Tài liệu A com parative study of financial performmance in the vietnammese banking sector evidence for vietnamese leading joint stock commercial nanks luận văn thạc sĩ

MINISTRY OF EDUCATION & TRAINING HOCHIMINH CITY UNIVERSITY OF ECONOMICS --------------------------- Nguyen Huu Nhan A COMPARATIVE STUDY OF FINANCIAL PERFORMANCE IN THE VIETNAMESE BANKING SECTOR: EVIDENCE FOR VIETNAMESE LEADING JOINT-STOCK COMMERCIAL BANKS MASTER OF BANKING THESIS Ho Chi Minh City – December, 2010 MINISTRY OF EDUCATION & TRAINING HOCHIMINH CITY UNIVERSITY OF ECONOMICS --------------------------- Nguyen Huu Nhan A COMPARATIVE STUDY OF FINANCIAL PERFORMANCE IN THE VIETNAMESE BANKING SECTOR: EVIDENCE FOR VIETNAMESE LEADING JOINT-STOCK COMMERCIAL BANKS Specialized in Banking & Finance MASTER OF BANKING THESIS THE RESEARCH ADVISOR: VUONG DUC HOANG QUAN, Ph.D Ho Chi Minh City – December, 2010 ACKNOWLEDGEMENTS First of all, I would like to thank my supervisor Dr. Vuong Duc Hoang Quan, whose never-ending optimism and patience encouraged me to continue on my path. I appreciate very much the fact that Dr. Vuong Duc Hoang Quan took the time to listen, discuss and help me fulfill this research. I would like to thank to the Banking Faculty, which support me to finish this thesis. My sincere thanks to Mr. Vo Xuan Vinh, Mr Dao Trung Kien for their supports during my hard time of study. Finally, I would like to say thanks to my family, who always support and motivate me all the life. Ho Chi Minh City, Nguyen Huu Nhan ABSTRACT The purpose of this study is to classify the Vietnam commercial joint stock banks in cohesive categories on the basis of their financial characteristics revealed by the financial ratios. These financial characteristics are total assets, total shareholder’s equity, loans to customers, deposit from customers and the financial ratios such as probability, asset quality, operational efficiency and liquidity ratios. A sample of seven large Vietnam commercial joint stock banks total loans to customers comprise of 63% of total outstanding loans of the whole Vietnam commercial joint stock bank were financially analyzed, and simple regression was used to estimate the impact of asset management, operational efficiency, and bank size on the financial performance of these banks. The study found that the bank with higher total capital, deposits, credits, or total assets does not always mean that has better profitability performance. The regression analysis results showed that financial performance of the bank was not strongly and positively affected by the operational efficiency, the asset management and the bank size. ABBREVIATIONS ACB : Asia Commercial Joint Stock Bank. AFTA : ASEAN Free Trade Area. AHP model : Analytical Hierarchy Process. ALM : Asset and Liability Management. ANOVA : Analysis of variance. ASEAN : Association of South East Asian Nations. ATM : Automated Transaction (or Teller) machine. AVSC : Au Viet Securities Co. BDD : Bad and doubtful debt. BSC : BIDV Securities Company. CAMELS model : Capital, Asset Quality, Management, Earning, Liquidity, Sensitivity to Market Risk. CAR : Capital Adequacy Ratio. CIC : Credit Information Center. EAGLES model : Earning ability, Asset quality, Growth rates, Liquidity, Equity level and capital adequacy, effective managementSRQ. Eximbank (EIB) : Vietnam Export Import Commercial Joint Stock Bank. GSO : General Statistics Office of Vietnam IOR : Income/Overheads ratio. IPO : Initial Public Offering. JSCB : Joint Stock Commercial Bank. KPMG : KPMG Consulting Inc. LDR : Loans to deposits ratio Military Bank (MB) : Military Commercial Joint Stock Bank. NIM : Net interest margin. POS : Point of sale. RAROC : Risk-adjusted return on capital. ROA (A) : Return on assets (average). ROE (A) : Return on equity (average). ROSF : Return on Shareholder’s Fund. Sacombank (STB) : Sai Gon Thuong Tin Commercial Joint Stock Bank. SBV : State Bank of Vietnam SOCB : State-owned Commercial Bank SRQ : Strategic response quotient. SWOT : Strengths, Weaknesses, Opportunities, and Threats. Techcombank (TCB): Vietnam Technological and Commercial Joint Stock Bank. Vietcombank (VCB) : Joint Stock Commercial Bank For Foreign Trade of Vietnam. Vietinbank (CTG) : Vietnam Joint Stock Commercial Bank for Industry and Trade. VND : The currency of Vietnam. WTO : World Trade Organization. TABLE OF CONTENTS ACKNOWLEGEMENTS ABSTRACT ABBREVIATIONS CONTENTS LIST OF TABLES LIST OF FIGURES CHAPTER 1: INTRODUCTION .............................................................................. 1 1.1. Background ........................................................................................................ 1 1.2. Rationale of the study ......................................................................................... 3 1.3 Problem statement ............................................................................................... 3 1.4 Overall objective ................................................................................................. 3 1.5 Specific objectives .............................................................................................. 4 1.6 Scope and limitation ............................................................................................ 4 1.7 Structure of the thesis .......................................................................................... 4 CHAPTER 2: LITERATURE REVIEW .................................................................... 6 2.1 Evaluating bank financial performance ................................................................. 6 2.1.1 Financial performance ...................................................................................... 6 2.1.2 Profitability ...................................................................................................... 7 2.1.3 Capitalization ................................................................................................... 7 2.1.4 Asset quality .................................................................................................... 8 2.1.5 Operating efficiency ......................................................................................... 8 2.1.6 Liquidity .......................................................................................................... 9 2.1.7 Other financial ratios ........................................................................................ 9 2.2 Asset and liability management (ALM) .............................................................. 10 2.3 Some models used in assessing the performance of bank ..................................... 11 2.3.1 CAMELS model ............................................................................................. 11 2.3.2 SBV’s bank assessing framework .................................................................... 12 2.3.3 The EAGLES model ....................................................................................... 12 2.4 Some previous researches.................................................................................. 13 2.5 Summary .......................................................................................................... 15 CHAPTER 3: METHODOLOGY ........................................................................... 17 3.1 Research framework ......................................................................................... 17 3.1.1 Suggested model in assessing and comparing banks ......................................... 19 3.1.2 Financial indicators and ratios used in comparing banks .................................... 19 3.1.3 Variables ....................................................................................................... 23 3.1.4 Hypothesis ..................................................................................................... 24 3.2. Data for the study ............................................................................................. 25 3.2.1 Sampling ........................................................................................................ 25 3.2.2 Data gathering ................................................................................................ 26 3.2.3 Data level of confidence ................................................................................. 28 3.2.4 Data analysis .................................................................................................. 28 CHAPTER 4: FINDINGS AND DISSCUSIONS ...................................................... 30 4.1. Comparisons of Vietnam leading joint stock commercial banks ........................... 30 4.1.1 Total assets .................................................................................................... 30 4.1.2 Total shareholder’s equity ............................................................................... 32 4.1.3 Loans to customers ......................................................................................... 34 4.1.4 Deposits from customers ................................................................................. 37 4.1.5 Return on total assets – ROAA ........................................................................ 39 4.1.6 Return on shareholder’s equity – ROEA .......................................................... 41 4.1.7 Efficiency ratio ............................................................................................... 42 4.1.8 Asset quality .................................................................................................. 43 4.1.9 Liquidity ........................................................................................................ 45 4.1.10 Ranks of chosen commercial banks ................................................................ 47 4.2 Hypotheses Testing ........................................................................................... 53 4.2.1 Relationships among the financial performance measured by ROA, and interest income size, and the independent variables (operational efficiency, asset management, bank size). .............................................................................................................. 54 4.2.2 Independent variables impact on financial performance measured by ROA and interest income size ................................................................................................ 56 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ................................ 61 5.1 Conclusions....................................................................................................... 61 5.2 Implications ...................................................................................................... 63 5.3 Recommendations for further study .................................................................... 63 APPENDICES REFERENCES LIST OF TABLES Table no.: Title of tables Page Table 3.1: Selected financial criteria and ratio for the comparison and ranking ..... 20 Table 3.2: Selected variables in testing hypothesis ................................................. 24 Table 3.3 Total outstanding loans ............................................................................ 25 Table 3.4: Selected commercial banks to compare.................................................. 26 Table 3.5: Data source to extract and calculate financial ratios .............................. 27 Table 4.1: Total assets of commercial banks ........................................................... 30 Table 4.2: Total shareholder’s equity ...................................................................... 32 Table 4.3: Loans to customers .................................................................................. 36 Table 4.4: Deposits from customers ......................................................................... 38 Table 4.5: Return on total assets – ROAA ............................................................... 39 Table 4.6: Return on shareholder’s equity – ROEA ................................................ 41 Table 4.7: Net interest income/total operating expenses ......................................... 42 Table 4.8 Provisions for loans losses ratio ............................................................... 44 Table 4.9: Loans to deposits ..................................................................................... 45 Table 4.10: Ranks of chosen commercial banks based on financial indicators ....... 47 Table 4.11: Chosen commercial banks: Key average data (2004-2009) ................. 54 Table 4.12: Correlations results ............................................................................... 56 Table 4.13: (ANOVA) independent variables impact on financial performance measured by ROA and interest income size ............................................................ 57 LIST OF FIGURES Figure no.: Title of figure Page Figure 3.1: Research framework ............................................................................ 18 Figure 3.2: Suggested model in assessing and comparing banks............................. 19 Figure 3.3: Positive correlations between variables ................................................ 24 Figure 3.4: The impact of asset management, operational efficiency and the bank’s size on the financial performance................................................................. 25 Figure 4.1a: Individual bank’s asset growth ............................................................ 31 Figure 4.1b: Total assets of commercial Banks ....................................................... 32 Figure 4.2: Total shareholder’s equity ..................................................................... 34 Figure 4.3a: Assets – Loans growth ......................................................................... 35 Figure 4.3b: Loans to customers .............................................................................. 37 Figure 4.4: Deposits from customers........................................................................ 38 Figure 4.5: Return on total assets – ROAA .............................................................. 40 Figure 4.6: Return on shareholder’s equity – ROEA ............................................... 42 Figure 4.7: Net interest income/total operating expenses ....................................... 43 Figure 4.8 Provisions for loans losses ratio .............................................................. 44 Figure 4.9a: Loans, deposits growth......................................................................... 46 Figure 4.9b: Loans to deposits.................................................................................. 46 ________________________________ 1 ________________________________ CHAPTER 1: INTRODUCTION This chapter presents the overview of the study, including the background, rationale of the study, overall and specific objectives, scope and limitation. At the end of the chapter, the structure of the study is presented. 1.1. Background In recent years, Vietnam has been considered to be a dynamic economy in ASEAN region and the world. The investors are attracted to Vietnam due to its largely untapped market with a population of over 86 million people according to General Statistics Office of Vietnam (GSO), strategic geography position, stable political conditions, and a high economic growth. Over the last five years, the changed market economy has brought Vietnam to an average growth of six point nine per cent (6.9%) annually. Normally, the country aims to gain the economic growth from seven to eight percent (7-8%) to bring Vietnam out of its position as an undeveloped country [32]. One of the sectors in Vietnam exposed to rapid change is the banking sector. It carries out the bridge for capital mobilization and distribution, satisfy the capital demand for the economy. After the region financial crisis year 1997, the credit institution system in Vietnam has been restructured and developed with various ownership types. As stated on the State-bank of Vietnam’s website at current, the credit institutions consists of three state-owned commercial banks; thirty nine joint-stock commercial banks; forty eight foreign bank branches; five jointventure banks; fifty three foreign bank’s representative offices; sixteen finance companies; thirteen financial leasing companies; and other nine hundred fifteen local credit funds. Total assets of credit institutions increased rapidly, especially in JSCB group [22]. _________________________________________________________________________ ________________________________ 2 ________________________________ As a result of the imminent WTO accession and the obligations arising from bilateral trade agreements, Vietnam has committed itself to move to a market based economy and to create a level playing field for all participants, either state-owned or private, domestic or foreign (Bao Toan Tran, 2008) [3] . Besides, five of 100% foreign banks allowed setting up business in Vietnam. These banks are Standard Chartered, ANZ, HSBC, Shinhan, and Hong Leong bank as showed on the SBV’s website. The competition is increased not only commercial banks of Vietnam but also foreign banks. In order to compete with foreign banks, domestic banks have to expand their sizes, networks operations. The Government published paper no.141/2006/NDCP to push credit institutions increasing charter capital to 3,000 billion VND at end of year 2010. However, according to the banking industry report of BSC, most of commercial banks have presented the charter-capital-increasing plan except 21 banks [24] . These 21 banks are finding way to attract capital of 31,400 billion VND. This is a great pressure for bank to comply the new charter capital regulation. Because of lacking capital, therefore capital must be used with profitability. In order to attract capital, bank’s financial performance has an important role for investors or shareholders to decide whether to invest or not. In addition, the world financial crisis was originated from the housing loan crisis in the United States, and spreading around the world. Many large banks declared bankruptcy or was purchased or taken over by other banks such as Lehman Brother, Merrill Lynch [30] . So that, banks in Vietnam need to reconsider their financial performance. Fitch, the credit rating agency has lowered its ratings for two big banks, citing _________________________________________________________________________ ________________________________ 3 ________________________________ rapid growth in their outstanding loans. Fitch lowered its grades for the two banks, Vietcombank (VCB) and Asia Commercial Bank (ACB), from D to D/E, a level suggesting that they have serious problems that may require outside assistance [31]. 1.2. Rationale of the study In the banking sector, there has apparently been no in depth study of comparing financial performance of Vietnamese banks. This thesis aims to fill in the gap, at least partially. The study looks at financial performance in the banking sector in Vietnam. Bank managers can understand its major banking activities that may increase the bank ranking and financial performance position comparing with other banks. The study provides such information should help the management of commercial banks in creating appropriate financial strategies for attaining the required planned financial performance. In addition, the SBV reconsiders published policies and have relevant solutions to support commercial banks to develop based on information of this study. 1.3 Problem statement Commercial banks need to re-consider their financial performance in order to discover its advantages as well as disadvantages to attract capital, deposits from depositors, shareholders and investors. 1.4 Overall objective The purpose of this study is to compare the Vietnam seven leading commercial joint stock banks on the basis of their financial characteristics. _________________________________________________________________________ ________________________________ 4 ________________________________ 1.5 Specific objectives The specific objectives of the thesis include:  To obtain an overview of the financial performance evaluation of bank, some models and previous researches involved.  To develop a research framework for making comparison among seven leading joint stock commercial banks in Vietnam.  To gain better understanding the financial performance of seven leading joint stock commercial banks base on applying the proposed research framework.  To provide some recommendations on how to improve financial performance position for banks. 1.6 Scope and limitation The scope of the study is Vietnam joint-stock commercial banks, which consists of seven (07) large commercial banks. These banks account for 63% total loans of the Vietnam joint-stock commercial banks at the year end 2009 indicated by CIC report at December, 2009. Like any other study, this study is also not without its limitations. The result of this study is written based on the declared-figures available to the researcher and based on the proposed research framework, variables and hypothesis as selected by the author. Some results, assessments in this thesis were belonged to the author’s analysis. 1.7 Structure of the thesis The thesis is presented in 5 chapters: The details of these chapters are: Chapter 1 is the introduction Chapter 2 deals with theoretical the relevant literatures, models and previous _________________________________________________________________________ ________________________________ 5 ________________________________ studies. Chapter 3 defines the methodology of the study. Chapter 4 provides details of the results and discussions Chapter 5 presents the main conclusions, implications and recommendations for further study. _________________________________________________________________________ ________________________________ 6 ________________________________ CHAPTER 2: LITERATURE REVIEW Chapter 2 presents the literature review, which explains the financial performance evaluation of a bank, and some models commonly used in assessing bank financial performance. This chapter also reviews a number of previous researches selected to the subject study. 2.1 Evaluating bank financial performance 2.1.1 Financial performance As stated in an article of Bora Aktan and Cagri Bulut (2008), financial performance refers as a firm’s ability to generate new resources from day to day operations over a given period of time [4] . According to the website of Investopedia, financial performance is defined as a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. According to Benton and James (2005), the bank financial performance is evaluated with financial ratios. Based on the accounting data contained in the bank’s annual report, financial ratios are extracted or constructed to assess the various characteristics of the performance. There is a wide variety of financial ratios to measure the performance of the bank. However the key ratios commonly used by analyst in evaluating are profitability, capitalization, asset quality, operational efficiency, liquidity and other financial criteria [5]. _________________________________________________________________________ ________________________________ 7 ________________________________ 2.1.2 Profitability The principal bank goal is to achieve cash-flows and maximize shareholder wealth. Therefore, the profitability is very important to evaluate the bank performance. This indicator is measured by profitability ratios. These ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. In banking sector, there are lots of profit ratios such as the rate of return on assets (ROA), the return on equity (ROE), the unraveling profit ratios, the net interest margin, etc… however, the two most frequently used by bank’s managers to measure the profitability of a bank are ROA and ROE. ROA measure the ability of management to utilize the real and financial resources of the bank to generate returns, and it is commonly used to evaluate the bank management. Another ratio is ROE, which stated the rate of return on the ownership interest of the shareholders. It measures a bank's efficiency at generating profits from every unit of shareholders' equity. ROE shows how well a bank use investment funds to generate earnings growth. 2.1.3 Capitalization Capitalization is an important form of financing for a bank. It is understood as the leverage of a bank, which refers to the use of debt to finance for banking business. The source of capital of bank comes mostly from liabilities. Unlike other industries, these liabilities include deposits from customers, other financials institutions, borrowings from the SBV and other liabilities. Capitalization directly influences the rate of return on equity. It should be obvious that a high equity multiplier can increase both ROE and the growth rate of the bank as long as ROA is positive. On the other side, if ROA is negative, _________________________________________________________________________ ________________________________ 8 ________________________________ ROE would be magnified in a negative direction. 2.1.4 Asset quality Asset quality can be assessed only using financial ratios. Because most of earning assets of the bank focus on loans to customers, so the outstanding loans is certainly best way to evaluate asset quality. Some ratios can be computed to provide as loan ratio, provisions for loan losses, non performing loans, bad debt, etc…. Loan ratio indicates which assets are devoted to loan while provisions for loan losses: each bank calculates the estimate future loans losses as an expense on its income circumstance. 2.1.5 Operating efficiency Generally, the concept of efficiency can be regarded as the relationship between outputs of a system and the corresponding inputs used in their production. Within the financial efficiency literature, efficiency is treated as a relative measure which reflects the deviations from maximum attainable output for a given level of input (English M. and Warng, 1993) [7]. Operating deals with the production of outputs, such as deposit and loan accounts and securities services, at a minimum cost per account. This is a primary factor to distinguish high- and low-profit banks. The efficiency ratio measures the proportion of net operating revenues absorbed by overhead expenses. It is calculated by dividing non interest expense less amortization of intangibles by total revenues. Most previous studies concerning company performance evaluation focus merely on operational efficiency and operational effectiveness which might directly influence the survival of a company. By using an innovative two-stage data _________________________________________________________________________ ________________________________ 9 ________________________________ envelopment analysis model in their study, the empirical result of this study is that a company with better efficiency does not always mean that it has better effectiveness. A paper in the title of efficiency, customer service and financing performance among Australian financial institutions of Elizabeth and Elliott (2004) showed that all financial performance measures as interest margin, return on assets, and capital adequacy are positively correlated with customer service quality scores [6]. 2.1.6 Liquidity Liquidity can be defined as the extent to which the bank has funds available to meet cash demands for loans and deposit withdrawals. Four common liquidity ratios frequently used by bank analyst to measure the bank liquidity are:  Loans / deposits  Loans / non-deposit liabilities  Unencumbered liquid assets/non-deposit liabilities  Near-cash assets/large-denomination liabilities 2.1.7 Other financial ratios Besides the ratios discussed previously, the analyst can construct other financial ratios if it is believed that it can help to reveal the strengths and the weaknesses according to the study. As the above framework for assessing bank performance, traditional measures of bank performance on both risks and returns because the relationship between risk and return is accepted that the higher the expected return attach with the higher risk. Simply stated by Hempel G. Coleman (1986), much of the current bank performance literature shows the goal of financial institutions is to earn _________________________________________________________________________