Brand valuation for Vietnam’s commercial banks

If non-performing loans (NPLs) are not strictly controlled, they will directly affect a bank’s profit as well as its liquidity. NPLs ratio is inversely proportional to brand value, high NPLs ratio can even delete brand from the market (this is clearly illustrated in fact). NPLs ratio is measured by outstanding balance of group 3,4,5 divided by total outstanding balance, NPLs ratio is inversely proportional to attribute score. Specifically, NPLs attribute score is calculated as below: + The State Bank of Vietnam stipulated standard score for this content is 3%, so, the attribute score of 5 is equivalent to NPLs ratio of 3%. + According to Circular No. 08 of the State Bank special control towards Commercial Banks, all commercial banks having NPLs ratio of 10% and above will be subject to special control of the state bank, therefore, attribute score of 1 will be equivalent to NPs ratio of 10%. The gap between minimum score of 1 and average score of 5 is 4 points, so each lower-than-average point is calculated by: (10% - 3%)/4 = 1.75% + A bank having no NPL will get maximum attribute score of 10. The gap between maximum score of 10 and average score of 5 is 5 points, so each higher-than-average point is calculated by: 3%/5 = 0.6%

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1 PREAMBLE 1. Introduction 1.1 The necessity of the subject In banking business, trust is the key factor for millions of individuals and organizations to send their savings, satisfy their demand for loans, or for effective financial consultancy. Moreover, together with the development of science and technology, as well as integration process, the competition in banking is increasingly fierce. The deciding factors for customers to choose a bank are not only tangible and material elements but also ones related to emotion, perception, trust, etc. Therefore, brand in banking has become an essential factor for the success of commercial banks. So the question of how to measure a commercial bank’s brand value in a specific financial figure, while the economic value of a bank’s brand is widely accepted, is of great concern to managers. From this above situation, the author has chosen the subject “Brand valuation for Vietnam’s commercial banks” as dissertation topic. 1.2 Scope of research  There are two approaches that result in very different brand value: - Calculate brand value by market research (called “Brand evaluation” by the author) - Calculate brand value by financial data (called “Brand valuation” by the author) The purpose of thesis is to propose a brand valuation model for Vietnam’s commercial banks based on financial data.  Brand valuation for commercial banks is a process with many steps; however, the thesis will concentrate on researching and proposing brand valuation model for Vietnam’s commercial banks. 1.3 Purpose of research (i) Systemize theories of calculating brand value 2 (ii) Propose brand valuation model for Vietnam’s commercial banks (iii) Experiment the proposed brand valuation model on Bank for Investment and Development of Vietnam (BIDV) to calculate its brand (iv) Establish conditions to apply brand valuation model for Vietnam’s brands in practicality. 1.4 Subject of research: Brand valuation for Vietnam’s commercial banks 2. Research methodology and sources of statistics 2.1 Research methodology - Inherited method - Analytical – comparative method - Interdisciplinary research method - Case study research method - Dialectical materialism method 2.2 Sources of statistics The sources of statistics used in the thesis are from the website of The State Bank of Vietnam (49 Ly Thai To Street – Hoan Kiem District – Hanoi), Annual Report audited in 2010, 2011, 2012 and confidential report named Valuation before IPO of Bank for Investment and Development of Vietnam (35 Hang Voi Street – Hoan Kiem District – Hanoi). 3. The contribution of the thesis 3.1 In terms of academic literature - Summarize two brand valuation approaches for commercial banks, including: (i) Calculate brand value for commercial banks based on market research; (ii) Calculate brand value for commercial banks based on financial data. - Select the estimated income based method of the second approach, combining with analysis on characteristics of commercial banks’ business operation to propose a brand valuation model for Vietnam’s commercial banks. 3 3.2 In terms of practical application • Help to confirm that brand is a valuable asset of commercial banks, which has to be reported on the annual bank’s balance sheet. • Make it easier and more accurate in acquisition, merger or brand franchising plans or transactions. • Help to complete reports on commercial bank valuation. • Users: Can be used by all subjects that have demand for brand valuation for commercial bank. • Time of use: Can be implemented anytime. • Used for all commercial banks. 4. Research model Basing on research methods used in the thesis, a research model is designed as below: 5. The layout of the thesis Apart from preamble, conclusion, list of tables, figures and refereces, the thesis is divided into 4 chapters: Financial forecast Brand contribution value Brand valuation model for Vietnam’s commercial banks Brand discount rate Financial value of commercial bank’s brand Discounted cashflows generated by bank’s brand Financial data of commercial banks 4 • Chapter 1: General research on brand and brand valuation • Chapter 2: Theory of brand valuation for commercial bank • Chapter 3: Current situation of legal system for brand valuation and Vietnam’s commercial banking system • Chapter 4: Developing brand valuation model for Vietnam’s commercial banks CHAPTER 1 GENERAL RESEARCH ON BRAND AND BRAND VALUATION 1.1 Overview of brand 1.1.1 Concept of brand “Brand is customer’s perception, emotion and trust in all elements of an enterprise” 1.1.2 Functionality of brand 1.2 Overview of brand valuation 1.2.1 The process of brand value recognition in the world 1.2.2 Approaches to research on brand valuation - Calculate brand value based on market research: the basis of this method is to conduct investigations/surveys on attitudes, perceptions, emotions, reactions, etc, of customers and concerned parties towards brand. The results of this method are qualitative. - Calculate brand value based on financial data: basing on financial data of commercial banks (can use historical or future data) to calculate brand value. The results of this method are quantitative. CONCLUSION OF CHAPTER 1 Chapter 1 has fulfilled the thesis’ first and second objectives. First, it has used Susan’s concept of brand as standard definition for the thesis. Second, it has summarized two approaches of brand valuation theory. For each approach, the thesis 5 has summarized the content, advantages and disadvantages of its methods and models for brand valuation. CHAPTER 2 THEORY OF BRAND VALUATION FOR COMMERCIAL BANK 2.1 Overview of commercial bank 2.1.1 Definition of commercial bank 2.1.2 Basic functionality of commercial bank 2.1.3 Role of commercial bank 2.2 Overview of brand valuation for commercial bank 2.2.1 Theory and concept of brand valuation for bank 2.2.1.1 Definition of commercial bank’s brand “A bank’s brand is a combination of factors in order to satisfy customers’ financial demand, and to gain their perception, trust and emotion towards the bank.” Diagram 2.2: Commercial bank’s brand 2.2.1.2 Theory on brand valuation for commercial bank The thesis’ objective is measuring brand value for commercial banks in a specific financial figure, therefore the estimated income based approach of Aswath Damodaran is Customer Loyalty Emotion Behavior Communication behavior, business process, products, branch network, transaction office, Logo, slogan, uniform, Interior-exterior architecture, etc Type of ownership, organization structure, strategy, operational objective, etc Bank Perception 6 selected as the basis for researching the brand valuation model for Vietnam’s commercial banks. 2.2.1.3 Definition of brand valuation for commercial banks “Brand valuation for a commercial bank is a set of jobs to calculate financial value of the commercial bank’s brand.” 2.2.2 Conditions and the necessity of brand valuation for comercial banks 2.3 Basic model for brand valuation for commercial banks Table 2.1: Comparison of different brand valuation methods of financial data based approach Method Content Characteristics The cost based approach Brand value is calculated by total cost invested to create a new or replace an existing brand. Calculating brand value by brand cost is unreasonable in both theory and practice. The market based approach Brand value is calculated by the price at which seller and buyer agree in the brand transaction. Market data about brand are always limited and disproportioned. The estimated income based approach Brand value is calculated by the present value of future earnings generated by the brand over the rest of its useful life. Use bank’s financial data to calculate => up to now, it is the most suitable method to measure brand value. In order to propose an approach model for brand valuation for banks, the thesis will conduct deep research on two models of the estimated income based method, as follows: 2.3.1 Interbrand’s model Step 1: Market segmentation Step 2: Financial analysis Step 3: Demand analysis Step 4: “Brand strength” and “discount rate” determination Step 5: Brand’s net present value determination 7 Example of applying Interbrand’s valuation model is Binh Minh Plastic joint stock company with “Binh Minh Plastic” brand which is valuated 349.4 billion VND by the University of Economics Ho Chi Minh City’s research group. 2.3.2 Brand Finance’s model The brand valuation process is illustrated by this below diagram: Diagram 2.5: David Haugh’s brand valuation model Step 1: Market segmentation Step 2: Financial forecast Step 3: Brand value added (BVA) calculation Step 4: Discount rate determination There are differences between Brand Finance’s and Interbrand’s summary reports on most valuable brands. Although Interbrand and Brand Finance use the same basic theory for brand valuation, which is discounted cashflow method, to calculate brand value, the difference between two models is at the calculation step of brand’s contribution value to businesses. Interbrand use “brand index” scoring template with 7 Brand forecasts Market data Demand drivers Risk factors Financial data Economic value added Brand value added Brand value added index Brand ß analysis Brand value Discount rate 8 criteria: leadership, stability, market, geography, brand trend, support activities, brand protection; whereas, Brand Finance’s brand ß scoring template includes 10 criteria: time in the market, distribution channel, market share, market position, sale growth rate, price premium, price elasticity, marketing spend, advertising awareness, brand awareness. This different step leads to different valuation results of two models. Each table of criteria has advantages and disadvantages, and the status and level of advantages and disadvantages depend on each valued brand. CONCLUSION OF CHAPTER 2 Chapter 2 has fulfilled the thesis’ first and third objectives. Regarding the first objective, the thesis has given out the definition of a commercial bank’s brand, which is “a set of factors in order to satisfy customers’ financial demand, and to gain their perceptions, trust and emotion towards the bank.” Regarding the third objective, from Aswath Damodaran’s original idea of using financial instruments for brand valuation in business valuation, the thesis has based on the income approach and used two brand valuation models of Interbrand and Brand Finance as reference to propose a new model that can approach to brand valuation for Vietnam’s commercial banks. 9 CHAPTER 3 CURRENT SITUATION OF LEGAL SYSTEM FOR BRAND VALUATION AND VIETNAM’S COMMERCIAL BANKING SYSTEM 3.1 Legal framework for brand valuation in Vietnam 3.1.1 Legal framework for brand and international integration of brand in Vietnam - The legal system of regulations primarily derives from section VI of the Civil Code of the Socialist Republic of Vietnam in 2005. - The agency that is responsible for granting permission is the National Office of Intellectual Property of Vietnam. - The agencies that are responsible for enforcement are Court, Market Surveillance, Economic Police, Culture and Information Inspector, Science and Technology Inspector, Deparment of Customs. • Regarding legal framework • Government’s point of view on brand • International integration of brand 3.1.2 Legal framework for brand valuation in Vietnam Up to now, the system of legal documents in Vietnam has no official definition of brand. These documents mainly stipulate a number of contents related to brand such as intellectual property, trademark, geographical indication, trade name, but not directly mention brand in general and brand valuation in particular. 3.2 The current situation of Vietnam’s commercial banking system 3.2.1 Characteristics of Vietnam’s commercial banks 3.2.2 Brand valuation for Vietnam’s commercial banks CONCLUSION OF CHAPTER 3 Chapter 3 has presented the current situation of commercial banking system and legal system of brand valuation in Vietnam. These are important bases for the next 10 chapter to fulfill the forth, fifth and sixth objective of the thesis. CHAPTER 4 DEVELOPING BRAND VALUATION MODEL FOR VIETNAM’ S COMMERCIAL BANKS 4.1 Orientation in building brand valuation model for Vietnam’s commercial banks 4.2 Brand valuation model for Vietnam’s commercial banks The author has combined Interbrand and Brand Finance’s calculation steps with specific characteristics of Vietnam’s commercial banking system to propose a new model to approach brand valuation for banks, including 4 following steps: Step 1: Financial forecast Collect, analyze and process information to predict a bank’s revenue and expense in a period of 3 to 5 years – from which calculate its brand’s economic value added in the future. This step can be done by the bank itself or inherit annually financial forecast results from reputable sources in the world like S&P, Ernst&Young, Moody, etc. Step 2: Calculate Brand Value Added - BVA Calculate the proportion of brand contribution to economic value added or use available figures of position, target customers, growth rate of an equivalent bank, which are available in the US or UK market, when researching, based on theory 1 – brand valuation based on research. The process of taking step 1 and 2 is similar to Interbrand and Brand Finance’s calculation processs – these are standard process accepted by most researchers and practice. Step 3: Calculate brand discount rate Factors including the time value of money and the risks that may impact must be taken into account when calculating discount rate. Calculate brand ß index Discount rate 11 - Calculate brand ß index: From Brand Finance’s scoring template for brand ß index and Interbrand’s “brand strength” calculation table, together with particular characteristics of Vietnam’s commercial banking system, the scoring template for brand discount rate of commercial banks is researched, adjusted and proposed as below: Table 4.1: Scoring template for brand discount rate of Commercial banks Attribute Score 1. Time in the market 0-15 2. Branch network 0-15 3. New products growth rate 0-15 4. Number of customers growth rate 0-15 5. Proportion of mobilized capital 0-10 6. Proportion of outstanding balance 0-10 7. Non-performing loans ratio 0-10 8. ROA growth rate 0-10 Total 0-100 -Attribute 1 – Time in the market: is a factor that represents a bank’s brand strength because a bank can be maintained and exist for a long time only when it receives trust and recognition from customers. Time in the market is proportional to attribute score. Based on the milestones of Vietnam’s economy, the scoring criteria for this attribute are proposed as below: Table 4.2: Scoring criteria for the attribute of time in the market Criteria Score Established parallel to the movement for independence (the 1954 period) 15-12 Established during the economic transformation process (the 1986 period) 12-9 Established after 1986 and before the U.S removed the embargo against Vietnam in 1995 9-6 Established between 1995 and before joining WTO in 1997 6-3 Established from 2007 to present 3-0 - Attribute 2 – Branch network: is an important factor for a bank to serve its 12 customers, from which it can gain its brand awareness. Branch network is proportional to attribute score. The criteria for building scoring template for the attribute of branch network are: + The number of branches in 63 cities and provinces and 3 regions (North – Central – South), so smaller criteria for network segmentation are 1/2, 2/3 and total number of 63 cities and provinces. +Level of international cooperation, measured by: Does a bank open overseas branches? does it have joint venture with foreign companies? does it act as an agent for a foreign bank? with levels as follow: Level 1: Open branches or subsidiaries overseas, act as an agent for a foreign bank, have international business transactions Level 2: Open branches or subsidiaries overseas, or act as an agent for a foreign bank, or have international business transactions Level 3: Open overseas representative offices Level 4: Have no form of cooperation Table 4.3: Scoring template for the attribute of branch network Criteria Score Have branches in 63 cities and provinces, have international cooperation level 1 15 Have branches in 63 cities and provinces, have international cooperation level 2 14 Have branches in 63 cities and provinces, have international cooperation level 3 13 Have branches in 63 cities and provinces, have international cooperation level 4 12 Have branches in 2/3 of 63 cities and provinces, have international cooperation level 1 11 Have branches in 2/3 of 63 cities and provinces, have international cooperation level 2 10 Have branches in 2/3 of 63 cities and provinces, have international cooperation level 3 9 Have branches in 2/3 of 63 cities and provinces, have international cooperation level 4 8 Have branches in 1/3-2/3 of 63 cities and provinces, have international cooperation level 1 7 Have branches in 1/3-2/3 of 63 cities and provinces, have international cooperation level 2 6 Have branches in 1/3-2/3 of 63 cities and provinces, have international cooperation level 3 5 Have branches in 1/3-2/3 of 63 cities and provinces, have international cooperation level 4 4 Have branches in less than 1/3 of 63 cities and provinces, have international cooperation level 1 3 13 Have branches in less than 1/3 of 63 cities and provinces, have international cooperation level 2 2 Have branches in less than 1/3 of 63 cities and provinces, have international cooperation level 3 1 Have branches in less than 1/3 of 63 cities and provinces, have international cooperation level 4 0 Attribute 3 – New products growth rate: Developing new products is required for continuous growth and prosperity for a bank. The new products growth rate shows the capability of creating and maintaining the development of the bank’s brand. It is based on two criteria: + The creation of new financial products based on four orgininal banking products including saving, loan, payment and financial consultancy is an important factor for maintaining brand in the market. + Rewards or votes for a bank or its products, with levels as follow: Level 1: Receive international reward and domestic vote for product or bank Level 2: Receive international reward Level 3: Receive domestic vote for product or bank Level 4: Receive no reward or vote New products growth rate is measured by the number of banking products in the researched year compared with that of the previous year. This rate is proportional to attribute score. Table 4.4: Scoring template for the attribute of new products growth rate Criteria Score Have new products in 4 groups, receive reward, vote level 1 15 Have new products in 4 groups, receive reward, vote level 2 14 Have new products in 4 groups, receive reward, vote level 3 13 Have new products in 4 groups, receive reward, vote level 4 12 Have new products in 3 groups, receive reward, vote level 1 11 Have new products in 3 groups, receive reward, vote level 2 10 Have new products in 3 groups, receive reward, vote level 3 9 Have new products in 3 groups, receive reward, vote level 4 8 Have new products in 2 groups, receive reward, vote level 1 7 Have new products in 2 groups, receive reward, vote level 2 6 Have new products in 2 groups, receive reward, vote level 3 5 Have new products in 2 groups, receive reward, vote level 4 4 Have new products in 1 group, receive reward, vote level 1 3 14 Have new products in 1 group, receive reward, vote level 2 2 Have new products in 1 group, receive reward, vote level 3 1 Have new products in 1 group, receive reward, vote level 4 1 No new product but receive reward or vote 1 No new product and no reward or vote 0 - Attribute 4 – Number of customers growth rate: Banks are institutes that serve all types of customers whenever they have financial needs. Therefore, commercial banks have more diverse and abundant customers than any other organization in the economy. The attribute of number of customers growth rate clearly reflects customers’ preference and trust in a bank. This attribute is calculated by a bank’s number of customers including household and organization in 4 groups of products in the calculated year compared with that of the previous year, and is proportional to attribute score. Table 4.5: Symbols for the calculation of the attribute of number of customers growth rate Customer Symbol Product Symbol Household H (Household) Saving S (Saving) Organization O (Organization) Loan L (Loan) Payment P (Payment) Financial consultancy FC (Financial Consultancy) Combined with analyses of the attributes of proportion of mobilized captital, proportion of outstanding balance and new products growth rate, this attribute is measured by the combination between household and organization customers growth rate (or 1 out of 2 types of customers) with products with from high to low importance: Saving (S) hoặc Loan (L), Payment (P) and Financial Consultancy (FC). There are many combinations between customer growth rate and products, in which the more important criterion is customer growth rate because there is already an attribute for product growth rate. Therefore, the scoring template for the attribute of number of customers growth rate is as follow: 15 Table 4.6: Scoring template for the attribute of number of customers growth rate Criteria Score Increase H, O with (S, L, P, FC) 15 Increase H, O with (S, L, P), or Increase H, O with (S, L, FC) 14 Increase H, O with (S, L) 13 Increase H, O with (S, P, FC), or Increase H, O with (L, P, FC) 12 Increase H, O with (S, P), or Increase H, O with (L, P) 11 Increase H, O with (S, FC), or Increase H, O with (L, FC) 10 Increase H, O with S or L 9 Increase H, O with (P, FC) 8 Increase H, O with P 7 Increase H, O with FC 6 Increase H or O with 4 groups of products 5 Increase H or O with (S, L, P) or Increase H or O with (S, L, FC) 4 Increase H or O with (S, L), or Increase H or O with (S, P, FC), hay Increase H or O with (L, P, FC) 3 Increase H hoặc O with S or L, hay Increase H or O with (P, FC) 2 Increase H hoặc O with P, or Increase H hoặc O with FC 1 No customer growth rate 0 - Attribute 5 – Proportion of Mobilized capital: Customers’ deposit is the deciding factor for a bank’s capital. There are several factors that affect the amount of deposit on a bank, among which the bank’s reputation and customers’ trust in it is the main one. The proportion of a bank’s mobilized capital in total mobilized capital of the economy is proportional to attribute score, which is calculated as below: + Attribute score is 5 = Average mobilized capital for a commercial bank (A) 16 Total mobilized capital of the economy in the year before calculated year A = Total number of banks in the year before calculated year + The attribute score of 10 is for the credit institution having highest mobilized capital in the year before calculated year. + The bank having highest mobilized capital has maximum score of 10. The gap between maximum score of 10 and average score of 5 is 5 points, so each higher-than- average point is calculated by: preceding attribute score + B, with: Mobilized capital of the commercial bank having highest mobilized capital in the year before calculated year – A B = 5 + The bank having lowest mobilized capital has minumum score of 1. The gap between minimum score of 1 and average score of 5 is 4 points, so each lower-than- average point is calculated by: preceding attribute score – C, with: A- Mobilized capital of the commercial bank having lowest mobilized capital in the year before calculated year C = 4 Table 4.7: Scoring template for the attribute of proportion of mobilized capital Criteria Score Mobilized capital is in the range of (A + 4B; the highest mobilized capital) 10 Mobilized capital is in the range of (A + 3B; A + 4B) 9 Mobilized capital is in the range of (A + 2B; A + 3B) 8 Mobilized capital is in the range of (A; A + 2B) 7 Mobilized capital is in the range of A + B 6 Average mobilized capital A 5 Mobilized capital is in the range of (A – C; A) 4 Mobilized capital is in the range of (A – 2C; A – C) 3 Mobilized capital is in the range of (A – 3C; A – 2C) 2 Mobilized capital is in the range of (the lowest mobilized capital; A – 3C) 1 For example, the calculated year is 2013, total amount of mobilized capital of 48 17 commercial banks in 2012 is 3.2 million billion VND, in which Max commercial bank has the highest amount of mobilized capital of 540,000 billion VND, Min commercial bank has the lowest amount of 15,000 billion VND. So the calculation of attribute 3 is: Total mobilized capital of the economy in the year before calculated year 3.2 million billion VND A = = 66,500 billion VND Total number of banks in the year before calculated year 48 Mobilized capital of the commercial bank having highest mobilized capital in the year before calculated year – A 540,000 – 66,500 B = = = 94,700 billion VND 5 5 A- Mobilized capital of the commercial bank having lowest mobilized capital in the year before calculated year 66,500 – 15,000 C = = = 12,875 billion VND 4 4 Table 4.8: Scoring template for the attribute of proportion of mobilized capital Critera Score Mobilized capital is in the range of (445,300; 540,000) billion VND 10 Mobilized capital is in the range of (350,600; 445,300) billion VND 9 Mobilized capital is in the range of (255,900; 350,600) billion VND 8 Mobilized capital is in the range of (161,200; 255,900) billion VND 7 Mobilized capital is in the range of (66,500; 161,200) billion VND 6 Mobilized capital = 66,500 billion VND 5 18 Mobilized capital is in the range of (53,625; 66,500) billion VND 4 Mobilized capital is in the range of (40,750; 53,625) billion VND 3 Mobilized capital is in the range of (27,875; 40,750) billion VND 2 Mobilized capital is in the range of (15,000; 27,875) billion VND 1 19 - Attribute 6 – Proportion of outstanding balance: To commercial banks, credit is a traditional and basic business, accounting for high proportion in asset structure and revenue structure. However, it is also a complex and risky business. The proportion of a bank’s outstanding balance in total outstanding balance of the economy is proportional to attribute score. The basis for calculating score for the attribute of proportion of outstanding balance is similar to the that of mobilized capital, as follow: + Attribute score of 5 = Average outstanding balance for a commercial bank Total outstanding balance of the economy in the year before calculated year D = Total number of banks in the year before calculated year + The attribute score of 10 is for the credit institution having highest outstanding balance in the year before calculated year. + The bank having highest outstanding balance has maximum score of 10, the one having lowest outstanding balance has minumum score of 1. + The gap between maximum score of 10 and average score of 5 is 5 points, so each higher-than-average point is calculated by: preceding attribute score + E, with: Outstanding balance of the commercial bank having highest outstanding balance in the year before calculated year – D E = 5 + The gap between minimum score of 1 and average score of 5 is 4 points so each lower-than-average point is calculated by: preceding attribute score - F, with: D- Outstanding balance of the commercial bank having lowest outstanding balance in the year before calculated year F = 20 4 21 Table 4.9: Scoring template for the attribute of proportion of outstanding balance Criteria Score Outstanding balance is in the range of (D + 4E; the highest outstanding balance) 10 Outstanding balance is in the range of (D+3E; D + 4E) 9 Outstanding balance is in the range of (D+2E; D + 3E) 8 Outstanding balance is in the range of (D+E; D + 2E) 7 Outstanding balance is in the range of (D; D + E) 6 Outstanding balance = D 5 Outstanding balance is in the range of (D – F; D) 4 Outstanding balance is in the range of (D – 2F; D - F) 3 Outstanding balance is in the range of (D – 3F; D - 2F) 2 Outstanding balance is in the range of (the lowest outstanding balance; D – 3F) 1 - Attribute 7 – Non-performing loans ratio: If non-performing loans (NPLs) are not strictly controlled, they will directly affect a bank’s profit as well as its liquidity. NPLs ratio is inversely proportional to brand value, high NPLs ratio can even delete brand from the market (this is clearly illustrated in fact). NPLs ratio is measured by outstanding balance of group 3,4,5 divided by total outstanding balance, NPLs ratio is inversely proportional to attribute score. Specifically, NPLs attribute score is calculated as below: + The State Bank of Vietnam stipulated standard score for this content is 3%, so, the attribute score of 5 is equivalent to NPLs ratio of 3%. + According to Circular No. 08 of the State Bank special control towards Commercial Banks, all commercial banks having NPLs ratio of 10% and above will be subject to special control of the state bank, therefore, attribute score of 1 will be equivalent to NPs ratio of 10%. The gap between minimum score of 1 and average score of 5 is 4 points, so each lower-than-average point is calculated by: (10% - 3%)/4 = 1.75% + A bank having no NPL will get maximum attribute score of 10. The gap between maximum score of 10 and average score of 5 is 5 points, so each higher-than-average point is calculated by: 3%/5 = 0.6% 22 Table 4.10: Scoring template for the attribute of NPLs ratio Criteria Score NPL = 0% 10 NPL is in the range of (0.6%; 0%) 9 NPL is in the range of (1.2%; 1.8%) 8 NPL is in the range of (1.8%; 2.4%) 7 NPL is in the range of (2.4%; 3%) 6 NPL = 3% 5 NPL is in the range of (3%; 4.75%) 4 NPL is in the range of (4.75%; 6.5%) 3 NPL is in the range of (6.5%; 8.25%) 2 NPL is in the range of (8.25%; 10%) 1 NPL = 10% 0 - Attribute 8 – ROA (return on equity) growth rate: ROA growth rate is propotional to the attribute score. The base to calculate attribute 8 is similar to that of mobilized capital and outstanding balance growth rate attributes, specifically: + Attribute score is equal to 5 = average ROA for a commercial bank Total ROA (+) of the economy of the year before calculated year G = Total number of banks having ROA (+) before calculated year + Attribute score of 10 is the score for the credit institution achieving the highest ROA in the year before calculated year. Attribute score of 0 is for banks that do not have ROA (+) + The gap between the maximum score of 10 and the average score of 5 is 5 points, so each higher-than-average point is calculated by: preceding attribute score + K, with: ROA (+) max of the year before calculated year – G K = 5 23 + The gap between minimum score of 0 and average score of 5 is 5 points, so each lower-than-average point is calculated by: preceding attribute score - M, with: G- ROA min of the year before calculated year M = 5 [[ Table 4.11: Scoring template for the attribute of ROA growth rate Criteria Score ROA is in the range of (G+ 4K; G + 5K) 10 ROA is in the range of (G+3K; G + 4K) 9 ROA is in the range of (G+2K; G + 3K) 8 ROA is in the range of (G+K; G + 2K) 7 ROA is in the range of (G; G + K) 6 ROA is equal to G 5 ROA is in the range of (G – M; G) 4 ROA is in the range of (G – 2M; G – M) 3 ROA is in the range of (G – 3M; G – 2M) 2 ROA is in the range of (G – 4M; G – 3M) 1 No ROA (+) 0 Total score of brand discount ß index is calculated based on total score of 8 brand attributes. After measuring total score of brand ß index, brand discount index will be calculated by the linear equation proposed by Interbrand Y = a x X + b The bases to calculate a and b coefficients are government bond interest rates of the same term and profit expectation of stock investors in the researched year that is most profitable. Step 4: A bank’s brand value is measured by discounted cashflow from future 24 earnings generated by the brand to the net present value, as in the discounted cashflow formula. 4.3 Experiment the brand valuation model to evaluate brand value of Bank for Investment and Development of Vietnam (BIDV) 4.3.1 Reasons to select (BIDV) to experiment 4.3.2 BIDV brand valuation Table 4.21: BIDV’s brand value in 2013 (unit: million VND) No Criteria 2013 2014 2015 2016 2017 2018 1 After tax earnings 5,312,133 6,740,538 8,517,784 2,593,618 12,141,189 14,035,303 2 BVA (23%) 3 Earnings generated by the brand 1,221,790.6 1,550,323.7 1,959,090.3 596,532.13 2,792,473.48 3,228,119.65 4 Brand strength index 81 5 Brand discount rate 12.0405% 6 Discount 1,383,717.23 1,560,645.91 424,139.505 1,772,102.77 1,828,413.55 7 NPV of the brand after the first 5 years 8,190,809.56 8 Brand growth rate in the long term 1% 9 NPV of the brand from 6th year 9,473,967 10 NPV of the brand 17,664,776.64 So BIDV’s brand value in 2013 is 17,664,776.64 million VND. 4.4 Conditions to apply the model in practice • Build and complete legal framework for brand as well as brand valuation • Complete macro and micro forecasts • Ensure the transparency and health of commercial banks’ financial reports • Develop information support department for brand valuation 25 Conclusion of chapter 4 Chapter 4 has accomplished three final targets of the thesis which are: proposing brand valuation model for Vietnam’s commercial banks; applying proposed model to evaluate Bank for Investment and Development of Vietnam (BIDV)’s brand; and establishing conditions to apply valuation model for Vietnam’s brands in practice. CONCLUSION Brand valuation for Vietnam’s commercial banks is an important content in both research and management practice. The research of theories and methods to develop a brand valuation model for commercial banks is essential for such important issues as merger and acquisition, brand franchising, or report on the balance sheet, etc. In the research process, the thesis has selected the estimated income based method of the second approach – brand valuation based on financial data, to develop the brand valuation model for Vietnam’s commercial banks, including 4 steps: The thesis also fulfilled research objectives set forth both in theory and practice. Brand discount rate Brand contribution value Discounted cashflow from bank’s brand Financial forecast 26 THE AUTHOR’S RESEARCH RELATED TO THE THESIS 1. ðỗ Hoài Linh (2010), “The development of brand awareness and the recognition of brand valuation in practice”, Banking Review. 2. ðỗ Hoài Linh (2012), “Theory on brand valuation based on market research”, Banking Review.

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