Solutions for the development of investment banking of commercial banks in Vietnam

in self business and holding portfo- lio of complicated financial products while the supervision system was not strong enough. Therefore, the complete separation of invest- ment banking of commercial banks in Vietnam (under the current British model) is not necessar- ily the best and only solution. To make use of the current bank advantages, it is advised to allow commercial banks to select among three models (British, German and American one) to match their own conditions and legal regulations. The models can co-exist without benefit conflict with the clear definition of customer segments and services for each model as follows: + Large banks with strengths in capital, expe- rience and network capable of serving larger cor- porate customers can organize under German model, combining tradition credit products with traditional investment banking (underwriting, brokerage, M&A consultancy) to cross sell the products. The organization and management of investment banking under this model enable banks to reduce working costs for customers when they want to use cross sold products and/or transfer from investment to commercial banking services without much impact as there are many banks offering the service. + With the investment banking activities which require large capital use such as proprietary trading, venture investment, to limit risks, it is necessary to organize under American or British models. + Small commercial banks with limited risk management capability, all investment banking activities need to be organized under American or British model. In order to organize investment banking of commercial banks under one among these mod- els, the legal system of Vietnam should be com- pleted towards (i) Clearly stating the conditions on own capital and management, risk manage- ment capability of commercial banks for tradi- tional investment banking (underwriting, broker- age, M&A) under German model; (ii) Proprietary trading, joint investment require to be organized under American or British model and meet the conditions in capital and risk management capa- bility; (iii) completing legal regulations, supple- menting and specifying rules on minimum capital adequacy, defining the limit of equity investment, self business and investment areas, tightening regulations on commercial banks taking capital from securities companies to restrict risks in investment banking. 9 Trade Science Review TRADE SCIENCE REVIEW ’S TSR (ii) Investment banking There are still some concerns on allowing commercial banks to combine two areas as it con- tains a lot of risks for commercial banks, deposi- tors and the whole economy. However, there is no business without any risk potentials including tra- ditional commercial banking. Even in unfavourable business environment with the fail- ure of many businesses, there are still some com- panies, banks staying strong and developing. From the lesson of failure of some commercial banks in other countries due to overusing invest- ment banking, commercial banks in Vietnam need to carefully study to make appropriate decisions on performing investment banking in accordance with their conditions and capability and features of each type. More importantly, each bank needs to find the exact answer to the questions: which investment banking activities to perform, how to perform and where to stop. In the meantime, commercial banks in Vietnam should focus on traditional investment banking (underwriting, IPO, M&A, môi gi?i, t? v?n). Once risk management capability is rein- forced, can banks develop more securities invest- ment activities. With charged and commissioned activities like underwriting, consultancy which bring stable revenue with low risk, but need pro- fessional knowledge and insights in many fields, commercial banks should improve skills of staff to gain market share in this area. However, in investment banking, underwriting has mainly per- formed by securities companies under large com- mercial banks. To develop this activity, banks need the support of related departments like bro- kerage, research and analysis, consultancy. Therefore, it is necessary to build the infrastruc- ture for providing diversified services. In addi- tion, they can consider combining underwriting with credit service. The combination between existing credit products with underwriting will have the following benefits (i) Improving the competitiveness of doemestic banks against for- eign universal ones; (ii) Offering banks more opportunities for diversifying business activities with different cycle to limit risks and profit prob- lems; and (iii) Helping banks reduce costs on finding and collecting customer information as they get information on business, project and capability of customers borrowing from credit area. Under the current Law on Credit Institutions, commercial banks are not able to directly provide underwriting service, but through securities companies. In order to combine under- writing with credit service, it is vital for commer- cial banks to establish an effective customer information sharing system between parent banks and member securities companies to make use of available information. Proprietary trading and joint investment usu- ally bring huge profit for universal banks in the world, but they also present a lot of risks. Therefore, without complete knowledge and experience in risk management, banks will not be able to realize and manage potential risks in each transaction and may face great loss due to high financial levearage rate. It is essential to learn, train and retrain, update modern knowl- edge on bank management; improve the quality of control and management, reform bank man- agement system in accordance with internation- al practices; modernize risk management tools, improve the quality of supervision and early risk warning; set up strong internal supervision and check mechanisms. Summary Treân theá giôùi, hoaït ñoäng ngaân haøng ñaàu tö laø moät trong caùc loaïi hình hoaït ñoäng mang laïi doanh thu vaø tyû leä thu nhaäp ñaùng keå cho caùc ngaân haøng thöông maïi (NHTM). ÔÛ Vieät Nam, hoaït ñoäng naøy chöa phaùt trieån, tyû troïng thu nhaäp töø hoaït ñoäng ngaân haøng ñaàu tö trong toång thu nhaäp ngaân haøng coøn khaù khieâm toán. Laøm theá naøo ñeå phaùt trieån hoaït ñoäng ngaân haøng ñaàu tö 10 Trade Science Review TRADE SCIENCE REVIEW ’S TSR cuûa caùc NHTM Vieät Nam (caû veà soá löôïng, quy moâ vaø chaát löôïng) laø caâu hoûi ñaët ra vaø khoâng deã coù lôøi giaûi ñaùp chính xaùc cho caùc nhaø nghieân cöùu, quaûn lyù, hoaïch ñònh chính saùch vaø quaûn trò ngaân haøng. Treân cô sôû tham chieáu moâ hình toå chöùc vaø caùc loaïi hình hoaït ñoäng ngaân haøng ñaàu tö (NHÑT) cuûa NHTM ôû moät soá nöôùc treân theá giôùi, khaûo saùt thöïc traïng hoaït ñoäng naøy ôû caùc ngaân haøng thöông maïi Vieät Nam töø nguoàn thoâng tin, döõ lieäu thöù caáp, baøi vieát chæ ra moät soá yeáu keùm, baát caäp vaø nguyeân nhaân daãn ñeán nhöõng haïn cheá trong quaù trình phaùt trieån, töø ñoù ñeà xuaát moät vaøi ñònh höôùng vaø giaûi phaùp nhaèm phaùt trieån ña daïng moâ hình toå chöùc, gia taêng soá löôïng vaø naâng cao chaát löôïng hoaït ñoäng ngaân haøng ñaàu tö cho caùc NHTM Vieät Nam trong thôøi gian tôùi. References: 1. State Bank of Vietnam and some commer- cial banks, Annual Reports from 2010 - 2014. 2. Securities companies under banks, Financial Reports during 2010 - 2014. 3. Ta Hoang Ha (2015), Developing invest- ment banking in Vietnam, Doctoral Dissertation. 4. Website www.sbv.gov.vn retrieved on 28 March 2016 5. Saunders, A., and Walter, I. (1994), Universal Banking in the United States: What could we gain? What could we lose?. 11 Trade Science Review TRADE SCIENCE REVIEW ’S TSR NGUYEN THI PHUONG LIEN 1. Personal Profile: - Name: Nguyen Thi Phuong Lien - Date of birth: 08 January 1965 - Title: Associate Professor, PhD - Workplace: Vietnam University of Commerce - Position: Dean of Postgraduate Falcuty 2. Major research directions: - Finance - Banking - Stock Market 3. Publications the author has published her works: - Trade Science Review - Joural Economic Development - Joural Finance - Joural Communist - Joural Monetary and Financial Market - Trade Review