The performance of Vietnam Banking Industry in the period of 2010 - 2014

Chapter II
Current status of banking industry in Vietnam
2.1 Balance sheet compositions of Vietnamese Banks
A balance sheet (aka statement of condition, statement of financial position)
is a financial report that shows the value of a company's assets, liabilities, and
owner's equity at a specific period of time, usually at the end of an accounting
period, such as a quarter or a year. An asset is anything that can be sold for value.
Liability is an obligation that must eventually be paid, and, hence, it is a claim on
assets. The owner's equity in a bank is often referred to as bank capital, which is
what is left when all assets have been sold and all liabilities have been paid.
A bank uses liabilities to buy assets, which earns its income. By using
liabilities, such as deposits or borrowings, to finance assets, such as loans to
individuals or businesses, or to buy interest earning securities, the owners of the
bank can leverage their bank capital to earn much more than would otherwise be
possible using only the bank's capital.
Assets and liabilities are further distinguished as being either current or longterm. Current assets are assets expected to be sold or otherwise converted to cash
within 1 year; otherwise, the assets are long-term (aka noncurrent assets). Current
liabilities are expected to be paid within 1 year; otherwise, the liabilities are longterm (aka noncurrent liabilities)
Generally, working capital should be sufficient to meet current liabilities.
However, it should not be excessive, since capital in the form of long-term assets
usually has a higher return. The excess of the bank's long-term assets over its longterm liabilities is an indication of its solvency, its ability to continue as a going
concern.

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

Bank groupings and analysis

To assist with making meaningful comparisons, we have divided the 45 banks
included in our Appendix into four groups based on their Charter Capital as at 31
December 2014.
Table 2.1.1. Groups of Vietnamese Banks based on their Charter Capital
Group 1
Group 2
Group 3
Group 4

Charter Capital
Number of Banks
> VND 20 Trillion
4
VND 5 Trillion - VND 20 Trillion
16
VND 3.5 Trillion - VND 5 Trillion
9
< VND 3.5 Trillion
16
(Source: http://www.reuters.com/)

Key findings:
Loans are growing as a percentage of Total Banking Assets
Deposits from customers significantly increased in 2014
Interbank volume by the end of 2014 decreased in comparison to 2013
Group 2 banks are the most active in the interbank market
2.1.1 Banking asset
Chart 2.1.1.1. Vietnamese Banking sector assets in 2013 and 2014

(Source: Country Central Bank and data and published Annual Reports)
The three main components of banking sector assets as at 31 December 2014 were:
Loans and advances to customers 57%
Placements with and loans to other Fls 14%
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The performance of Vietnam Banking Industry in the period of 2010 - 2014

Investment securities 14%

Compared with 2013, the main difference has been the year-on-year
reduction in interbank lending from 20% to 14%. This is unsurprising given the
large growth in system deposits across the sector has reduced reliance on interbank
borrowing as a source of funding for the loan book. On average however, deposits in
Vietnam have been a more expensive source of funding, contrary to most developed
markets where deposits are generally cheaper than interbank financing.
System credit growth in 2014 was reported as 8.91% and this is reflected in
the increase in total lending as a proportion of total assets from 53% to 57%. It is
interesting to draw some comparisons from the below table regarding asset
composition in Vietnam and those of other regional countries.
Table 2.1.1.2. Asset Composition across Asia-Pacific
Australia
China
Singapore
Thailand
Vietnam
Customer Loans
75%
50%
61%
64%
57%
Total Interbank
2%
3%
10%
8%
14%
Total Investment
6%
19%
11%
15%
14%
Other Assets
17%
28%
18%
13%
15%
100%
100%
100%
100%
100%
(Source: Country Central Bank and data and published Annual Reports)
Based on the country figures above, Vietnam's proportion of customer loans
to total assets is one of the lowest in the ASPAC region. Only China has a lower
loan/asset ratio and this is explained by the relatively high balances (18%) held by
Chinese banks at the central bank, the People's Bank of China, affecting their
lending capacity. On the other hand, the Vietnamese interbank market is the most
active in the region, notwithstanding this has decreased significantly year on year.
Chart 2.1.1.2. Vietnam's proportion of customer loans to total assets

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

As at 31 December 2014
* Refer table 2.1.1 for definition of Group 1, 2, 3 and 4
Total assets of Group 1 were nearly 50% of total assets of the 45 banks
included in the Appendix, Group 2 was above 35% and the balance was Group 3 and
4, together with 15%.
However, Group 2 banks are most active in the interbank lending market with
the portion of nearly 60% with the market share of Group 2 was 28%, less than half
of the market share of Group 1. This is understandable as banks of Group 1 have
been established for a long time and have large branch networks which help them
build successful customer relationships across the country.
Group 3 and 4 comprise 25 banks but account for only 13% of the total loans.

Chart 2.1.1.3. Vietnam's proportion of Loans and advances to customers and

Investment securities
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The performance of Vietnam Banking Industry in the period of 2010 - 2014

As at 31 December 2014
For investment securities, Group 1 and Group 2 had similar position with
market share of above 42%. It is therefore interesting to note that the asset mix of
Group 2 is heavily weighted towards invested assets, and less towards lending. This
investment in Government and Corporate bonds may be caused by some banks
accepting corporate bonds from some of its customers as an alternative to providing
additional loans. Additionally, low credit growth coupled with high deposit growth
has provided banks with additional liquidity which drove overnight interbank rates
to around 3%. Banks were looking for alternative investment opportunities and the
relative safety of Government bonds provided an attractive investment option. It is
interesting to note that Government bond yields were below the deposit rated offered
by Vietnamese banks for at least the last two years. Banks with excess liquidity
seemed content to pay high rates and re-invest in bonds until a pick-up in the
demand for credit.
Loan analysis
Key findings:
Corporate lending accounts for nearly half total loans
Nearly 25% of all lending is to the manufacturing and processing sector
Over 60% of all loans are less than one year tenor
Corporate lending accounted for nearly a half of the total loans outstanding.
Nearly 30% of loans outstanding are for retail customers and 16% are for
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The performance of Vietnam Banking Industry in the period of 2010 - 2014

State-owned enterprises. Only 2% of loans outstanding are to foreign invested

enterprises, which implies that many foreign invested enterprises borrowed from
foreign owned banks and branches.
Chart 2.1.1.4. Customer type - lending

As at 31 December 2014
Vietnamese banks' lending balance concentrates on manufacturing and
processing (24%) and trading and motor repairing (21%), then other industries
(19%), agriculture, forestry, and aquaculture & mining (12%) and construction
(10%).
Chart 2.1.1.5. Industry type - lending

As at 31 December 2014
In terms of tenor, more than 60% of loans outstanding are short term and this
portion increased 2% in comparison to 2013. The weaker economic conditions made
banks more conservative in giving long-term loans so that the long-term loans
decreased 4% from 26% of total loans in 2013 to 22% in 2014.

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

Chart 2.1.1.6. Loan tenor

As at 31 December 2014
Interbank activities
Key findings:
Increase in customer deposits means less reliance on Interbank funding
New SBV Circular has dampened demand for interbank loans and placements
Interbank rates are very low and not commensurate with risk
The Interbank market changed significantly in 2014. Volume of interbank
activity reduced significantly in 2012 as the increase in customer deposits allowed
banks to rely less on interbank financing to fund their balance sheet.
A further contributing factor to the decrease in interbank lending has been the
introduction of Circular 21/2012/TT-NHNN (Circular 21) which took effect from 1
September 2012. Circular 21 stipulates that credit institutions can only borrow on
the interbank market if they do not have interbank loans overdue for more than 10
days. Interbank lending may be considered a less stable future funding source
compared to longer term deposits and the below chart shows the effect on their
interbank activity before and after the effectiveness of Circular 21.
Chart 2.1.1.7. Jan - Nov 2014 Interbank

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

(Source: SBV)
Additionally, lenders are now required to include a credit provision against
their interbank loans making it less attractive for banks to lend to other credit
institutions.
Different banks have different credit approval and internal ratings procedures.
Along with the uncertainty in economics conditions and future banks merger and
acquisition activities, banks are more cautions to lend to other banks, thus reducing
the entire system interbank activities. This can be seen in the below chart comparing
interbank activity from 2013 and 2014.
Chart 2.1.1.8. Interbank market

In July 2014 the overnight interest rate on Vietnam's interbank market for
VND dipped to 2.5% per annum. Interbank lending at significantly low rates does
not reflect inherent default risk and is driven by other factors. Excess liquidity
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The performance of Vietnam Banking Industry in the period of 2010 - 2014

resulting from increased deposits and the inter-connectivity of the Vietnamese

banking sector may have been driving factors.
Historical Credit growth
The correlation between GDP and credit growth is unmistakable, as the chart
below shows. Higher credit growth is a necessary ingredient to growing GDP, but
this comes at a price as credit quality is compromised and higher NPL's result. This
is a common feature of emerging markets.
Vietnam's GDP is now growing at the lowest rate since 1999. The SBV has
cut rates aggressively during 2015 and we believe they will now adopt a "wait and
see" approach for the remainder of this year. Banks have already lowered lending
rates and this should see a significant uptick in credit growth in the second half of
2015.
Chart 2.1.1.9. Credit growth and GDP growth trend line

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

(Source: IMF)
Asset composition of Vietnamese banks
The below chart includes percentages of total assets for the three main asset
categories as at 31 December 2014 for the 45 Vietnamese banks included in our
analysis. While this chart does not pay attention to the size of the individual banks, it
shows there is significant diversity in the composition of Total Assets for different
Vietnamese banks. It also does not reflect asset quality.
Chart 2.1.1.10. Asset composition

As at 31 December 2014
It is interesting to note that loans make up less than 50% of total assets for
nearly half of the banks. Given that the two primary functions of commercial banks
are to make loans and accept deposits. Nearly 50% of banks had interbank assets
above 20% of total assets.
Chart 2.1.1.11. Loans and deposits from interbank market

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

From the chart of interbank market, we can see that the deposit line mostly
tracked the loan line. This means the banks borrowed and deposited to one another,
"grossing up" their Balance Sheet.
2.1.2 Banking liabilities
Liabilities are either the deposits of customers or money that banks borrow
from other sources to use to fund assets that earn revenue. Deposits are like debt in
that it is money that the banks owe to the customer but they differ from debt in that
the addition or withdrawal of money is at the discretion of the depositor rather than
dictated by contract.
Chart 2.1.2.1. Banking liabilities

On the liabilities side, one of the most significant changes for Vietnamese
banks during 2014 was the large increase in VND deposits. The VND liquidity issue
local banks experienced towards the end of 2013 was resolved due to the high VND
interest rates which were imposed to curb inflation that at the time was close to 20%.
Investors couldn't ignore VND deposit rates of up to 14% and switched out of USD
into VND and this resolved the short term liquidity issue. At the same time it helped
stabilize the VND/USD exchange rate as demand for doing significantly increased at
the expense of wavering demand for dollars. With USD rates at or below 2%, a

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

significant amount of the conversation to Dong resulted from idle savings kept
outside the banking sector.
As expected, liabilities from the interbank market also decreased from 19%
by end of 2013 to 15% by end of 2014.
The portion of valuable papers issued also decreased from 7% of total
liabilities to 5% which again reflected the difficulty of the economy and banking
industry as most of valuable papers issued are normally sold to other banks.
Table 2.1.2.1. Liability composition across Asia-Pacific
Australia
China
Singapore Thailand Vietnam
Total deposits
65%
83%
78%
85%
70%
Total Interbank
3%
9%
11%
6%
15%
Other liabilities
32%
8%
11%
9%
15%
100%
100%
100%
100%
100%
(Source: Country Central Bank and data and published Annual Reports)
Compared with other ASPAC countries, it seems that investors in Asia are
quite content to deposit money in banks as an investment choice. Australian banks
traditionally have had to borrow offshore to fund the shortfall between Deposits and
Loans, and also have large proportion of derivatives included in Other Liabilities.
Chart 2.1.2.2 Total Liabilities

As at 31 December 2014
Similar to Total Assets, Group 1 accounted for 50% of Total Liabilities,
Group 2 accounted for 36% and the rest belong to Group 3 and 4(9% and 5%
respectively). There are however, differences noted in the composition of Liabilities
within the different Groups.
Chart 2.1.2.3 Deposits

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

As at 31 December 2014
Chart 2.1.2.4 Valuable papers issued

As at 31 December 2014
Group 1 banks accounted for more than half of the Deposits for the 45 banks
included in the Appendix, whilst Group 2 banks contributed 33%. This perhaps
reflects the strength and banking of the Group 1 banks, as well as perceived issues
with some large Joint Stock Commercial banks.
Notwithstanding that interbank activity reduced significantly in 2014, Group
2 still accounted for more than half of the balances within the interbank deposit
market. So while the liquidity issue experienced in late 2013 and early 2014 was
resolved, Group 2 banks continue to rely on interbank to fund their lending books.

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

Interesting to note that Group 3 loans as a percentage of total loans was 8%, but that
the deposits as a percentage of total deposits was higher at 10%. This is an unusual
anomaly and can perhaps be explained by smaller banks offering rates of interest
than their competitions. This represents a significant difference for the Group 3
banks.
2.1.3 Charter capital
Group 1 contains the four state-owned banks and accounted for 38% of total
charter capital of the 45 banks in the Appendix. Group 2 with 16 members also
accounted for 38% of the total charter capital.
Chart 2.1.3.1. Total Charter capital

As at 31 December 2014
Circular No. 36/2014/TT-NHNN (Circular 36) issued in November 20, 2014
was implemented in February 2015. The new Circular is expected to have a
significant impact on credit institutions and branches of foreign banks, the stock
market, bond market and the real estate market. Circular 36 will replace and adjust
some regulations which include Decision 03/2008/QD-NHNN, Circular No.
15/2009/TT-NHNN, Circular No. 13/2010/TT-NHNN, Circular No. 19/2010/ TTNHNN and Circular No. 22/2011/ TT-NHNN. The most notable impact expected
with the implementation of this new circular should be a reduction in the crossownerships in the banking industry and total amount available for margin lending to
the stock market

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

The SBV requires for the first time, banks to report on actual value of charter
capital and real shareholder equity which will be calculated after provisions are
made and all income and expenses are recorded. In the event that charter capital falls
below VND 3 trillion, banks are required to find ways to raise the charter capital
back to the required capital or report it to the SBV within 30 days. If the charter
capital falls below 80% than the required capital, the scope of businesses will be
limited and a higher CAR will be levied. If the charter capital falls below 50% of the
required capital for six consecutive months, credit institutions will be obliged to
restructure their businesses or licenses will be withdrawn. As a result, the new
regulation to report on actual value of charter capital and provided capital for banks
will require credit institutions to raise additional shares to meet the required capital.

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

Appendix
Vietnam banks' assets, registered capital
The following table updates the assets and registered capital of banks
in Vietnam, based on their latest published reports.
NOTE: * Updated; unit: billions of dong
FULLY STATE-OWNED BANKS: 6
Agribank
#Vietnam Development Bank
#Vietnam Bank for Social Policies
Vietnam Construction Bank
(VNCB)
Co-operative Bank of Vietnam
State Bank of Vietnam (SBV)
NOTES: # policy lenders

MM/YR
12-14
12-12
12-14
12-11
12-14

ASSETS
762,869.0
291,700.9
*136,167.0
27,171.3
20,737.0

REG CAP
28,722
12,311
10,000
3,000
3,000
10,000

PARTLY PRIVATE BANKS: 36

VietinBank
BIDV
Vietcombank

MM/YR
12-14
03-15
12-14

ASSETS
661,131.6
*660,000.0
*576,988.8

REG CAP
37,234
28,112
26,650

Sai Gon Commercial Bank

(SCB)
Military Bank
Saigon Thuong Tin Bank
Asia Commercial Bank
Technological & Commercial Bank
Sahabank
Vietnam Prosperity Bank
(VPBank)
Eximbank
Maritime Bank
(MSB)

12-14
12-14
12-14
12-14
12-14
12-14
12-14
12-14
06-14

*242,222.0
200,489.2
189,802.6
179,609.8
175,915.0
169,363.2
163,241.4
*161,093.8
109,200.2

12,295
11,594
12,425
9,377
8,878
8,866
6,347
12,355
8,000

Vietnam Public Bank

(PVcomBank)
Lien Viet Post Bank
(LPB)
Dong A Bank
(DAB)
Vietnam International Bank
(VIB)
Dong Nam A Bank
(SeABank)
Phuong Nam Bank
(Southern Bank)
HCMC Development Bank
(HDBank)
Dai Duong Bank
(Ocean Bank)
An Binh Bank
(ABBank)
Bac A Bank
(North Asia Bank)
Tien Phong Bank
Mekong Housing Bank
(MHB)
Phuong Dong Bank
(OCB)
Nam A Bank
(South Asia Bank)
National Citizen Bank (NCB)
Global Petro Bank
(GP Bank)
Viet A Bank
(VAB)
Petrolimex Group Bank
(PG Bank)
Viet Capital Bank
Kien Long Bank
Vietnam Thuong Tin Bank
(Vietbank)
Bao Viet Bank

12-14
12-14
09-14
12-14
12-13
12-13
03-14
06-14
12-14
08-14
12-14
12-14
12-14
12-14
12-14
09-11
06-14
12-14
06-14
12-14
12-12
12-13

107,955.7
*100,801.7
83,652.7
*80,661.0
79,864.4
77,558.0
76,279.6
68,783.3
*67,465.0
53,980.0
*51,477.5
45,093.0
*39,094.9
*37,293.0
36,835.6
32,000.0
26,564.0
*25,779.4
23,998.6
*23,103.9
16,844.7
16,800.0

9,000
6,460
5,000
4,250
5,466
4,000
8,100
4,000
4,798
3,700
5,550
3,369
3,547
3,000
3,010
3,018
3,098
3,000
3,000
3,000
3,000
3,150

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

Saigon Cong Thuong Bank
Mekong Development Bank

(Saigonbank)
(MD Bank)

09-14
12-14

15,560.0
*7,383.9

3,080
3,750

FULLY FOREIGN-OWNED BANKS: 5

HSBC Bank (Vietnam) Ltd
Shinhan Vietnam Bank Ltd
ANZ Bank (Vietnam) Ltd
Standard Chartered Bank (Vietnam) Ltd
Hong Leong Bank Vietnam Ltd

12-14
12-14
12-13
12-12
12-13

*84,293.4
*39,445.5
37,192.7
24,071.7
5,976.6

3,000
4,547
3,200
3,000
3,000

DATE
March 5
March 23
March 24

2015 MERGERS AND ACQUISITIONS, approved by SBV

SBV acquires all Vietnam Construction Bank shares
Merger of Maritime Bank and Mekong Development Bank
Public Bank Bhd to buy all BIDV shares in VID Public Bank

REGISTERED CAPITAL TARGET (billions of dong)

Agribank
*Military Bank
Sacombank
Sai Gon Commercial Bank
Eximbank
ACB
Sahabank
*Lien Viet Post Bank
HSBC Bank Vietnam
SeABank
VP Bank
Dong A Bank
VIB
Ocean Bank
Bao Viet Bank
NCB
Southern Bank
Bac A
Nam A/Oricombank/Saigonbank
MHB
Kien Long
Viet A

31,000
16,000
14,382
14,295
13,591
12,377
11,082
9,000
7,528
7,466
7,323
6,000
5,500
5,350
5,200
4,510
4,500
4,400
4,000
3,800
3,600
3,500

INVESTMENT BY FOREIGN BANKS in Vietnamese banks

BNP Paribas
- 20 pct of Oricombank
Commonwealth Bank of Australia - 20 pct of VIB
Malayan Banking Bhd (Maybank) - 20 pct of ABBank
Societe Generale
- 20 pct of SeABank
United Overseas Bank
- 20 pct of Phuong Nam
Bank of Tokyo-Mitsubishi UFJ
- 19.73 pct of VietinBank
HSBC Holdings Plc
- 19.41 pct of Techcombank
Standard Chartered Plc
- 15.42 pct of ACB
Sumitomo Mitsui Banking Corp
- 15.07 pct of Eximbank
Mizuho Corporate Bank
- 15.0 pct of Vietcombank
Vietnam caps foreign ownership in a domestic bank at 30 percent,
with a 15-percent limit for a non-strategic investor. A foreign bank
can own 10 percent and a non-bank investor that is not a strategic
investor can own 5 percent.

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The performance of Vietnam Banking Industry in the period of 2010 - 2014

The government allows a foreign strategic investor to own 20
percent in a Vietnamese bank.
The banking system also has 51 foreign bank branches, four joint
venture banks, 17 financial firms, 12 financial leasing companies and
nearly 1,100 credit funds. There are also nearly 50 foreign bank
representative offices.
Vietnam, with a population of 90.73 million, had 76 million bank
cards at the end of September 2014, up around 15 percent from December
2013, the central bank (SBV) said.
The SBV has allowed four mergers and two acquisitions among
domestic banks between early 2012 and March 2015 as part of the
country's banking sector reform. More mergers are expected this year.
($1=21,560 dong)
(Compiled by Ho Binh Minh)

(Source: http://www.reuters.com/ - 31 December 2014)

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