1
INTRODUCTION

1. The inevitability of topics:
Aspiring to further integrate into the global economy after a
milestone event of becoming an official member of the World Trade
Organization (WTO), Vietnam has confronted with a number of
challenges. In this situation, the banking sector in Vietnam has
undergone dramatic restructuring and reform in order to enhance its
competitivenes capacity. Much was achieved but more challenges are
laying ahead.
For that reason, a research title named “Competitiveness evaluation
model of commercial banks in Vietnam” was chosen as an author’s
PhD Dissertation.
2. Research context
International research context.
By researching more than 50 international research papers and
articles about the issues of competition and competitiveness capacity
varying from national level to enterprise level, the author found that a
number of models
The author has researched more than 50 articles, international
scientific studies of competition and competitive ability from national
level, sector level to enterprise level, exposes different methods, many
models have been used in analysis to figure out the relationship
between internal and external elements to the competitiveness; however
there have not any study that use the approximate variable models to
quantify qualitative variables, thence homogeneous approximated
qualitative variables with quantitative variables in the regression model.
The domestic research situation.
In Vietnam, there are no studies on the competitiveness analysis

competitivenes index.
4. Objectives and Scope of the Disseration
4.1. Objectives of the Dissertation
- A research on the competitiveness evaluation model of commercial banks.
4.2. Scope of the Dissertation
- The research focuses on commercial banks in Vietnam including
state-owned commercial banks and other joint stock commercial banks, but
foreign banks and joint-venture banks in Vietnam.
- The reserach reviews bank data and statistics of more than 40
Vietnamese commercial banks for the period of 2006-2012 and their
financial statements in 2012.
5. Research methodologies:
- The Dissertation is based on methodologies of synthesising,
comparing and quantity analysing by using softwares such as SPSS,
AMOS and DEA, thereby finding the ultimate model.
6. Major finding of the Dissertation and its contribution
The new finding of the Dissertation and its contribution are
reflected in the followings:
- Scope of research: The Dissertation analyses the competitiveness
capacity of all commercial banks in Vietnam including state-owned
commercial banks, joint stock commercial banks. Meanwhile, most
previous researches focused on an individual bank or a brand or a group
of banks
- Theoretical issue: The Dissertation presents a system of criteria
in order to rank the competitiveness capacity of Vietnamese
commercial banks. Besides, the Dissertation categorize models of
competitiveness evaluation of commercial banks and then give an
assessment about their pros and cons.
- Research Methodology: the Dissertation uses variables to operate
the model, those combine elements of both qualitative and quantitative.

commercial banks in Vietnam
Chapter 3. A selection of competitiveness evaluation model of
commercial banks in Vietnam and some policy
recommendations

CHAPTER 1
THEORETICAL BACKGROUND AND THE COMPETITIVE
ADVANTAGE MODEL OF COMMERCIAL BANKS

1.1. Competition and competitiveness of commercial banks
1.1.1. Definition of competition and competitiveness of commercial banks
“Competitiveness of commercial banks is the ability to maintain and
expand market share, gaining increasing profit in a competitive
business environment but at the same time being able to withstand
disadvantaged changes of the business environment. A bank’s
competitiveness is demonstrated by its business productivity, profit and
market share”. 4
1.1.2. Competition in banking sector
First, commercial banks both cooperate and compete severely
against each other.
Second, competition in banking sector should aim toward a healthy
environment and against systematic risk.
Third, business operation and competition among commercial
banks are under influence of external factors.
Fourth, Banking competition are frequently vulnerable to changes
in international financial market.
1.1.3. What banking competition is about.


5
 A bank’s operation efficiency can be evaluated by: absolute
value of after-tax revenue, revenue growth rate, revenue structure,
Return on Asset (ROA) and Return on Equity (ROE) and Net Interest
Margin (NIM).
 Ability to assure liquidity including liquidity ability indicators,
ratio of preliminary stock over total asset, lending/borrowing ratio.
 Personnel productivity. Productivity is shown by: average total
asset per capita, average debt per capita, average revenue per capita.
1.1.4. Influential factors of commercial banks’ competitiveness.
Commercial Banks’ operation is affected by many factors, which
influence directly and indirectly their competitiveness. They can be
divided into two groups: internal factors and external factors.

1.1.5. Methods to evaluate competitiveness of commercial banks
1.1.5.1. Qualitative method: it is a qualitative data collection method
and aims at describing facts from an analyst’s view.
1.1.5.2. Quantitative method: it is quantitative data collection method and
address the relation between theory and explanation-based research.
1.1.5.3. Expert method
It is based on materials related to competition to synthesize
competitiveness evaluation indicators and employs these direct
comparison methods of these factors to evaluate competitiveness
against the competitors.
1.2. Competitiveness Evaluation Model of commercial banks
1.2.1. SWOT
SWOT came into being in the 60s and 70s at Standford Research
Institute, the USA. It is based on Michael Porter’s five forces
competition theory model to determine internal and external factors.

,…… ……
External significant
threats
Strengths (S)
S
1
, S
2
,
S
3
,…………….
Banks’ internal
strength
Combination S+O
Turning strengths
into opportunities
Combination S+T
Turning strengths into
threat-reducing
factors
Weakness (W)
W
1
,W
2
,W
3
,…………
Banks’ internal

the greatest weakness, 2 for the least weakness, 3 for the least strengths
and 4 for the greatest strengths. Then, categorization is bank-based.
Step 4: Multiply significance level of each factors with its
corresponding category ( = step 2 x step 3) to come up with
significance score.

7
Step 5: Summarize all significance level of each factor to come up
with total significance level for a bank.
No matter how many factors an IFR model contains, the highest
total significance score possible is 4.0,the lowest score is 1.0 and the
average score is 2.5. A greater-than-2.5 scores show the company is
internally strong and a less-than-2.5 scores shows the company is
internally weak.
Total significance score in IE matrix
Total
significance
score in IE
matrix Strong
3.0-4.0
Average
2.0-2.99
Weak
1.0-1.99
Strong
3.0 – 4.0
I

X
3
+ …. + W
in
X
n
o F
i
: the estimated values of the factor i
o W
ik
: weight or factor score coefficient from variable k to weight i
o K: variables or items
- Pros and Cons
- Applying condition
1.3. International experiences and lessons for Vietnam
1.3.1. International experience regarding competitiveness evaluation
model for commercial banks in Vietnam
First is the World Economic Forum (WEF) and the Institute of
International Management Development (IMD) using indicators to
measure competitiveness in the study of "national competitiveness". They
argue that national competitiveness is a combination of competitive assets
and competitive processes, as shown in the following formula:
National Competition = competitive assets X competitive process
the WEF and the IMF use only some soft and hard index to implement
index ranking. While WEF focus on softer index, IMF emphasize on
hard indicators. Both organizations use the average score standard

8
deviation for the overall points competition but different weights.

National Competition = competitive assets X competitive process
1.3.2 . Lessons for Vietnam
Vietnam should build upon the reasonable distilled from the model
but must take into account the particularities of the banking sector in
Vietnam.
- Vietnam should employ both CAMELS model and the FIRST
model to have a combination result , in order to bring the best
performance .
- Competitiveness evaluation and ranking should be done on each
factor to find out the competitive advantage of the commercial banks in

9
Vietnam, contributing to make policy recommendations for the
management of bank executives .
- Competitiveness evaluation model has to assess comprehensively
and consistently based on a ranking system of signs .
- Risk assessment based on long -term effects of business cycles ,
and together with the development trend of the bank in the future .
- Develop and finalize the criteria of evaluation competitiveness
based on the characteristics of Vietnam's banking system .
- Develop integrated quantitative models that rank results must
consider both subjective and objective factors affecting the
competitiveness of commercial banks in Vietnam.
- The indicators of competitiveness were divided into 2 groups : 1
st

group includes current competitiveness index current and 2
nd
group
includes the potential competitiveness index. Then build an evaluation


2.1.2.1 . The number and network activities of commercial banks 2.1.2.2. The development of products and services 2.1.2.3. The development of distributed systems
According to statistics, the number of ATMs by banks drastically
increased from 1900 in 2006 to 11700, POS 2012 is 28,100 units.
2.1.2.4. Mobilization and use of investment capital by banks. Banking
system has mobilized and provided a large amount of capital for the
economy, accounting for an estimated 16-18% of annual GDP, nearly
50% of social investment.
2.1.2.5. The income structure is not diversified, depending mainly on
credit operations.
Income from credit activities accounted for a large proportion of
the income structure of most banks in the country. In 2012, the average
proportion of interest income in total income of the 10 banks in
Vietnam is 76.8%. For some smaller banks, this proportion is even
more than 90% (LienViet bank: 92.2%, Ocean bank: 103.5%, Nam Viet
bank: 93.1%, Mekong Development bank: 98.8%).
2.2. Situation analysis models in competitiveness of commercial banks in
Vietnam
2.2.1. Survey in model used in the analysis of the competitiveness of
Vietnam's commercial banks
The survey showed that 47.1% of surveyed commercial banks assess
capacity of competitors using the SWOT analysis. However, frequency of
use SWOT analysis techniques to evaluate the competitiveness of rivals
which accounted for 82.6%, banks frequently use the SWOT model is


12
2.2.2.3. Status of governance capacity
 Profitability of the banking system
Table 2.3. ROA and ROE of some commercial banks
Bank
Year 2011
Year 2012

ROA
ROE
ROA
ROE
AgriB
0.60%
11.60%
0.53%
7.45%
BIDV
1.20%
13.20%
0.66%
11.41%
Vietcombank
0.90%
17.00%
1.03%
10.20%
VietinB
0.60%

end of 2007, early 2008 and late 2010, early 2011 has made the
liquidity of the banking difficulties.

13
Table 2.5: Percentage of loans / customer deposits in 2012
Commercial bank
Abbreviation
Year 2012
Mekong Development bank
MDB
259.9%
Petrolimex and Gas bank
PG Bank
117.6%
Vietnam Thuong Tin commercial
bank
VTTB
115.9%
Bao Viet commercial bank
BVB
114.2%
Orient Commercial Bank
OCB
113.8%
Dai A Bank
Dai A Bank
110.4%
Mekong Housing Bank
MHB
106.7%

Strengths
S1: broad network
S2: The staff are knowledgeable
about the local market and
cultural proficiency of the
customer.
S3: Commercial banks’
customers are large and diverse
S4: Large market share of credit
operations, raising capital and
services.
S5: Activity-based core banking
technology, centralized data
management, helping to improve
the quality of banking products
and services.
Opportunities
O1: International economic
integration has motivated
innovation and reform of
Vietnam's banking system in many
ways, such as capital, operating
mode, change the way of
thinking,

O2: Interest and special support
from the State Bank.

O3: Favorable legal environment
and schedule of WTO

comparison with the modern
requirements of commercial
banks
W5 : Writing systems ,
T2 : Pressure of innovative
appropriate technologies and
techniques to be able to compete
with foreign banks .
T3 : The legal system in the
country , market institutions are
incomplete , asynchronous and
inconsistent, many shortcomings
compared to international
integration requirements for banks
.
T4 : The profitability of most
Vietnam commercial banks is
lower than banks in the region ,
which limits the possibility of
establishing risk reserve fund and

15
mechanisms and policies of
commercial banks are still
incomplete
W6 : Lack of association among
commercial banks.
W7 : The implementation of
Vietnamese commercial banks’
modernization programs is

services and international
commitments .
T6 : Economic integration ,
increased international capital
transactions and risks of the
banking system , whilst
mechanisms and information
system of banking supervision is
still very primitive , unsuitable for
routine.
T8 : Structure banking system
despite strong growth in width but
also cumbersome , organizational
models are not scientific.
T9 : Vietnam Commercial banks
have no wage policies and
reasonable remuneration to attract
and retain good employees .
T10: The branches of foreign
banks are allowed to expand its
network and become retail
banking with modern technology
T11: The competitive advantage of
Vietnam's commercial banks is
now very weak

2.3. Evaluating results of the application of the SWOT to analyze
the competitiveness of Vietnam's commercial banks
2.3.1. Achievements
Using the SWOT model in evaluating the competitiveness of

of the commercial banks in Vietnam in the context of international
integration. However, the authors also analyzed to assess the
advantages and some drawbacks of using SWOT model in
competitiveness analysis of the Vietnam banks as a basis to choose a
model that analyzes the competitiveness of commercial banks in
Vietnam more advantages in chapter 3.
Chapter 3
SELECTING A COMPETITIVENESS ANALYSIS MODEL OF
SOME COMMERCIAL BANKS IN VIETNAM AND SOME
RECOMMENDATION REGARDING APPLICABILITY
3.1. Bases of selecting a competitiveness analysis model of
commercial banks in Vietnam
3.1.1. Based on previous research findings regarding selecting a
competitiveness analysis model of commercial banks in China and Iran.
3.1.2. Based on the Dissertation research model.

17
3.1.3 Based on drawbacks of currently applied models in Vietnam
3.2. Building a factor analysis model.
3.2.1. Bases of selecting variables for the model.
Based on previous research findings, the Dissertation forms a set of
indicators including 18 indicators measuring comprehensive
competitiveness of commercial banks in Vietnam with 15 quantitative
indicators and 3 qualitative indicators. 3 quantitative indicators are
measured as follows:
(i), Bank management based on general efficiency: to measure
general efficiency of each bank, DEA-solver, super- efficiency and
constant scale-based efficiency model are used.
0
, ,2,1,

between net technical efficiency level and Business Reform level.
1
0
, ,2,1,
, ,2,1,
1
1
1
,










I
i
i
jn
I
i
ini
I
i
imijm
z

(1998 ) In order to calculate the cost-effectiveness and allocative
efficiency it a must to know the price of the input . The price of the
inputs are approximately as follows : cost of capital ( W1 ) = Expenses
on assets / total net fixed assets , the price of labor ( W2 ) = Expenses
for staff / employees and total price mobilization of capital ( W3 ) =
interest paid and equivalent expenses / capital raising
3.2.3. The results of experimental models
3.2.3.1. Testing of KMO (Kaiser-Meyer-Olkin) and Bartlett [26]
The method of testing the KMO (Kaiser-Meyer-Olkin) and Bartlett
is used to measure the compatibility of the survey samples consists of
40 commercial banks in Vietnam shown in Table 3.3.
Table 3.3. Results of KMO and Bartlett Testing
Kaiser-Meyer-Olkin Measure of Sampling
Adequacy.
.644
Bartlett's Test of
Sphericity
Approx. Chi-Square
852.784
Df
153
Sig.
.000

Analysis results shows that EFA is finally recorded in Table 3.4
with KMO = 0.644 (>0.5) (EFA is suitable) and Sig = 0,000 (< 0.05) (
observation variables correlates with each other), total variance is
75.703 (>50%) (showing that factors can account for 75.703 %
variation of the data)
3.2.3. Practical analysis and results of ranking competitiveness of

0.014X2
0.027X3
0.306X4
0.382X5
0.234X5
0.027X7
-0.039X8
0.074X9
-0.342X10
0.015X11
-0.016X12
-0.034X13
-0.008X14
-0.039X15
0.063X16
-0.027X17
0.054X18

19

Factor F3: Human resource Factor
Factor F3:
F3

-0.018X1
-0.419X2
-0.412X3
0.114X4
0.062X5
-0.072X6

0.487X16
0.102X17
0.55X18
Factor F5: Technology Level Factor

F5
0.063X1
0.004X2
-0.037X3
0.073X4
-0.065X5
0.054X6
0.126X7
-0.332X8
-0.383X9
0.096X10
0.417X11
0.036X12
0.048X13
0.064X14
0.063X15
0.085X16
0.514X17
0.079X18

Scoring model for general ranking
With a function of contributing factors, a scoring model for general
ranking is achieved as follows:
Techniqu
es
Technolo
gy level
Competit
ion
capacity
AgriB
1
38
1
1
30
1
VietinB
2
36
3
2
31
2
BIDV
3
37
2
3
32
3
Vietcombank
4

)/75.700 20
ACB
7
33
7
7
33
7
EIB
8
34
8
8
38
8
Sacombank
9
32
10
9
37
9
VP Bank
13
23
9
12

Sounthern
Bank
15
25
17
14
25
15
MSB
12
28
15
10
28
16
LPB
17
24
16
23
24
17
OceanBank
18
19
13
18
19
18
VIBank

24
25
14
23
MHB
24
22
33
11
22
24
VAB
25
16
28
26
16
25
Navibank
26
13
27
29
11
26
GDB
27
11
29
32

Nam A Bank
32
4
25
28
4
32
SGB
33
9
32
31
10
33
Tienphong
Bank
34
7
34
36
8
34
Trust Bank
35
1
36
34
1
35
WEB

In summary, the state-owned commercial banks keep the leading
positions in aggregate competitive ability ranking. The majority of this
group of banks have strong financial ability, strong brand, those also
leads in investing in technological innovation, practical approach of
advanced management technques and can attract high-quality resources
in compare with the existing small commercial banks.
3.3.3. Evaluating advantages and disadvantages of factor analysis
model and SWOT model
With factor analysis model, a system of factors will be created
through scientifically analysising and determining a corresonding
variable with a comparison indicators subjectively and appropriately
based on EFA.
Factor analysis can employ potential perspectives and other
features that are unavailable by direct analysis.
Using factor analysis model can be rather simple and cost-effective
if good understanding of theoretical background is assured
Factor analysis was able to assess both subjective and objective
factors, the current competitive factors and the potential impacts on the
competitiveness of commercial banks by selecting suitable variables for
analysing purpose .
3.3.4. Conditions of applying factor analysis model in analyzing
competitive ability of commercial banks in Vietnam
- Commercial banks in Vietnam need to form a research division of
the competitiveness of banks in order to fully exploit their advantages
in competition, and to aware of the strengths and weaknesses of
competitors as well; to give advices in making accurate competitive
strategy, to limit the risks in business.
- Policies of expert training in this field should be provided.
Besides the knowledge of mathematics, pattern analysis, the theoretical
knowledge on critical research should be equipped for experts in bank

assessing the competitiveness of commercial banks in Vietnam.
3.4.1. To the Government of Vietnam and the Authorities
- The Government should accelerate the process of restructuring the
commercial banking system in Vietnam, the merger of small banks to
ensure banks have sufficient capacity and technological level to
participate effectively compete [29].
- Create a legal framework for disclosure competitiveness ranking
of commercial banks as a basis for the proclamation of the results of the
study and research of the companies operating in this field, avoid the
reaction of the evaluated organization and society.
- Forming an independent research agency that takes part in
ranking the competitiveness of nations, local, ministries, businesses,
- The Government should have the appropriate investment for

23
research & statistic institutions to build a full, up-to-date statistical
databases in order to build an annual accurate analysis model of ranking
of competitive ability of banks.
3.4.2. To the State bank of Vietnam and relevant Ministries:
- Create a legal framework for the model of new credit institutions ,
organizations those support for the activities of credit institutions , such as:
Company of competitiveness rankings , Company of credit ranking,
currency brokers to develop a system of credit institutions
- Creation of financial database, data entering, control of reliability
of the data, proceed with the analysis of the research factors, form a
system of factors those practically affect under the statistical criteria,
compare with expectations of banks about those factors and suggest
measures to strengthen / change / or adjust these factors.
- The demand of training policy, updating training knowledge,
specializing staff, and providing database related to staff who is responsible

Dissertation also generalize pros and cons and these conditions
applying analytical competitiveness models of commercial banks.
Secondly, on a theoretical basis, the Dissertation used qualitative
methods and expert methods combined with SWOT matrix analysis to
analyze competitiveness of Vietnam's commercial banks to find out
strengths and weaknesses, opportunities and threats of the commercial
banks in Vietnam in condition of international integration. The research
also indicates some limitations of SWOT analysis tool proposed as a
basis to propose solutions and analytical model completion of
competitiveness of commercial banks in Vietnam in chapter 3 .
Thirdly, in conjunction with theory and status of analysis model of
competitiveness of Vietnam's commercial banks, the Dissertation has
proposed building a factor analysis model (score model) to analyse
competitiveness capacity of commercial banks in Vietnam, with
recommendations to the government , the state Bank of Vietnam and
the commercial bank in order to create favorable conditions for solution
of complete model in competitiveness capability of commercial banks
in Vietnam.
To accomplish this Dissertation, the author would like to send
sincere thank Prof. Dr. To Ngoc Hung and Dr. Tran Thi Hong Hanh
who have dedicated guidance and kind support. The author would like
to thank teachers , colleagues and staff of Commercial Bank who
helped to facilitate the author completed this Dissertation.