Document of The World Bank

Report No: ICR1996

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-40410 TF-90325)

ON A

CREDIT

IN THE AMOUNT OF SDR 67.8 MILLION (US$ 105 MILLION EQUIVALENT)

TO THE

SOCIALIST REPUBLIC OF VIETNAM

FOR A

SECOND PAYMENT SYSTEM AND BANK MODERNIZATION PROJECT

December 16, 2011

Financial and Private Sector Department Vietnam Country Management Unit East Asia and Pacific Region

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CURRENCY EQUIVALENTS

Currency Unit = Vietnamese Dong

Exchange Rate at Appraisal, January 6, 2005 US$ 1.00 = Vietnamese Dong 15,780

SDR 1.00 = US$ 1.54

Exchange Rate at ICR, December 16, 2011 US$ 1.00 = Vietnamese Dong 21,020

SDR 1.00 = US$ 1.54

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS BIDV Bank of Investment and Development of Vietnam

BOS Banking Operational System BTA Bilateral Trade Agreement CBS Core Banking System DRC Disaster Recovery Center ERR Expected Rate of Return ICR Implementation Complement and Results Report IAS International Accounting Standards ITDB Informatics Technology Department, the State Bank of Vietnam ICT Information and Communication Technology IBPS Inter-bank Payment System IDA International Development Agency INT International Investigation (Word Bank) JSBs Joint-Stock Banks MIS Management Information System MSB Maritime Joint Stock Commercial Bank

NPSC National Payment System Center NPV Net Present Value NPLs Non-Performance Loans PPC Payment Processing Center PSBM Payment System and Banking Modernization Project PDO Project Development Objectives PIU Project Implementation Unit PMU Project Management Unit SDR Special Drawing Rights SBDs Standard Bidding Documents SBV State Bank of Vietnam SEDS Socio-Economic Development Strategy SMART Specific, Measurable, Attributable, Realistic and Relevant, and

Time-Bound SOCBs State-owned Commercial Banks VBARD Vietnam Bank for Agriculture and Rural Development VDB Vietnam Development Bank VietinBank Vietnam Industrial and Commercial Bank WTO World Trade Organization

Vice President: James W. Adams

Country Director: Victoria Kwakwa

Sector Director: Tunc Tahsin Uyanik

Project Team Leader: Nancy Chen

ICR Team Leader: Wei Zhang

Vietnam Second Payment System and Banking Modernization Project

CONTENTS

Data Sheet A. Basic Information…………………………………………………………………………..i B. Key Dates…………………………………………………………………………………...i C. Ratings Summary …………………………………………………………………………..i D. Sector and Theme Codes ………………………………………………………………….ii E. Bank Staff …………………………………………………………………………………ii F. Results Framework Analysis ……………………………………………………………..iii G. Ratings of Project Performance in ISRs ………………………………………………….vi H. Restructuring …………………………………………………………………………….vii I. Disbursement Graph ……………………………………………………………………..vii

 

1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN .............................................. 12. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES ............................................. 43. ASSESSMENT OF OUTCOMES ................................................................................................... 94. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME ............................................................ 145. ASSESSMENT OF BANK AND BORROWER PERFORMANCE ..................................................... 146. LESSONS LEARNED ................................................................................................................ 177. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS ...... 20 ANNEX 1. PROJECT COSTS AND FINANCING [TO CHECK WITH FM/LOAN OFFICER] ................ 22ANNEX 2. OUTPUTS BY COMPONENT ........................................................................................ 23ANNEX 3. ECONOMIC AND FINANCIAL ANALYSIS .................................................................... 25ANNEX 4. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES ......... 26ANNEX 5. BENEFICIARY SURVEY RESULTS .............................................................................. 29ANNEX 6. STAKEHOLDER WORKSHOP REPORT AND RESULTS ................................................. 31ANNEX 7. SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR .................... 32ANNEX 8. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS ................ 42ANNEX 9. LIST OF SUPPORTING DOCUMENTS ........................................................................... 43 

MAP …………………………………………………………………………………………..44

i

Data Sheet

A. Basic Information

Country: Vietnam Project Name:

Vietnam-Second Payment System and Bank Modernization Project

Project ID: P082627 L/C/TF Number(s): IDA-40410,TF-90325

ICR Date: 12/16/2011 ICR Type: Core ICR

Lending Instrument: SIL Borrower: SOC. REP. OF VIETNAM

Original Total Commitment:

SDR 67.80M Disbursed Amount: SDR 59.92M

Revised Amount: n.a.

Environmental Category: C

Implementing Agencies: The Informatics Technology Department of the State Bank of Vietnam (ITDB) Bank for Investment and Development of Vietnam (BIDV) Vietnam Bank for Agricultural and Rural Development (VBARD) Maritime Joint Stock Commercial Bank (MSB) VietinBank (formerly Industrial and Commercial Bank of Vietnam, ICBV)

Cofinanciers and Other External Partners: Japanese PHRD Grant B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 10/30/2003 Effectiveness: 9/15/2005 12/15/2005

Appraisal: 11/10/2004 Restructuring(s): 06/29/2010

Approval: 03/10/2005 Mid-term Review: 11/27/2007 02/09/2009

Closing: 06/30/2010 06/30/2011 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: S

Risk to Development Outcome: Low

Bank Performance: S

Borrower Performance: S

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C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: S Government: MS

Quality of Supervision: S Implementing Agency/Agencies:

S

Overall Bank Performance:

S Overall Borrower Performance:

S

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Banking 76 77

Payments, settlements, and remittance systems 24 23

Theme Code (as % of total Bank financing)

International financial standards and systems 67 67

Other financial and private sector development 33 33 E. Bank Staff

Positions At ICR At Approval

Vice President: James W. Adams Jemal-ud-din Kassum

Country Director: Victoria Kwakwa Klaus Rohland

Sector Director: Tunc Tahsin Uyanik Khalid A. Mirza

Project Team Leader: Nancy Chen Xiaofeng Hua

ICR Team Leader: Wei Zhang

ICR Primary Author: Xiaofeng Hua

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F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)The project’s Development Objectives are to assist Vietnam’s banking sector to: (i) meet the demands of the economy for fast, reliable and safe payment services; (ii) broaden access to finance to facilitate the achievement of the government's poverty reduction targets; and (iii) improve the operations of the participating banks through the expansion of the IBPS and the CBS. Revised Project Development Objectives (as approved by original approving authority) N.A. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1: Steady increase of number of financial institutions/bank branches connected to IBPS and CBS, and of transaction volume and value processed by the new systems:

Quantitative IBPS: 49 financial institutions were connected to the pilot Inter-Bank Payment System with daily transaction volume of VND 16-20 billion. CBS: Limited number of branches connected to the pilot CBS of the participating banks in 2005

Connectivity: IBPS: 45%

increase over 5 years

CBS: 80% increase over 5 years

Transaction Volume and value: IBPS: 80%

increase over 5 years

CBS: 80% increase over 5 years

n.a. IBPS: Coverage of institutions registered an average annual growth of 98% in 2005-2010; that of daily transaction about 87%; and that of daily transaction in VND over 1.5 times in the same period. CBS: All banks reported more than 100% average annual increase in the number of branches connected to the CBS in 2005 – 2010 (48 times growth for VBARD), and exponential increases in transaction volume and value. In particular BIDV and MSB provided

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time series data: BIDV: No. of daily transactions increased by 8 times and in monetary terms by 90 times. MSB: No. of daily transactions increased by 760 times and in monetary terms by over 16 times.

Date achieved December 2004 June 2010 June 2010 Comments (incl. % achievement)

Fully achieved

Indicator 2: Continuing high level of performance of the expanded systems in terms of speed, certainty, reliability and convenience

Qualitative

New pilot core systems performed well, but needed to be expanded urgently because of rapidly increasing market demand.

Both IBPS and CBS successfully expanded and demonstrated high level of performance

n.a. Speed: Real time Certainty: RTGS

or End-of-Day net basis settlements

Reliability: No major breakdowns and business continuity capacity significantly enhanced

Convenience: Web-based interface for users, and one-stop services for bank customers

Date achieved December 2004 June 2010 June 2011 Comments (incl. % achievement)

Fully achieved

Indicator 3: Improved frequency and coverage of management information reports in participating banks

Qualitative

Management of participating banks did not receive timely and reliable information partly due to the existing

New core banking systems successfully expanded/upgrade to provide IAS

n.a. BIDV, MSB and VBARD’s MIS (by using data from centralized CBS and data

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central bank regulations as well as banks’ practices and system limitations.

compatible information in a timely and reliable way.

centers) provide daily information on the operation and financials of the whole bank (including branches).

MIS acquired under Project (BIDV, VBARD and VietinBank) is IAS compatible.

VietinBank completed MIS installation before project closure but regular reports were not yet available at project completion.

Date achieved December 2004 June 2010 June 2010 Comments (incl. % achievement)

Largely achieved

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1: All goods and consulting services contracts are successfully implemented to enable designed system expansion and upgrading

Qualitative No contract was available

All 40+ contracts are successfully implemented

n.a. At project completion, 28 contracts financed by IDA credit were implemented; Of which 27 contracts were successfully implemented, and the implementation of one contract continued after project closure per

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original contract terms.1

Date achieved December 2004 June 2010 June 2011 Comments (incl. % achievement)

Largely achieved

Indicator 2: All system expansions/upgrading are ready for acceptance. Qualitative Existing pilot systems

needed to be expanded and/or upgraded to meet rapidly growing business demand.

All system expansions/ upgrading are tested and prove to be ready for acceptance.

n.a. All systems acquired were accepted, except forVBARD’s DRC for which acceptance is expected after project closure.

Date achieved December 2004 June 2010 June 2011 Comments (incl. % achievement)

Fully achieved

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD million)

1 06/17/2005 Satisfactory Satisfactory 0.00 2 12/21/2005 Satisfactory Satisfactory 0.00 3 07/25/2006 Satisfactory Moderately Satisfactory 1.00 4 12/29/2007 Moderately Satisfactory Moderately Satisfactory 4.43 5 02/18/2009 Moderately Satisfactory Moderately Satisfactory 27.14 6 06/29/2009 Satisfactory Satisfactory 37.88 7 06/30/2010 Satisfactory Satisfactory 53.55 8 05/30/2011 Satisfactory Moderately Satisfactory2 71.17

1 The total number of contracts was reduced from 40+ to 30+ before and after Mid-Term Review due to the scope readjustments of the MSB and VietinBank components. 2 The downgrading of the rating was mainly due to the implementation status of the PHRD grant for project implementation support.

vii

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

06/29/2010 S S 53.55 Extension of IDA credit and PHRD grant closing date to June 30, 2011

I. Disbursement Profile

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1. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative)

1.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance) 1. Country and sector context: The Vietnamese banking sector reform began in earnest in 2001. By 2005 important changes were accomplished both in the structure, the regulation and the operations of the banks, thus moving the banking sector towards a modus operandi that more closely resembles domestic banking sectors in other emerging markets and newly industrialized economies. The four largest State Owned Commercial Banks (SOCBs) which accounted for 73 percent of all credit to the economy had evolved from specialized policy lending vehicles to state-owned banks operating on a more commercial basis. The consolidation of the Joint-Stock Banks (JSBs) had led to the sub-sector’s strong growth and performance. The environment in which banks operate improved with the removal of interest rate ceilings (in principle). The State Bank of Vietnam (SBV, the central bank) promulgated regulations on reorganizing bank supervision, leveling the playing field for foreign banks and reclassifying all non-performing loans (NPLs) in the four SOCBs. Despite these positive changes, overall progress in implementing the reform agenda was mixed. The speed of reform at the time was considered as too protracted to meet the challenges resulting from the rapid opening of the financial sector to foreign participation in the context of the Vietnam-US bilateral trade agreement (BTA) and the expected WTO membership. The liberalization commitments under those trade agreements were expected to present significant competitive pressure to the SOCBs and regulatory challenges to the SBV. 2. The SBV recognized the immediate threat that the challenges pose to the future growth and stability of the banking system and developed a “Plan for the International Economic Integration of the Banking Sector” in mid-2003 to address the core development needs through 2010. One of the key reform areas of this Plan was the development of appropriate banking infrastructure and the completion of what was started under the comprehensive program developed in 1995 to develop a modern banking sector. The program aimed to improve both the banking systems and payment services in the economy in order to reduce float, speed up circulation of funds and increase efficiency of funds transmission while providing convenience, service, and safety to users. The development of a national payments system for inter-bank clearing and settlement (Inter-Bank Payment System–IBPS) was a primary focus of this program. The program also had an important secondary focus on introducing modern, automated operating systems (e.g. core banking, centralized accounting and management information) within the largest banks. 3. The first phase of the modernization program was supported by the Payment System and Bank Modernization (the PSBM) project financed by the World Bank (the Bank). The first PSBM project was successfully completed in 2004 which introduced on a pilot basis a modern IBPS in the SBV and two modern Core Banking Solutions (CBS) in six commercial banks. The Second Payments System and Bank Modernization Project (PSBM2, the Project), designed to build directly upon the first PSBM project, was a response to the urgent needs to expand the pilot systems. 4. Rationale for Bank assistance: The Bank was uniquely placed to continue assisting the government with the expansion of the IBPS and CBS systems under the PSBM 2 project. The Bank had the experience in such projects and was well equipped to deal with the variety of policy, design and implementation issues involved. It could provide objective “best practice” advice,

2

thereby ensuring that key strategic and policy issues that would need to be addressed for the overall implementation of such systems were fully addressed. The outputs of the project required heavy capital investment in imported capital goods. At the time of appraisal, neither the government nor the participating banks had adequate access to low-cost and longer-term hard currency funding denominated. The government considered financing the cost of PSBM 2 with IDA resources as an appropriate course of action. No other donors were providing assistance in this regard at PSBM2 appraisal.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 5. The project’s Development Objectives are to assist Vietnam’s banking sector to: (i) meet the demands of the economy for fast, reliable and safe payment services; (ii) broaden access to finance to facilitate the achievement of the government's poverty reduction targets; and (iii) improve the operations of the participating banks through the expansion of the IBPS and the CBS. 6. The PDO indicators as approved by Board were as follows:

(i) Steady increase of the number of financial institutions/bank branches connected to the IBPS and the CBS.

(ii) Steady increase of the transaction volume and value processed by the IBPS and the CBS.

(iii) Continuing high level of performance of the expanded systems in terms of speed, certainty, reliability and convenience.

(iv) Continuous growth of the use of non-cash payment instruments and widened range of banking products and services.

(v) Improved financial accounting and operational reporting in the participating banks.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 7. There was no formal revision of the PDO and the key indicators. However, the PDO indicators were consolidated into three main values in the first Implementation Status and Results Report (dated June 17, 2005), to improve the presentation of the indicators and enhance their measurability. A further informal revision of the third PDO Indicator took place in 2007 to make it more measurable. Those revisions were made after discussions with the regional quality assurance unit (EAPCO), and reflected the evolution of the Bank’s current practices in developing and using a SMART results framework in Bank financed operations.3 Details of the revisions are provided in Section 2.3.

1.4 Main Beneficiaries (original and revised, briefly describe the “primary target group” identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) 8. The primary target groups were the SBV and the four participating commercial banks including the Bank of Investment and Development of Vietnam (BIDV), the Maritime Joint Stock Commercial Bank (MSB), the Vietnam Bank for Agriculture and Rural Development (VBARD) and the Vietnam Industry and Commerce Bank (VietinBank, formerly IncomBank). The indirect

3 SMART stands for Specific, Measurable, Attributable, Realistic and Relevant, and Time-Bound.

3

beneficiaries included the banking industry, the customers of the participating banks and other future IBPS members including the State Treasury.

1.5 Original Components (as approved) 9. The PSBM 2 project was organized around two main components: (i) Inter-Bank Payment System (IBPS) Expansion; and (ii) Core Banking Solutions (CBS) Expansion. 10. Component 1, IBPS Expansion (US$ 25.2 million equivalent): The pilot IBPS was a centralized, single current-account based, inter-bank clearing and settlement system managed by the SBV. It composed of the National Payment System Center (NPSC), its back-up center, and five province-based Payment Processing Centers (PPCs). The pilot IBPS proved to be up to the international standards that helped improve the payment services and address perennial cash shortages in the economy through effective management and uses of centralized funding. It provided the core functionality of the interbank payments system, but the transaction volume and value handled by the pilot IBPS far exceeded the original targets. The situation called for an immediate expansion of the system. There was also an urgent need to enhance the system’s capacity for performance, network security and business continuity. The main activities of Component 1 were (i) upgrading hardware and installing new software to expand processing capability and strengthen interconnection; business continuity, and network and security system; (ii) consultant support of project implementation; and (iii) staff training. The implementing agency of this component was the Informatics Technology Department of the SBV (ITDB).

11. Component 2, CBS Expansion (US$ 79.8 million equivalent): Under the first PSBM project, the participating banks adopted international standard core banking solutions (CBS) and a few other modules of banking operational systems (BOS), which centralized accounting and control functions with respect to customer files, deposit and loan, general ledger and financial control, trade finance, and other commercial bank core businesses. Those automated tools stimulated initiatives to improve internal procedures, organizational structure and customer services; but the application of solutions was limited to the head office and a few pilot branches. There was an urgent need to rollout the solutions to mitigate the high operational risk of running both the new and the legacy systems in parallel. There was also a need to build the capacity for business continuity and enhance the network and physical security of the new facilities. To further strengthen operational efficiency and risk management, new modules such as financial management and improved MIS were required. Finally, increasing market demand required the banks to add more operational modules to the CBS system to provide non-cash-based payment instruments and more diversified financial products and services (e.g. internet and telephone banking). The main activities were similar as those under Component 1. The implementing agencies of Component 2 were the four participating banks.

1.6 Revised Components N.A.

4

1.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) 12. The project’s closing date was extended once from June 30, 2010 to June 30, 2011, mainly to allow time for implementation completion by three participating banks (BIDV, MSB and VietinBank). An amount of over SDR7.9 million4 was canceled upon the closure of the IDA credit account on October 31, 2011. The canceled amount was from the savings under the IBPS, BIDV and VBARD components, and the IDA allocation originally to finance five goods packages under the MSB and the VietinBank components as those banks did not have time to implement the related activities by the project closing date.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) 13. Overall review: The project was prepared following the conclusion of the first PSBM as a repeater operation. The result of the first PSBM project was verified and accepted by the SBV together with the Ministry of Finance, the Ministry of Planning and Investment, and the Ministry of Information and Communications. The Vietnam Association for Information Processing, an independent IT organization, also provided verification of the pilot systems. At the time of PSBM2 project completion, the project design was considered as Satisfactory. This assessment is based on the incorporation in the project design of the lessons learned (see the following three paragraphs for details). It also takes into consideration the complexity. Complexity is relative to the nature of a project and the implementing agencies’ capacity. Including commercial banks in the payments system related projects such as PSBM and PSBM2 may be seen as adding complexity. However, it turned out to be a major contributing factor to project success. Traditionally, Bank payments system projects tend to concentrate on providing such a system to the central bank, leaving system implementation throughout the banking market to the client. This type of project design appears to be less complex but usually entails more difficulties in making a system work as the client might not have the technical capacity or investment funding to push the new system through the banking market. For the national payments systems members, getting a new model will not work unless they also re-engineer their core banking and operational systems. By providing funding and technical support to three of the country’s four largest banks, and a fast expanding joint-stock bank, PSBM2 ensured a critical mass of transaction coverage and a balanced representation of national payments system members. All the implementing agencies had experience in implementing IT based projects in particular through the first PSBM project, although much remained to be learned by those agencies as the implementation of PSBM2 found out which were summarized in the implementing agencies’ own project closure reports. 14. Lessons learned - Flexibility: The project design took into account the Bank’s experience in other financial infrastructure development projects and in particular that gained under the first PSBM project. International experience related to IT investment projects was also considered. The central lesson learned under the first project was flexibility in the overall solution design. The pilot systems contained all the basic functionality to satisfy users’ immediate and medium-term needs, but left the system expansion and performance enhancement to PSBM2 to allow the beneficiaries to gain experience, see tangible benefits and build confidence. The design

4 US$12.3 million equivalent at the exchange rate used for the credit (SDR1=USD1.54899 as of December 31, 2004).

5

of PSBM2 benefited from this approach and maintained the flexibility (e.g. the co-existence with the IBPS of the legacy payments systems at the provincial level to service the State Treasury which is still developing an automated government cash management system, and the modular approach towards additions of new CBS/BOS functionalities). The Bank team discussed this main lesson in a published a SmartLesson Note listed in Annex 9.

15. Lessons learned – Procurement planning: The main activities of IT-based projects are system procurement and implementation. In Vietnam (and probably in other economies at a similar technological development level), engagement and working with international consultants for detailed technical design and procurement support is another main activity. Under PSBM2, procurement plans were carefully evaluated at project appraisal and in SBV’s Feasibility Study. When it was necessary to readjust the procurement plans for two components with serious implementation delays, the new procurement plans were again carefully evaluated both from the technical and procurement standpoints. These efforts were time consuming but were necessary for successful implementation.

16. Lessons learned – Project management capacity: Based on the experience learned under the first project, the PSBM2 design maintained the designated project management units at the SBV and the implementing agencies to ensure that the institutional memories gained were maintained, and adequate attentions would be paid to project implementation without major interruptions to the normal operation of the implementing agencies. The design also highlighted the importance of maintaining the institutional capacity.

17. Risks identified: At appraisal the overall risk was rated as Modest which remained appropriate at project completion. One risk to the PDO and two risks to the component results were identified and rated as Modest. They were, “Other financial institutions not covered by the project might be put at a disadvantage” (risk for PDO #2); and “Pace of change in legal and regulatory framework on electronic transactions and records is slow to support the operation of the expanded systems” (Component risk#1), and “Relatively weak capacity of PMU and PIUs to manage procurement process and commercial contract” (Component risk #2). With the benefit of hindsight, the second PDO was somewhat too generic, and the identified risk and its mitigation were beyond the scope of the project.5 The first identified component risk did not materialize as the existing legal and regulatory framework upgraded under the first project and by the SBV on its own turned out to be able to govern and support the operation of the expanded systems. The second risk to component results turned out to be a major implementation risk as there were staff changes in particular of PIU personnel at MSB and VietinBank,6 and delays in procurement and payments to contractors during project implementation. This risk should have been rated as high, although at the time of appraisal there were no sign of any major staff changes at the banks. Some main causes to procurement and payments delays were beyond the scope of the project.

2.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable)

5 The project was appraised in early 2005 and at that time the going trend within the Bank for performance indicator designs was to highlight in PDOs the contribution of Bank financed operations to the poverty reduction agenda. PSBM2’s contributions to poverty reduction were meaningful but indirect. By the current Bank practice expected indirect impact is beyond a project’s control and should not be used as a project-specific objective. 6 Project staff changes significantly contributed to the catch-up in project implementation at MSB and VietinBank.

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18. Overall review: The project implementation was considered Satisfactory at project completion, in particular when viewed against the international and country experience with information and communication technology (ICT)-based projects. Even in a developed banking environment, the failure rate of core banking implementations can be as high as 70 percent.7 Under the project, systems were successfully implemented and in general in smooth operation. The project was completed in a relatively short time for similar IT-based projects (6 years), with all the expected outcomes fully or largely achieved. Concerns for low disbursement at the early phase of project implementation proved to be pre-mature as the final disbursement rate was 91 percent of the original baseline cost baseline cost (Bank financing portion of total cost). Examples of successful project implementation are provided in Section 5.2 (b). 19. Implementation efficacy: Project implementation was efficient at project completion and compared with similar Bank IT projects in Vietnam and other countries. However, implementation was not always smooth and at times suffered major delays in: a) the credit effectiveness (270 days), b) engagement of implementation support consultants (12 months), c) procurement processes for goods, and d) payments to contractors. Those delays were mainly caused by the following factors. 20. Factors subject to implementing agencies’ control: The main factor in this category was the staff changes in the project management units (and to a lesser extent the technical teams) due to internal re-organization, staff rotation, new assignment, retirement and/or career development concerns.8 In the case of MSB and VietinBank, the changes were major but with a positive impact on the pace of project implementation. With the departure of experienced staff, the PIUs had to re-build the institutional memory and knowledge about IT projects, international practices of contract management and World Bank guidelines. 21. Factors subject to government control: Two factors in this category became substantial causes to the delays in project implementation and they are the common problems under donor-funded projects in Vietnam:

1) The project implementing agencies tended to follow both the Bank procurement guidelines and the government’s procurement regulations at the same time, which had significant gaps between them. Vietnam's Public Procurement Law stipulates that the provisions of the legal agreement of the donor prevail over the national law. The government’s Decree 131 has a similar provision.9. It appears that those provisions were either not well disseminated to project entities and the relevant enforcement authorities (e.g. the State General Auditor and the State Treasury); or were not supported by specific implementation procedures. Perceived non-compliance of national laws and regulations can lead to specific and severe punishment while that of the donors’ guidelines may not. The resulted confusion often led to more rounds of review and revision.

2) The internal processes for reviewing and approving payments to contractors were long and tedious at the State Treasury (for the SBV component) and the Vietnam

7 A number of research papers report high failure rate of core banking system implementations. A 2008 Banker’s Academy survey found that 70% of core banking implementations failed. See Annex 9 for details of the paper 8 Effects on staff’s career development were another cause of staff changes when they had to be away from their regular jobs for an extended period. 9 Decree 131 stipulates that if “there is a discrepancy between any provision in an international treaty on ODA to which the Socialist Republic of Vietnam is a signatory, and the Vietnamese Law, the provision in the international treaty on ODA shall take preference”

7

Development Bank (VDB, for the banks components). This created unnecessary frictions between the clients and the contractors.

22. Other factors: There was a factor that affected the implementation of a participating bank’s component in 2007–2008. Based on information received, the Bank’s INT undertook an investigation of a consulting firm engaged by the participating bank to support project implementation. This firm was found to have misrepresented its capacity and commitment in the proposal and was debarred by the Bank in April 2010. The debarment was solely in response to fraudulent behavior of the firm, and not in response to any fraudulent behavior on the part of any agency of the government of Vietnam. This was a factor out of the control of the government or the implementing agency. The case presented no serious impacts on the project’s implementation.10 23. Actions taken: The impact of staff changes was overcome eventually as new staff gained experience through the learning by doing process and several rounds of training on Bank guidelines. In the case of MSB and VietinBank, it was also due to the quality of staff replacement. The technical weaknesses were supplemented once the implementation consultants were engaged (in March 2006). MSB reduced the number of goods packages in the procurement plan from five to four (with the Bank’s no-objection) in 2008 to focus on what the bank could deliver within the life time of the project. VietinBank, faced with a possibility of having their component canceled at the time of Mid-Term Review, also substantively readjusted the procurement plan in 2009 to focus on what the bank could deliver towards achieving the objectives of the project before project completion. The time taken to pay contractors was also improved after the Mid-Term Review recommended more proactive interactions with the State Treasury and the VDB (e.g. establishing an MOU on the standards for processing payment requests). This was part of a two-level approach to deal with the problems, at both the project level and the country management level. The country management’s dialogue with the relevant government agencies is continuing. Those actions led to accelerated project implementation.11

10 World Bank News Release, April 12, 2010 11 A PHRD implementation support grant (TF090325) was secured in 2007 mainly to support the PMU to monitor implementation progress and the VietinBank to overcome the obstacles in project implementation, but the grant was not fully utilized due to the reasons discussed in the PHRD grant’s implementation completion GRM. The grant, however, contributed to the monitoring and evaluation of project performance. The grant also financed an activity to introduce principles of payments system oversight which was important to IBPS’ sustainability.

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2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 24. The project’s M&E arrangements were embodied in a results framework developed in accordance with the Bank’s relevant operational guidance at the time of appraisal. Viewed against today’s operational policies, the second PDO (“broaden access to finance to facilitate the achievement of the government's poverty reduction targets”) was too broad. The outcome indicators as approved were also somewhat repetitive, and therefore were consolidated shortly after the Board approval. The consolidation reduced the Project Outcome Indicators from five to three. The original forth PDO Indicator on growth of uses in non-cash payments instruments was dropped as it was considered to be difficult measure during the lifetime of the project, although at project completion statistics were available to demonstrate the increased uses of banks cards at the participating banks. In 2007 the third PDO Outcome Indicator was modified, when it became clear that the indicator would be difficult to measure due to the mismatch between the project’s life time and the time needed for the new MIS systems to generate verifiable, broad results in financial accounting and reporting. The Intermediate Outcome Indicators were also revised to make them more pertinent to the outputs of the components. At project completion, the upgraded results framework was considered as clear, realistic and responsive to Vietnam’s financial sector development strategy and the project entities’ development priorities. The Bank team used the results framework regularly for project supervision purpose. The project entities’ use of the results framework to assess the project’s achievement increased when the initial tangible outputs became available.

2.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) 25. Procurement: In general, procurement processes under the project were in line with the Bank guidelines and resulted in the acquisition of internationally compatible payments and core banking systems. The reported good performance of the systems is another sign of the success of the procurement processes. Section 2.2 discussed the procurement issues that caused project implementation delays and the actions taken. 26. Financial management: All the annual audits of the project were unqualified. The audits were carried out in accordance with the international auditing standards by a local accounting firm acceptable to the Bank. The main shortcoming identified by Bank supervision missions was the delayed payments to contractors which were due to the slow services of the State Treasury and Vietnam Development Bank who acted as the verification agents of the expenses claims of the project. 27. The project did not trigger Safeguard reviews.

2.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable)

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28. Post-completion operation: At project completion all but one of the systems procured under the project were performing well with no major system stoppages or service interruptions.12 Multi-year maintenance contracts and the ongoing or planned enhancement activities at the project entities (see below) would ensure continued operation and good performance of the systems. 29. Next phase: The SBV, BIDV and MSB have completed the next 5-year plan for the development of their banks’ IT architecture, and the other two banks are in the process of developing the strategy. All the project entities are enhancing the systems. For example, BIDV plans to add capital market models to the CBS/BOS system; MSB is in the process of enhancing the operational applications procured under the first PSBM; and VietinBank has turned the PIU into an investment management unit in charge of 20 projects including those on internet banking and business chain formulation. The SBV has drafted a regulation on the fee structure of interbank payments to encourage more uses of the RTGS module of the IBPS. The central bank is also considering internally about the legal/regulatory and institutional issues regarding the clearance and settlement of foreign currency transactions (which is not processed by IBPS at present). In addition, the SBV is finalizing a five-year strategy for developing a cashless economy in Vietnam and has requested Bank’s assistance in implementation of this strategy. Considering the importance of the payment system as a critical financial infrastructure for Vietnam, the Bank’s financial sector team is discussing with SBV the options to support this important initiative for improving financial inclusion in Vietnam.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) 30. Overall review: The project remained Highly Relevant at completion as viewed against the current government economic development strategy and Bank assistance strategy. 31. Country priorities: The Government of Vietnam’s 2011-2020 Socio-Economic Development Strategy (SEDS) has set as the overall goal for the country to become a modern, industrialized society by 2020. The ten-year development strategy has highlighted three priority areas for achieving the overall goal, i.e.: (i) promoting human resources/skills development (particularly skills for modern industry and innovation); (ii) improving market institutions; and (iii) infrastructure development. The project (together with the first project) has provided Vietnam in particular its financial institutions a critical financial market institution which is the modern inter-bank payments system. It has also contributed to the operational re-engineering of most of the country’s largest financial institutions. Those results are the basic building blocks for innovation in the banking sector and continuous improvements of financial market institutions. 32. Bank assistance strategy: The Bank Group’s new Country Partnership Strategy (FY12-FY16),13 which supports the government’s thrust of SEDS, is composed of three pillars: (i) strengthening Vietnam's competitiveness in the regional and global economy; (ii) increasing the environmental sustainability of its development; and (iii) broadening access to economic and

12 At implementation completion VBARD was still in the deployment of the disaster recovery system procured under the project and the related cost was to be financed by VBARD. The bank has adopted a three-pillar architecture for system reliability and business continuity and has the backup center enhanced under the project. 13 Presented to the Board on December 15, 2011.

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social opportunity. Underpinning the pillars are two cross-cutting themes: (i) strengthening governance and (ii) improving resilience in the face of external economic and natural hazards and shocks and the impact of climate change. International experience including the lessons from the most recent global financial crisis demonstrate that a sound and stable financial sector is critical to a country’s competitiveness and resilience to external shocks. As part of the critical infrastructure of the country, the expanded IBPS allows the SBV to closely monitor, and if necessary promptly support, market liquidity, in addition to channeling much needed funds to various economic actors in a timely, safe and reliable way. With the centralized operational systems in place that centralize funding, the participating banks are in a better position to provide better services and innovative products (e.g. internet banking) to their customers. The management information modules of the systems are able to provide timely and holistic information which are expected to strengthen risk management at the participating banks.

3.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) 33. Overall review: The Project Development Objectives were achieved with Satisfactory results at project completion when evaluated against the following PDO Outcome Indicators. 34. Indicator #1, Steady increase of number of financial institutions/bank branches connected to IBPS and CBS, and of transaction volume and value processed by the new systems: All the banks are now members of the IBPS. VBARD’s vast branch network of over 2000 business units are operating on the same CBS/BOS platform. While system rollout at the other participating banks was mainly funded on their own, the enhanced/expanded capacity of the systems has contributed to the exponential increases of the transactions processed (see Section F of the Datasheet above for details). The achievement of this indicator is further demonstrated in the following tables. Table 1: IBPS Expansion Year Connectivity Daily Transaction

Volume (No.) Total Transactions per day (VND billion)

2002 (April-December)

20 credit institutions 300-500 transactions processed per day

Transactions processed per day reached VND16–20 billion

2005 49 credit institutions with 220 member units/branches

13,000 transactions processed per day

VND8,000-10,000 billion

2010 94 credit institutions with 881 member units/branches

69,500 transactions processed per day

VND 105,000 billion

June 2011 97 credit institutions with 788 member units/branches14

84,000 transactions processed per day

VND 182,000 billion

14 Member banks consolidated payment transaction at their headquarters level and reduced membership of their branches with IBPS.

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Table 2: CBS Expansion 200215 2005 2010 Number of branches connected with CBS/BOS16 BIDV 1 266 597 MSB 10 18 41 VBARD 44 47 2300 VietinBank 0 70 153 Average total daily transactions processed by loan module (VND billions)

BIDV 135 1,384 3,114 MSB n.a. 15 271 VBARD n.a. n.a. 22,280 Number of active cards holders17 BIDV 1,327 900,000 2,000,000 MSB n.a. n.a. 16,475 VBARD 120,000 300,000 >7,000,000 Daily reporting to management of operational activities and financial position and performance by branch through MIS module (Yes/No)

BIDV Yes Yes Yes MSB Yes Yes Yes VBARD No No Yes 35. Indicator #2, Continuing high level of performance of expanded/upgraded systems in terms of speed, certainty, reliability and convenience: All the project entities confirmed good performance of the systems in the areas highlighted by the indicator. Interbank and intra-bank payments can now be settled in real time as compared to days in the past (speed and certainty). The systems’ reliability has been significantly strengthened with the backup and disaster recovery centers and network security capacity (e.g. automatic tracking of hacks). The systems use the web-based technology interface, which is user-friendly. 36. Indicator #3, Improve frequency and coverage of management information reports of participating banks: This indicator was largely accomplished. The upgraded MIS systems at BIDV and VBARD send overnight financial and operational information to the desk of senior management based on data from the core banking system and the centralized databases. VietinBank completed the implementation of a MIS module before the project closing date, which is expected to provide similar daily information. MSB uses an in-house developed MIS which has benefited from the CBS and the data warehouse. The centralized databases also enable the banks to respond to the SBV’s information requirements in a timely manner. All the MIS modules procured/enhanced under the two projects are IAS compatible. 37. Other indicators: The evidence of PDO achievement can also be found in the direct benefits gained for the SBV and the participating banks. The expanded IBPS has enhanced the SBV’s capacity to better monitor and manage interbank market liquidity, thanks to direct transfer of funds between banks and within a bank across the country, online processes, standardized

15 The base year for BIDV and VBARD was 2003. 16 Including all the branch network units of the bank, e.g., branches, sub-branches, deposit taking outlets, etc. except for VietinBank’s data which only included first level branches. 17 Including all types of cards issued by the banks, e.g., debit, credit and ATM cards.

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procedures, adequate processing capacity and single settlement account (at least for the three SOCBs). The expanded CBS/BOS (with automated operations, unified operational systems, large processing capacity, centralized funds management and customer database, 24/7 call center and one-stop customer services) have improved the banks’ competitiveness and operational efficiency as well as strengthened their capacity for better risk management. The technologies adopted are in line with the international standards in terms of capacity, speed, application software, security and business continuity. The discussions in Section 3.3 and 3.5 provide further evidence of the achievement of the PDOs. Detailed information on the main benefits gained under the project can be found in the implementing agencies project completion reports.

3.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return) 38. Given the nature of the project, no ERR/NPV analysis was carried out to quantify the economic benefits of the project at appraisal. However, qualitative economic analysis was conducted against a group of well-accepted economic benefits from well-functioning payments systems and commercial banking systems. Using the same qualitative method, the following economic benefits were achieved at project completion:

The expanded IBPS and CBS/BOS are an essential element of a modern financial sector infrastructure in Vietnam.

The expanded IBPS improves the effectiveness of monetary policy implementation as it has reduced cash float for most of payments in the banking system to real time or within the day, which in turn greatly improved predictability of cash flows within the economy.

The expanded CBS/BOS are a tool for better risk management at the participating banks as bank management can now plan, monitor and control the status of banking operations at both the branch and head office levels on a daily basis.

The expanded systems make it easier to investigate on suspicious and abnormal funds transfers, as most of the financial transactions (in value) are now captured by the systems.

The expanded IBPS and CBS/BOS contribute to broadening the access to finance, as they: Enable the participating banks to provide to their customers one-stop services,

and new products (e.g. credit and debit cards and internet banking); and Help bank customers to improve financial management of their businesses (e.g.

more efficient processing of payments and receipts, and decreased uses of cash). The expanded systems are an important prerequisite for the economic agents to move

away from the informal sector, hence help to reduce the risks to economic and socio development planning and macroeconomic stability.

39. No standard financial analysis was conducted at appraisal, as cost-accounting was not yet adopted on a widespread basis in Vietnam’s banking sector, and the financial results of IT systems development are difficult to quantify in the short life cycle of the project. 40. At project completion, the project was considered as Efficient given the realized and verifiable benefits achieved. A more elaborated discussion on the methodology used is provided in Annex 3.

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3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Satisfactory 41. This rating is based on the High Relevance of the project and the achievement of the PDOs as discussed in Section 3.1 and Section 3.2.

3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development 42. The project’s contribution to poverty reduction in Vietnam is mainly indirect from the benefits achieved at the macroeconomic, national market and institutional levels. For details please refer to Annex 3. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) 43. Operational policies: Based on the experience gained under the two projects the SBV has issued operational policies for the acquired systems which are in line with the international practices regarding information technology and operational systems in modern banking. 44. Organizational structure: New operational units, noticeably the card and IT centers have been established and some business centers reorganized at several participating banks as a result of system rollout and expansion. The reorganization at the participating banks are more customer-oriented rather than product-centered, with a strong emphasis on developing new products for different target markets, at least partly as a result of the CBS/BOS expansions under the Project. 45. Human capital: Staff trained either through learning by doing processes or by designated training activities had enhanced the project entities’ human capital. It is important that their knowledge and experience are appropriately maintained and utilized. Many staff trained during the project implementation have been promoted to be in charge of next generation expansion of the core banking systems within their banks. The confidence level and capacity of the in-house IT staff have been enhanced in managing the current systems and identifying gaps for future development and upgrading. 46. Behavioral changes: While behavioral changes are difficult to verify, there are early signs of changes in management of the banks triggered by the on-line management tools and timely management information (MIS modules), as well as staff attitude towards technical and business innovations thanks to the tangible benefits gained. (c) Other Unintended Outcomes and Impacts (positive or negative) 47. During PSBM2 preparation the SBV planned to address the capacity problem by adding 11 PPCs throughout the country. By the time the project implementation started, the SBV had decided to focus on the upgrading and expanding the existing national centers and turn the six PPCs into regional centers taking into account the improvement in telecommunication access and the level of regional economic integration in Vietnam. This was in line with the international trend wherein inter-bank payment systems are increasingly centralized for better efficiency,

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enhanced reliability and reduced cost. The success of the transformation of the six provincial processing centers into regional centers under the PSBM2 project set a good example for the gradual centralization of operation and financial control at the SBV. The SBV management has indicated the adoption of a similar but more gradual approach towards the re-organization of the SBV branch network in the context of the design of an overall information system architecture (supported by an ongoing Bank-financed project). The project (together with its predecessor) has also set a good practice example for the design and implementation of similar projects to meet the demand of the fast expanding banking services industry in Vietnam.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) 48. The Bank task team distributed a questionnaire to the ITDB (including the IBPS main and backup centers) and the four participating banks to collect feedback on project design, implementation and lessons learned. All the project entities reported satisfaction with the project design and implementation. Main reported difficulties encountered at different phases of project implementation included unforeseen technical difficulties, inadequate participation of colleagues from the business functions, change of main staff, and the government and Bank procurement procedures. Those issues are similar to the ones raised in the project entities’ own project closure evaluations which are discussed further in Section 7 below. Feedback on lessons learned from the respondents is reflected in Section 6. For details of the project entities’ responses, please refer to Annex 5.

4. Assessment of Risk to Development Outcome Rating: Negligible to Low 49. The technical basis for this rating is discussed in Section 2.5 and Section 3.2. The operation of the systems is sustainable, thanks to: (i) steady system performance; (ii) existence of multi-year maintenance contracts; and (iii) availability of backup and disaster recovery facilities. All the project entities have dedicated staff to monitor and maintain system performance on a real-time and/or daily basis. The financial deepening in the economy is continuing. The increases in the use of the systems and the adequacy of the designed capacity (e.g. only 50% of the designed IBPS capacity is used at present) are an important factor ensuring post-completion business sustainability of the IBPS and CBS systems. All the project entities have secured budget from their institutions for the maintenance of the acquired systems, and all are investing their own funding for continuous system improvements.

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory 50. The Bank responded to the needs for expanding/upgrading the pilot systems developed under the first project. The PSBM2 project was highly relevant to the financial sector development needs in Vietnam and the relevant government strategy. Lessons learned from the

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first project and similar projects elsewhere were incorporated in the project design in terms of the modular technical architecture, the flexible approaches towards specific expansion needs and the institutional arrangements. The scope of the project and each component was based on extensive reviews of the pilot systems and the overall operational environment of the project entities. The costing of the main activities (i.e. several dozens of procurement packages) and the packaging of the goods and services to be procured were based on solid inputs from the implementing agencies. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory 51. The Bank team was technically capable and understood the nature and processes of payments system and banking IT projects. The review of procurement documents not only checked the compliance with the Bank guidelines but also offered solutions to problems. Some of the problems dealt with (e.g. the trade-in of an old server for a new one) were the first under Bank financed projects. The team responded in a timely manner to the major issues causing implementation delays. The efforts resulted in more regular trainings on Bank guidelines for project entities, accelerated payments review processes, revitalization of the VietinBank component and stop-gap financing of the maintenance cost of the IBPS, for example. The M&E indicators were adjusted once it became clear that measurability of those indicators would need to be enhanced. The team used the ISR to report main issues in a candid manner and rated the project according to the progress (or lack of it) in each review period. The Bank management supported the project supervision with higher than average budget allocation, and discussions with the government on the factors under the government control and regarding the actions needed following the INT debarment of a consulting firm under a component. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Please refer to Section 5.1 (a) and (b) for the justifications for this rating.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 52. The government strongly supported the implementing agencies’ request for Bank support of the system expansions. It provided project preparation funding (mainly financed by a Japanese Government PHRD grant) for the review and the costing of the technical needs for system expansions. The government ownership of the project was strong, as reflected in a) the provision of sizeable counterpart funding in cash for the IBPS expansion (15%), b) the firm actions taken to address the major implementation issues such as those related to the serious delays under the VietinBank component and a contractual relationship issue involving a consulting firm debarred by the Bank, and c) the field visits at project completion of a large number of project sites to learn about the experience under the project. The MS rating was mainly due to the factors affecting project implementation described in Section 2.2 (paragraph 21) above, which were subject to government control.

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(b) Implementing Agency or Agencies Performance Rating: Satisfactory 53. At appraisal: The performance of the five implementing agencies at appraisal was Satisfactory. All the project entities in particular ITDB, BIDV and VBARD carried out detailed review of their pilot systems and the business requirements for system expansion. They worked closely with the preparation consultants on the costing of the priority system expansion needs. The results at project completion showed that the original design of the system expansions met the priority needs of the banking market for the IBPS and that of the business development at the participating banks in particular BIDV and VBARD. 54. At project completion: The performance of ITDB, BIDV and VBARD was Satisfactory. The management of those implementing agencies remained strongly committed to the development objectives throughout the life of the project. They maintained experienced project management units and capable technical teams, which fully utilized the knowledge and expertise of the implementation support consultants. The ITDB and VBARD completed the originally planned activities in 18 months before the original project closing date, and used the savings in funding from the competitive procurement processes in the rest of the implementation period to procure additional packages for system maintenance (IBPS) or enhanced disaster recovery capacity (VBARD CBS). VBARD’s experience in system rollout was particularly noticeable. The bank completed the rollout in 14 months in the vast branch network and absorbed the staff redundancy mainly internally. This was achieved through an intensive train-the-trainer program, staff re-training and a strategy to deploy the CBS quickly throughout the bank instead of rolling it out in phases by different levels of branches. Among all the project implementing agencies, VBARD stood out for the full utilization of the project funding (98 percent of the original IDA allocation). BIDV completed all the originally planned activities at project completion. One main difficulty BIDV encountered was the complex relationships between contractors and sub-contractors when integrating the existing backup capacity and adding an internet banking module to the system. The bank skillfully addressed the problems and in the last 12 months of project implementation made up for the time lost. The cash funding BIDV and VBARD invested under the project were 13 percent and 27 percent of the total cost, respectively. The cancelled funding under SBV, BIDV and VBARD components (US$5 million) were mainly savings from the competitive procurement processes.

55. The performance of MSB at project completion was Moderately Satisfactory. The MSB component suffered long delays in the first two years of project implementation. A major difficulty MSB encountered was in the enhancement of the business applications acquired under the first project. At the time of system procurement under the first project, MSB went for a limited version of the vendor’s CBS/BOS system at a low price. However, MSB’s operation expanded rapidly in the two years after the installation of the pilot system. Enhancement of the applications to meet MSB’s more recent business needs would cost much more than the available project funding and entailed long negotiations with the original system supplier. With the long delays in project implementation, the bank appointed new project management and decided to focus the efforts in adding an eBanking module, building the system’s backup capacity and expanding the hardware capacity. Those actions (supported by the PMU and the Bank) ensured the completion of the MSB component by the project closing date. However, the developmental impact would be greater if the business applications were enhanced under the project. MSB provided over 12 percent of the component cost as the counterpart funding in cash. The canceled amount of IDA allocation (US$323,000) was initially to finance POS product development which was no longer MSB’s priority after the eBanking/card switch module became operational in July

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2009. MSB’s performance in 2008–2011 was Satisfactory. The Moderately Satisfactory rating takes into account the earlier delays in project implementation and MSB’s performance in the last three years up to the project closing date. 56. The performance of VietinBank was Moderately Satisfactory at project completion. The component implementation as measured by the procurement and implementation of the original system packages was delayed for three years until late 2008. At appraisal, VietinBank decided to finance the consulting services for implementation support on its own, and could not engage the consultants until late 2007 (for the hardware packages) and early 2008 (for the software packages). The bank completed the system rollout on its own, but after that took a long while to determine which priority business needs were to be supported by the project. At the Mid-Term Review, the SBV and the Bank team decided to cancel this component if no major improvement was made in project management and implementation. Meanwhile, the bank management was planning human resource changes to better support the bank’s development strategy. Against this background Vietinbank replaced project management and readjusted the procurement plan. The new procurement plan focused on the development of MIS/Reporting and Internal resources management/core banking/ERP, in addition to additions of hardware for the CBS/BOS system (e.g. for network security and uninterrupted power supply). The identified priorities were in line with the PDO, and were completed at project completion. The canceled amount of IDA allocation to this component (US$1.6 million) was originally for a bond management module, but the bank did not have enough time to implement the activity before the project closing date. VietinBank’s performance in 2009–2011 was Satisfactory. The Moderately Satisfactory rating takes into account the earlier delays in project implementation and VietinBank’s performance in the last two years up to the project closing date. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 57. This rating has taken into consideration: (i) the overall satisfactory performance of the government and the implementing agencies at appraisal, (ii) the strong government ownership of the project, (iii) the firm actions the government took to address a few major implementation obstacles, (iv) the satisfactory performance of the three out of the five implementing agencies which accounted for 78 percent of the project cost, and (v) the commendable results achieved by the other implementing agencies despite earlier delays in project implementation.

6. Lessons Learned (both project-specific and of wide general application) Many lessons are learned from the relatively successful experience of PSBM2, which are summarized below. 58. Flexibility in overall solution design and project implementation: An important lesson learned is flexibility in designing the overall system architecture and implementation sequencing for IT-based/IT-driven projects in the banking and probably other sectors of an emerging market economy that is experiencing fast changing the industry and technology. Often, the desire to leapfrog from a primitive to a sophisticated banking environment in one step leads to adoption of the “copy the developed world” approach in designing and implementing technical solutions. Such practices can cause indecisiveness and low levels of confidence when adopting a system architecture that is not appropriately understood and owned by the implementing units. With support from Bank staff, the SBV management and the implementing agencies carefully assessed

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the conditions required for success and adopted a practical, phased approach based on flexible and evolutionary incremental solutions, in both the payments and core banking environments. Flexibility is also needed during project implementation so that timely readjustments can be made to ensure the achievement of a project’s objectives within a reasonable timeframe. One example of this approach in PSBM2 implementation was the modifications made under the MSB and VietinBank components when it became clear that the two banks could not complete all the originally designed activities within the reasonable life time of the PSBM2 project. 59. Implementation planning: A flexible overall design alone cannot guarantee the success. Detailed technical analysis is needed to develop an implementable project implementation plan. In IT-based projects, the most important implementation planning is the packaging of IT systems for procurement and the sequencing of their acquisition and implementation. There is no “golden rule” for IT packaging, but it should be in line with the overall solution. Systems should not be packaged in a way for which vendors are not available. Once systems packaging is finalized it should be followed through unless there are strong technical or commercial reasons to revise it. Some IT-based projects suffer from repeated repackaging or re-opening of bids. Failed bids could be caused by inadequate technical specifications or a lack of clear functional requirements. Sometimes the estimated system implementation/integration efforts presented in bidding documents are way below the market practice. Frequent system re-packaging or bid re-opening is a sign of weaknesses in the design of overall system architecture and implementation sequencing, or a lack of technical/commercial competency. The PSBM2 project benefited from solid procurement planning at appraisal. Once the system packaging and the procurement methods were determined, the five implementing agencies followed them through. The changes under the MSB and VietinBank components were the narrowing of the component scope rather than re-packaging of systems. No changes were made in the overall architecture or the basic functionalities of those banks’ COB/BOSs as those systems tend to be vertically integrated and a cancellation of any basic part would impair the integrity of the system. There was no bid re-opening under the Project. 60. Change management: Reengineering of main operational systems in an institution often leads to major institutional changes. In a banking environment where users are accustomed to cash transactions, dispersed information flows and manual operational tools, and where management and staff have limited exposure of international practices, it was critical to show early success and benefits. The implementing agencies achieved this by a) ensuring the technical designs were sound and adequate so that right systems could be acquired; and b) once the systems were procured providing adequate resources to ensure the systems were deployed without delay. The implementing agencies also attached high importance to train staff who were to deploy the systems and the system users through intensive training provided by the consultants and system suppliers, as well as learning-by-doing processes. Those change management measures helped build confidence in the new systems and maintain the momentum of project implementation. The management of the participating banks also realized early on that they would need to readjust the organizational structure to support the new flowcharts of operational processes and new products, and made the necessary organizational changes. 61. Stepwise approach: In a banking environment described above, a general “follow-the-international-best-practice” approach often fails to achieve the desired outcomes. In the case of IBPS development, a carefully designed stepwise approach focused initially on a limited six-province geographical area, with complete payments transaction functionality but limited security and business continuity (such as disaster recovery) arrangements. The pilot system operated in parallel with SBV’s electronic funds transfer system that processed both inter-province and intra-

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province payments at the time. It should be noted that the pilot system was a complete rather than partial solution; hence sowed the seed for the success of system expansion and upgrading.18 62. Project ownership: This is a recurrent lesson almost in all the Bank-financed projects. The strong ownership of PSBM2 by the government and the implementing agencies could not be maintained without the positive experience discussed above, and the commitment of the government and the implementing agencies to the overall project objectives in particular when project implementation suffered long delays. 63. Bank procurement review: The adoption of the flexible and stepwise approach could lead to a procurement challenge since single sourcing and reference to the pilot systems may have to be used for the procurement of system expansion needs in the second phase. The Bank’s procurement management (including the OPRC committee) worked closely with the task team and adopted a flexible approach towards those issues, which contributed to the quality of procured IT systems and their performance. The task team did not only check whether the processes followed the Bank guidelines, but also endeavored to ensure the adequacy and clarity of the procurement documents from a technical perspective. In other words, the Bank team was driven to help the counterparts to find practical solutions that were also in line with the Bank guidelines rather than simply saying No or pointing to the series numbers of the guidelines. Within the task team, there were close collaboration and timely communication between the task team leader, the technical advisor in charge of quality assurance and the procurement specialist for reviewing the complex IT procurement packages. 64. Staff capability: Technical competency of implementing agencies (supported by competent consultants if needed) and of Bank task team is critical. For projects that are considered technically complex or expected to trigger significant institutional changes, the implementing agencies should train and maintain a team of core staff for both project management and implementation. Those staff should also act as trainers when the implementation activities are extended throughout an institution. On the Bank side, the appraisal and supervision of those projects call for a task team with extended operational experience and solid technical expertise. 65. Resources mobilization: For projects with the technical complexity and implementation scale such as PSBM2, the management of implementing agencies must commit to mobilize adequate human resource for system deployment. In the case of VBARD component, about 500 staff were mobilized at the peak of the system rollout. Staff mobilized for system deployment at the other three participating banks were in the hundreds. Actual spending of counterpart funding increased more than one and half times than that at appraisal. On the Bank side, the slightly above-average budget allocation contributed to the task team’s intensive supervision of PSBM2, but the team also put in many unfunded staff-time. 66. Disbursement curve: IT-based projects tend to be rear-loaded for disbursement. In general, there is a mismatch between the standard or desired time for preparing (World Bank-financed) IT projects, and the time needed to design and adopt internationally compatible but locally adapted technical solutions. As a result the actual technical designs take place after a project is approved and it is not uncommon to have a low disbursement rate for a year or two

18 Currently the IBPS processes over 85% of total payments, with the rest mainly payments by the State Treasury. The intra-provincial electronic payments system is expected to be completely turned off once the State Treasury system is deployed nationwide.

20

until systems are procured and/or accepted under those projects. Future IT heavy projects in Vietnam should take this lesson into account when making disbursement projections.19 67. There are also a number of important lessons learned for IT systems implementation which are provided in the implementing agencies project completion reports (see Annex 7 for a summary of the reports).

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Both the SBV management and the five implementing agencies expressed satisfaction with the project design and implementation. On behalf of the government, the SBV also indicated an agreement with the analysis and ratings of the ICR. The project entities own project conclusion evaluations reported significant benefits gained. One main issue raised is about the duration for system implementations within the lifecycle of PSBM2. Several participating banks commented that the duration for system implementation was too short as compared to the technical complexity of the systems. This problem could be attributed to a certain extent to the long period spent before international consultants were engaged at the beginning of project implementation. Execution of legal documents and credit effectiveness for PSBM2 took 22 months, leaving only a little more than three years for on-the-ground implementation before the original project closing date. Some implementing agencies (e.g. ITDB and VBARD) started to work on system expansion designs before the project became effective. Others waited more until international consultants were engaged partly because of the technical complexity of their system expansions. Under one component, it took the implementing agency more than 12 months to complete the consultant engagements process after credit effectiveness. Those delays together with the long procurement processes left much shorter time for the implementation of acquired systems. However, when technical preparedness was higher, such as under the SBV and VBARD components, system implementations were completed before the original project closing date. Early start of the initial steps of procurement and consultant selections before the legal agreement was signed or the project became effective could have saved time for system implementation. This is permitted as “advance procurement” under Bank guidelines. This capacity constraint will be resolved over time when in-house capacity is up to the international level and the domestic market can provide similar services. It should be noted that all the project entities reported gains in this regard under PSBM2. Another main issue raised is the long review process of procurement. Some participating banks pointed out that the number of steps and the time spent to obtain clearance of procurement documents were significantly higher compared to the review process for projects financed by the banks’ own funding. Section 2.2 above has discussed a main factor causing the long review and clearance process (i.e. the practice to follow both the government and the Bank procedures under Bank financed projects). Lack of experience in international commercial contracting was another factor. Under PSBM2, procurement documents often underwent more than two rounds of revisions mainly because changes were introduced to the standard wording of the Bank's Standard Bidding Documents (SBDs) for Information Systems, although Bank guidelines only allow minimum changes in the Bid Data Sheet or special conditions of contract. The Bank’s standard conditions of contract in the SBDs provide a balanced allocation of risks and liabilities between

19 For example, the disbursement curve of a similar IT project can be flat in the first two years of project implementation, start to rise in the next 18 to 24 months and become quite steep in the last period of project implementation.

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the Purchaser and the Supplier. Due to a lack of experience in international commercial contracting in particular when compared to their negotiation counterparts, implementation agencies may agree to changes without recognizing that they would allocate all risks and liabilities to the Purchaser. With the accelerated opening up of Vietnam’s economy, there must be increased experience in international commercial contracting. A mechanism (or mechanisms) at the national level should be considered to better utilize the experience of implementing agencies of different projects to develop local capacity. In the short to medium run, the Bank may provide systematic training on the international practices in commercial contracting, the considerations behind the standard wording of the Bank’s SBDs, and the requirements of the SBDs. Improvement of internal review procedures at the project level may also help. Under PSBM2, all procurement documents of the participating banks were subjected to SBV Governor’s clearance even after the banks’ board approved the packages. By this procedure the SBV had the information of what was going on under each component, and could intervene when they saw technical and/or compliance problems in the documents. However, the procedure also concentrated the risk on the SBV. Making an implementing agency’s top management accountable for procurement decisions would streamline the review process for projects with multiple implementing agencies that are separate legal entities. Unforeseen technical difficulties and inadequate functional staff participation were two other main issues identified through the Bank team’s survey. Unforeseen technical difficulties are almost unavoidable in IT-based projects in particular if newer systems have to be integrated into older systems or different system suppliers and sub-contractors are involved. Under some PSBM2 components, procurement milestone dates or contract implementation schedule tended to be too optimistic and did not factor in the unforeseen technical difficulties. Functional or business staff participation is critical in the specifications of user needs and functional requirements and system implementation. VBARD’s “train-the-trainer” program and the intra-web-based communication were good practices in mobilizing functional staff. The implementing agencies that identified those problems during system implementation also reported the resolution of them. (b) Cofinanciers N.A. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) N.A.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate

(USD million)

Actual/Latest Estimate (USD

million)20

Percentage of Appraisal

Total Baseline Cost 106.89 98.12 92 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 5.14 12.6621 246 Total Project Costs 112.00 110.78 104 Total Financing Required 112.00 110.78 99 (b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(USD million)

Actual/Latest Estimate

(USD million)

Percentage of Appraisal

Borrower 7.99 18.01 225 International Development Association (IDA)

105.00 92.77 88

20 The SDR/USD rate used was the one used for the DCA, which was 1SDR=1.54899USD, which was recorded in the Minutes of Negotiations 21 This figure also includes physical contingencies financed by counterpart funding (as compared to baseline).

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Annex 2. Outputs by Component The outputs22 delivered are provided in the following table:

Component Output Delivery Date23

Component 1: IBPS Expansion

ITDB Systems procurement and installation

Procurement and Installation of NPSC and Backup NPSC Hardware

January 2009

Procurement and Installation of Hardware for Regional Processing Centers

January 2009

Procurement and Installation of Network and Supporting Center

January 2009

Procurement and Installation of Network Security January 2009 Procurement and Installation of Oracle Database January 2009 Procurement and installation of Application Software and Tuxedo

January 2009

System Integrity July 2009 Systems maintenance (for 1st year) June 2011 Training activities June 2011

Procurement and delivery of consulting services for implementation support

July 2008

Component 2: CBS Expansion

BIDV Systems procurement and installation

Procurement and installation of Security systems February 2010 Procurement and upgrading of IBM servers for Backup Center July 2009 Procurement and installation of Disaster Recovery IT Systems November 2008 Procurement and installation of Internet Banking and Mobile Banking

June 2011

Procurement and installation of Centralized printing and automated packaging mail

June 2011

Training activities June 15, 2011

Procurement and delivery of consulting services for implementation support

June 2010

22 Those funded by the IDA credit. 23 Final acceptance date

24

MSB Systems procurement and installation

Procurement and installation of eBanking system May 2011

Procurement and installation of ATM/POS/NCC

ATM contract: December2009 POS/NCC contract: Deployed but Not yet accepted

Procurement and installation of Hardware for DC and DRC Aug 2010 Procurement and installation of Network and Security System May 2010 Procurement and delivery of consulting services for implementation support

June 2010

VBARD Systems procurement and installation

Procurement and Implementation of Application Software November 2010 Procurement and Implementation of Hardware System May 2009

Procurement of Hardware Equipment for DR Site System deployment ongoing on the bank’s own funding.

Procurement and delivery of consulting services for implementation support

April 2010

VietinBank Systems procurement and installation

Procurement and installation of Branch Servers October 2010 Procurement and installation of Network Security System September2010 Procurement and installation of Uninterrupted Power Supply (UPS)

March 2011

Procurement and installation of MIS/Reporting, Internal Financial Management, Human Resources Management and Payroll, Financial Management

June 2011

Component 3: Implementation support

PMU PMU office equipment October 2007

Project audits (6 years) Annually and the last one by December 6, 2011

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Annex 3. Economic and Financial Analysis (including assumptions in the analysis)

1. Given the nature of the project, no ERR/NPV analysis was carried out to quantify the economic benefits of the project. However, qualitative economic analysis was conducted against the following well-accepted economic benefits from well-functioning payments systems and commercial banking systems:

Be an important building block of a modern financial sector infrastructure. Pave the way for the transition from an informal to a largely formal economy. Improve monetary policy implementation. Facilitate the fight against money laundering and criminal activity. Contribute to financial inclusion and access to finance. Enhance operational effectiveness and risk management of system operators.

2. Using the same qualitative method, the following economic benefits were achieved at project completion:

The expanded IBPS and CBS/BOS are an essential element of a modern financial sector infrastructure in Vietnam.

The expanded IBPS improves the effectiveness of monetary policy implementation as it has reduced cash float for most of payments in the banking system to real time or within the day, which in turn greatly improved predictability of cash flows within the economy.

The expanded CBS/BOS are a tool for better risk management at the participating banks as bank management can now plan, monitor and control the status of banking operations at both the branch and head office levels on a daily basis.

The expanded systems make it easier to investigate on suspicious and abnormal funds transfers, as most of the financial transactions (in value) are now captured by the systems.

The expanded IBPS and CBS/BOS contribute to broadening the access to finance, as they: - Enable the participating banks to provide to their customers one-stop services,

and new products (e.g. credit and debit cards and internet banking); and - Help bank customers to improve financial management of their businesses (e.g.

more efficient processing of payments and receipts, and decreased uses of cash). The expanded systems are an important prerequisite for the economic agents to move

away from the informal sector, hence help to reduce the risks to economic and socio development planning and macroeconomic stability.

3. No standard financial analysis was conducted at appraisal, as cost-accounting was not yet adopted on a widespread basis in Vietnam’s banking sector, and the results of IT systems development are difficult to quantify in the short life cycle of the project.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending

Miguel Navaro-Martin Senior Finance Officer EASFP Task Team Leader (Identification -Preparation)

Thomas Rose Advisor EASFP Team member (Identification - Preparation)

James Seward Financial Sector Specialist EASFP Team member (Identification - Preparation)

Arthur D. Little Spain Consultant EASFP Team member – Technical review (Identification – Preparation)

Analistas Financiero Consultant EASFP Team member – Technical review (Identification – Preparation)

Atos Origin SAE Consultant EASFP

Team member – Technical review & design (Identification – Preparation)

Daniel De La Morena Consultant EASFP Team member – Technical review (Identification – Preparation)

Renato Polo Consultant EASFP Team member – Technical review (Identification – Preparation)

Lachlan Fleming Consultant EASFP

Team member Technical review & design (Identification - Preparation)

Xiaofeng Hua Financial Analyst EASFP Task Team Leader (Appraisal-Board)

Robert Keppler Senior Advisor OPD

Team member - Technical quality assurance (Identification – Appraisal)

Thang Long Ton Economist EASPR Team member (Identification – Board)

Thong Quang Tran Financial Management Specialist

EAPCO Financial management review

Thang Chien Nguyen Senior Procurement Specialist

EAPPR Procurement review

Hoi-Chan Nguyen Senior Counsel LEGEA Legal documents

Ngan Thuy Nguyen Program Assistant EACVF Team member - Logistics support

Laura Mitchell Team Assistant EASFP Team member - Logistics support

27

Supervision/ICR

Xiaofeng Hua Senior Financial Sector Specialist

EASFP Task Team Leader (up to Jul. 2010)

Nancy Chen Senior Financial Sector Specialist

EASFP Task Team Leader (Up to Oct. 2011)

Wei Zhang Financial Sector Specialist EASFP Team member (Aug. 2010 – Oct. 2011) &ICR team leader

Viet Quoc Treu Financial Sector Specialist EASFP Team member

Robert Keppler Consultant ECSPF Team member - Technical quality assurance

Pedro de Cabo Consultant EASFP Team member – Technical review

Sylvester Kofi Awanyo Lead Procurement Specialist

EAPPR Procurement review

Cung Van Pham Senior Financial Management Specialist

EAPFM Financial management review

Thang Chien Nguyen Senior Procurement Specialist

EAPPR Procurement review

Thong Quang Tran Financial Management Specialist

EAPCO Financial management review

Hoai Van Nguyen Procurement Specialist EAPPR Procurement Review

Michael Z. Figueroa Information Assistant EASFP Team member - Logistics support

Ngan Thuy Nguyen Program Assistant EACVF Team member - Logistics support

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(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel

and consultant costs)24 Lending

FY04 22 173.94* FY05 34 169.32

Total: 56 343.26 Supervision/ICR

FY05 2 2.91 FY06 15 79.41 FY07 21 79.87 FY08 19 97.88 FY09 14 68.65 FY10 12 64.67 FY11 16 90.51 FY1225 7 44.23

Total: 106 528.13 *Note: In addition to staff time financed by Bank Budget, consultant team member costs financed by bilateral Consultant Trust Funds (CTF) were significant in FY04 (US$250,790).

24 FY04-FY06 data included Sector Manager’s charges and those for FY05, FY08 and FY10 included some small mischarges for miscellaneous expenses. 25 As of December 6, 2011

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Annex 5. Beneficiary Survey Results (if any)

In August-September, 2011, the Bank task team carried out a small-scale, self-administered survey of project entities, using a questionnaire the team developed following the ICR guidelines. The following table summarizes the respondents’ feedback that is shared by more than two project entities. The summary also includes additional comments received during the Bank team’s ICR mission in September 2011.

SBV-ITDB

RPC-OC

RPC-CanTho

RPC-Danang

RPC-Haiphang

RPC-Hanoi

RPC-HCM City

BIDV MSB VBARD Vietin-Bank

Overview: Project design S S S S S S S S S S S

Project implementation S S S S S S S S S S S

Difficulties encountered and addressed during implementation:

Unforeseen technical difficulty

X X X X

New-Existing systems’ integration

X X

Change of main Staff X X X

Change of project scope X X

Short implementation duration

X X

Government procurement procedures

X X

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SBV-ITDB

RPC-OC

RPC-CanTho

RPC-Danang

RPC-Haiphang

RPC-Hanoi

RPC-HCM City

BIDV MSB VBARD Vietin-Bank

Bank procurement procedures

X X X

Next phase Next 5-year strategy completed

X X X X X X X X X

Strategy under preparation

X X

Further system enhancement underway

X X X X X

Some of the respondents have also provided good feedback on lessons learned, which is summarized below:

Staff understanding of project objectives is critical.

Project design should focus on solutions commercial banks are missing.

Management need to pay adequate attention and provide sufficient personnel to system development projects.

Implementation plan should be clear and feasible with specific objectives and detailed tasks.

Once the schedule is agreed-upon, all efforts should be made to follow the schedule.

There should be contingency plans for implementation schedule and funding

System suppliers should include in their teams business and quality assurance consultants.

Implementation consultants’ experience and skills are critical.

Staff designated to project implementation should have experience to foresee problems.

Those staff should proactively seek and participate in relevant training activities.

Business line staff should actively participate in system design and deployment.

Attention should be paid to continuous training of technical and business staff.

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Annex 6. Stakeholder Workshop Report and Results (if any)

N.A.

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR The SBV, on behalf of the government, conducted extensive reviews of the project after project completion, which resulted in a consultant report, and the SBV’s summary overall evaluation report. The participating banks also carried out their own reviews and the findings were reflected in their project implementation reports (PIR). Below are excerpts of those reports. 26

Section 1: Government’s Overall Evaluation Original objectives: In addition to the PDOs and the PDO outcome indicators in the World Bank’s Project Appraisal Document, the following similar project objectives were used internally:

increase the credibility and confidence of the banking system by providing quick services;

improve technical and managerial capacity of staff management and business systems, facilitate access to, and use of advanced technology;

raise awareness of communities of the availability of a modern banking system; and enhance the role of management efficiency and control of activities of the banking

sector and that of the SBV in terms of establishment, administration and implementation of monetary policy through management and monitoring of financial intermediaries.”

Achievement of objectives: “Objectives of the project are satisfactory.” [And,] “The most successful component of the project was the Inter-Bank Payment System subproject implemented by State Bank of Vietnam. In the course of the implementation of the IBPS, both interbank and intra-bank transactions benefited from the payment system solution. At present, most of the interbank transactions are conducted through IBPS as large banks were able to adopt a single settlement account after completing the rollout of their core banking systems. This enabled the banks to centralize intra-bank liquidity and manage funds flow in an effective manner.” Knowledge transfers: “Staff training is a most important factor that has directly impacts on project success. The bidders were required to train staffs of both SBV and CBs. In general, training provided by bidders was remarkable in order to guarantee intra and inter-bank payment system to be successfully operated and maintained.” Lessons learned: The government evaluation highlighted the following lessons learned:

“The establishment and existence of a competent PMU at SBV and PIUs at PBs was a key factor in project success and similar arrangements were retained for PSBM 2.

Close supervision by the Bank’s task team after overcoming the early delays by reassigning the primary entity responsible for the whole project implementation ensured that the project’s implementation stayed on track [under the first project]. Ongoing dialogue and coordination were maintained between the Bank and the SBV-PMU during all procurement and implementation stages.

Clear guidance is required to help project implementing entities to define different stages of completion within the project, especially with respect to the definition of acceptance of vendor deliverables.

26 With corrections of glaring spelling and grammar errors.

33

Clearer SBV/MOF payment processing procedures and guidelines are needed for timely payments by the project implementing entities for goods and service suppliers per contract terms.”

Section 2: Implementing Agencies’ PIRs OBJECTIVES, BENEFITS AND IMPACT ITDB (IBPS Component): Achievement of original objectives: “By the time of reporting, the system has been implemented and is effectively operated in 63 provinces, meeting the objectives set out as follows

Ensuring safe, stable, smooth and very effective operation of security system network in ensuring the safety of IBPS.

Forecasting the incidents, potential vulnerabilities of security systems in particular and the IBPS in general, to minimize the risks for the system.

Synchronizing the system to ensure being compliant with the standards of a modern system.

Ensuring information technology security to improve availability of the system. Ensuring information technology Infrastructure invested is scientific and scalable

meeting the practical requirements of the reality. Integrating application of digital signature applications to ensure safety. Improving processing power, expanding scope, and enhancing technical features for

the current IBPS. Improving communications network to ensure system scalability to meet the required

increasing number of processing payment transactions, connecting to the RPCs and the potential growth in the next 5 years.

Improving the quality, stability, availability of services in the system. Ensuring that payment systems and back-up payment systems meet requirements set

out. The safety and reliability of the system is enhanced through disaster recovery capabilities, reinforcing network security.

Training and improving the competitiveness of the users in managing and operating the system efficiently.”

Benefits: Below are the specific benefits the SBV report cited:

“Transactions occur faster, processing duration in the phase II is faster than that of phase I (in terms of average processing time per deal, end-of-day collaborative processing time).

Scope: The scope has been expanded in the whole nation. Number of members: the scope of credit institutions (CI) which directly participate in

the system has expanded. Quantity of transactions processed in the IBPS and their amount have increased many

times.” Impact: “The operation of IBPS has satisfied great demands of payment services supply agents and customers on quickness, safety and confidence, speed up commercial banks’ (CBs) capital circulation and increasing of capital flows of entire society; payment service fee is unchanged. The success of implementation and launching of the system is a positive contribution to the industrialization and modernization of the country, promoting the integration of Vietnam’s banks in particular and the economy in general to the region and the world.”

34

Lessons learned: The ITDB reported similar lessons as those learned under the first project. Below are the highlights:

“The provision of adequate time and resources are important to ensure that the required fundamental changes in attitudes and behaviors at all levels are matched properly with the time required for procurement and implementation of new facilities.

The long delays in procurement and implementation of IBPS as well as CBS indicate that there have been serious gaps, attitudes, commitment and behavior on the part of the operators and implementers.”

BIDV (CBS Component): Achievement of original objectives: The bank reported that the following objectives were achieved: “Engineering goals.

Boost modern information technology to support business operations and improve the efficiency of bank management (equipped with IT disaster prevention, centralized printing system, the system IBMB)

Ensure the banking system open and safe to participate in the economy globally competitive market (IBMB systems, security systems, redundant)

There are solutions to security systems, limited to the minimum threats and attacks on systems and networks from internal and external (security systems, backup systems)

Business objectives

Diversification of product portfolio and services deployed Internet banking and Mobile banking has created new products and new trading channel, modern customers, contributing to diversify product portfolio of BIDV.

Empowerment and competitiveness of BIDV. Contributing to market expansion, market share in each market area. Ensure data security and the Bank’s customers, ensuring operational continuity and

support the implementation of the business objectives of the Bank.”

Benefits: BIDV reported the following qualitative benefits of the Project: For customers:

Better meet customer needs by diversifying products and services; Convenience in transactions; Improved reliability and safety; To enhance the information provided to customers to enhance service value through

automated printing system and concentrate packaging directory For Bank:

To enhance information security; To ensure continuous operation capability, better meet the business needs and

requirements of bank management. Increase the competitiveness of the bank. Improved customer service, enhanced reputation and brand of the bank on the

domestic market and internationally”

35

Quantitative benefits reported are as follows: “Shorten the time the transaction, the time for searching and finding information of

customers using internet banking and mobile banking channels instead of customer transactions through traditional channels.

The system of banking reserves stored once again ensure the safety and availability. Increasing the level of information safety of bank customers by BIDV has been

retrofitted with security systems and backup systems. Reduce losses to the bank when the system crash.

Impact: The impact of the project is seen as the following:

“BIDV can offer products and services varied, more attractive. Quality customer service has been enhanced significantly. Thus confidence of customers in particular and BIDV banking system generally increased significantly, contributing to stabilizing financial markets and monetary and create public confidence in the Bank’s policy banks State Bank of Vietnam.

With the tools of modern payment of non-cash, the Vietnamese public will have the opportunity to fundamentally change the habit of using cash and higher is changed billing practices, reducing considerably amount of cash circulating in the market.

Vietnamese public service will be entitled to the same degree banking in the region made them more confident in the reform process to integrate with the region and the world.

Lessons learned: BIDV reported the following lessons learned:

The “first lesson to ensure the successful deployment of attention is the close direction of the leadership. With the attention of the [Steering] Committee the leadership was encouraged to work mentally as well as creating conditions for facilities, personnel, policies and mechanisms to support the deployment process, ensure success project.

Need to prepare the conditions related to the project. In addition to coordinating the reception and implementation of the project from the contractor the purchaser [need] to prepare a lot of content to ensure the effective promotion of the exploitation of the system such as: preparation of organizational structures to govern operating system in a continuous [and] timely [way], issuing documents relating to the mode of operation, system operators, [and] building promotions for products brought by the system.

The procurement plan should have provided appropriate time to ensure enough time to handle technical and professional issues arising in complex deployment process. To avoid the deployment of many large packages with sophisticated techniques in parallel to ensure sufficient human resources necessary in the implementation process.”

MSB (CBS Component): Benefits: MSB reported the following qualitative benefits from the project:

“For customer Customers can use many new services from Maritime Bank: Ebanking, ATM card,

payment account products, saving accounts, loan products, trading finance products, domestic money transferring and international payment.

Transaction process is improved, transaction time is shortened, and quality of services is strengthened.

36

For bank Expand system of network and transaction points. Improve technological infrastructure and information system to ensure processing

capacity and provision ability for disaster. Strengthen security ability of technological system and transaction implementation

process. Quantitative benefits reported are as follows:

Have its own ATM card issuance system that is outsourced for Vietcombank before. Have its own ATM machine system, contribute to ATM network of the nation

through Smartlink card switching alliance. Have private POS system of the bank to promote non-cash payment method. Upgrade Core Banking server to ensure for large transactions arising in

corresponding to additional services and network expand. Build up and equip provision data center and server system, network, security

devices to strengthen the going concern of Bank.

Impact: MSB saw the following impact of the project: The bank has a preferential capital for equipping, upgrading and modernizing the

technical system to serve transactions and payments. Official and semi-official staffs participated in the project will be educated, trained

for managing project and jobs in the fields of professional technology, advanced transaction of Bank.

Bank services are diversified and the quality is significantly improved. Increase image of Maritime Bank in awareness of customers, partners and

management agencies. Contribute to the considerable development of the network, business performance of

Maritime Bank for the period from 2005 up to now. Lessons learned: MSB identified the following lessons learned under the project:

“Must understand clearly about procedures and guidance of World Bank in using, managing preferential loans of project.

Need to carefully prepare the work contents in biding documents and contracts to avoid problems arising which may affect package’s objectives, project’s quality or progress.

Pay attention to complete project documents early and match requirements in order to quickly disbursement and advance.”

VBARD (CBS Component): Achievement of original objectives: The bank highlighted the following achievements:

“Previously Agribank simultaneously use many different systems: IPCAS system, Retail Banking System, Direct Trading System, out-of-province electronic money transfer system, in-the-province electronic money transfer system, internal SWIFT system, report information system. On 04 December 2008, Agribank completed the implementation the IPCAS program for the entire system of Agribank, officially ended the existence of separate systems of Agribank, agreed a unified application program of Payment and Customer Accounting, opened a new era, the era of the IPCAS program.

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For the first time in the history, Agribank officially centralized the entire system, all data are online and there is no difference between the Head office and a transaction center in highland areas. This has opened a new managing method of Agribank’s managers, which is online management. During the preparation of last finalization, Agribank’s managers had a very timely guidance based on data from the IPCAS system.

Agribank officially provided consistent services to customers over the entire system, regardless of administrative boundaries, type of branches.

Change the transaction process: The entire system of Agribank unified to use the one-door transaction process to serve customers.

Best payment system: With the advantage of over 2,200 online transactions, Agribank had a payment system with the widest and fastest network. Agribank had an absolute advantage in the competition, especially for customers being Corporations which have a network of affiliates spreading in the provinces. Right after completing the deployment, Viettel Telecom Corporation had officially signed a contract to use payment services of Agribank. A series of big customers such as Electricity, Customs...is promoting the co-operation with Agribank.

Implement card system of Agribank including connected Vietnam Banknet; issue and accept debit cards and Visa, Master credit cards.

Expand and implement deposits systems which enable withdrawing anywhere in the system, allow many branches to expand services to connect with customers. Branch at 24 Lang Ha successful deployed the telephone payment with Viettel Corporation.

Along with the development of the traditional services of the Bank, so far, it has completed the deployment of new services such as SMS banking (notice of change in account, account transfer, deposit, pre-paid telephone fee VnTopUp, credit information, etc.), and connection program of SWIFT payment network. Agribank completed the development of connection programs of bilateral payments (BP), connected to the securities companies, cash flow management system (CMS) for corporate customers and the inter-bank payment system (IBPS).”

Benefits: The following qualitative benefits are reported: For customers: Attract customers with a modern payment system, the transactions are done fast, simply and conveniently. Bring the necessary products and services for customers such as ATM, SMS.

Meet the demand through a wide range of products and services provided by banks. Save time, reduce troubles in the transactions by improved service method of the

bank such as: one-door transactions, deposits in many places, withdrawing at many places ... and reduction of service costs.

Access to and use of modern banking services through multiple distribution channels such as ATM card, credit card, debit card, SMS, Internet.

Give to customers the satisfaction based on the banking services with good quality, short, safe and secured transaction time. The distance between banks and customers about space, time and scope was almost eliminated. Whether customers use any channel at any time or any transaction center of the bank will feel the quality and transparency of services.

For the Bank: The staff is trained more professionally, therefore takes less transaction time with customers than the old system. Means of information exchange ensure that information is quick,

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timely and accurate; data transfer is at large capacity, efficient and cost savings. (Several internal management applications) help the bank save both cost and time.

The completion of deployment IPCAS System Phase 2 completely changed the business operation, transaction processing, and data processing from manual to machine, change the mindset to do, change the way to manage of the whole system. Implement the automation in many stages, reduce management costs, improve performance, transaction speed and increase profitability, create the ability to rearrange labor, help the internal management of the bank become more efficient, better risk management.

The success of the project had strategic importance, changed competitiveness of Agribank compared to other banks; help Agribank become one of the banks with IT system which is the largest in size, processing speed, total volume transaction processing on average, level of completeness, the complexity and extent of most modern of technology all over the country. Agribank has achieved one important objective is to unify the entire system of software programs and technological processes. National data are centralized processed, online managed; the transaction process is consistent all over the country to create a breakthrough in exploiting products and services in both quantity and quality, (such as) e-banking products.

IT system of Agribank has also achieved remarkable progress in terms of advanced technology system, modern facilities, and especially the officials have gained much knowledge, valuable experience, matured a lot during the project, and completely mastered the technology.”

VBARD also reported many quantitative benefits which are highlighted below:

“The arrangement of labor, IT systems in general and IPCAS system in particular contributed to create the number of employees working in the modern banking environment which are capable of handling multi-professional jobs. (The new system enabled) the arrangement for over 1,000 staffs working in the money transaction to do other tasks (and) cut 4,000/34,000 employees working in reports at branches. In addition, the IPCAS system has created a new style of trading as one-door transaction. The staffs in credit division can also work as debt collection officers, disbursement officers.

Many systematic functions are automated. With the new system, more than 140 professional requirements are complete.

The centralized data contributed to reducing the time to provide information for management. The reports for sector management, a summarized report for administration, economic analysis can be provided immediately. This is thing that was unthinkable many years ago.

Number of customers increased from over 7 million to more than 17 million customers after the completion of deployment IPCAS system phase 2.

From a bank which is behind in the card market before the project, with the completion of deployment IPCAS system and card management system, Agribank become the leader in the card market in Vietnam in term of the number of ATM (2100 ATMs) and the number of cards issued (7 million cards).”

Impact: The bank saw the following impact of the project:

“The implemented project affected the entire operations of Agribank, all the professional operations of the bank were put into the management under IPCAS system by the model of entirely centralized processing.

Headquarters manages and monitors all activities of all branches.

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Agribank ensures the provision of consistent services to customers over the entire system regardless of the customers in highland, island or city.

Management information system ensures the accurate data for the direct administration of the Board and report to the SBV.”

Lessons learned: VBARD provided a long list of the lessons learned and below are the highlights:

Originally VBARD planned to implement IPCAS (i.e. CBS) in two years over its 2,200 transaction centers, but later decided to rollout the first phase all over the bank and implement the second phase at the same time. “The lesson learned is the need to stick to practice, timely adjust project plan to shorten the deployment duration and implement more efficiently.”

VBARD started system deployment in areas where competition was more intensive. The “Lesson learned in deployment on a large area, spread across the country is [that it is] necessary to select the areas with high competition for priority deployment, in order to provide competitive efficiency to the branches.”

“The deployment included many complex steps, involving many different components and subjects; therefore it was needed to develop detailed instructions on what to do and how to do.”

There was a need to provide “Instructions on standardizing data in details to branches [on] what to do for each command on the program to implement standardizing data on the old program (FoxPro, RBS) as required by the IPCAS program.” [And,] “Lesson learned in deployment on a large area is need to notify detailed plan to related subjects, from which create the activeness and co-operation.”

“During the deployment and operation of the new system, the need [for] information exchange between branches with IPCAS sub-project management unit and partners was urgently needed.” There was a use of “a forum of implementing IPCAS programs, in which the information on deployment guidance, deployment status between branches, sub-project management unit and partner HIT were clearly informed. This method can be considered as the most effective and cost savings information exchange method, contributed to bring the successful deployment of IPCAS.”

To “implement the projects successfully, the preparation of infrastructure networks, [and] environmental installation were key factors: by the time of deployment, almost [all the] branches of type 1 and type 2 were connected by readline, the transaction centers were installed by MEGA WAN and infrastructure equipment such as electrical systems, cash counting machine, safes.”

“The successful implementation of IPCAS programs over the entire system was the result of the rhythmic co-ordination of all the sub-project management units, branches, partner HIT, partner of providing hardware, system software and related parts. In which, IPCAS sub-project management unit played a key role in creating the close cooperation between parties.”

VietinBank (CBS Component) Benefits: The bank’s report contained a long list of specific benefits each system module brought about. Below are the highlights of the qualitative benefits: For customers

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With the success of implementation internal financial management module, Vietinbank will bring more opportunities, facilities and value to customers.”

For banks a. Human resources management:

Meet the management requirements of multi-organizational structure and changes in organizational structure in the future.

Implemented the centralized salary management; reduce input workload, data is centralized and unified.

Assessment (of labor efficiency) is done in accordance with the identified objectives of the organization and individuals.

Meet report requirements of each professional module and of statistic reports, analysis report on labor.

Data on human resources and payroll is integrated into ERP, MIS, able to exchange data and implement report requirements and manage data in line with other administrative requirements.

b. Internal financial management Systems applied centralized database that fully integrated between the internal

systems and modules of the ERP. c. Financial management module

Calculation and analysis the profitability will be performed in detail to each department, each product, each customer and each employee.

The ability to forecast which is up to 5 years by (different) dimensions. The calculation of adequacy indicators of banking activities will allow Vietinbank to

meet the requirements and regulations of the State Bank of Vietnam as well as international standards in the work of banking risk management.

d. Management/Report Information System New reporting system serves effectively for the executive management, risk control

and monitoring the business activities of the bank.” MSB also listed many quantitative benefits and below are a few highlights: “Core banking: Maximum automatic support of the accounting entries. Financial management: Save time and cost of generating information, exporting

reports; allow accurate analyzing and assessing the instant business performance to give more appropriate and effective management decisions.

MIS: Complete report system from various data sources, automatically run and update reported data, and flexible in using; users may create new reports or set up warning thresholds.”

Lessons learned: Below are the summary of the key lessons learned emphasized by the participating banks in their completion evaluation reports:

“Require the professional consultants and consultants on quality deployment of new transactions and complex tools.

Require the deployment partner with rich experiences and human resources, good ability for specialized fields.

Require of divisions to participate actively and regularly. Request of the clear and feasible deployment plan. Strictly follow up the set out progress.

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Require to define detailed and clearly the objects and specific tasks to be implemented, the clear criteria for testing of product acceptance.

Require to pay more attention to retraining technical, professional staffs. Require to have project management tool, that saved sufficient information about

project to easily access, report, manage, monitor progress, support decisions about project management.”

Section 3: MAIN ISSUES RAISED The common difficulties in implementation as reported by the five project entities are summarized below:

Duration of implementation is relatively short particularly when compared to the technical complexity of the activities.

The number of approval procedures is much higher compared to investments funded with the entities’ own funding.

The procurement processes had long delays.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders N.A.

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Annex 9. List of Supporting Documents

1. PSBM SAR (Report No. 14823-VN), October 25, 1995 2. PSBM ICR (Report No. 27635), June 15, 2004 3. SBV consultant reports on pre-feasibility and feasibility studies, Oct.2004 – Jan 2005 4. SBV consultant reports on system expansion needs, March 2005 5. PSBM2 PAD (Report No. 310023-VN), February 8, 2005 6. Completed Mid-Term Review Questionnaire, January 2009 7. PSBM2 Mid-Term Review Report, May 2009 8. PSBM2 Implementation Status and Results Reports, June 2005 – May 2011 9. Completed ICR Questionnaire, September 2011 10. SBV’s Overall Evaluation of the PSBM2 Project, November 11, 2011 11. Participating banks’ Project Implementation Reports, June - December 2011 12. SBV consultant’s Project Completion Review Report, November 11, 2011 13. Vietnam Country Assistance Strategy (2003 – 2006, Report No.24621), Sept. 16, 2002 14. Country Partnership Strategy for Vietnam (2007 – 2011, Report No. 38236-VN), January

3, 2007 15. Country Partnership Strategy for Vietnam (2012-2016, Report No. 65200-VN) 16. OPCS Guidelines for Implementation Completion and Results Report, August 2006 and

updated October 5, 2011 17. The Boston Consulting Group: “Renewing Core Banking IT Systems; Open-Heart

Surgery for European banks”, May 2006 (http://www.bcg.com/documents/file14774.pdf ) 18. Banker’s Academy Briefing: “Maximizing Return on Your Investment in Core Banking

System”, August 2009 19. IT Cortex: “Statistics over IT projects failure rate”, 1995-2001 (www.it-

cortex.com/Stat_Failure_Rate.htm )

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VIETNAM

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This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.