HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

REPORT OF RISK MANAGEMENT OF

VIETCOMBANK
Instructor: Ph.D Dao Thi Thanh Binh

Student’s name Student’s ID

Ly Hai Ha 1704040026
Nguyen Thi Hong Hanh 1704040029
Dang Ngoc Quynh 1704040100
Nguyen Truc Quynh 1704040104
I. THEORY AND VIETCOMBANK PROVISION TOWARD INTEREST RATE RISK

1.1. Theory of interest rate risk:

In banking operation, risks are factors that is indisputable, causing banks to concern about. Some
risk factors that banks have to confront are: credit risk, liquidity risk, market risk, price risk,
operational risk, legal and compliance risk, reputation risk, strategic risk, and capital risk.

1.2. Case of interest rate risk in 2015:

In 2015, Vietcombank had organized a meeting summarizing the company performance on the
first half of the year with the purpose of implementing controlling scheme for the second half,
Mr. Nghiem Xuan Thanh- a chairman in the board of director warned about the bank’s potential
risks. For instance, operational risk primarily from credit growth and non-performing loans in the
coming future. The evidence for this statement is that as at June 30, the credit growth of
Vietcombank was higher than the sector average, after an increase of 6.52 percentage since the
end of 2014; which was rose mainly in foreign exchange activities and long-term lending. This in
turns led to inefficient use of short-term capital, limiting the limiting banking services and
putting pressure on liquidity. The was an increase medium to long-term credit growth form 36%
to over 40% as compared to the first half of 2014 particularly. The corporation also had the
largest amount of mobilized foreign exchange capital within the banking system, as in the second
quarter it completed $1 billion worth of transactions to invest in government bonds. Regarding
liquidity risk, the bank must continue maintaining a loan-to-deposit ratio (LDR) of around 75 per
cent, as its interest rates remain low compared with other banks.

1.3. Vietcombank provision toward interest rate risks:

In order to manage the arising possible risks and as to avoid facing the situation as in 2015,
Vietcombank has open a meeting to meet agreement on an overall provision for the corporation
performance and to decide on active approach for risks in the future. First of all, Vietcombank
has continuously carried out annual supervision from the head office to branches and subsidiaries
and put their focus on governance and management of the bank. They also dig deeper in risk
management on significant or risky areas of their bank in order to get an oversight and review on
the implementation and compliance with regulation on safety banking operation.
Vietcombank target to achieve goals in banking performance, compliance with the law and
improve risk management system.

II. RISK MANAGEMENT

1. Interest rate risk.

Interest rate risk exposure is defined to as the potential loss from unexpected changes in interest
rate, which can considerably affect the value of a company’s assets and liabilities. Consequently,
there is higher costs incurred and the bank’s profitability as well as market value of equity are
diminished.
In asset-liability management (ALM), dollar gap ($GAP= Interest sensitive asset- Interest
sensitive liability) and duration are the two most popular measures of interest rate risk besides
implementing derivative contracts or simulation analysis.
Our analysis below is based on VCB’s financial statements in 2017 and 2018 as recorded in
Report 2.
1.1. Interest sensitive gap measurement:

2017 2018
RSA 1,001,531,730 1,034,598,225
RSL 946,846,988 969,138,509
$GAP 54,684,742 65,459,716
Cumulative gap 54,684,742 120,144,458
RSA/RSL ratio 1.06 1.07
Unit: VND million.

The figure shows that the gap figures of VCB for 2017 and 2018 are positive and the gap ratios
(RSA/RSL) are higher than 1, which means VCB experienced RSA position and considered in
the safe scale, which made interest rate and net interest income (NII) both increased.

2017 2018
NIM 2.66% 2.95%
Duration Gap - -
NW - -
1.2. Duration gap measurement:

*Note: Due to the internal document issue, we are not able to calculate the duration gap and the
change in NW of VCB using duration assets and duration liabilities for the year 2017 and 2018.
However, it is also known the VCB’s interest rate risk exposure by comparing net interest
margin (NIM) via each year. The above figure reveals the efficiency in risk management of VCB
in general, and particular interest rate risk management.

2. Liquidity risk.

Besides interest rate risk, liquidity risk is one of the frequent risk to commercial banking
business. Currently, according to the regulation of SBV, CB must not use more than 40% of
short-term capital to lend medium and long-term loans. Simultaneously, increasing those risk
ratios lead CB have to lessen their medium and long-term loans. Normally, the longer the term
debt is, the higher the risk. Hence, if a CB centralizes mostly on short-term loans, the dispersion
will be higher and vice versa the risk.

2017 2018

Liquidity reserve ratio 35.9% 24.1%

Loans to deposits 76.70% 78.86%
Loan loss reserve 130.7% 165.3%
coverage
NPL ratio 1.14% 0.98%

VCB has been recorded that in 2018, its ratio of short-term capital for medium and long-term
loans is 16% (Calculated according to Circular 36/2014/TT-NHNN, amended and supplemented
by Circular 19/2017/TT-NHNN), compared with other banks, this is the lowest level. The
smaller this ratio is, the more banks can avoid liquidity risks. Banks with high ratio will have to
cope with pressure on mobilizing medium and long-term capital.

Another ratio is loans to deposits ratio (LDR). Typically, the higher this ratio is, the greater the
profitability of the bank, but the higher liquidity risk. So why is the LDR of VCB at 79%, lower
than many other banks, but the highest profit in the system? This is VCB’S competitive
advantage, partly due to the low cost of capital and the rest is due to the gradual shifting of
revenue sources to retail services.
III. VIETCOMBANK INTEREST RATE

Over the past 50 years of construction and growth, Vietcombank has made important
contributions to the stability and development of the country's economy, promoting the role of a
major foreign correspondent bank, effectively serving for domestic economic development. At
the same time, it has important implications for the regional and global financial.

From a specialized bank serving foreign economy, Vietcombank today has become a versatile
bank, operating in multiple fields, providing customers with a full range of leading financial
services in the field of international trade. Vietcombank products and services are always trusted
by customers, partly because of the company's reputation, partly because of the incentives and
utilities that the bank brings, especially the attractive interest rates of Vietcombank. There are
two main types of interest rates.

Vietcombank savings interest rates are divided into two types: demand interest rate and term
interest rate. Specifically, interest rates will be presented in the table below:

Vietcombank savings interest rates

Tenor Demand 7 days 14 days 1 month 12 months 24 months 36 months

Interest rates 0.1% 0.5% 0.5% 4.1% 6.4% 6.5% 6.5%

Vietcombank interest rates for home loan, car loan products. Vietcombank car loan and home
loan products are mortgage development products promoted by banks. Vietcombank interest
rates for these two products are extremely preferential, customers have more options for interest
rates, interest rate fixing period and loan term, …

Vietcombank interest rates for home loan, car loan products

No. Loan package Interest rates Fix-time interest rates Maximize loan Borrowing limit
period
 1 Car loan 7.7%/year 12 months 5 years 70% of the property
value

2 House loan 7.7%/year 12 months 15 years 70% of the property

value

3 House loan 8.6%/year 24 months 15 years 70% of the property

value
4 House loan 9.5%/year 36 months 15 years 70% of the property
value

There are two ways to calculate interest rates:

Simple interest rates:

Interest received/paid = Deposit/Loan amount x Interest rate (%/year) x Number of deposit/loan

days/360

Compounded interest rates:

Interest received/paid = Deposit/Loan balance x Time of deposit/loan x Interest rate is applied to

time of deposit/loan

New Original = Old Original + Interest rates

IV. Interest rate policy

In 2019, vietcombank has introduced a number of new interest rate policies to improve the
efficiency of the bank as well as its partners and customers. Implementing Resolution No. 01 /
NQ-CP dated January 1, 2019 of the Government and the orientation of the State Bank, in which
credit growth goes hand in hand with restructuring and improving credit quality, focusing on
Credit for manufacturing sectors, especially priority areas, Vietcombank has announced a sharp
decrease in interest rates to support businesses with VND loans in priority areas in accordance
with the regulations of the State Bank. High-tech agriculture and startups in 2019, specifically:

- Applying the short-term lending interest rate in Vietnam dong at the maximum rate of
5.5% / year, decreasing by 1.0% / year compared to the level prescribed by the State
Bank.
 - Reduce by 0.5% per annum in 2019 for current VND medium and long-term loans of
enterprises.

The above preferential interest rate policy applies to the following areas:

- Developing agriculture and rural areas according to the Government's regulations on

credit policies in service of agricultural and rural development;
- Implementing the export goods business plan according to the Commercial Law and its
guiding documents;
- Serving the business of small and medium-sized enterprises under the Government's
regulations on assistance for small and medium-sized enterprises;
- Development of supporting industries according to the Government's regulations on
supporting industry development;
- - To serve the business of high-tech application enterprises according to the provisions of
the High Technology Law and its guiding documents;
- High-tech applied agriculture;
- Lending for start-up businesses.

This interest rate reduction was implemented on a large scale with outstanding loans equaling
38% of current short-term loans and accounting for nearly 20% of the Bank's total outstanding
loans in domestic currencies. In order to gradually reduce interest rates, create favorable
conditions to support the development of the economy, recently, Vietcombank has continuously
implemented comprehensive measures to reduce operating costs, develop products, new services,
business diversification, enhanced risk management.
V. Conclusion

Vietcombank is currently playing a leading role in implementing measures to share and solve
difficulties with businesses and individuals, especially those prioritized under the orientation of
the Government and the State Bank.

By the end of the second quarter of 2019, Vietcombank recorded a record profit of VND 11,045
billion before tax, an increase of 43.1% compared to the same period of 2018. Consolidated
profit reached VND 11,280 billion, up 40.7% compared to the same period of 2018. for the same
period, fulfilling 55% of the 2019 plan. With this result, for the first time, a Vietnamese bank
achieved a profit exceeding VND 10,000 billion after only the first 6 months.

Vietcombank believes that these will be practical actions, demonstrating Vietcombank's strong
commitment to proactively and pioneering the implementation of government policies and
efforts for the common goal of economic development.