VALUATION OF VIETCOMBANK – THE LEADING COMMERCIAL JOINT STOCK
BANK IN VIETNAM
By Trinh Hai Linh,
Nguyen Thanh Son, Luong Duy Nam,
Quach Thanh Long
Intake: 5th
A Thesis Submitted to CFVG
University Paris Dauphine ESCP Europe
In partial fulfillment of the requirements for the degree of MASTER IN ECONOMICS OF BANKING AND FINANCE
Hanoi, June 2009
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ACKNOWLEDGEMENTS
We would like to express our sincere gratitude to Dr. Patrick Gougeon, consulting
project advisors, for his valuable guidance and advices for our research. We also
would like to thank professors of ESCP-Europe and CFVG members for their
valuable arrangement and kind support during our studying period.
We greatly thank Vietcombank, investment analysis teams for their consultations and
providing valuable documents for our project.
Thanks are also due to Mekong Securities Head Office, Privatization team for
their valuable time, constructive discussions and documents.
Finally, we are heartily indebted to our families for their help, encouragement and
support for us during our hard study of 18 months with MEBF – CFVG course.
Hanoi, June 2009
MEBF, Intake 5th – Group 3
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TABLE OF CONTENTS
List of Abbreviation 3
I. Introduction 4
a. Context 4
b. Objectives 5
c. Methodology 5
d. Limitations of the valuation 5
e. Organization of the Paper 6
II. Methodologies 7
II.1. Discounted Cash Flow Approach 7
II.1.1. Dividend Discounted Model 8
II.1.2. Discounted Free Cash Flow to Equity Model 13
II.1.3. Discounted Free Cash Flow to Firm Model 14
II.1.4. Adjusted Present Value 16
II.2. Relative / Multiple Valuation Models 17
II.2.1. Price / Earning Multiples 18
II.2.2. Market to Book Value Multiples 19
II.2.3. Price to Revenue Multiples 20
II.2.4. Enterprise value to EBIT Multiples 20
II.3. Asset Based Valuation 21
II.4. Application in Valuation Model for Banks/FI in VN & VCB 22
III. Vietcombank Valuation 24
III.1. Macro updates 24
III.2. Bank Sector 27
III.2.1. Landscape of Vietnamese bank sector 27
III.2.2. In the future 34
III.3. Vietcombank Profile 34
III.3.1. Overview of Vietcombank 34
III.3.2. Ownership and Organization structure 36
III.3.3. Operations 37
III.3.4. Market Position 39
III.4. Financial highlights & Forecasts 41
III.5. Valuation 43
III.5.1 Valuing VCB using DDM 44
III.5.2 Valuing VCB using Multiples Methods 46
IV. CONCLUSION 49
Reference 51
Appendix 52
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LIST OF ABBREVIATIONS
VCB Vietcombank (Joint Stock Commercial Bank for Foreign Trade of
Vietnam)
SSC State Securities Commission
IPO Initials Public Offering
OTC Over The Counters
HOSE Hochiminh City Stock Exchange
DDM Dividend Discounted Model
DCF Discounted Cash Flow Model
VCBS Vietcombank Security
FCFF Free Cash Flow to Firm Model
FCFE Free Cash Flow to Equity Model
APV Adjusted Present Value
CAPM Capital Asset Pricing Model
WACC Weighted Average Cost of Capital
EBITDA Earning Before Interest Tax, Depreciation & Amortizations
SBV State Bank of Vietnam
SOCBs State Owned Commercial Banks
JSCBs Jointed Stocks Commercial Banks
FBBs Foreign Branch Banks
JVBs Jointed Venture Banks
NPLs Non Performing Loans
ROaE Returns on average Equity
ROAA Returns on average Assets
CPI Consumer Pricing Index
BIDV Bank for Investment & Development of Vietnam
ACB Asia Commercial Bank
STB Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank)
ICB Vietnam Bank for Industrial & Trade (Viettinbank)
GDP Gross Domestic Product
SCIC State Capital Investment Corporation
SMEs Small & Medium Enterprises
ATMs Automated Teller Machines
GSO General Statistic Office of Vietnam
EIU Economic Intelligence Unit
FDI Foreign Direct Investment
CAGR Compound Annual Growth Rate
MBV Market to Book Value
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Part I
INTRODUCTION
Context
There is a saying that “When you talk about a (commercial) bank in the US, you are
talking about Bank of America. When you talk about a bank in France, you are
talking about BNP Paribas. And when you talk about a bank in Vietnam, you are
talking about Vietcombank”. VCB is known as a leader and has an important
influence on Vietnam bank sector.
The bank has received approval from State Securities Commission (SSC) to list its
112,285,426 ordinary shares, accounting for 9.28% of its chartered capital and
planned to go listing on HOSE, the main stock exchange in the South this summer
(end of June or early July). However, which price will be chosen as a reference price1
of VCB for its first trading day2 has not decided yet.
Safe to say it’s the single most important listing event in Vietnam in a long while.
However, VCB share price is really a big story for all individual investors and
institutions, both foreign and local ones. The bank has successfully sold its stake in
via IPO in 26 Dec 2007 with average winning price of around VND 107,000 per
share, a little bit higher than its offering price of VND 100,000 per share. Many
investment funds did not participate in the auction said that with its initial offering
price of VND 100,000 per share the stock was too expensive but VCB auction also
had its record on number of participants at that time. Did all these winners think that
1 The price which is decided by consultant firm (VCBS)
2 The stock must be traded within the range of +/-20% of the reference price for the first trading day,
and +/-5% on next days
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the stock was cheap at that level? How much does the stock worth? After IPO3, the
low of around VND 25,000 per share was hit in Mar last year. And now, when the
bank trading on HOSE, how much we should pay for it? The valuation of the bank
really challenges us. So we started our consulting project as a full coverage on the
bank to find out the answer for our question.
Objectives
This consulting project’s specific objectives are:
Having a whole picture of Vietnam bank sector and drivers of commercial
banks
Applying Discount Dividend Method and Multiples Valuation Methods for a
commercial bank in an emerging countries like Vietnam.
Finding out and dealing with obstacles in these applications.
Giving the investors a valued reference for making decision on VCB
Methodology
In this project, we approach this bank by top-down analysis. We started with the
overview of macro-economy, then bank sector, VCB and valuation of VCB.
In the valuation, we have introduced various approaches but focused on Dividend
Discount Model and Multiple Method to value VCB.
Limitations of the valuation
With this valuation, we realize some limits on valuing a commercial bank in Vietnam
these days:
- Limit on sector information: We have no rating system in Vietnam so most of
the ratings were based on foreign organizations that surely have some limits in
reaching Vietnamese culture and business or they just scanned Vietnam in
3 After IPO, the sold volume was not listed immediately on an exchange floor but transferred on
unofficial OTC market.
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general view, grouping Vietnam in emerging countries group or Asia countries
group.
- As a young stock market, Vietnam market lacks systematic information to
estimate. Even with the simplest model like DDM with three main inputs only,
we hard to find them out directly because they never been built up
systematically. Data like beta, market return, and market price of commercial
joint stock banks in Vietnam have not consolidated yet and even when we
wished to do it, the data for each bank were not available and updated
separately.
- Our valuation was made in a volatile and tough time of the financial world and
Vietnam. Using the most updated forecasts to make assumption somehow did
not exactly reflex the capacity of the economy as well as the bank.
Organization of the Paper
The consulting project divided into four parts:
Part I. INTRODUCTION
Part II. METHODOLOGIES
Part III. VIETCOMBANK VALUATION
Part IV. CONCLUSION
{Reference:}
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Part II.
METHODOLOGIES
As we can aware, a lot of approaches to valuate company performance & for pricing
purpose, as far as the improvement of technique & scientist, we still can see some
traditional models still in good applicable for the market.
What we aiming to talk about are 3 main valuation approaches which were most
favorable for valuating the financial service firms & financial institution, which are
below:
- Discounted cash flow models (expected future data)
- Relative / multiple valuation model
- Asset based valuation model
II.1. Discounted Cash Flow Approaches
When a financial analyst is required to conduct a financial valuation on the business
or company being forecasted by the financial model, a commonly used valuation
technique in a financial modeling exercise is the Discounted Cash Flow (DCF)
method.
We can say that, DCF is basis principle to determine intrinsic value of any shares or
assets of the firm. To valuate any shares or assets of the firm is to valuate all of cash
flow which we will receive from that shares or assets in the future. Two think we
need to do for this model: first, to forecast future cash flow, then convert these cash
flow to present by discounting them by given discount rate.
Discounted Cash Flow valuation is the process of relates an asset to its present value
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of future cash flows generated by the assets. This approach contents the following
main models
- Dividend discounted model (DDM)
- Free cash flow to equity model (FCFE)
- Free cash flow to firm model (FCFF)
- Adjusted present value (APV)
a) Advantage:
- Clear definition
- Take into account time value of money
- The model can be adjusted to adapt with specific characteristics of the firm
- The model relied on serial time of information
b) Limitation:
- The model depend much on assumptions
- Instability formula & Future estimate contents error
II.1.1. Dividend Discount Model
The dividend discount model is a more conservative variation of discounted cash
flows, that says a share of stock is worth the present value of its future dividends,
rather than its earnings.
When an investor buys shares, they expect 2 types of cash inflows: cash flow
dividend during the time share holding & cash flow equal to the price when they
decide to sell it out. The price of the shares is also the prediction based on the
dividend that the stock returns in the future. Therefore, the value of the shares at the
current value of all dividends that the stock brought in indefinite time period, in
another word, we can assume that we hold a share & earn unlimited cash flow in the
futures, and present value of all these cash flow would be call intrinsic value of the
shares.
Gordon Growth Model - DDM -Phase One
This model applies to shares in the period with a stable growth dividend no change
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and sustainable development. Instead of the current value of the dividend stream and
the community, Professor Gordon Myrin has developed the formula in the value of
very simple as follows:
A model for determining the intrinsic value of a stock, based on a future series of
dividends that grow at a constant rate. Given a dividend per share that is payable in
one year, and the assumption that the dividend grows at a constant rate in perpetuity,
the model solves for the present value of the infinite series of future dividends.
Where:
D = Expected dividend per share one year from now
k = required rate of return for equity investor
G = Growth rate in dividends (in perpetuity)
When predict growth rate, we must note that, not only dividend growth rate, but also
other financial indicators important too, the most important benefit is also to grow
with in the same room. When the rate of growth of the dividend will be profitable and
the other supports, and therefore it maintained stably. In addition, the rate of
sustainable growth will only be less than or equal the highest rate of growth of the
economy. No business can grow forever with speed higher growth rate of the
economy.
Special cases: When the rate of growth in 0, ie the payout regularly unchanged,
intrinsic value of the dividend will be exactly equal to Gordon Model.
Assessing the Inputs
In the simplest form of the dividend discount model, there are only three required
inputs: the expected dividend, the dividend growth rate and the equity discount rate.
To determine the expected dividends, we make certain assumptions about future
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earnings and payout ratios. In order to keep this uncomplicated, let's assume that
dividends infinitely grow at a constant rate.
So what rate do we use to determine the discounted present value of these cash flows?
This equity discount rate is also sometimes called the required return, or the cost of
equity. To simplify things for this column, one common method, called the capital
asset pricing model approach (CAPM).
The equity discount rate is the difference between the expected rate of return on the
overall market (usually the S&P 500 is used for the market return) and the risk-free
rate, multiplied by the stock's beta. This figure is added to the risk-free rate to arrive
at the equity discount rate.
We have made some oversimplifying assumptions, which are probably unrealistic in
the real world. For many companies, the assumption of constant dividend growth just
is not appropriate because some companies have an increasing level of growth in their
dividend rate for a number of years, after which the growth becomes constant. Other
companies have one constant growth rate in the near term, followed by a different
constant growth rate later. Still other companies have nothing constant at all with
their growth rates, as their dividends are highly variable.
In these cases, consider two types of cash flows: the dividends received each year,
and the price at which you sell the stock after some finite time horizon. The dividends
each year must be estimated or the growth rates must be projected. Alternatively, the
earnings and payout ratios can be estimated. The expected price of the stock at the
end of the holding period - the price you sell the stock for - is itself determined by the
discounted stream of dividend payments. These cash flows are then discounted back
using the equity discount rate.
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Explaining the Dividend Discount Model
This is called the two-stage (or finite horizon) dividend discount model and looks like
this:
Now that we have gotten this far, there are two important limitations to point out.
First, this valuation technique, as well as any of the other discounted cash flow
measures, is very sensitive to the inputs: the growth rate of the dividends (and the
duration of the growth) and the discount rate used. A small change in any of these
inputs has a great influence on the estimated value. Second, the dividend discount
model is difficult to apply to growth businesses that do not pay dividends during
periods of high growth because they can earn rates of return on investments that are
above their required return.
Base on two models above, we can apply to the stock dividend have developed in
many different stages of time, such as models of 3 phases: dividend growth strong
reduction, and return to sustainable growth, or model 2 phase stable growth then
growth hot...
Multi-Stage Models
To get around the problem posed by un-steady dividends, multi-stage models take the
DDM a step closer to reality by assuming that the company will experience differing
growth phases. Stock analysts build complex forecast models with many phases of
differing growth to better reflect real prospects. For example, a multi-stage DDM may
predict that a company will have a dividend that grows at 5% for seven years, 3% for
the following three years and then at 2% in perpetuity.
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However, such an approach brings even more assumptions into the model - although
it doesn't assume that a dividend will grow at a constant rate, it must guess when and
by how much a dividend will change over time.
Summary of multi stages of DDM
No. Name Formula
1 Constant Growth DDM VE = DIVt/(ke - g)
2 Two Stages DDM n VE = Z DIVt/(1+ke)t+ Pn/(1+ke)n
t=1
3 Three Stages DDM n1 n2 VE = Z DIVt/(1+ke)t + Z DIVt/(1+ke)t + Pn/(1+ke)
t=1 t= n1+1
DIVt : Expected dividend paying out
g : Constant growth rate of dividend DIVt
ke : Required rate of return to firm’s owners (Cost of equity of the firm)
Pn : Expected residual (terminal) value of equity at the end of period n
Pn = DIVn * (1+g)/(r-g) or DIVn+1/(r-g)
Advantage / Limitation of DDM
The strengths and weaknesses of the Dividend Discount Methods start with the lists
as those for the Discount Cash Flow Methods in the previous article. Also with detail
specific below:
A) Advantage:
- Clear definition with specific input variables
- Rational definition: Standard bond calculation as the discounted value of the
dividends plus the discounted value of the face value.
- Dividend data is readily available obtained from the financial statements of a
company & there is no dispute about them.
- Benefit form dividends are secure:
- Residual income: A tool of modify price.
A) Limitation
- Theoretical formulas: sometime, stock price has a high intrinsic value
compared to its price, does not mean that it will be a profitable investment in
terms of return. Benjamin Graham talked about the "hazard of tardy
adjustment of price to value”
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- Multiple formulas There are many variations of the Dividend Discount
Method using a variety of structures for the growth rates. The outcome is a
range of different values. A stock could be undervalued according to one
formula, but overvalued according to another.
- Instability All the formulas are unstable. This means that small changes in the
input numbers lead to extremely large variation in the output. A change of a
few percent in the input can lead to changes of 100% or more in the output
- Untestable inputs It is impossible to test the accuracy of the key inputs in the
formulas such as the terminal growth rate and the discount rate because they
require forecasts out to infinity. More specifically, if I say that the long-term
or final growth rate is 4% and you say that it is 6%, we can never determine
who is correct since to do that we would have to wait for ever.
- Infinite sums As stated above, the DDM formula is an infinite sum. As such it
requires an infinite number of inputs for the values which cannot be done one
at time and requires them to be specified through a rule. This is a limitation on
the values that are possible for the inputs. A second limitation is to calculate
the value of an infinite sum we need to apply a mathematical formula.
However, there are only formulas for a restricted number of infinite sums.
II.1.2. Discounted Free Cash Flow to Equity Model - FCFE
The FCFE is an variant of DDM model, instead of discount the predicted future actual
dividends, the model discounted potential dividends (Damodaran, 2002)
n
Value of the equity = ∑ FCFEt/ (1+ ke)t + Pn/(1 + ke)n
t=1
Where:
FCFEt: Free cash flow to equity year t and
Free Cash Flow to Equity (FCFE)=Net income
- (Capital Expenditures – Depreciation)
- (Change in Non-cash Working Capital)
+ (New Debt Issued – Debt Repayments)
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ke: Required rate of return to firm’s owners: Expected residual value at
the end of period n; ke can be calculated base on CAPM model as previous
introduction.
Summary of multi stages of FCFE
No Name Formula
1 Constant Growth FCFE VE = FCFEt/(ke - g)
2 Two Stages FCFE n VE = Z FCFEt/(1+ke)t+ Pn/(1+ke)n
t=1
3 Three Stages FCFE n1 n2 VE = Z FCFEt/(1+ke)t + Z FCFEt/(1+ke)t + Pn/(1+ke
t=1 t= n1+1
FCFEt : Free cash flow to equity year t
g : Constant growth rate of FCFEt
ke : Required rate of return to firm’s owners (Cost of equity of the firm)
Pn : Expected residual value of equity at the end of period n
Pn = FCFEn * (1+g)/(r-g) or FCFEn+1/(r-g)
II.1.3 Free Cash Flow to Firm Model - FCFF
Free cash flow to the firm model values firm rather than equity. Hence, in this case
we talk about the cash flow available not only to the stockholders, but also to
bondholders and creditors. The free cash flow to the firm is the sum of the cash flows
to all claim holders in the firm, including stockholders, bondholders and preferred
stockholders (Damodaran, 2002)
n
Value of the firm = ∑ FCFEt/ (1+ WACC)t + Pn/(1 + WACC)n
t=1
Where:
FCFEt: Free cash flow to firm year t and
Free Cash Flow to Equity (FCFF)=EBIT (1-T)
- (Capital Expenditures – Depreciation)
- (Change in Non-cash Working Capital)
WACC: Weight Average Cost of Capital
Pn: Expected residual value at the end of period n
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Summary of multi stages of FCFF
No Name Formula
1 Constant Growth FCFF VE = FCFFt/(WACC - g)
2 Two Stages FCFF N VE = Z FCFFt/(1+WACC)t+ Pn/(1+WACC)n
t=1
3 Three Stages FCFF n1 n2 VE = Z FCFFt/(1+WACC)t + Z FCFFt/(1+WACC)t
t=1 t= n1+1 + Pn/(1+WACC)
FCFFt : Free cash flow to firm year t
g : Constant growth rate of FCFFt
WACC : Weighted average cost of capital
Pn : Expected residual value of firm at the end of period n
Pn = FCFEn * (1+g)/(r-g) or FCFEn+1/(r-g)
In any model of three difference stages of growth, high growth, forward & constant
growth, the most importance thing is assumption of variable should consistence with
assumption of these variables, the relationship with investment expense &
depreciation will be changed
It’ll be reasonable when we assume that the firm will start from first stage of high
growth, then move to forward growth stage and the last stage is constant growth
which is applicable when the difference of capital expenditure – depreciation have
small gap, it’s show the lower expected growth but stable .
WACC is the after tax weighted average cost of capital. Usually, not changing mix is
considered, but in reality several WACCs might be applied for different period
WACC = ke* (E/E+D+PS) + kd*(D/E+D+PS)(1-T) + kps*(PS/E+D+PS)
Where:
Ke = cost of equity kd = cost of debt
Kps = cost of preferred stock
E/E+D+PS = market value proportion of Equity
D/E+D+PS = market value proportion of Debt PS/E+D+PS = market value
proportion of Preferred Stock T = corporate tax rate (25% in Vietnam from
2009)
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Suitability & limitation of FCFE & FCFF
A) Advantage
- FCFF is pre-debt cash flow & WACC is used. In cases where firm leverage is
expected to change significantly over time, the model would bring notable savings
- The model can avoid the problem associated with stable dividend payout ratio as
in DDM
B) Limitation:
- It may be seen that the assumptions made in the model is a crucial factor in
determining the ultimate result in estimating share price
- The model is also sensitive to projected synergy effect on cash flows, also it
would be most accurate if un updated interest rates were updated that reflect the
risk of the debt
- Estimating cash flow from net capital expenditures & non cash working capital
cannot be easily identified. It is possible, but if we define reinvestment differently.
We need to identify the amortizable life for the asset, collect information on
employee expense in prior year, compute the current years’ amortize expense,
adjust net income for the firm, and calculate human capital, regulatory capital…
II.1.4 Adjusted Present Value - APV
APV valuation model looks pretty much the same as FCFF model in way that the
cash flow is discounted to come to the value of operations and consequently to the
value of enterprise. However, instead of WACC, cash flows would be discounted at
the unlevered cost of equity, and tax shields at the cost of debt. APV and the standard
DCF approaches should give the identical result if the capital structure remains stable.
APV = Base-case NPV + PV of financing effect.
The APV method is especially effective when LBO case is considered since the
company is loaded with an extreme amount of debt, so the tax shield is substantial.
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II.2. Relative / Multiple Valuation Models
Relative Valuation:
In relative valuation, the value of an asset is compared to the values assessed by the
market for similar or comparable assets. To do relative valuation, we need to identify
comparable assets and obtain market values for these assets. Then, we convert these
market values into standardized values, since the absolute prices cannot be compared.
This process of standardizing creates price multiples. The standardized value or
multiple for the asset being analyzed is compared to the standardized values for
comparable asset, controlling for any differences between the firms that might affect
the multiple, to judge whether the asset is under or over valued 4 .
A) Advantage
The use of relative valuation is widespread. There are several reasons:
- Using multiples of comparable firms allows completing with far fewer
explicit assumptions and far more quickly than a discounted cash flow valuation.
- Simpler to understand and easier to present to clients than discounted cash flow
models
- Is more likely reflecting the current mood of the market since it is an
attempt to measure relative and not intrinsic value 4.
B) Limitation
- The easy with which a relative valuation can be put together, pulling together a
multiple and a group of comparable firm, can also result in inconsistent
estimates of value where key valuation such as risk, growth, cash flow
potential are ignored.
- Multiples reflect market mood also implies that using relative valuation to
estimate the value of an asset can result in values that are too high when the
market is overvalued of the comparable firm or too low when it is undervalued
of these firms.
- The lack of transparency regarding the underlining assumptions in relative
valuations makes them particularly vulnerably to manipulation 4
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Multiple valuation approach is one of second major equity approach which contents
the following main models
- P/E multiple
- Market to Book multiple
- Price to Revenue multiple
- Enterprise value to EBIT multiple
II.2.1 Price / Earning Multiples
Earning multiples are the most commonly multiples that buyers of stock look
at when making a decision. It is simply the ratio of the price paid for a stock over
the earnings per share generated by that company. This price-earnings ratio can be
estimated using current earnings per share, which is called a current PE, the
earnings per share of the latest four quarter, which is called a trailing PE, or
an expected earnings per share in the next year, called a forward PE.
When buying a business other than a bank, as opposed to just valuing the equity in
the business, it is common to examine the value of the firm as a multiple of the
operating income or the earnings before interest, taxes, depreciation and amortization
(EBITDA).
Price Earnings Ratios
The price earnings ratio for a bank or insurance companies is measured much the
same as it is for any other firm.
In valuing a bank, the price per share is calculated based on the Price Earnings Ratio
(PE ratio) of comparable firms multiplies by the earnings per shares of the
bank. If the average PE ratio of the comparables is trailing, the earnings per share
used should also be trailing earnings per share, and so is the case of the forward PE
ratio. In applying the PE ratio, we shall evaluate the comparable firms in term of
risk, growth and return characteristics to the possible extent justified by
comparing the risk multiples used of comparables firms. This task is not an
easy one because with a bank in multiple businesses (retail banking, securities
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services, real estate, etc…), it is extremely difficult to find truly comparable banks
with the same characteristics.
II.2.2 Market to Book Value Multiples
Book value is the estimation of the business made by the accountant and
reflected in the financial statements. The accounting estimate of book value is
determined by accounting rules and standards that are heavily regulated and
influenced by the original price paid for assets and any accounting adjustment
(such as provision and depreciation) made since. Meanwhile, the market has a
different view on the estimation of value of the business which is more related to the
current value of the assets possessed by the company.
Investors often look at the relationship between the price they pay for a stock and the
book value of equity (or net worth) as a measure of how over- or under-valued a stock
is. The price-book value (PBV) can vary widely across industries, depending again
upon the growth potential and the quality of the investments in each. When valuing
businesses, analysts estimate this ratio using the value of the firm and the book value
of all assets (rather than just the equity). For those who believe that book value is not
a good measure of the true value of the assets, an alternative is to use the replacement
cost of the assets; the ratio of the value of the firm to replacement cost is called
Tobin’s Q.
Price to Book Value Ratios
The price to book value ratio for a financial service firm is the ratio of the price per
share to the book value of equity per share.
As with the PE ratio, valuing a bank using the Price to Book value ratio (PB ratio)
requires the use of the PB ratio of comparables firms. The price per share of the
bank to be valued then is calculated simply by multiplying the comparable PB
ratio with the book value of equity per share of the bank. The most current financial
information to calculate the book value of equity per share shall be applied and called
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trailing book value of equity per share. It is also necessary to use the trailing PB ratio
of the comparable firms. Again, the difficulty arisen is in finding the truly comparable
firms where the PB ratio applied can be justified.
II.2.3. Price to Revenue Multiples
Both earnings and book value are accounting measures and are determined by
accounting rules and principles. An alternative approach, which is far less affected by
accounting choices, is to use the ratio of the value of an asset to the revenues it
generates. For equity investors, this ratio is the price/sales ratio (PS), where the
market value per share is divided by the revenues generated per share. For firm value,
this ratio can be modified as the value/sales ratio (VS), where the numerator becomes
the total value of the firm. This ratio, again, varies widely across sectors, largely
as a function of the profit margins in each. The advantage of using revenue
multiples, however, is that it becomes far easier to compare firm in different markets,
with different accounting systems at work, than it is to compare earnings or book
value multiples.
II.2.4 Enterprise value to EBIT multiple
Firm value multiples such as Value to EBITDA or Value to EBIT cannot be easily
adapted to value financial service firms, because neither value nor operating income
can be easily estimated for banks or insurance companies. In keeping with focus on
equity valuation for financial service firms, the multiples that we will work with to
analyze financial service firms are equity multiples. The three most widely used
equity multiples are price earnings ratios, price to book value ratios and price
to sales ratios. Since sales or revenues are not really measurable for financial
service firms, price to sales ratios cannot be estimated or used for these firms. We
will look at the use of price earnings and price to book value ratios for valuing
financial service firms.
A) Advantage
- Providing a relatively stable, intuitive measure of value that can be compared
to the market price
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- Much simpler benchmark comparison than discount cash flows method
- Given reasonably consistency accounting standard across firms, price to
book ratio can be compared similar firms
- This method can be used to value firm who have negative earning that can
not used earning multiplier method
B) Limitations of this model
- Book value like earning are affected by accounting decision on
depreciation and other variables like provision policy
- Book value may not carry much meaning for services firm that do not have
much tangible assets
- The book value of equity could be negative if a firm has a sustained string of
negative earning report, leading to a negative price book value ratio.
II.3. Asset Based Valuation
In asset-based valuation, the existing assets of a financial institution shall be valued,
and then net out debt and other outstanding claims and report the difference as the
value of equity i.e. with a bank; this would require valuing the loan portfolio of the
bank (which would comprise its assets) and subtracting outstanding debt to estimate
the value of equity. How would you value the loan portfolio of the bank? One
approach would be to estimate the price at which loan portfolio can be sold to another
financial institution, but the better approach is to value it based upon the expected
cash flow 4
A) Advantage
This approach has merit if we are valuing a mature bank with little or no growth
potential.
B) Limitations of this model:
- It does not assign any value to expect further growth and the excess returns that
flow from that growth. A bank, for instance, that consistently is able to lend at
rates higher than justified by default risk should be able to harvest value from
future loans as well.
4 A.Damodaran, Investment Valuation, Second Edition, page 595
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- It is difficult to apply when a financial institution enters multiple
businesses. A firm that operates in multiple businesses would prove to be
difficult to value because the assets in each business - insurance, commercial
banking, investment banking, portfolio management etc would need to be
valued separately, with different income streams and different discount rates.
II. 4. Applicable in Valuation Model for Banks/Financial Institution in Vietnam
& VCB
With recent development of stock market in Vietnam, in order to increase the
competitiveness, the Vietnam banks have followed the trend to be listed in the stock
exchange.
By analyzing bank industrial data availabilities, with nature of information risk, the
financial development trend over the past & the business plan to 2014, our purpose
for bank valuation is to measure suitable of selected valuation approach to the Bank,
which we aim at providing precisely & rational price so that to verify whether it’s
price is overvalued or undervalue versus market price.
Regarding to specific condition of emerging market like Vietnam, where capital
market is on developing process, lack of market information & secondary market still
in first stage of development, also recently urges of stock market & VNIndex is in
new generation. Process of bank & financial institution equitization in local market
are being boosted with strong supports from the Government & State Bank of
Vietnam.
However, fledging of stock market, lack information on capital market lead to some
limitation in applying the valuation methods above in specific variables input.
Therefore, when selecting valuation method, we need to make also a lot of
assumption which may not realistic & any change in assumptions, it’s lead to big
different to output of price. DCF have some clear definition & reputation when
applying in Vietnam Local Market while multiple valuations are good for reference /
correlation since local market not yet has enough competitive listed companies for
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specific industries. We need also to benchmark with off-shore market or S&P to make
sure multiple models are applicable. For asset based methodologies, even it’s show up
real price of the firm at present but not take into account time value & expected value
of the firm while evaluating the firm for IPO & before listing, it’s also not take
goodwill of the firm when pricing. Therefore, we also recommend not to used for
Financial Institutions
For VCB valuation process, we would propose to apply DCF which may have some
reliabilities & applicable. In such case, DCF with DDM & FCFF will be applied.
Rational for this selection that is we focus on VCB projected future cash flow which
is more relevant & applicable with DCF, more ever, based on competitive advantage
of VCB in some variables inputs i.e large of scale, high excess return & high potential
growth rate. By using this approach, with availabilities of data in the past and the
business plan of VCB to 2014, also with researchable data of market for benchmark,
we aim at providing the valuation price which enable for us to compare with market
price of VCB, so that we would bring to the share-holders or investors an objective
view whether the price is overvalued or undervalued as of now.
Beside, with limitation of data provided, some variables input might need to make
assumption depending current situation.
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Part III
VIETCOMBANK VALUATION
III.1. Marco Update
GDP growth forecast will entail continuing overall credit growth
At the end of QI/2009, Vietnam’s
GDP growth achieved only at 3.1%
given the shortfall of investment and
exports in the early months of 2009.
This was the lowest growth rate over
the past ten years. However, this
achievement still outperformed other
countries in the region as many posted
negative growth due to impacts of the
world economic crisis. The target of
GDP 2009 has been revised down to 5% (previously 6.5%) and this would be more
feasible. As noted from many forecasts (World Bank 5.5%); (IMF 4.75%, ADB
4.5%) or even more pessimistic (EIU 0.3%), we expect GDP could be around 5-5.5%
this year or at least 5% for upcoming years. Estimates from the Economic Intelligence
Unit (EIU) forecast overall bank loan growth in the coming five-year period still stays
level of GDP.
GDP (%)
Source: GSO, IMF
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FDI continued to rise.
An important factor for foreign
banks’ lending growth is FDI,
particularly the setting up of
industrial zones in Vietnam.
Currently there are 130 industrial
zones attracting 4,516 projects
valued at US$18 billion in foreign
capital and 15 new zones are
under construction. These zones
provide the source of credit growth for foreign banks. In QI/2009, FDI has increased
strongly to 40%y-o-y with 93 newly-licensed projects, the industrial production is
also rose slightly at 2.1%. As of 31 May 2009, attracted US$ 6.68 billion and equaled
to only about 23.7% of total amount in the same period in 2008. Total disbursed
capital in the first 5 months of this year was estimated at about USD2.8 billion.
However, it is still at a good level.
Vietnam has just reported trade surplus in the QI/2009. Although the country
experienced deficit again in April
with USD1.12 billion and about
USD1.5 billion in May, total deficit
value in the first 5 months of 2009
was USD1.13 billion. With this
trend, we expect the trade deficit of
2009 to be at lower level of around
USD10 billion than previous year.
CPI tends to decrease to
reasonable level
CPI in May 2009 continued to increase slightly to 0.44% m-o-m or 2.12% y-o-y due
to the impact of adjusted petrol price recent months. There was concern of inflation
coming back, however, with CPI is still in expected trend and we expect the CPI in
2009 would be less than 15%.
TRADE BALANCE (VND BN)
Source: GSO, IMF
Vietnam CPI
Source: GSO
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Monetary policy and FX were reasonably stable.
In addition to the first economic stimulus packages to deal with economic downturn,
the second lot of similar package has been launched by the Government to continue
subsidizing borrowing costs of businesses with 4% for medium and long term loans.
We see this move is quite positive in order to push investment and demands strongly.
As a result, this would help support directly businesses and stop economic slowdown
as well as maintain growth in the current challenging situation.
According to SBV, some other key interest rates will also be applicable from June 1st,
2009. Recapitalization interest rates and rediscount interest rates for credit institutions
are 7% and 5% per annum, respectively. Moreover, the overnight interest rate for
inter-banking online payment and loans to compensate losses in SBV’s payment to
banks are both 7% per annum.
End of May-2009, commercial banks reported that outstanding loan entitled to interest
rates support of 4% per annum is more than VND 301 trillion.
The State Bank of Vietnam has recently adjusted the trading band of USD/VND from
2% up to 5%. The rate increased to 17,750 and topped at 17.839 at the announcement
on 24 March. The rate increased to 18,000 at the unofficial market. However, it
became stable and just fluctuated around 17,700-17,800 at the end of March due to
weak demand and strong supply from gold export source.
Basic Interest Rate (%)
Source: GSO, SBV
USD/VND
Source: GSO, SBV
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6%
21%
46%49%
60%65%
70%
0%
20%
40%
60%
80%
Vietnam Indonesia Chile Thailand Malaysia Korea China
III.2. Bank Sector
III.2.1. Landscape of Vietnamese bank sector
Vietnam’s banking industry
landscape is marked by a
large and increasing number
of players that include state-
owned commercial banks,
private joint-stock
commercial banks, foreign
JV banks and foreign bank
branches. Market share
concentration remains quite
high for the time being, with the big four state-owned and pre-state owned
commercial banks (SOCBs) continuing to dominate in both loans and deposits.
However, joint stock banks become stronger with market share increased in both
lending and fund mobilization.
Banking penetration, relative to nominal GDP, is on the move but still low,
compared to other countries in the region, represents substantial rooms for
growth.
Total bank loans reached VND 1,223 billion or US$69.9 billion at the end of 2008,
equaling to 82% GDP, steadily up from just 35% GDP in 2000.
Vietnam’s bank penetration in term of savings is even lower. The country currently
has only around six million bank accounts, five million of them for retails out of to a
total population of 86 million, which translates into a 6% market penetration. The
government’s focus on banking reform has helped to improve public confidence in
banks over the last few years and total bank deposits has experienced a steady rise
from 23% of GDP in 2000 to 50% in 2006.
Consumer loan still a small part of total loan
Consumer loan of the country is still at low level of 6.54% of gross loans or around
5.3% of GDP (as of Sep-2008) while this ratio in other developed counties is much
Bank Account as Percentage of Population (%)
Source: Deutsche Bank, S&P, CEIC, World Bank
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higher over than 30%. This will be changing on the back of a growing middle class
and a young population acquiring consumption culture. It is anticipated that consumer
loan as a main part of retail sector will be the key driver of banking growth in Asia
Pacific.
Growth, the banking industry is advancing rapidly with both deposits and loans
rising at high, double-digit growth rates per annum.
The robust economic backdrop and development of products/services has resulted in
Vietnam’s credit growth of more than doubling the pace of GDP growth, a 25%
CAGR for 2000-2006. Credit growth peaked above 35% during 1999-2000 due to
substantial infrastructure investments. But the government then tightened the
regulations which led to a more moderate 20-28% growth in 2001-2003. Credit
growth again rose sharply to 42% in 2004 as a result of the global economic recovery,
property and further investment boom. In response to a sharp increase in inflation and
credit growth, the State Bank of Vietnam (SBV) raised its basic interest rates and
reserve requirements in 2005 which resulted in a normalization of credit growth to
30% in 2005 18% in 2006 and 58% in 2007. Interest rates were overly high and the
inflation rate reached up o 21% in 2007.
In 2008, as the result of government’s effort to reduce the country’s credit growth and
control its inflation, the tightening monetary policy was apply, the base rate skied
rock up to 14% while lending rate was capped at 21%. Market became illiquid due to
high capital cost and the crisis in the global market which narrow the market for
output products.
The key segments of growth story are the private corporate, SME and consumer
lending areas, as their development is still in a nascent stage. On the other hand, the
banking sector’s historical reliance on SOE borrowing (especially SOCBs) should
continue to drop.
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Lending 2008
Lending 2007
Source: SBV Annual report 2008
Fund Mobilization 2008
Fund Mobilization 2007
Source: SBV Annual report 2008
57.05%
9.01%
33.94%
23.73%
9.30%
66.97%
SOCBs
JSCBs, non bank
institutions &
credit funds
FBBs & JVBs
33.14%
8.79%
58.07%
68.98%
8.11%
23%
SOCBs
JSCBs, non bank
institutions &
credit funds
FBBs & JVBs
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Credit Growth (trillion VND)
Source: SBV Annual report 2008
Fund Mobilization (trillion VND)
Source: SBV Annual report 2008
Asset Quality - Vietnamese
banks’ overall asset quality
has been improving since 1999
largely due to banks’ write-off
efforts and strong new loan
growth. According to non-
performing loan (NPL) data
reported by SBV, NPL ratio
peaked at a high of 14.5% in
1999, though the true underlying
level of problem loans is believed to have been even higher. Asset quality began to
improve thereafter as the economy recovered, the government’s SOE and banking
reform efforts started to take positive effects. In 2001-2003 the government injected a
large amount of money into the SOCBs to enable them to write down their NPLs.
Subsequently, NPLs dropped significantly to 4.7% in 2003 from 8% in 2002. There
was a sharp increase in the reported NPLs in 2005, standing at 7.7%, but due to a
change to more stringent NPL classification standard rather than due to a true
Bank Asset Quality
Source: Deutsche Bank AG
28
*
39
*
-22
*
-8
*
10
*21
*
12.7%
8.5%8.0%
4.6%
7.7%
4.7%
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005
US
$ m
illi
on
0%
2%
4%
6%
8%
10%
12%
14%
Bad Dept Exp (US$mm) Net NPL/Equity (x) NPL Ratio (%)
x
*
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deterioration of credit quality.
By the end of 2008, total equity of banks increased by 30% from US$7.2 billion to
US$ 9.3 million due to significantly increasing in earnings in 2007 and banks’
chartered increasing plan as a requirement of SBV of VND 1.000 billion ( aprox US$
57 million)
Total Assets 2008 – Top 15 Vietnam banks (US$ million)
Source: MKS, 2008 annual reports of banks
Market share concentration remains quite high for the time being, with the big
four state-owned and pre-state owned commercial banks (SOCBs) continuing to
dominate in both loans
and deposits.
As of May 2009, there were
03 state-owned commercial
banks (SOCBs), 39 joint-
stock commercial banks
(JSCBs) of which 2 banks
are pre- state-owned banks
(Vietcombank and
Vietinbank), 5 joint-venture
Banks, 40 foreign bank branches, a number of credit cooperatives, microfinance
institutions and financing companies operating in Vietnam’s banking sector and
specially 5 new wholly foreign banks. The big four state and pre-state owned
commercial banks (Vietcombank, Incombank, Agribank and BIDV) still dominate the
US$ million
22,107
13,93512,683
11,232
6,525
3,917 3,401 2,757 2,534 2,205 1,984 1,977 1,888 1,349 1,284
Agribank BIDV VCB Vietinbank ACB STB Techcom EIB MB SCB VIB EAB MSB HBB SEAbank
Vietnam – Number of Banks 1991- May 2009
Source: MKS, SBV
4
41
48
3937 37 37
39
1544 35554
8
40
333129
26
18
4 555443 5
1991 1993 1995 2001 2005 2006 2007 May-09
SOCBs JSCBs FBBs JVCBs Wholly foreign banks
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sector with around 70% of the nation’s loans outstanding as of 2007 (or 2008),
focusing mainly on SOE segment. JSCBs account for around 16% market share,
focusing mainly on SMEs and individuals. Foreign bank branches and JV banks hold
around 10% market share, while the small credit and leasing institutions together
comprise less than 5% of the market.
Bank Performance - in 2008 in Vietnam, no bank reported losses, no bank
became insolvent despite of financial crisis over the world.
In fact, 2008 was a very tough time for banks in Vietnam. The stormy year 2008
struck deadly blows to local banks. Furthermore, Vietnam’s macroeconomic
turbulence created extremely difficult conditions for banks to operate. Vietnamese
banks have limited capital base to ensure liquidity and lack of professional skills to
keep the balance sheet clean. However, in 2008, Vietnamese banks achieved much
better results than banks in other countries (not mentioning the collapsed international
banks). In 2008, Asian banks earned only 0.27% return on assets while the worldwide
average was 0.47%. The ROAE of 258 banks in 14countries was 0.15% and that of
1465 banks in 79 countries was 3.47%.
ACB continued to outperform the whole market. In the meanwhile, Vietcombank
moved further away from the SOCBs group with third highest RoaE but its asset
usage still lagged behind other members. The most critical issue that VCB needs to
solve in a bid to become the market leader is the asset quality. The NPL of the bank
was second worst (4.6%).
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Vietnam – Bank Grouping 2008
Source: Jaccar
In general, the capital profitability level (ROaE) of the Vietnamese banking sector
ranges from 10% to 23%, with few exceptions. This ratio surpassed the average
ROaE of 8.17% for the American banks1, 9.33% for the Asian2, and 11.8% for the
worldwide average3. In terms of asset usage (ROaA), Vietnamese banks separate into
two groups: SOCBs have a range of 0.5% to 1.1% and JSCBs of 1.3% to 3%. The
average of Asian banks is 0.89% and the worldwide average is 1.19%. The ROAA of
JSCBs is about 1.15% higher than that of SOCBs and the ROAE is 8.5% lower. It
signifies that the JSCBs utilize financial assets much better than SOCBS and those
SOCBs are highly leveraged due to the fact that the Owners’ equity (i.e. state’s equity
indeed) is intentionally kept low.
Source: Jaccar, Bloomberg
III.2.2 In the future
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It would be tough time for banking sector upcoming years as signs of economic
recovery are still dim. Banks’ profitability highly depends on the Government’s
measures to stimulate production and consumption while controlling inflation. Thus,
contrary to previous years, most banks set conservative profitability targets. Most
importantly, as can be seen from 2008, banks’ topmost concern now is how to tame
the non-performing loans and to clean up the balance sheet. This is an extremely
tough task as the whole sector’s NPL ratio grew to 5% in May 2009, up from 3.5% at
2008-end. Drawing lessons from 2008 that size really matters; all Vietnamese banks
have decided to increase their capital base in 2009 despite the unattractiveness of the
capital markets and the low level of investor confidence on economic growth (and
hence financial sector recovery).
However, Vietnamese banks were expected to have a strong growth, outperforming
many other banks in the region. The growth was based on following drivers:
Robust economic growth,
Growing population,
Rising income level,
High savings rates,
Low penetration and
Underdeveloped retail banking base,
III.3. Vietcombank profile
III.3.1. Overview of VCB
Headquartered in Hanoi, the Bank for Foreign Trade of Vietnam (“Vietcombank” or
the “Group”) is the third largest banking group in Vietnam by assets with
approximately VND221,950 billion ($12.75 billion) in total assets as at
31December 2008, representing a market-share of 15% by assets among domestic
banks. The Group is also the most profitable universal banking and financial services
group in Vietnam generating approximately VND3.765 billion ($216 million) of pre-
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provision operating profit as at 31 December 2008. Established in December 1963,
as a fully state-owned commercial bank (SOCB), the core businesses of the Group
include commercial banking, foreign exchange transactions, and international trade
finance services. The Bank’s vision is to build a universal financial group that
operated by best international practices, maintain its key role in Vietnam and
becomes 1 of top 70 Asian (non-Japan) financial institutions by 2015-2020.
Successful IPO and Listing Plan
On 26 December 2007, VCB preceded its IPO, earmarking the very first step of the
Vietnamese Government’s efforts to transform its five SOCBs into JSCBs. The
average price of VND 107,860 (USD 6.5) for a par value of VND 10,000 (USD 0.6)
was a big success for the Government in terms of profits realized.
As the first state-owned bank to be equitized, VCB had been received much attention
of and close instruction from the relevant governmental authorities as well as
investors both in domestic and abroad. For the first time in Vietnam, the equitization
of a state-owned enterprise was implemented according to international practices.
This is considered one of the most important events of the banking event in 2007 as
well as one of the most significant IPOs in the stock market of Vietnam. In 2008,
VCB was officially transitioned to a joint-stock commercial bank with the largest
chartered capital in Vietnam totaling to VND 13,790 billion ($ 792,5 million), under
the full registered name as “ Joint Stock Commercial Bank for Foreign Trade of
Vietnam” , its short name remains unchanged as “Vietcombank” .
The bank is making great efforts to list on the Stock Exchange in 1H09. On
December 31, 2008, the authorities from the Ho Chi Minh Stock Exchange (HOSE)
announced receiving initial listing application from the Bank for Foreign Trade of
Vietnam (VCB) whereby the bank will list 112,285,426 ordinary shares at 10,000
dong par on the Southern Stock Exchange, accounting for 9.28% of its chartered
capital (The State still controls 90.72% of the bank’s equity) under the consultancy of
VCB's Securities. On having the approval The State Securities Commission (SSC),
the bank is entitled to list its shares within 90 days. This means that VCB shares will
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be freely traded before the second half on the HOSE. We note that this is a pure
listing, no dilution will occur.
III.3.2. Ownership and Organizational structure
Ownership structure
Investors Shares owned Percentage SCIC (State) Overseas Corporations Local Corporations Vietnamese individual investors Foreign individual investors
Total
1
177 37
15,493 178
15,886
1,097,800,600
36,477,243 28,106,100 47,167,749
534,334
1,210,086,026
90.72% 3.01% 2.32% 3.90% 0.04%
100.00%
Source: VCB website
Currently, the Bank has one Head Office, one Operations Center, 63 main branches,
208 Transaction sites located throughout Vietnam, one training center, 4 subsidiary
companies in Vietnam, one overseas subsidiary company in Hong Kong, five joint
ventures, and an overseas representative office in Singapore.
Main subsidiaries of VCB include Vietcombank Securities Company (VCBS), a
leading securities house in Vietnam, VCB Fund management (VCBF), a joint venture
with Franklin Templeton, and VCB Leasing (VCBL), a very active leaser in the
financial sector. Others include: life insurer VCB-Cardiff, VCB Tower and VCB-
Bonday, which operates in real estate industry and Shinhan-Vina bank, a joint-venture
with Shinhan bank (Korea).
In the meantime, from now to 2015, VCB tries to improve its capacity and
competitiveness by raising the CAR to 10%-12%, and keeping NPL ratio of less than
3%. It aims at having average asset growth of approximately 15-20% p.a., minimum
ROAE of 15% p.a. and ROAA of 1.2% p.a. In our opinion, those targets will be
achievable.
The current organizational structure of VCB is as follows:
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III.3.3. Operations
Lending activities: VCB’s core business is in corporate banking. About two thirds
of its lending activities are carried out with big businesses, a large part of which
are state-owned enterprises, and nearly 10% are with individuals (1H08). The years
2007 and 2008 saw a clear commitment of the Board at fulfilling their expansion plan
to the private sector as part of the plan to move into a universal bank.
Lending activities for SMEs account for around 22% (1H08) and will continue to eat
up the share from the big SOEs in the years to come. In 2009, the proportion of credit
to SMEs, we anticipate, will approach 30% thanks to the Government’s stimulus
package for enterprises. Under the package, firms will borrow loans from banks
with 4% interest rate subsidy by the government for 12 months (with some specific
conditions applied).
Fund mobilization: VCB mobilizes huge amounts of capital from the depositors.
The customer deposits often account for approximately 70% of the total assets (equal
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to 10.4% of GDP). More importantly, perceived as a safe bank and having an
extensive outlet network nation-wide, VCB has the cheapest cost of funding among
commercial banks.
This massive fund enabled the bank to be active in the inter-bank market during the
down time of enterprises’ business activities (inter-bank lending often ranges from
30% to 50% of customer loans). Roughly 40% of the current accounts are in
foreign currencies, VCB turns out to be an oligopoly player while the financial
market was hungry for dollars during the period of devaluation threat in the second
quarter.
Trade finance is a core product of VCB. It holds approximately 30% of market-
share in this area. The bank receives a fee for providing trade finance facilities,
and receives interest income on amounts that are drawn under the facilities.
However, fee income is the most important revenue component. income on amounts
that are drawn under the facilities. However, fee income is the most important
revenue component.
International settlement is another core segment of the VCB’s business, in
which it retains a leadership position in Vietnam with about 27% market-share.
International settlement services are driven both by trade-related transactions as
well as fund transfers and other remittances. The bank’s services include
payment guarantees, outward and inward remittances, payments and money
transfers, as well as overdraft protection facilities. Leading customers for
international settlement include many of the country’s top importers and exporters
as well as smaller banks which do not possess international banking licenses. The
volume of money transfer in the first half of 2008 was USD 13 bn (VND 221 trn).
Foreign exchange trading: Being formerly the export and trade department of
State Bank of Vietnam (SBV) has allowed VCB to establish a strong track record
and foothold in foreign exchange transaction and trade financing. In 2008, VCB
carried out over US$30bn in foreign currency transactions, representing
approximately one third of all trade payments in Vietnam which is unrivaled among its
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domestic banking peers. Besides that, VCB has developed extensive international
network and has built up strong agency relationship with around 1,200 international
banks and bank agencies in 85 countries.
The card business serves as one of the major non interest income contributors for
VCB. Over the years, VCB has established a dominant position in the payment card
business. Credit cards service enjoys significant volume and thus makes high profits
since VCB applies the international fee grid. It expects to bring VND 275 bn (USD
16m) in profits in 2009 (Jaccar’s estimate). The bank can get at least 0.5% interest if
loaning this amount out on the inter-bank market, enjoying VND 17.5 bn (USD 1 m)
in profits per month . Owning a wide-spreading network of 1,200 ATMs and 7,800
POS and managing 3 million debit cardholders and 250,000 credit cardholders, VCB
has a fruitful territory for the fee income. This income contributes a large part to the
8.3% of the total revenue from the service income.
III.3.4. Market Position
Asset
VCB is the third largest banking group in Vietnam by assets with approximately
VND221,950 billion ($12.75 billion) in total assets as at 31 December 2008,
representing a market-share of 15% by assets among domestic banks. VCB’s scale
has enabled the bank the capture the lion’s share of loans to blue-chip state-owned
and equitized companies. The Group has built strong relationships with corporate
customers such as PetroVietnam, Electricity of Vietnam, Vinashin, Vinafood and
Vietnam Steel Corporation. VCB is a market leader across corporate banking
segments in Vietnam, supported by a dominant position in trade financing and
international payments (with a market-share of approximately 27%), in lending to
export-related industries, as well as in foreign exchange transactions.
Market share
Currently, VCB is a market leader in many respects. It is the most profitable banking
and financial services group in Vietnam, having the highest Profit Before Taxes (i.e.
VND 3,357 bn or USD 200 m) after booking a huge amount at provision reserves,
which is VND 3,050 bn (USD)180 m) (non-consolidated).
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 40
The market leader position is built up on the corporate banking segment and on
international financial settlement services. It handles over one-third of export trade
payments in Vietnam and holds 17% market share in import financing and 27% in
international payments. On the retail banking market, VCB operates the second
largest ATMs network (with 1,200 machines) and is the number 1 in providing
POS (with 7,800 devices) throughout the country. It manages over 250,000 credit
cards (holding 40% in international credit card issuance) and over 3 million debit
cards (33% market share).
Profitability: Return on Assets (ROAA), Return on Equity (ROAE)
VCB has improved its operations dramatically in the past five years. Despite the
fierce competition from other SOCBs, the JSCBs and the international banks, VCB
maintained good growth in its profitability. Margins and ROE have recovered sharply
since 2002 when ROE hit a low of just under 7.5%. The bank’s PBT (non-
consolidated) in 2008 is VND 3,557 bn (USD 197m).
At present, VCB has a stronger financial performance and position compared with
other SOCBs. It is the most profitable and efficient SOCB. In 2008, VCB achieved
ROAE and ROAA of 15.77% and 1.03% respectively. During the same period, the
average ratios of other SOCBs are 15% and 0.7% respectively.
VCB’s ROAA is below the average Asian banks’ ratio of 1.45% and higher than the
US banking industry of 0.86%. Like other SOCBs, however, VCB’s ROAE, which
is 20.3%, surpassed the average ROE of 16.33% for Asian banks and 8.17% for the
American. They imply that VCB is more profitable and more leveraged than Asian
incumbents.
As compared to the top ten JSCBs, VCB takes advantage of its resources less
efficiently. The Tier-1 banks have average ROAA of 2.37% and the Tier-2,
1.67%. In terms of maximizing shareholders’ funding, VCB is better than the Tier-2
banks. However, it needs to work harder to approach Tier-1 banks’ achievements.
Ratio 2005 2006 2007 2008 5-year Av. SOCBs Tier 1
JSCBs
Tier 2
JSCBs
Asian
banks
US com.
banks
ROAA ROAE
1.01% 16.54%
1.89% 29.42%
1.32% 19.43%
1.03%
15.77% 1.31%
20.3% 0.70%
21.78% 2.37% 30.33%
1.67% 14.52%
1.45% 16.33%
0.86% 8.17%
Source: Jaccar
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 41
III.4. Financial Highlights and Forecasts
In order to value VCB, we estimate key assumptions as followings:
KEY ASSUMPTIONS
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Cash and cash equivalents growth 0.67% 20.52% 32.51% 8.67% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
Loan growth 35.30% 13.88% 10.97% 43.97% 15.65% 20.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Loan overdue/gross loan 2.14% 3.23% 2.75% 3.31% 4.62% 4.60% 3.00% 3.00% 3.00% 3.00% 3.00%
Provision to NPLs ratio 72.32% 68.09% 80.09% 65.06% 80.00% 75.00% 75.00% 75.00% 75.00% 75.00%
Deposits growth 27.00% 23.88% 9.25% 18.21% 10.93% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
Balance with central bank/Deposits 2.95% 5.78% 9.89% 8.24% 19.46% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%
Investment in securities growth 9.25% 32.05% 30.28% 3.30% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
Equity investment -11.31% 2.42% 20.10% 101.47% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Fixed assets growth 19.63% 4.75% -8.52% 29.71% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
Total assets growth 13.93% 22.11% 18.24% 12.43% 21.00% 21.00% 21.00% 21.00% 21.00% 21.00%
Shareholders' Equity 17.21% 32.21% 21.79% 1.76% 11.41% 25.14% 16.06% 16.95% 17.79% 15.88%
Borrowings from the SBV growth -13.43% 39.22% -22.97% -24.99% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Interest income growth 46.3% 44.3% 24.4% 10.7% 0.6% 18.3% 18.4% 18.5% 18.6% 18.79%
Interest income/total earning assets 3.7% 4.8% 5.7% 6.0% 5.9% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Interest expenses/interest bearing debts 2.2% 2.4% 3.5% 4.2% 4.3% 3.5% 3.5% 3.5% 3.5% 3.5% 3.50%
Interest expenses growth 24.3% 73.8% 38.2% 11.9% -3.6% 18.2% 18.3% 18.5% 18.6% 18.9%
Non-interest income growth 119.0% 2.9% 43.3% 19.1% 37.7% 20.0% 30.0% 30.0% 30.0% 30.0% 30.00%
Non-interest expenses growth -31.7% 32.1% 43.4% 33.4% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Personnel expenses growth 74.9% 13.5% 43.8% 19.8% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Effective Tax Rate 26.3% 26.6% 26.1% 24.6% 21.8% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Payout Ratio 53.4% 31.8% 40.0% 40.0% 40.0% 50.00%
Based on the above key assumptions, we make financial projections in the next 5 years with more details with the rationales included.
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 42
BALANCE SHEET PROJECTION
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
A. Loans
Item 1 Loans 52,459 59,072 65,882 94,301 107,586 129,125 164,114 205,142 256,428 320,535 400,668
Item 2 Loans overdue 1,146 1,972 1,861 3,231 5,207 6,226 5,076 6,345 7,931 9,913 12,392
Item 3 Loan loss reserve (829) (1,343) (1,490) (2,102) (4,264) (4,981) (3,807) (4,758) (5,948) (7,435) (9,294)
Total A 52,776 59,701 66,252 95,430 108,529 130,371 165,383 206,728 258,410 323,013 403,766
B. Other earning assets
Item 4 Balances with the central bank 2,607 6,336 11,848 11,663 30,561 6,597 7,916 9,499 11,399 13,679 16,415
Item 5
Current A/C, deposits, placements with
banks 38,602 42,384 52,235 41,598 30,368 44,285 42,885 41,808 38,379 31,607 20,709
Item 6 Investment in Securities 21,569 23,564 31,117 40,538 41,876 48,158 55,381 63,688 73,242 84,228 96,862
Item 7 Equity investment 537 476 488 586 1,180 1,215 1,252 1,290 1,328 1,368 1,409
Total B 63,315 72,760 95,688 94,384 103,985 100,254 107,434 116,285 124,348 130,882 135,396
C. Total earning assets (A+B)) 116,091 132,461 161,940 189,814 212,514 230,625 272,817 323,013 382,758 453,895 539,162
Item 8 D. Fixed assets 915 1,095 1,147 1,049 1,361 1,565 1,800 2,070 2,380 2,737 3,148
E. Non-earning assets
Item 9 Cash and cash equivalents 1,993 2,006 2,418 3,204 3,482 13,411 16,690 19,142 22,290 26,334 30,792
Item 10 Other assets 1,007 1,158 1,447 3,341 4,593 3,516 4,131 4,897 5,811 6,899 8,206
Total E 3,000 3,165 3,866 6,545 8,075 16,927 20,821 24,040 28,100 33,234 38,998
Total Assets 120,006 136,721 166,952 197,408 221,950 249,117 295,437 349,123 413,239 489,866 581,307
G. Deposit and money market funding
Item 11 Customer deposits 88,503 109,637 119,779 141,589 157,067 188,480 226,177 271,412 325,694 390,833 469,000
Item 12 Current A/C of banks, payables to SBV 13,664 11,829 16,468 12,685 9,516 9,991 10,491 11,016 11,566 12,145 13,359
Item 13 Term deposits from other banks 8,410 4,126 12,494 17,940 23,901 26,291 28,920 31,812 34,993 38,492 42,341
Total G 110,577 125,592 148,741 172,214 190,483 224,762 265,587 314,239 372,253 441,470 524,700
H. Other fundings
Item 14 Others 2,248 2,712 7,084 11,642 17,677 8,990 10,623 12,570 14,890 17,659 20,988
I. Equity 7,181 8,416 11,127 13,552 13,790 15,364 19,227 22,314 26,095 30,738 35,619
Total Equity and Liabilities 120,006 136,721 166,952 197,408 221,950 249,117 295,437 349,123 413,239 489,866 581,307
Discrepancy 0 0 0 0 0 0 0 0 0 0 0
CAR 9% 10% 10% 11% 11% 11% 12% 12% 12% 13% 13%
Provided on Jaccar and VCB prospectus, based on Basel I
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 43
INCOME STATEMENT PROJECTION
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 15 Interest Income 4,337 6,345 9,157 11,389 12,611 12,684 15,005 17,766 21,052 24,964 29,654
Item 16 Interest expenses (2,441) (3,034) (5,273) (7,289) (8,157) (7,867) (9,296) (10,998) (13,029) (15,451) (18,364)
Net interest income 1,897 3,311 3,884 4,100 4,455 4,818 5,709 6,767 8,023 9,513 11,289
Item 17 Non-interest income 947 975 1,397 1,664 2,291 2,749 3,573 4,645 6,039 7,851 10,206
Item 19 Non-interest expenses (499) (341) (450) (645) (861) (1,033) (1,240) (1,488) (1,786) (2,143) (2,571)
Item 20 Personel expenses (226) (395) (449) (645) (773) (1,005) (1,306) (1,698) (2,208) (2,870) (3,731)
Item 21 Depreciation (158) (232) (314) (337) (230) (313) (360) (414) (476) (547) (317)
Item 22 Provision (463) (1,559) (174) (944) (2,111) (717) 1,174 (952) (1,190) (1,487) (1,859)
Profit before tax 1,499 1,760 3,894 3,192 2,771 4,498 7,551 6,861 8,403 10,316 13,018
Income tax expenses (395) (467) (1,017) (785) (605) (1,125) (1,888) (1,715) (2,101) (2,579) (3,254)
Net Profit 1,104 1,293 2,877 2,407 2,166 3,374 5,663 5,146 6,302 7,737 9,763
KEY FINANCIAL RATIOS
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Profitability
Average Yield on Loans 8.09% 10.39% 13.52% 11.68% 11.18% 9.37% 8.87% 8.40% 7.96% 7.55% 7.18%
Average Yield on Deposits 2.76% 2.77% 4.40% 5.15% 5.19% 4.17% 4.11% 4.05% 4.00% 3.95% 3.92%
Cost-to-Income Ratio 31.04% 22.58% 22.98% 28.24% 27.63% 31.07% 31.31% 31.55% 31.78% 32.02% 30.79%
ROAA 1.03% 1.01% 1.89% 1.32% 1.03% 1.43% 2.08% 1.60% 1.65% 1.71% 1.82%
ROAE 18.00% 16.54% 29.42% 19.43% 15.77% 23.15% 32.74% 24.77% 26.04% 27.23% 29.43%
Asset Quality & Provisions
NPLs 1146.00 1,972.00 1,861.00 3,231.12 5,207.04 6,226.17 5,075.68 6,344.60 7,930.76 9,913.44 12,391.81
End of Period Reserves
(828.84)
(1,342.73)
(1,490.47)
(2,102.20)
(4,264.20)
(4,980.94)
(3,806.76)
(4,758.45)
(5,948.07)
(7,435.08)
(9,293.85)
NPLs growth 72.1% -5.6% 73.6% 61.2% 19.6% -18.5% 25.0% 25.0% 25.0% 25.0%
Loans loss reserve coverage 72.3% 68.1% 80.1% 65.1% 81.9% 80.0% 75.0% 75.0% 75.0% 75.0% 75.0%
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 44
III.5. Valuation
III.5.1 Valuing VCB using DDM
We applied a 2-stage Dividend Discount Model. We assume that the bank has two stages
of development. The first stage is from FY2009-2014, and the second is 2015 to
perpetuity. The model will derives the present value of all future dividends, to find out
the value of the bank’s stock.
Assumptions for this model are as follows:
- Chartered capital of the bank of VND15 trillion since FY2014.
- In the first stage: Dividend will be paid at VND 1,200 per share5 in FY2009-FY2010
as announced by the bank managers and dividend payout ratio will be keep at 40-50%
for next years. We set payout ratio of 40% in FY2011-FY2013 and 50% in FY2014.
- In the second stage: Dividend grows at a steady state rate since FY2015 to perpetuity.
1. Calculating cost of equity
The Cost of Equity is calculated based on CAPM: Ke = Rf + Beta*E[Rm-Rf]
Risk free rate
We used 10 year government bond of Vietnam as a risk free rate. Risk free rate (Rf)
therefore, are estimated to be 9.30%
10-year government bond6 YTM in Jan 2009
Rf 9.30%
Beta
In determining the cost of equity for discounting, because it is difficult to derive a
suitable beta for Vietnam banking sector, the beta of bank industry of emerging country
in 2009 was used.
5 In Vietnam they announce dividend ratio based on fix par value of VND10,000 per share. Vietcombank
announce dividend ratio of 12% means that VND 1,200 for each share. 6 Asia Bond Monitor QI-2009 – Asian Development Bank
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MEBF 5th , Group 3 45
Market risk premium
According to Damodaran writing we have total risk premium of Vietnam as follow:
Total risk premium
2005 10.20%
2006 8.66%
2007 9.29%
Sep-08 10.89%
Jan-09 12.88%
Expected total market risk premium - FY2009 10.38%
Due to volatile time, we used average total risk premium rather than the most update one.
So the Vietnam total risk premium of 10.38% is used.
Cost of equity
COST OF EQUITY 2009
Risk free rate - Rf 9.30%
Beta 0.78
Total risk premium 10.38%
Average Cost of Equity 17.40%
From the above table, the average Cost of equity is estimated at 17.40%, which will be
used in the Dividend Discount method to estimate the value of VCB shares.
2. Estimating growth rate
Dividend Growth Rate g=(1-payout ratio)*ROE
g= retention ratio *ROE
Retention ratio FY20014 50.00%
ROE FY2014 27.41%
g= 13.70%
The growth rate of dividend, therefore, is 13.70%
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MEBF 5th , Group 3 46
3. Terminal value
The terminal value depicted the present value of the free cash flows after the terminal
projection year to perpetuity, FY2014.
Termination value using DDM
Dividend growth since FY2014 to perpetuity (g) 13.70%
Dividend payment FY2014 (in VND bn) (Div2014) 3,254
Required rate of return from FY2014 to perpetuity (Ke) 17.40%
Terminal Value 2014 = Div 2014 x (1 + g) / (Ke -g) 100,155
The weighted average of terminal value of Vietcombank end of FY2014 is VND 100,155
Then the free cash flows and terminal value is discounted to acquire the PV of the bank.
With our earnings model, the present value of Vietcombank is VND 51,711
2009F 2010F 2011F 2012F 2013F 2014F
Growth rate 13.70%
Expected EPS 2,249 3,775 3,430 4,201 5,158 6,509
Expected payout ratio 53.35% 31.79% 40% 40% 40% 50%
Expected Dividend per share 1,200 1,200 1,372 1,681 2,063 3,254
Mid point 0 1 2 3 4 5
Present Value of Dividend 1,200 1,022 996 1,039 1,086 1,459
Terminal Value 2014 100,155
Present Value of Terminal Value 44,910
Total 1200 1022 996 1039 1086 46,369
Present Value of a Share 51,711
III.5.2 Valuing VCB using Multiples Methods
Refer to benchmark similar size of banks over the Asia, we can see below to assist our
relative valuation, we have selected the following banking peers as our comparables.
These companies are selected because they are operating in a relatively high growth
environment and are market leaders in their respective countries. On the domestic front,
we have selected ICB, ACB and STB as our comparables. These comparables give an
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 47
average expected P/BV of 3.7x for 2008; P/E at 22.3x for 2008.
Market Actual Actual Actual Actual Actual
Banking comparison Country Cap
(US$
mn)
2007
P/B
2008
P/B
2007
P/E
2008
P/E
2008
ROE
Industrial and Commercial Bank
of China
China 338,566 5 4.4 34.2 24.8 18.9
Bank of China Limited China 195,129 4 3.5 28.5 21.1 16.9
Bank of Communications Co
Ltd
China 88,190 5.7 4.9 42.9 31 19.1
China Merchants Bank Co Ltd China 76,835 9.2 7.6 46.4 31.7 21.3
State Bank of India India 30,981 2.8 2.5 17.7 15.2 16.5
ICICI Bank Limited India 32,203 2.9 2.7 30.3 24.5 12
HDFC Bank Limited India 15,236 5.4 4.7 38.6 29.5 16.8
PT Bank Rakyat Indonesia
(Persero) Tbk
Indonesia 10,479 4.9 4.1 19.3 15.7 29.1
Bank of Philippine Islands Philippines 4,025 2.5 2.5 16.2 14.1 14.7
Bangkok Bank PCL Thailand 7,215 1.3 1.2 11.1 10 12.8
Asia Commercial Bank (ACB) Vietnam 5,806 9.1 3.4 30.7 11.8 36.5
Sacombank (STB) Vietnam 2,181 4.1 1.6 24.9 9.9 22.75
Vietinbank Vietnam 11,779 n.a 4.8 n.a 51.1 9.9
Average 4.7 3.7 28.4 22.3 19.0
Source: Reuters, Bloomberg, Jaccar
As the result, we computed & estimated from average P/E; P/B of banking sector, the
price for VCB is 50,241 as average P/E market & 37,740 as average P/B market, below
is our computation. The earning / equity projected from above forecast of earning model:
Chartered Capital 15,000
Number of shares (bn) 1.50
Earnings FY2009 (VND bn) 3,373.85
Average PE 22.34
Price of VCB valuing via PE (VND) 50,244.39
Equity FY 2009 15,363.89
Average PB 3.68
Price of VCB valuing via PB (VND) 37,740.02
However, as in the case of the P/E ratio, differences in profitable growth opportunities,
risk profile, or business mix will affect the MBV ratio of a specific bank. Similarly, the
provisioning policy for nonperforming assets or the accounting rule used at the time of a
merger can affect the reported book value of equity.
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MEBF 5th , Group 3 48
The Multiple approaches are widely used by bank analysts. Nonetheless, opponents to
this approach recommend focusing, not on accounting figures such as earnings or book
value of equity, but on the reality of future cash flows generated by the bank.
A second problem with the market multiple approach is the implicit assumption that the
stock market values the shares of banks correctly. This might often be true in efficient
markets. In an emerging market like Vietnam, this assumption does not apply.
Furthermore, VCB shares are now still traded in the OTC market, which is very far from
being efficient, we would need to see the listing benchmark after big-bang date of 30
June 2009.
However, the market multiple approach should not be dismissed, as it provides a useful
benchmark, the current valuation by the stock market. One would need strong arguments
to deviate substantially from current market valuation.
Summary
There are no big gaps in results from our applied methods. With DDM method, the price
of Vietcombank is VND 51,711 per share. In the meanwhile, they are VND 37,740 and
VND 50,241 for P/B and P/E Multiples Method. We apply weights to reach weighted
average price of around VND 48,000 per share.
Methods DDM P/E P/B
Present Value of a Share 51,711.50 50,244.39 37,740.02
Weighted applied 50% 25% 25%
Estimated Price of Vietcombank share 48,000
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MEBF 5th , Group 3 49
Part IV
CONCLUSION
VCB is really an interesting case study for us. VCB is really a leading bank in Vietnam.
With its prospect, the bank is believed to have a strong growth in its business and be
possible to reach its targets in the future. Completing the valuation, our recommended
target price of VCB is around VND 48,000 per share.
We have used two different approaches to value the price of VCB: Dividend Discount
Model (DDM) approach and Multiples approach. Each one showed their strength and
weakness in valuation in practice in Vietnam.
The DDM approach with its simplicity and intuitive logic, showed its advantages when
valuing a bank share price. Firstly, VCB is a big one with mature businesses and stable
growth rates. Secondly, in the volatile time now, it was reasonable to base on dividend
level that managers set as a level that they can sustain even with volatile earnings.
Finally, it just required fewer assumptions to get forecasted dividend than to forecasted
free cash flows, especially estimating capital expenditure and working capital for a bank
like VCB. Beside the advantage are disadvantages of this method. In VCB case, we have
no choice to estimate next year dividend, just basing on the commitment letter of bank
managers because the bank has just transformed from state-owned bank into joint stock
bank mid-2008. Moreover, VCB has CAR ratio below the required level of Basel, so the
bank cannot let the payout ratio at the level that reflects all its capacity in the first years
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MEBF 5th , Group 3 50
of transformation. One again, we used the announced number of 40%-50% of payout
ratio for the next first five years.
We’ve now just passed the worst time with the financial crisis and most of independent
institutions or organizations showed their cautious view on the economy of the world as
well as Vietnam. They reported significant changes in rating Vietnam in many respects;
however, when they released their reports, Vietnam has showed many green signals in
the economy as well as the bank sector. That’s the reason why we started our valuation
with an update on the macro economy of Vietnam and then used their forecast on
Vietnam as a reference only or we used average numbers to reduce the impact of negative
view in a volatile time.
Moreover, VCB has never been traded officially in an exchange floor and there are only
three bank listed in Vietnam which almost much smaller than VCB size. We therefore
found hard to reach sector data to estimate.
With difficulties mentioned above, we used Multiples approach as a way to re-test the
price of VCB with market impact. PE and PB multiples were used and showed no big gap
compared to the result received from DDM. In this approach, we used average PE and PB
of some banks in the region which have the same size with VCB to calculate group
average and used it to estimate VCB price.
Which is the best approach in valuing a bank in Vietnam like VCB and which is the right
valuation for it? It is so hard to answer. However, with this valuation, we have showed
our independent view in bank sector analysis as well as valuing VCB. Dealing with a
great number of obstacles and limitations, we all did our best to prove the feasibility of
application valuation methods in Vietnam. We hope that this project is not only an
academic product but a valued reference to make investment decision for VCB for the
time being.
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MEBF 5th , Group 3 51
Reference:
1. A. Damodaran, Investment Valuation, Second Edition 2002
2. Digging Into The Dividend Discount Model - by Ben McClure
3. Intrinsic Value and Dividend Discount Methods - http://www.gurufocus.com
4. Bloomberg, Reuter, Mekong Security, SanOTC.com, Jaccar.
5. The Economist Intelligence Unit, Country Report, February 2009
6. Vietnam’s One Stop Financial Portal, www.stox.vn
7. Vietnam Economic Times
8. Deutsche Bank, World Outlook, 30 March 2009
9. Deutsche Bank, Vietnam Bank Primer, 18 April 2007
10. Moodys ratings, www.moodys.com
11. Aswath Damodaran, last updated January 2009,
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html,
12. Bloomberg, Reuters
13. PricewaterHouseCoupers, Beyond the Brics: a broader look at emerging market
prospects,
http://www.pwc.com/Extweb/pwcpublications.nsf/docid/146E4E4D524871548
52573FA0058A179
14. World Bank, Taking Stock, For the Mid-year Consultative Group Meeting for
Vietnam, 06 June 2009
15. Annual Report of Vietcombank 2004, 2005, 2006, 2007, 2008
16. Brealey/Myers/Allen - Corporate Finance, McGraw-Hill, eighth edition,
17. Investment Valuation - Tools and techniques for determining the value of any
assets,
18. Vietnam Bank primer - Deustche Bank, issued on 18 April 2007
19. Banking in Vietnam - A competitive landscape - issued Sep 2007
20. Valuation Methodologies - Wall Street Training
21. Financial Valuation Workbook - Jame R. Hitchner. Dividend policy -
Frankfurter
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MEBF 5th , Group 3 52
APPENDIX
ASSET SIDE
Loan growth
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 1 Loans
52,459
59,072
65,882
94,301
107,586
129,125
164,114
205,142
256,428
320,535
400,668
Loan growth is projected to be 20% due to economic downturn in 2009 and 25% in the five years onward. The rationales for our
projection are as below:
GDP of Vietnam for the last five years is 7.8% per annum. Loan growth in Asia countries has been 1.5x-3.0x of GDP growth. Average
loan growth of VCB over the past five years is 24%. Average loan growth of Vietnam banking industry over the last five years is 20%.
The State Bank of Vietnam will continue to ease monetary policy to spur economic activity, including stimulus package and interest
subsidy lending program. In the increasing competition pressure from joint stock and foreign banks, we forecast VCB will continue
keep its big brother role in Vietnam banking sector to ensure credit growth rate at 25% pa.
Loan overdue
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 2 Loans overdue
1,146
1,972
1,861
3,231
5,207
6,226
5,076
6,345
7,931
9,913
12,392
Gross loan
53,605
61,044
67,743
97,532
112,793
135,352
169,189
211,487
264,359
330,448
413,060
Loan overdue as % of gross loan 2.1% 3.2% 2.7% 3.3% 4.6% 4.6% 3.0% 3.0% 3.0% 3.0% 3.0%
YoY gross loan growth 13.9% 11.0% 44.0% 15.6% 20.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Loan overdue is projected to decrease compared to 2008, with a ratio of 4.6% in 2009, equal in 2008 and falling to 3% in 2010-2014.
We expect the bank will strengthen its risk management practices with cooperation of its potential foreign strategic investor.
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MEBF 5th , Group 3 53
Loan loss reserve
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 3 Loan loss reserve
(829)
(1,343)
(1,490)
(2,102)
(4,264)
(4,981)
(3,807)
(4,758)
(5,948)
(7,435)
(9,294)
Loan loss reserve as % of loan
overdue 72.3% 68.1% 80.1% 65.1% 81.9% 80.0% 75.0% 75.0% 75.0% 75.0% 75.0%
Loan loss reserve as % of gross
loan 1.5% 2.2% 2.2% 2.2% 3.8% 3.7% 2.3% 2.3% 2.3% 2.3% 2.3%
The VCB has been implementing prudent credit policies and bad loan write-offs. Loan loss reserve to NPL ratio decreased from
80.1% as at 31 DEC 2007 to 65.1% as at 31 DEC 2008. We assumed that loan loss reserve to NPLs will decrease slightly to 80% in
2009 and keep 75% in 2010-2014 due to rigorous negotiations and effective resolutions of bad debts due to international standard
practices in credit risk management system supported by potential foreign strategic partner.
Balance with central bank
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 4 Balances with the central bank
2,607
6,336
11,848
11,663
30,561
6,597
7,916
9,499
11,399
13,679
16,415
Total customer deposits 88,503 109,637 119,779 141,589 157,067 188,480 226,177 271,412 325,694 390,833 469,000
Balance with central bank as % of
total customer deposit 2.95% 5.78% 9.89% 8.24% 19.46% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%
Total deposit mobilization
102,167
121,467
136,247
154,274
166,583
198,472
236,667
282,427
337,260
402,978
482,359
Total loans
52,776
59,701
66,252
95,430
108,529
130,371
165,383
206,728
258,410
323,013
403,766
Loan as % of total deposit
mobilization 51.7% 49.2% 48.6% 61.9% 65.2% 65.69% 69.88% 73.20% 76.62% 80.16% 83.71%
Balance with central bank basically is compulsory reserve of deposits mobilization from customers. According to the Decision No
379/QĐ-NHNN dated 24/02/2009, for VND deposit, compulsory deposit rate was required at 3% for customer deposit for term up to
12 months, and 1% of customer deposit from 12-24 months. For foreign currency deposit, compulsory deposit rate is required at 7%
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 54
for term deposit up to 12 months and 3% for term deposit from 12-24 months. Hence, it is projected to be 3.5% of the total customer
deposits.
Balance with other banks
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 5
Current A/C, deposits, placements
with banks
38,601.9
42,383.5
52,234.8
41,597.6
30,367.8
44,284.6
42,884.7
41,807.7
38,378.8
31,607.3
20,709.3
Deposit with banks/total deposit
mobilization 37.8% 34.9% 38.3% 27.0% 18.2% 22.3% 18.1% 14.8% 11.4% 7.8% 4.3%
Total 89% 84% 87% 89% 83% 88.0% 88.0% 88.0% 88.0% 88.0% 88.0%
Vietnam government will continue ease monetary policies to spur economic activity and limit the effect of global economic crisis. The
bank will increase its lending activity in the coming years. So the inter-bank lending will decrease, balances with other banks to total
deposit mobilization will be down 5 years onward.
Investment in securities
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 6 Investment in Securities
21,569
23,564
31,117
40,538
41,876
48,158
55,381
63,688
73,242
84,228
96,862
YoY growth 9.2% 32.1% 30.3% 3.3% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
The bank has its wholly-owned Vietcombank Securities Company (VCBS). Average growth in securities investment is 19% for the
last four years. The Vietnam stock market has been recovering and showing the potential development in coming years. Investment in
securities is projected to growth at 15% per annum in 2010-2014.
Equity investment
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 7 Equity investment
537
476
488
586
1,180
1,215
1,252
1,290
1,328
1,368
1,409
YoY growth -11.3% 2.4% 20.1% 101.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
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MEBF 5th , Group 3 55
VCB will expand its investments in domestic infrastructure and real estate and expect benefit from the government’ support for
domestic investment in infrastructure projects, to meet country large development need. Equity investment is projected to increase at
3% per annum.
Fixed assets
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 8 Fixed assets
915
1,095
1,147
1,049
1,361
1,565
1,800
2,070
2,380
2,737
3,148
YoY growth 19.6% 4.8% -8.5% 29.7% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
VCB has been widening its retail banking business. The bank will continue invest more investment capital to upgrade information
technology and ATM network. VCB’s system is currently behind international standard. We forecast they will invest in fixed assets
by 15% per annum, a bit above average fixed assets growth is 12% over the last four years.
Other assets
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item
10 Other assets
1,007
1,158
1,447
3,341
4,593
3,516
4,131
4,897
5,811
6,899
8,206
Total earning assets
116,383
133,328
162,942
191,330
215,598
234,391
275,372
326,482
387,378
459,962
547,047
Other assets as % of Total earning assets 0.9% 0.9% 1.7% 2.1% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
LIABILITIES SIDE
Customer deposit
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item
11 Customer deposits
88,503
109,637
119,779
141,589
157,067
188,480
226,177
271,412
325,694
390,833
469,000
YoY growth 23.9% 9.3% 18.2% 10.9% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 56
Customer deposit is projected to grow at annual rate of 20% in 2010-2014. The rationale for our projection is that the average growth
rate is 16% for the last five years. Deposit growth rate is similar to trend of loan growth rate. In VN Business News, UK’s Standard
Chartered release a forecast that Vietnam GDP growth would be 4.2% in 2009 due to strong impact of the global economic recession,
and 6-8.5% in 2010-2014 when Vietnam economy is fully recovered. Deposit growth rate is nearly 3x of GDP growth and then around
the average rate of the last 5 years.
The Vietnam Government is implementing ease monetary policy to spur economic activities, limit impact of global economy
recession. So the prime rate would continue keep the recent base of 7% and will not increase in medium term. In the mean time,
Vietnam securities market is estimated to continue grow in the next years and therefore investing money in securities market will be
increasing trends.
Borrowing from the central bank
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item
12
Current accounts of banks and
payables to SBV
13,664
11,829
16,468
12,685
9,516
9,991
10,491
11,016
11,566
12,145
13,359
YoY growth -13.4% 39.2% -23.0% -25.0% 5.0% 5.0% 5.0% 5.0% 5.0% 10.0%
Borrowing from the central bank growth is projected to be at 5% per annum. VCB is assumed to have preference to borrow from the
state bank due to the linkage between VCB and the Vietnam State Bank.
Borrowing from inter-bank growth
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item
13 Term deposits from other banks
8,410
4,126
12,494
17,940
23,901
26,291
28,920
31,812
34,993
38,492
42,341
YoY growth -50.9% 202.8% 43.6% 33.2% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Borrowing growth from other banks is projected to be at annum 10%. Being the big commercial bank, VCB need borrow money from
inter-bank resource to finance its growing business due to the economic growth.
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MEBF 5th , Group 3 57
Other funding
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item
14 Others
2,248
2,712
7,084
11,642
17,677
8,990
10,623
12,570
14,890
17,659
20,988
Others as of % of interest bearing
debts 2.0% 2.2% 4.8% 6.8% 9.3% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Other borrowings mainly include accrual interest payable from interest bearing debts. Average other funding to interest bearing debts
is at 5% for the last five years, which is projected to be 4%.
PROFIT AND LOSS
Interest income
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 15 Interest Income
4,337
6,345
9,157
11,389
12,611
12,684
15,005
17,766
21,052
24,964
29,654
Total earning assets
116,091
132,461
161,940
189,814
212,514
230,625
272,817
323,013
382,758
453,895
539,162
Interest income as % of total earning
assets 3.7% 4.8% 5.7% 6.0% 5.9% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Interest income to total earning asset ratio is 5.2% in 2008, in an increasing trend and average ratio is 5.2% for the last five years. The
Sate Bank stipulated the current base rate of 7% and limit ceiling lending rate at 10.5%. However, after Vietnam economy is currently
having recovery signal from end of QII/2009 then there will be a need to remove ceiling lending rate to spur lending activities and
help Vietnam banks optimize their lending rate. The removal ceiling lending rate requirement is also in the middle term
recommendation report of IMF for Vietnam government, June 2009.
According to our projection, net income to total earning assets is estimated to be 5.5% per annual. Average interest earning margin is
forecasted to be stable at 2% per annum. Average Interest income growth is estimated to be 17% per annum from 2009 to 2014.
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 58
Interest expenses
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 16 Interest expenses
(2,441)
(3,034)
(5,273)
(7,289)
(8,157)
(7,867)
(9,296)
(10,998)
(13,029)
(15,451)
(18,364)
Total interest bearing debts
110,577
125,592
148,741
172,214
190,483
224,762
265,587
314,239
372,253
441,470
524,700
Interest expenses as % of interest
bearing debts 2.2% 2.4% 3.5% 4.2% 4.3% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Average margin 1.5% 2.4% 2.1% 1.8% 1.7% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Interest expense to interest bearing debts is forecasted to be stable at 3.5% per annum, compared to the average ratio 3.3% for the last
five years. It is estimated to increase annually 20%.
Non-interest income
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 17 Non-interest income
947
975
1,397
1,664
2,291
2,749
3,573
4,645
6,039
7,851
10,206
YoY growth 2.9% 43.3% 19.1% 37.7% 20.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Non-interest income as % of interest
income 21.8% 15.4% 15.3% 14.6% 18.2% 21.7% 23.8% 26.1% 28.7% 31.4% 34.4%
The non interest income (including services banking fees, foreign exchange dealing gain/loss, securities investments gain/loss and
dividends) which grow at average rate of 38% for the last five years. We believe that VCB will continue play its leader role in
services, products and especially international payment services for domestic enterprises.
Although the growth estimated slower in the coming years due to the catching-up of the other domestic banks and international
institutions, we believe that the growth rate will be 10% in 2009, also impacted by economic downturn, and increase non-interest
income percentage 30% from 2010-2014.
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 59
Non-interest expenses
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 19 Non-interest expenses
(499)
(341)
(450)
(645)
(861)
(1,033)
(1,240)
(1,488)
(1,786)
(2,143)
(2,571)
YoY growth -31.7% 32.1% 43.4% 33.4% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Non-interest expenses as % of non-
interest income 52.7% 34.9% 32.2% 38.8% 37.6% 37.6% 34.7% 32.0% 29.6% 27.3% 25.2%
Average interest expenses growth is 9% for the last four years. Non-interest expense is as 38% of non-interest income in 2008. Non-
interest expenses growth is forecasted to be 20% in 2009 and 25% in 2010-2014.
Personnel expenses
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 20 Personnel expenses
(226)
(395)
(449)
(645)
(773)
(1,005)
(1,306)
(1,698)
(2,208)
(2,870)
(3,731)
YoY growth 74.9% 13.5% 43.8% 19.8% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Personnel expense is forecasted to be 30% in 2009 and 35% per annum in 2010-2014. Average personnel expenses growth is at 36%
over the past four years. Salary payment is currently low for employees and the bank targets to provide more good incentive to attract
high qualified staff for the bank.
Depreciation
FY ended 31 DEC, in VND bn 2004A 2005A 2006A 2007A 2008A 2009F 2010F 2011F 2012F 2013F 2014F
Item 21 Depreciation
(158)
(232)
(314)
(337)
(230)
(313)
(360)
(414)
(476)
(547)
(317)
Existing asset to be depreciated (272) (272) (272) (272) (272) -
new asset acquired in 2009 depreciated (41) (41) (41) (41) (41) -
new asset acquired in 2010 depreciated (47) (47) (47) (47) (47)
new asset acquired in 2011 depreciated (54) (54) (54) (54)
new asset acquired in 2012 depreciated (62) (62) (62)
new asset acquired in 2013 depreciated (71) (71)
new asset acquired in 2014 depreciated (82)
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MEBF 5th , Group 3 60
New CAPEX is depreciated/amortized over 5 years
Corporate income tax
Corporate tax rate is currently 25% in 2009, it may decrease but conservatively, we keep the rate at 25% fore the next years.
RISK FREE RATE
Consultancy Project - Vietcombank Valuation
MEBF 5th , Group 3 61
COUNTRY DEFAULT SPREADS AND RISK PREMIUM
Last updated: January 2009
This table summarizes the latest bond ratings and appropriate default spreads for different countries. While you can use these numbers
as rough estimates of country risk premiums, you may want to modify the premia to reflect the additonal risk of equity markets. To
estimate the long term country risk premium, I start with the country rating (from Moody's: www.moodys.com) and estimate the
default spread for that rating (based upon traded country bonds) over a default free government bond rate. This becomes a measure of
the added country risk premium for that country. I add this default spread to the historical risk premium for a mature equity market
(estimated from US historical data) to estimate the total risk premium. In the short term especially, the equity country risk premium is
likely to be greater than the country's default spread. You can estimate an adjusted country risk premium by multiplying the default
spread by the relative equity market volatility for that market (Std dev in country equity market/Std dev in country bond). I have used
the emerging market average of 1.5 (equity markets are about 1.5 times more volatile than bond markets) to estimate country risk
premium. I have added this to the historical premium for mature markets of about 5% to get the total risk premium.
Country Region Long-Term Rating Adj. Default Spread Total Risk Premium Country Risk
Premium
Albania Eastern Europe & Russia B1 650 14.75% 9.75%
Argentina Central and South
America B3 900 18.50% 13.50%
Armenia Eastern Europe & Russia Ba2 400 11.00% 6.00%
Australia Australia & New Zealand Aaa 0 5.00% 0.00%
Austria [1] Western Europe Aaa 0 5.00% 0.00%
Azerbaijan Eastern Europe & Russia Ba1 300 9.50% 4.50%
Bahamas Caribbean A1 140 7.10% 2.10%
Bahrain Middle East A2 160 7.40% 2.40%
Barbados Caribbean A3 175 7.63% 2.63%
Belarus Eastern Europe & Russia B1 650 14.75% 9.75%
Belgium [1] Western Europe Aa1 70 6.05% 1.05%
Belize Central and South
America Caa1 1200 23.00% 18.00%
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Bermuda Caribbean Aaa 0 5.00% 0.00%
Bolivia Central and South
America B3 900 18.50% 13.50%
Bosnia and Herzegovina Eastern Europe & Russia B2 750 16.25% 11.25%
Botswana Africa A1 140 7.10% 2.10%
Brazil Central and South
America Ba1 300 9.50% 4.50%
Bulgaria Eastern Europe & Russia Baa3 260 8.90% 3.90%
Cambodia Asia B2 750 16.25% 11.25%
Canada North America Aaa 0 5.00% 0.00%
Cayman Islands Caribbean Aa3 120 6.80% 1.80%
Chile Central and South
America A1 140 7.10% 2.10%
China Asia A1 140 7.10% 2.10%
Colombia Central and South
America Baa3 260 8.90% 3.90%
Costa Rica Central and South
America Ba1 300 9.50% 4.50%
Croatia Eastern Europe & Russia Baa2 225 8.38% 3.38%
Cuba Caribbean Caa1 1200 23.00% 18.00%
Cyprus [1] Western Europe Aa3 120 6.80% 1.80%
Czech Republic Eastern Europe & Russia A1 140 7.10% 2.10%
Denmark Western Europe Aaa 0 5.00% 0.00%
Dominican Republic Caribbean B2 750 16.25% 11.25%
Ecuador Central and South
America Ca 260 8.90% 3.90%
Egypt Africa Ba1 300 9.50% 4.50%
El Salvador Central and South
America Baa2 225 8.38% 3.38%
Estonia Eastern Europe & Russia A1 140 7.10% 2.10%
Fiji Islands Asia Ba2 400 11.00% 6.00%
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Finland [1] Western Europe Aaa 0 5.00% 0.00%
France [1] Western Europe Aaa 0 5.00% 0.00%
Germany [1] Western Europe Aaa 0 5.00% 0.00%
Greece [1] Western Europe A1 140 7.10% 2.10%
Guatemala Central and South
America Ba1 300 9.50% 4.50%
Honduras Central and South
America B2 750 16.25% 11.25%
Hong Kong Asia Aa2 100 6.50% 1.50%
Hungary Eastern Europe & Russia A3 175 7.63% 2.63%
Iceland Western Europe Baa1 200 8.00% 3.00%
India Asia Ba2 400 11.00% 6.00%
Indonesia Asia Ba3 525 12.88% 7.88%
Ireland [1] Western Europe Aaa 0 5.00% 0.00%
Isle of Man Financial Center Aaa 0 5.00% 0.00%
Israel Middle East A1 140 7.10% 2.10%
Italy [1] Western Europe Aa2 100 6.50% 1.50%
Jamaica Caribbean Ba2 400 11.00% 6.00%
Japan Asia Aa3 120 6.80% 1.80%
Jordan Middle East Baa3 260 8.90% 3.90%
Kazakhstan Eastern Europe & Russia Baa1 200 8.00% 3.00%
Korea Asia A2 160 7.40% 2.40%
Kuwait Middle East Aa2 100 6.50% 1.50%
Latvia Eastern Europe & Russia A3 175 7.63% 2.63%
Lebanon Middle East B3 900 18.50% 13.50%
Lithuania Eastern Europe & Russia A2 160 7.40% 2.40%
Luxembourg [1] Financial Center Aaa 0 5.00% 0.00%
Macao Asia Aa3 120 6.80% 1.80%
Malaysia Asia A3 175 7.63% 2.63%
Malta [1] Western Europe A1 140 7.10% 2.10%
Mauritius Africa Baa2 225 8.38% 3.38%
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MEBF 5th , Group 3 64
Mexico Central and South
America Baa1 200 8.00% 3.00%
Moldova Eastern Europe & Russia Caa1 1200 23.00% 18.00%
Mongolia Asia B1 650 14.75% 9.75%
Montenegro Eastern Europe & Russia Ba2 400 11.00% 6.00%
Morocco Africa Ba1 300 9.50% 4.50%
Netherlands [1] Western Europe Aaa 0 5.00% 0.00%
New Zealand Australia & New Zealand Aaa 0 5.00% 0.00%
Nicaragua Central and South
America B3 900 18.50% 13.50%
Norway Western Europe Aaa 0 5.00% 0.00%
Oman Middle East A2 160 7.40% 2.40%
Pakistan Asia B3 900 18.50% 13.50%
Panama Central and South
America Ba1 300 9.50% 4.50%
Papua New Guinea Asia B1 650 14.75% 9.75%
Paraguay Central and South
America B3 900 18.50% 13.50%
Peru Central and South
America Baa3 260 8.90% 3.90%
Philippines Asia B1 650 14.75% 9.75%
Poland Eastern Europe & Russia A2 160 7.40% 2.40%
Portugal [1] Western Europe Aa2 100 6.50% 1.50%
Qatar Middle East Aa2 100 6.50% 1.50%
Romania Eastern Europe & Russia Baa3 260 8.90% 3.90%
Russia Eastern Europe & Russia Baa1 200 8.00% 3.00%
Saudi Arabia Middle East A1 140 7.10% 2.10%
Singapore Asia Aaa 0 5.00% 0.00%
Slovakia Eastern Europe & Russia A1 140 7.10% 2.10%
Slovenia [1] Eastern Europe & Russia Aa2 100 6.50% 1.50%
South Africa Africa A2 160 7.40% 2.40%
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Spain [1] Western Europe Aaa 0 5.00% 0.00%
St. Vincent & the
Grenadines Caribbean B1 650 14.75% 9.75%
Suriname Caribbean Ba3 525 12.88% 7.88%
Sweden Western Europe Aaa 0 5.00% 0.00%
Switzerland Western Europe Aaa 0 5.00% 0.00%
Taiwan Asia Aa3 120 6.80% 1.80%
Thailand Asia Baa1 200 8.00% 3.00%
Trinidad and Tobago Caribbean Baa1 200 8.00% 3.00%
Tunisia Africa Baa2 225 8.38% 3.38%
Turkey Asia Ba3 525 12.88% 7.88%
Turkmenistan Eastern Europe & Russia B2 750 16.25% 11.25%
Ukraine Eastern Europe & Russia B1 650 14.75% 9.75%
United Arab Emirates Middle East Aa2 100 6.50% 1.50%
United Kingdom Western Europe Aaa 0 5.00% 0.00%
United States of America North America Aaa 0 5.00% 0.00%
Uruguay Central and South
America B1 650 14.75% 9.75%
Venezuela Central and South
America B1 650 14.75% 9.75%
Vietnam Asia Ba3 525 12.88% 7.88%
Last updated: January 2009
Aswath Damodaran
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