Banking System in Vietnam

Banking System in Vietnam

Member:Nguyen Viet NhanNguyen Thi Thu HuyenNguyen Thi Tuong VanNguyen Thi Thuy

Contents Vietnam Economics Overview Introduction banking system in Vietnam

Structure Regulations

Vietnam Banking Sector Banking asset Banking deposit Banking loan Credit market Capital market Financial market The rule of Government in driving economics SBV and its monetary policy

Opportunities and threats Risks Recommendations for banking system in the future

Vietnam Economics Overview

Annual GDP Income and Consumer Price index Inflation rate Interest rate FDI Import, export and Exchange Rate


Annual GDP

Vietnam Economics Overview Income and Consumer Price index

Gross National Income (Bill dongs)

0

200000

400000

600000

800000

1000000

1200000

1990 1995 2000 2001 2002 2003 2004 2005 2006

GNI (Bill dongs)

Vietnam Economics Overview Inflation rate

High rate due to:- Government of Vietnam

aim to control inflation rate which impact to its economy growth rate by appreciation the local currency

Unsuccessful, lead to higher inflation, especially in food and housing maintenance

- Negative real interest rate vs. inflation

Vietnam Inflation (%)

4.0% 3.2%

7.7% 8.3%7.5%

14.2%

19.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2002 2003 2004 2005 2006 2007 2008p


Interest rate Sharp rise in VNIBOR

in late 2006 reflected a slowdown in a local liquidity growth (including increased borrowing in domestic market and end of the year tax payments)

SBV set the ceiling interest rate – not over 12% for now

(VNIBOR: Viet Nam Interbank Offered Rates – Lai suat lien ngan hang VN)

Vietnam Economics Overview FDI Major goal of Vietnam's FDI policy

is to attract capital, advanced technology, and management skills in order to effectively explore the country's potential, increase savings, improve people's living standard and realize the cause of modernization and industrialization

By 2010, the government aims to achieve the increase investment relative to GDP to 40%, of which domestic capital accounting for 65% and external for 35%

Foreign Direct Investment (FDI)

0

5,000

10,000

15,000

20,000

2000 2001 2002 2003 2004 2005 2006 2007

Year

Mill

ion

US

D

0

500

1,000

1,500

2,000

Nu

mb

er

of

Pro

ject

s

Registered Capital Implemented Capital Number of Projects

Share of FDI by Economic Setor

Construction, 36%

Manufacturing & Trade, 34.7%

Others, 12.6%

Electricity, gas, and water, 10.5%

Transportation and Communications, 3.2%

Agriculture, 1.6%

Public Administration, 1.3%

Finance & Banking, 0.1%


Import, export and Exchange Rate Despite reduction of import tariff, strong FDI, Vietnam still face with trade deficit due to increase in

domestic consumption, higher import prices The decision of the State Bank of Vietnam to tighten monetary policy (raised the base rate to 8.75

percent from 8.25 percent, refinancing rate to 7.5 percent from 6.5 percent, and discount rate to 6 percent from 4.5 percent. ) Given the rise in inflation, widening of the trade deficit and increasing interest rate

Exchange Rate

14,504

15,06815,279

15,57915,745 15,858

15,99416,114 16,105

13,500

14,000

14,500

15,000

15,500

16,000

16,500

2000 2001 2002 2003 2004 2005 2006 2007 Apr 2008

Year

Dong

/ USD


Overall overview of economics in terms of sectors

Equitisation Schedule

Introduction Vietnam Banking System The State Bank of Vietnam

Being a Government agency and the Central Bank of the Socialist Republic of Vietnam; performing state management on monetary issues and banking activities; being the money issuer, the bank for credit institutions and doing banking services for the Government, the SBV works to aim at stabilizing the currency value, contributing to ensure the safety of the banking and financial system; promoting socio-economic development.

The SBV consists: SBV headquarter (based in Hanoi) SBV branch offices in provinces and cities Representative offices overseas

Introduction Vietnam Banking System Commercial bank system in Vietnam consists:

5 State-owned Commercial Banks (SOCBs) Bank for Foreign Trade of Vietnam (VIETCOMBANK) Industrial and Commercial Bank of Vietnam (ICB) Bank for Investment and Development of Vietnam (BIDV) Vietnam Bank for Agriculture and Rural Development (VBARD) Mekong Housing Bank (MHB)

34 joint-stock commercial banks Eximbank – ACB – Sacombank – VPbank - SBIT

4 joint-venture banks, Indovinabank – VID public bank – Vina Siam bank

35 branch offices of foreign banks and representative offices 6 Financial companies 10 Finance-leasing Companies Foreign Banks

HSBC - ANZ

Introduction Vietnam Banking System Market share

5 SOCBs: Vietcombank – Incombank – BIDV – Agribank – MH Bank

Introduction Vietnam Banking System Legal status

Vietnamese banks, branches of foreign banks, financial institutions as well as credit funds are operating under the Vietnamese law and are equally treated by the law.

Commercial banks have the right to control over their own financial matters, bear responsibilities for their own business results.

Deposits by the public are insured.. % Foreign shareholding

Total < 30% of chartered capital for SOCBs Total < 30% of chartered capital JSBs Not more than 50% of chartered capital for JVBs

Capital adequacy ratio 8% the same as international standard (Basel)

Credit Risk Compliance (CAMEL, BASEL): Required according to the regulation No 457/2005/QD-NHNN dated 19/04/2005 on prudential ratios on operation of credit institution

Treasury: All are subject to the same regulation Circular 03/2008/QD-NHNN dated 11/04/2008 on treasury services offered by credit institution. Under this regulation, banks which are subject to some conditions and permitted by SBV could

conduct treasury activities

Vietnam Banking Sector The 2007

Deposits at banks: grow 55% - over VND442.5 trillion Outstanding loans up 51% to almost VND347 trillion.

Joint-stock banks A market share of 46.3% in deposits and 46.8% in lending

terms, The State-owned lenders

Shares of 35.3% in deposits and 30.8% in lending terms

The central Bank expects for 2008 Deposit at banks grows 35-37% Outstanding loans grows 32-34% Profits grows 35-40%

Vietnam Banking Sector Financial activities grew 17.9% YoY in 2007, up from 16.8% in 2006 due to increasing

industry penetration, introduction of new technology (ATM cards) and continued banking sector reforms.

The banking sector’s contribution to GDP was 1.8% in 2007, unchanged from 2006. The number of existing bank accounts represents less than 10% of the population (c. 8m) The number of bank cards issued increased strongly with a CAGR of 268% over the 1996-

2006 period. This occurs despite the fact that domestic credit has more than tripled since 2000,

reaching approximately USD63bn at Y/E 2007. As part of its WTO commitments, Vietnam’s banking sector is gradually opening up to

foreign banks. In 2012, foreign banks with minimum assets of USD20bn will be able to set up a bank in Vietnam and operate under the same regulatory requirements as domestically owned banks. The SBV has recently approved in principal the establishment of two 100% foreign-owned banks, HSBC and Standard Chartered Bank.

Vietnam Banking Sector - Assets Banking asset

Domestic banks must have a registered capital of 1 trillion dong to be qualified to sell shares to foreign banks. Vietnam caps foreign ownership of a domestic bank at 30% with a 15% limit for a strategic investor.

A foreign bank can own 10% and a non-bank investor that is not a strategic investor can own 5%. In exceptional cases, the government could allow a foreign strategic investor to own 20% of a Vietnamese bank .

10% of Vietnam's 85 million people have bank accounts There are 4,000 bank branches, half of them belonging to Agribank, Vietnam's largest enterprise.

The central bank has given initial approval for nine banks to start operations. Oil and Gas Bank Lien Viet Bank Bao Viet Bank FPT Bank Energy Bank Asia Foreign Trade Bank Vietnam Star Bank Dong Duong Thuong Tin Bank Bao Tin Bank

Lien Viet Bank, or the United Vietnamese Bank, which has aregistered capital of 3.3 trillion dong and has Agribank, Vietnam's largest bank, as one of its co-founders, had said it would start operations in late April.

Vietnam Bank Asset

22.227.3

3237.1

05

10

15202530

3540

2003 2004 2005 2006

Vietnam Banking Sector - Deposit

Deposit is increasing Racing interest rate among banks to attractive capital

Vietnam Bank Deposit

12.7 14.517.3 19

22.226.1

30.4

35.7

41.8

0

5

10

15

20

25

30

35

40

45

2001 2002 2003 2004 2005 2006 2007 2008 2009

Bill

ion

US

$

Vietnam Banking Sector - LoansLoans for real estates and securities:

SVB warnings to stop loans for real estates and securities Weak liquidity of mortageable stocks in security market

Consequences: Loans for import activities and commodity demand are prioritized Loans for consumption is continued to apply in big-scale banks

Outstanding loans continues in decline Deflation purpose of SVB Effective investment will be focused by debtors due to high

interest rate and too difficult for any long-term loans. No signal of recovery in real estates and security market in 2008 End April 2008 outstanding loans increasing by 14.73% vs end year

2007 while targeted level is 35-37% for full year 2008. April 2008 outstanding loans increasing only 1,66% vs March.

Vietnam Banking Sector – Credit Market

In the first quarter of 2008 Banks' mobilized capital: VND518.5tril Total outstanding loans: VND460tril

the loaned sums accounted for 88% of mobilized capital, a very high proportion.

Vietnam Banking Sector – Capital Market The banking & financial services sector contributed 12% (USD2.0bn) to total market

capitalization on the HOSE as at end-Feb 08, the same percentage as at end-January 2007 (USD1.8bn)

There are 2 exchanges Ho Chi Minh City Security Trading Center (HOSTC) began operations in 2000

30 list firms in 2005 – 110 in early 2007 The value: US$4bn by the end 2005 – US$13.4bn at the end of 2006 – close to

US$17.6bn as of April 2007 An over-the-counter exchange in Hanoi (HSTC) started in 2005

77 firms by the end of 2006 Total exchange value: US$677m

In value and daily turnover Foreign participation: 25%

Ownership Foreigner: 49% Banks: 30%

Vietnam Banking Sector Joint Stock Banks

ACB and Sacombank are very strong in service offering For most banks, interest income accounts for more than 50% of

total income Increases in non-interest income are caused by expansion of non

lending activities

Deposit VS Loan of JSB Key Players (2007)

3.01

1.98 2.13

1.05 1.15

0.59

1.201.43

1.84

3.89

0

1

2

3

4

ACB Sacombank VIB Eximbank Habubank

Bill

ion

US

Dol

lar

Deposit Loan

Vietnam Banking Sector

Foreign Banks with their market share HSBC acquired 15% share in Techcombank ANZ acquired 10% share of Sacombank is 10% Standard Chartered acquired 15% share of ACB

Foreign Bank in Vietnam

3,906 3,750

106

12,500

9,063

5,344

150

13,438

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Deposits Loan Income Assets

Mil

lio

n U

S$

2006 2007

The rule of Government in driving economics Supporting the stock market

Government asked SBV to boost foreign exchange purchases, including indirect foreign investment inflows; ensure sufficient dong liquidity by offering a rediscount rate at 9%; and to request banks to hold back on the sales of collateralized stocks and repurchase agreements

the government narrowed the intraday share trading band to +/-1.0% from +/-5%, effective 27 March, which left the market virtually illiquid

Attracting more foreign capital Raised the foreign investor limit on

nonlisted companies to 40% from 30% have pushed the VND into overvalued territory – nominal appreciation combined with rapid inflation is pushing the real exchange rate higher while the trade balance deteriorates alarmingly

The rule of SBV in driving economics

Monetary tightening leads to liquidity crunch The SBV increased the reserve requirement by 100bps to 11% and raised the discount, refinancing and

base lending rates by 150bps, 100bps and 50bps, respectively, to 6%, 7.5%, and 8.75% interbank overnight rates rose as high as 40% at the height of the liquidity crisis

The SBV announced its decision to require banks to buy VND20.3bn worth of treasury bills by 17 March By approving for establishing of 21 joint stock banks help the SBV control credit growth and curb

inflation, particularly without a proper regulatory system in place Controlling the inflation

SBV widened the FX trading band to +/-1.0% from +/- 0.75% to fight inflation widen the trading band to try to reduce the need for the SBV’s intervention in the FX market, thereby easing the burden of sterilization.

Higher interest rate: On May 18th 2008, SBV remove the deposit rate cap of 12% which allow commercial banks to lift deposit and lending rate up to 18% (150% of prime rate) this help to reduce the gap between nominal interest rate and inflation rate, attract more deposit and ease the liquidity pressure.

Credit control: strict monitoring on credit quality, tighten loans for stock trading, property investment and consumer finance

Exchange rate: maintain a downward crawl against the USD, slow down the depreciation pace

Vietnam Banking Sector - Opportunities High potential market: increasing demand on banking

service and capital (10mil. Bank account, 5 mil. ATM cards)

Very interested market for credit cards (while almost people have habits of using cash

Barrier is gradually removed for equitization and

privatization process.

(1) Economic risk Inflation increasing Interest rate rise Economic overheating threatening

sustained economic growth over the medium term (Credit growth has risen to about 50 percent, contributing to a rise in inflation, which exceeded 14 percent in January 2008)

Vietnam Banking Sector - Threats

Weakness of Banking system: Poor performance for Vietnamese banks- Low competitiveness- Weak finance resources- Small scale- Low quality and efficiency- Low professional management skills- Low technology Poor risk management- Problem of bad loans- Poor credit appraisal skill of staff and loan

monitor system


(2) Financial risk Current account deficit: Sharp

widening of the trade deficit (external current account deficit is about 10 percent of GDP in 2007 and that its financing shifted toward capital flows other than foreign direct investment and aid flows)


(2) Financial risk Liquidity risk: - Current policy regime from SBV: credit limit of 30%

Cash shortage- Impact from real estate market


Threats from joining WTO

- High credit risk, small scale in asset and equity, less competitiveness, weak management Bankruptcy

- Challenging from maintaining market share and expand internationally

- Inadequate and inefficient law system

-Growing competitive pressure in domestic market for banking


Recommendations Completing legal framework for banking (include law on state bank and credit

institution to be in line with the socio-economic development, strategy for banking system development, develop and effectively operate the money market)

Building a safe and efficient banking system in Vietnam- Financial restructuring: more chartered capital required for commercial banks- Banking supervision and inspection restructuring: Expansion plan, technology modernization, competitiveness improving Following international standards in risk management, asset and liability

management, capital management, modern credit system and credit manual based on international standard

A reduction in the government’s growth target would add credibility to the central bank’s anti-inflation policy by explicitly noting that the trade-off between growth and inflation

Thank you for your attention!

Banking System in Vietnam

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