark, KB and Wheelwright, S. C, 1993) Narver and Slater, in a study in 1990, also said that market orientation is (i) to meet the customer's change (ii) to meet the competitors’ change and (iii) the interfunctional coordination is pivotal for the enterprise’s success (Narver, JC and Slater, SF, 1990). Market orientation is an element of the enterprise’s culture and it is base for necessary and effective activities in order to create better value for customers as well as the enterprise’s success. Factors used to measure market orientation are interpreted as follows: BUSINESS RESEARCH METHODOLOGY Page 11 Customer orientation and Competitor orientation includes all activities such as gathering information about customers and competitors in the target market and disseminating this information to each functional department. Customer orientation is to understand the customers’ need to continuously create superior value for customers (or, according to (T. Levitt, 1980) continuously create "offered products"). Market–orientation requires the salesperson to understand the customer's value chain (Day, SG and Wensley, R., 1988), not only at the moment time but also in the future time according to the market change. A salesperson create value for a customer only in 2 ways: increasing benefit to customers bigger than the cost that the customer spend and reducing customer’s cost compared to benefit that customers receive. Further customer benefits should be understood not only to be the immediate cost and benefits of direct customers but also be a customers' customer. Therefore, the businessman is required to know about both pressures in economics and politics at all levels of the distribution channel. With support of the work’s standard frame, a salesperson can understand who is the potential customers now and in the future, what customers expect today and in the future as well as what customers feel at this time and can feel the latter to satisfy their need. Competitor orientation is explained as a salesperson can understand the strengths and short–term weaknesses and three behavioral components of market orientation (for example: (Houston, 1986); (Kohli, AK and Jaworski, BJ, 1990). To survive long term from the current competitive situation, the enterprise must think about further prospect. To prevent their competitors from surpassing in creating added value for customers, the enterprise must be persistent in creating and providing added value for customers, this requires suitable investment and strategy. (Anderson, 1982) emphasized that a long– term investment perspective should be interpreted as a market orientation. The Interfunctional coordination is a combination of the enterprise’s resources to create superior value for target customers. Any stages in the customers’ value chain create opportunities for salesperson to provide value to customers. So any individual in any the enterprise’s functional units can also potentially contribute to the creation of value for customers (Porter, 1985), and this effort is a specific effort of all functional BUSINESS RESEARCH METHODOLOGY Page 12 units not from any one unit separately (Webster, 1988). This was also shared by M.Porter when he came Vietnam that one of the biggest weaknesses of Vietnamese enterprise is too internal competition. The interaction among the enterprise resources in creating added value for customers has a close relationship with both market orientation and competitor orientation. Starting from the nature of creating superior value for customers, the mutual dependence of the marketing function with other functional units must be coordinated systematically according to the enterprise’s marketing strategy (Wind, Y. and Robertson, TS, 1983). Once the functional units in the enterprise do not have good tradition of interaction, supporting and leader must implement the way to erase the barrier between functions. The achievement of interfunctional coordination and other factors requires the unit arrangement and the creation of the functional independence of each unit so they can perceive their own advantages in cooperation with the others. If the enterprise reward for any unit, which contributes to the creation of superior value for customers, self–interest will attract all unit to participate fully (for example: (Ruekert, RW and Walker, OCJr, 1987A) (Ruekert, RW and Walker, OCJr, 1987b); (Wind, Y. and Robertson, TS, 1983). To develop interfunctional coordination effectively, Marketing departments or any supporting ones shall express their sympathy and enthusiasm to the knowledge and need of all the departments in the enterprise (eg (Anderson, 1982)). In terms of conceptualization, market orientation is a high–order construct concept, which consists of many components, in which most of authors based on three fundamental components stated by JC Narver and SF Slater in 1990 as discussed above. However, basing on the business environment in the banking sector, and on the results of many domestic and foreign studies, we can add 2 other factors into this study: profit orientation (Deng, S. and Dart, J., 1994) and sensible response (Gray, B., et al., 1998), namely: Profit orientation, this factor is probably paid attention by most of enterprises. However, most of them only focus on short–term benefit not on long–term interests of the sector as well as economic benefits and social benefits. Profit orientation requires the enterprise to define profit target according to customer groups, for each BUSINESS RESEARCH METHODOLOGY Page 13 product/service line as well as different business units in the various business areas. Sensible response, to survive and develop sustainably, the enterprise need to focus on collecting information, analyzing and forecasting of the changes from macroeconomic environment, from sector’s environment to the enterprise’s internal environment and especially changes in more and more diverse customer demand to implement suitable responses timely. The global financial crisis starting from 2007 and continuing complexly to now is a big challenge for Vietnam's banking system, especially state–owned commercial banks, which are considered as less sensitive with the change. 2.3 Research models relates to business results according to market orientation Currently, there are many researches about the impact of market orientation on business performance of enterprises all over the word. Some typical research models are as follows: – Research 1: An in–depth study of the relationship between market orientation and business performance ("A meta–analysis of Relation between Market Orientation and Business Performance: Evidence from five Continents"), Cynthia Rodriguez Cano, Francois A.Carrillat, Fernando Jaramillo (2003). The objective of this study was to clarify the relationship between market orientation and business performance relationship is positive and constant throughout the world. One of the unique contributions of this study is that the sampling was carried out in 23 countries throughout 05 continents. The effect diminishes with objects such as business (profit and non–profit), type of industry (manufacturing and services), social and economic development (GDP, HDI and measuring individual culture by Hofstede). Stronger correlation of the relationships between market orientation and business performance has been explored toward non–profit organizations compared with profit ones and production compared with services. Research model of Cynthia Rodriguez Cano and his colleagues focused on BUSINESS RESEARCH METHODOLOGY Page 14 testing the relationship between market orientation and business performance, the authors offer the hypothesis as follows:  There is a positive relationship between market orientation and business performance  The relationship between market orientation and business performance in collectivist cultures is more strongly individualistic culture  The relationship between market orientation and business performance in the non–profit organization is stronger business organization  The relationship between market orientation and business performance in the service sector is stronger manufacturing sector  The relationship between market orientation and business performance as measured by MRTOR scale is greater scale MARKOR – Research 2: The effect of market orientation on the profitability of the business ("The Effect of a Market Orientation on Business Profitability", John F.Slater C.Narver & Stanley, 1990). The aim of authors is to develop a consistent way of measuring market orientation and analyze its impact on the profitability of the business. First the author discussed the relationship between sustainable competitive advantage and market orientation and the reasons why market orientation is business culture and this culture generate superior value for customers efficiently, most performance. The authors also hypothesize about the 4th component of market orientation. In addition, the author expects the relationship between market orientation and profitability of business operations as well as the relationship between the control 8 variables and profitability. The hypothesis given by the author is the more market–oriented, the more possible profitability of the business is, in the condition the other factors are constant. – Research 3: Measuring market orientation: Synthesis and generalizations ("Measuring Market Orientation: generalization and Synthesis", Rohit Deshpande & John U.Farley, 1997). The study was carried out uniformly and BUSINESS RESEARCH METHODOLOGY Page 15 through many countries in order to generalize and retest the measurement tools of market orientation of enterprise developed by 03 different researcher groups in the late 1980s. This based on the new research of the author over 82 managers from 27 companies in America and Europe. The author has discovered that all three scales are reliable and consistent. The scales seem to be generalized globally, both in terms of reliability and performance prediction. Finally, the author has compiled a scale to measure 10 variables based on a more detailed definition of market orientation as "the set of processes and activities directly multifunctional creating and satisfying customers through reviews price needs on an ongoing basis” – Research 4: Improving the efficiency management of enterprise in the hospitality sector according to market orientation, Lai Van Tai and Hua Kieu Phuong Mai, 2007 to assess the level of management according to the market orientation of tourism hotel businesses in Ho Chi Minh City and also determine the effect of each market orientation component on business performance of enterprise. In which Lai Van Tai and Hua Thi Kieu Mai tested the following hypotheses:  There is a positive correlation between customer orientation and business performance;  There is a positive correlation between orientation competitor orientation and business performance;  There is a positive correlation between the interaction of the functional units and business results;  There is a positive correlation between profit orientation and business performance;  There is a positive correlation between response sensitivity and business results; Regression analysis results of this study show that, in the hospitality sector, of the components of market orientation, sensitive response is component having the most BUSINESS RESEARCH METHODOLOGY Page 16 significant impact on business results, while customer orientation, competitor orientation and interaction between the functional units have weak effects and unstable. 2.4 Research factors in accordance with orienting market impact on business results of state–owned commercial banks 2.4.1 Overview of the banking system in Vietnam1 The development process of Vietnam's banking system since 1975 can be divided into the following stages: Period 1975–1985: After 1975, the National Bank of Vietnam in the South has been nationalized and merged into the State Bank system of Vietnam, performed the same task that unified currency throughout the country, issued a new kind of money, revocated old money in both the South – North in 1978. From 1986 to 1990: This is the infancy of the initial reforms, as prerequisite for the formation and development of a system of Vietnam Bank to be more comprehensive and fundamental. From 1991 to present: This is the stage that Vietnam's banking system has a lot of transformation gradually indirection of a modern two–tier banking system through the following major milestones: – Since 1991, when the Bank Ordinance took effect, branches, representative offices of foreign banks began to establish in Vietnam. During this period, four joint venture banks of four state–owned commercial banks with foreign banks were established in Vietnam. The joint–stock commercial banks began to be established; – 1993: Normalizing relations with International Monetary financial institutions (IMF, WB, ADB); – 1997: the 10th National Assembly passed the Law on the State Bank of Vietnam and the Law on Credit Institutions (dated 12/02/1997) and takes 1 Website: www.sbv.gov.vn/introduce.asp BUSINESS RESEARCH METHODOLOGY Page 17 effect from October 1, 1998; established House Development Bank of Mekong Delta (Decision No. 769/TTg, dated 18.09.1997). This is also the year when the financial crisis in East Asia happened, which had a negative impact on Vietnam's banking system, after this period, a number of joint– stock banks operating weak were rearranged. From more than 50 joint–stock commercial banks, by the end of 2004 only left 37 banks; – 2000: Restructuring finance and operation of state–owned commercial banks and the joint–stock commercial banks. In particular, there was companies in the commercial banks; – 2001: Bilateral Trade Agreement Vietnam–the United States was signed. In this agreement, Vietnam has committed to open banking and finance market under a certain route; – 2002: Liberalization VND lending interest rates of credit institutions – The final step fully liberalized credit market interest rates on both input and output; – 2004: Amending the Law on Credit Institutions Vietnam; – During this period, there was a very important event affecting Vietnam's banking system in particular, the financial system in general, which is Bilateral Trade Agreement Vietnam – the United States was signed. Under this agreement, banking and finance markets Vietnam has been gradually opened for business of the United States and by 2010, the financial institutions of the United States are treated as equal members of the Vietnam financial institutions. These are good conditions for Vietnam's financial market development, but also a huge challenge for domestic financial institutions, especially commercial banks; – June 16, 2010: the XII National Assembly formally adopted the Law on the State Bank of Vietnam and the Law on Credit Institutions and has taken effect since January 1st 2011. Law the State Bank in 2010 had a number of important changes compared to the one in 1997, which clarified the legal BUSINESS RESEARCH METHODOLOGY Page 18 status of state–owned banks, as well as defined the functions and duties of state–owned bank as the central bank, performed the functions of state management in the field of monetary and banking operations, confirmed close relationship between two important functions of a central bank: implementing monetary policy and monitoring the safe operation of the system of credit institutions. Meanwhile, compared with the old Law, significant changes in the Law on Credit Institutions 2010 is stipulating that the credit institution must not operate any business other than banking activities, which means that the capital raising activities similar to bank of non–bank institutions in the field of securities, finance investment services would be terminated since the beginning of 2011. According to the Law on Credit Institutions Vietnam in 1997, which was amended in 2004 and 2010, the system of Vietnam credit institutions include: – Credit institutions are enterprises established under the provisions of the Law on Credit Institutions and other provisions of law for banking activities; – The bank is a type of credit institution having right to perform all banking activities and other business activities being concerned. The nature and operational objectives, the types of banks include commercial banks, development banks, investment banks, policy banks, cooperative banks and other types of banks; – Non–bank credit institution is a kind of credit institution that performs some banking activities such as regular business content, but must not receive money deposits or provide payment services. Non–bank credit institution include finance companies, leasing finance companies and other non–bank credit institutions; – Foreign credit institution is credit institution established under foreign law; – Cooperation credit institution is organization that trades currency and does banking services and is established by organizations, individuals and households voluntarily for banking operations with the main aim of mutual BUSINESS RESEARCH METHODOLOGY Page 19
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