Company Report: Vietnam Bank for Agriculture and Rural Development

Vietnam Bank for Agriculture and Rural Development (Agribank) was established in 1988 with the focus in investment for agriculture, farmers, and rural areas. Today, it is the biggest commercial bank in terms of assets, number of staff, branch network and customer base. It has recently been converted into a 100% state-owned one member limited liability bank to be in accordance with the effect Corporate Law [1] .

1. Core business

As a typical commercial bank, Agribank’s core businesses constitute mobilizing and receiving deposits and making loans with all terms to individual customers, corporate and financial institutions. Pivoting around these businesses are foreign exchange (FX) transactions, international trade finance services, money market, brokerage services and other modern banking services such as domestic and international payment, card services [2] .

As a principal business, credit service is both the most revenue and profit generated business in Agribank. In 2009, revenue from lending activity was about USD2,059 million (VND43,246,817 million) with the net interest income of USD547 million (VND11,489,841 million), which accounts for 67% of the total operating income of the bank [3] .

It is believed that in the next decade, credit business will still be the growth driver for the whole bank as this is in line with the National Program on Development of New Rural Areas for the period from 2010 to 2020. Accordingly, one of the investment capital sources required for the development will be from credit capital, which Agribank is appointed to be the key leader in providing credit to the rural areas [4] . To facilitate such activity, the government is reviewing some solutions for Agribank to raise its fund resources, such as: allowing Treasury deposits to be lent out, disbursement of ODA projects, supplementing Agribank’s capital from the State Budget [5] .

Agribank has been able to be competitive in the market owing to its advantages in capital and network. However, it is highly noted that for key performance ratios, Agribank is still behind the industry averages. While claiming the leading commercial bank, Agribank should seriously look into the effectiveness and efficiency in its management and operation. The below charts represent Agribank’s outstanding loans and fund mobilization growth compared to that of the industry average numbers [6] .

2. Corporate Responsibility

It is a great effort that during the last ten years, rural area credit has tremendously increased (ten times) [7] , which is a positive reaction to the huge capital demand in agricultural and rural areas. One of the initiatives in helping credit growth in rural area is the cooperation between Agribank, the Vietnam Women Association and the Vietnam Farmers Association so that loans are made from Agribank to local collective borrowing body besides being accessed individually.

An ambitious idea suggested by the Women Association on non-mortgage loans is possibly feasible if Agribank seriously concerns about the government affirmation of its dominant role in developing rural areas. At this moment, we have not seen such an action becoming materialized.

A point to note that under Agribank’s proposal, the Vietnam Bank for Social Policies (VBSP) (formerly the Vietnam Bank for the Poor), a credit institution operating nationwide, was set up in 1995 following the successful program run by Agribank (the Preferential Loan Funds for poor households). The VBSP has now been able to eliminate hunger and alleviate poverty, operating not for profit but for capital preservation, capital development and cost recovery. 

In the relationship with the government, despite efforts to support the government’s policies in developing rural areas, Agribank, on the other side, has thrown away its public appreciation by its financial booking issues. Recently, the State Audit identified series of fraudulent actions in Agribank’s book from 2007 backwards [8] , such as duplication and omission of expenditure so as to reduce taxable income, a loop hole in credit risk management leading to increasing trend of non-performing loan rate, etc. These issues directly affect the tax authorities (i.e. tax collection) and the state (to the aspect of a wholly shareholder to its capital managed by Agribank). In this sense, Agribank has not fulfilled its responsibility as required.

Yet, we still see bright colors. Obviously, Agribank is one of the most popular donors in the banking society. The bank has set up a good practice to its employees that on an annual basis, Agribank’s employees spend 3 day wages to contribute to the Fund for the Poor, Fund of Gratitude, Fund for Children and 1 day wage for the Gratitude Fund of the banking sector. In response to the government call for assistance programs for faster and sustainable poverty reduction for 61 poor districts in 20 provinces, Agribank supplied VND 160 billion in support for the two poor districts of Muong Ang and Tua Chua of Dien Bien province, handed over 2,188 houses to the poor in these two districts; and continued to invest in building houses for local boarding students and in commune health centers, vocational schools in Dien Bien province as committed [9] .

3. Crisis Management

Among the biggest state-owned commercial banks in Vietnam, Agribank seems to be most popular for incompetency, non-compliance, management and staff morality issues. Almost every year, Agribank appears on local newspapers’ first page for scandals: wrong remittance of VND20 billion (USD1 million) to individual account [10] , illegal alliance between staff and customers to take away credit loans (USD1 million) [11] , undiscovered accumulated FX loss of VND500 billion (USD25 million) [12] , maintaining dual financial booking system to duplicate expenditure so as to avoid tax payable [13] , etc. Doing business is always associated with risks. However, the way the company deals with them are important. All issues which happened in Agribank have not been treated seriously, and management has not looked into the issues as a must-to-solve reaction honestly. An example to illustrate such reaction is that Agribank’s management, when responding to the FX accumulated loss case, blamed of his staff’s incompetency. He said that it was just an “unexpected business result" and affirmed that Agribank’s performance in the year was still good enough to cover the loss (as per the consolidated income statement, Agribank’s net off income was still a profit). It is too easy to understand, even for a non banker, that Agribank’s internal control has problem that such big loss seems to exist forever until discovered by the State Bank Auditor.

With a huge support from the Government as being appointed as a leading role in credit provision to the agricultural and rural areas, yet, to the public observation, Agribank has not been able to absorb the incentives and performed under the investment put into [14] . This is probably Agribank’s starting inherent weaknesses (Agribank was segregated from the State Bank of Vietnam, therefore, comparing to other joint stock banks, Agribank’s management, service quality level and staff competency manner is more of administrative attitudes, rather than of business sense, in responding to the increasing demand of quality and risk control in today business environment. Despite lower credit growth compared to the average industrial growth, Agribank’s management keeps asking more funding from the State, more disbursement from ODA projects and deposits from the State Treasury to be utilized. However, on the other side, as claimed by the Farmer Association, recently, in certain areas, outstanding loans stand at low level or zero due to difficulties in Agribank’s credit access.

In responding to the economic downturn, following the government loan subsidy Agribank decided to cut half of the loan interest rate, however, this is not an initiative from Agribank, instead, Agribank just played an inactive role by instructions from the government. In fact, the subsidy policy had problems, enterprises used subsidized interest loan to cover previous loans, but not to invest in their businesses. Agribank did not play a consultancy role when needed and required [15] .

4. Strategy

Over the past few years and to the upcoming future, Agribank’s focus market is agricultural and rural areas. Associated with this segment, Agribank extends its business to SMEs of which the businesses meet the demand for transition to agricultural and rural production. The core business, of course, will still be the credit business as agricultural and rural areas do require enormous capital inflow.

Besides, to positioning as a multi banking and financial group, Agribank also pays more attention to other non-core businesses including cross border payment, remittance, FX dealing, and valuable papers. Target revenue of non credit businesses exceeds 20% [16] .

The most valuable asset that Agribank owns is its nation-wide network across the country. With 2,300 offices and branches in Vietnam and 1,000 correspondence banks in 95 countries, Agribank currently has the largest network in the local market. Vietnam financial sector must open for access of foreign banking and financial groups in 2011-2012 as per WTO commitment. For the next five years, no commercial bank can hit Agribank in the race of expansion, given that Agribank does bear in mind the competition. Agribank is probably confirmed another strength, which is its popular brand recognition. The survey was conducted by a trusted search agency (Nielsen) in conjunction with the Vietnam Commerce and Industry Chamber (VCCI) and for two consecutive years, Agribank ranks top ten [17] .

Actually, originating the nationwide network or establishing large correspondence banks relationship belongs to the given function solely appointed to Agribank by the government. In this context, Agribank is born to have such position. Therefore, it would be hard to judge the bank as innovative. However, in the implementation process of the government credit policies to the rural areas, we have seen an effort from Agribank through a creative idea shared among Agribank, the Women Association and the Farmers Association that loans are successfully made through collective borrowing body. This practice contributed to the enormous credit growth in agricultural and rural areas, which helps the development plan for agricultural and rural areas reach the determined goals (i.e. hunger elimination and poverty reduction).

5. Vision, Mission, Goals

Vision

In recent statements, Agribank repeatedly affirms it has a desire of being a strong, modern and prestigious multiple banking and financial group in the local market as well as international market [18] .

In order to reach the future desired position, Agribank has constantly put a great deal of efforts in every aspects of its business, from investment in human resources and technology platform to the implementation of new products in addition to the traditional business line, spreading its coverage in other retail areas such as student savings, credit insurance for farming products, increasing facilities to customers, implementation of modern banking products (e-banking services, e-payment), etc.

There are achievements though in short-term, it is likely at a break-even point of business manner (as previously indicated, the most revenue and profit generated activity is the traditional credit business which accounts for 67% that of the bank).

Goals

The general purposes that the bank is following are to promote the role of a leading bank in the national economic development and to hold the dominant role in agricultural and rural financial market, serving agriculture, farmers and rural areas [19] .

We have seen quite a lot of effort and solutions that Agribank has put into to reach these goals such as enhancing the fund mobilization in urban areas and cities to supplement capital to rural area and ensure capital for agriculture, farmers, and rural areas; carrying out investment selectively and with priority, focusing on due debts and NPLs collection in order to revolve capital for agriculture, farmers and rural areas as well as key programs of the Government, developing business strategy for 2011-2015 towards 2020; promoting trade mark strategy, implementing online training programs (IPCAS and IPCAS II) to all staff levels, review and amendment of key operating procedures to be in accordance international standards, etc [20] .

Agribank is fully aware of the importance of human resource development strategy. Training has been conducted constantly to all levels of staff such as on the job training, sending staff for courses, technical seminars, etc.

However, as wholly owned by the State, the bank cannot decide wage rate. It should follow the basic scheme applied to all other administrative areas. Officially wage rate growth in state-owned sector normally goes behind and is lower than the average level. This is a big disadvantage for Agribank. In 2008, its average salary is USD8,067 per annum per employee, but in 2009, the number has gone down to USD6,652 [21] . Given the inflation concern and economic down turn, the figure represents a lower living standard for Agribank’s employees.

6. Desirability as an employee

I do not desire to work for Agribank due to the two reasons:

First, it is a lack of internal control. There have been so many problems in relation to the weaknesses in Agribank’s management and internal control leading to series of frauds and errors. When such a problem goes to light, hardly have we found top management’s responsibility, instead, the staff himself is pointed and responsible for the whole case. 

Second, state-owned enterprise manner will lay on me a bad habit of no competition or state protection or indefinite deadlines. This is dangerous because we will lose ourselves when there is no competition. It is worse as with no pressure we will have not enough exposure to our skills and knowledge. What happens to me if one day Agribank makes a redundancy, with a poor exposure of service level, my future is unsure.