Financial and Insurance Group Restructuring: Cost Reduction and Governance Renovation

Mr Le Quang Binh said Bao Viet Holdings’ assets increased 2.7 times and revenues climbed 2.6 times from 2006. With the support of a strategic partner HSBC, Bao Viet Holdings is improving business models and corporate governance to continue its leadership on financial - insurance industry in Vietnam.

 

Bao Viet will focus on reviewing its core business orientations to allocate rational resources for the upcoming time. An insurance company collaborates with banks, securities investment companies and assets management companies to define the development direction of its businesses, create breakthroughs and reallocate suitable resources to obtain effective and sustainable development and ensure dividends for shareholders. The second focus of Bao Viet is to enhance business administration, including the coordination of parent company and its affiliates. An important task is to ensure the coherence and synergy of business lines of the group like insurance and banking to boost competitiveness, provide a variety of financial services, not only insurance but also in asset management, payment and banking among others.

 

Human resource development is also a way of investment. We will send our employees to training courses. However, it is not easy to define the effectiveness of this investment like and measure in tangible value. So far, the human resources department is usually branded the “place to spend money” of the Group and companies but, according to modern corporate governance, personnel is the most valuable asset and the human resource department serves an important role in personnel investment for the general development of the group and companies. Therefore, the more the human resource department is specialised, the higher efficiency of labour use is. Human resource activities must focus on quantifying the value of human resource development. At the same time, personnel restructuring is a required solution for the group to adapt to new circumstances.

 

Besides, a transparent accounting system is an important factor. We have built an accounting system that meets both Vietnamese requirements and international practices. We guarantee a dividend payout ratio of 12 percent in 2012 to investors and shareholders.

 

In response to the Government’s policy on close supervision and economical business administration, on February 6, 2012, the Group instructed its member units to work out plans to cut 5 - 10 percent of administrative expenses, take risk prevention measures to minimise losses in insurance business, and check out investment projects. We determine that administrative expense reduction is one of the most important solutions for our Group in particular and State-owned enterprises in general to do business effectively.

 

We have managed to control macroe-conomic problems. Although inflation has eased, it remains high and interest rates are unlikely to go down soon, the most important and practical solution is to cut costs. If this plan is worked out as expected, the group will save up to VND145 billion of costs while business performances remain unchanged. This also means that its profit will increase VND145 billion.

Ownership structure is not a prerequisite to hold synergised resources like synergised resources in insurance and banking distribution. Experiences from other markets show that standards for maximising the efficiency of large-scaled core business activities, particularly of State-run financial groups, in cross-sale of banking and insurance products is a challenging work and this requires high effective foundations from both sides as well as effective combination of centralised group-level foundations with business unit-level initiatives. The leadership reshuffle of a group is a challenging job and is often completed in the best way by business leader-level initiatives, with focus on realising tangible value in business units instead of increasing control standards from the group. Ownership structure of subsidiary companies needs to reflect strategic objectives of parent company and expectations of investors.

The road ahead seems not be as flat as before when the workforce growth rate will decline over the next decade, with an annualised growth falling from 2.8 percent now to 0.6 percent. To maintain growth momentum in the coming years, Vietnam needs to enhance labour productivity by 1.5 times compared to the today level. This is a challenging, but feasible, goal. For its economy, Vietnam needs to have an action programme with four main contents: stabilising macro economy and financial sector; strengthening productivity-boosting and growth-generating factors; building industry-specific projects to increase productivity; and enhancing the enforcement capacity of government to accomplish productivity-driven growth objectives. This experience is now being used by developed countries in the process of restructuring financial - insurance groups.