TEAM: FELIX

Subject’s company: Asia Commercial Bank

This report is published for educational
purposes only by students competing in
The RMIT Research Challenge
Current Price: VND36,600
USD/VND = 23,046
Source: Team’s compilation
Source: Team estimates
Source: Team estimates
SHARE PRICE MOVEMENTS
Source: Finbox
ASIA COMMERCIAL JOINT STOCK BANK
Valuation date: May-19-21 |Ticker: ACB |Stock Exchange: HSX
Target Price: VND41,550 Industry: Financial Institutions
Recommendation: BUY Subsector: Banking
(UPSIDE 15.4%)
INVESTMENT SUMMARY
We initiate ACB with a buy rating and a one-year target price of
VND41,550 – representing an 15.4% upside to the current share
price of VND36,600. ACB’s future growth is driven by solid core
business strategy of being prudent, targeting loyalty customer base
and expanding non-interest income.
INVESTMENT HIGHLIGHTS
Debut on HOSE – open the opportunity for investment and
liquidity
At the end of 2020, ACB officially moved to HOSE - a turning point
to increase ACB's brand identity in the market and meet investors'
expectations. According to our assessment, ACB is currently
undervalued, the exchange event may become a good rising
momentum for stock price, which can be a very attractive short-term
investment opportunity for investors.
Fly with high quality asset
ACB’s NPL ratio of 0.59% as at the end of 2020 is the lowest of any
listed bank, and its loan loss reserve (LLR) ratio of 160% is the third
highest among the banks thank to its discipline risk management and
aggressive clearing of legacy bad debt in previous year. We believe
healthy asset will be the shield protecting ACB from market variation
and also the wings accelerating the process of regaining leading
position in Vietnam.
Attract strong customer loyalty by the “same but different”
The result of ACB’s ceaseless attempt to nail in customer’s minds as
a dependable brand in Vietnamese banking industry, especially for
its focused segment: SMEs and retail, which can be reflected by
favorable feedback from customers and the support from loyal ones
in highs and lows. A considerable retail customer base creates a
competitive advantage for ACB to command favorable deal terms in
a bancassurance exclusivity agreement. We forecast the banca fee
income growth to achieve a CAGR of 26% in 2021-2025.
VALUATION
We value ACB using a combination of Residual Income and P/B
methods, each attributed with a 50% weighting. We select the
Residual Income method because the more mainstream methods
such as DCF and EV/EBITDA is not applicable to banks. Meanwhile,
we choose the P/B method because most of banks’ assets and
liabilities are marked to market and liquid.
INVESTMENT RISK
Potential risk to the price include: Covid 19 risk, bad debt risk, credit
risk. However, with appropriate measures for all management
issues, everything seems to be under control of ACB.
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Figure 1: Lending structure of ACB
Source: Annual reports, Team's
compilation
Figure 2: Retail lending ranking in 2020
(VND Trillion)
Source: Annual reports, Team's
compilation
Figure 3: LLR in banking industry
Source: Company data, Team's
compilation
Figure 4: Total operating income structure
Source: Company data, Team's
compilation
BUSINESS DESCRIPTION
Asia Commercial Joint Stock Bank (ACB), one of the first joint-stock
commercial banks in Vietnam, was founded in 1993 and listed on HNX in
2006. Since its inception, ACB has focused on the retail as well as SME
segments, and after the outstanding turnaround from the 2012 scandal,
the bank became the leader in asset quality in Vietnam. The scale of ACB
is constantly expanding, as of Q1 2021, the bank has served 3.3 million
active clients with a total of 11.305 employees and 371 offices all around
the country (ACB).
Pioneer in the Retail segment for 28 years
ACB has always targeted to come out as a leading retail bank. The retail
segment is currently an attraction for the whole banking industry, with the
characteristics of dispersion risks and higher yields. At the end of the fiscal
year 2020, retail lending accounts for 93% of the total loan book, and 82%
of deposits at ACB are mobilized from individuals (Figure 1). In the
industry as a whole, ACB is among the top banks that have a high retail
proportion. As shown in (Figure 2), ACB’s loan for individuals and SMEs
in 2020 ranks just below large banks and above all the other peers. ACB
possesses an affluent individual customer base, focusing mainly on the
middle-class urban customer segment. Meanwhile, SME and wholesale
loans at ACB, which are mainly for financing working capital and business
activities, cover fast-growing sectors in Vietnam including commercial and
manufacturing.
Being sustainable by being prudent
Compared to its market competitors, ACB is always considered the most
cautious bank with the efforts to maintain strong asset quality, liquidity,
and minimize credit risk by concentrating on collateral-based loans. As of
2020, more than 90% of loans at ACB are secured. In terms of asset
quality, ACB constantly sustains the lowest ratio of NPL in the market at
0.6% and the second-highest ratio of LLR in the banking industry at 160%
(Figure 3). Regarding liquidity, in the asset structure of ACB, in addition
to cash, the bank also holds a large amount of Treasury bonds, accounting
for 14% of total assets due to their risk-free nature and high liquidity. This
ratio is the highest in comparison with some large banks and peers.
Interest income remains ACB's mainstay of the income
+ Interest income is ACB's main source of income, with a CAGR of 19.77%
in the 2016-2020 period, accounting for 80.4% of the bank's Total
Operating Income in 2020. 62.1% of net interest income comes from
individual customers. Credit products ACB provides for individual
customers contain mortgage passbooks, valuable papers (security),
foreign currency, which are used to make up for temporary deficiencies in
the amounts spent on family life. For SME customers, ACB always
implements a strategy to customize credit products following the needs of
each business (Figure 4).
+ Non-interest income, mainly from service fees and commission-based
business, contributes to approximately 20% of ACB's total income in 2020
and doubles in value compared to 2016 and currently tends to increase
the proportion in the following years to reduce the dependence on credit.
The transaction fee accounting for 50% fee income grew by a CAGR of
9% while commission from bancassurance went up by 23% in 2016-2020
period (Figure 4).
COMPANY STRATEGY
Expanding the customer base by understanding its customers
ACB always aims to increase customer value by customized programs
that are suitable for each customer segment. It is aware that today's
customers prefer to communicate using more channels and always expect
banks to adopt an innovative approach. ACB has implemented Employee
Felix | 2
Figure 5: Recovery and used provision for
writing off (VND million)
Source: Team’s compilation
Figure 6: ACB's shareholder structure
Source: Annual report 2020
Figure 7: GDP growth rate in some
Southeast Asia countries
Source: ADB, Team's compilation
Figure 8: FDI of Vietnam 2019-2020
(USDbn)
Source: MPI, Team's compilation
banking in early 2020, along with Digital banking, within 10 months ACB
earned 225 million new customers based on payroll accounts, transaction
banking then CASA in 2020 grew by 15.25% compared to 2019. In the
future, with impressive growth from employee banking, ACB still focuses
on payroll account, supplying transaction banking for partners: schools,
hospitals… co-operating with fintech to expand their customer ecosystem.
Focusing on fee income- the trend of the banking system
Along with the customer searching strategy, the digital banking program -
"Future Bank" is a strategy to catch up with the global trend and unlock
the fee income potential from the retail segment. ACB is also launching
their ACB Online and Mobile Banking, aiming to optimize the efficiency
and push up digital transactions, whereby ACB can exploit customer
service charges and improve CIR and CASA in the future. Making use of
the large and high-quality individual customer ecosystem and the trend of
bancassurance in Vietnam, ACB finally announced its exclusive partner -
Sunlife, with the upfront fee of $370 million, much higher than the level
Upfront fees the banks have the same size of assets received from their
contract exclusive insurance. Except for the initial income, more
importantly, rising fee income by selling insurance also helps ACB
increase the customer life cycle, serves the diverse needs of service
users, and can make them continue to use other banking services.
Being prudent is ACB's main strategy of ACB
ACB will continue to keep its prudent policy by maintaining its low-risk, low
NPL ratio, and high loan loss coverage ratio. Their action to meet this goal
is from their credit appraisal. ACB seeks and accepts high-income
individuals and stable growth companies that focus on a particular industry
to reduce the default risk. Therefore, their ratio for recovery from bad debt
is high as a result of strong asset quality. From 2016-2020, the amount of
money ACB received after writing off bad debts rose and remained equal
to the provision used to write off bad debts. (Figure 5) We believe ACB’s
low-risk strategy fits well with the current macro and credit backdrop where
risks escalate
CORPORATE GOVERNANCE
SHAREHOLDER STRUCTURE
Strong expertise, good board composition
There are only eight members on the board of directors (25% of board
members are independent) which is remaining through 2020. The board
member has an average of 27.6 years of banking experience and diverse
background from senior positions in big international banks such as
Deutsche, Standard Chartered to investment capital manager in Dragon
Capital. One concern is that four out of eight members seem to have a
close relationship with the board of management as all of them have had
a long tenure at the bank. This raises the risk of impairing the BOD’s role
in supervising the BOM. However, the risk has been mitigated thanks to
the presence of two experienced independent members on the board.
Three-side solid shareholder structure
Most ACB shares are distributed through 3 sides: Chairman Tran Hung
Huy and family (3.8%), institutional investors (Dragon Capital 6.94%,
Whistle Investment, and Estes Investment: 3.8%), and minor shareholders
(more than 70%). That no institutional investors account for more than
10% makes important strategy decisions accepted by many various sides.
Furthermore, that chairman's family (including Mr. Tran Hung Huy) owned
and managed ACB bank since its establishment and held only ACB shares
(no other industries share) creates transparency in ACB operations.
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Figure 9: Middle class proportion in
Vietnam 2010-2018
Source: WB, Team's compilation
Figure 10: Disposable income per capita in
Cambodia, Laos, Myanmar and Vietnam
(USD)
Source: Frost and Sullvian, Team's
compilation
Figure 11: Car ownership ratio in
Southeast Asia countries (car/1000 people)
Source: WB, team’s compilation
Figure 12: Proportion of Retail lending
Source: SBV, Banks, Team's compilation
CORPORATE MANAGEMENT
Experienced executives with long tenures at the group
The current board of management includes nine executives, each of which
has at least 25 years of experience in the field of finance and banking.
Eight out of the nine people have worked for ACB since its establishment
in the early 90s. This ensures both operational excellence and stability of
the management team for ACB, which we believe is crucial in the ever-
changing landscape of the banking industry in Vietnam.
Concern over a minor stake of the board of management team
We are concerned over ACB’s management team own a total of 0.1%,
only 3 out of 9 members are shareholders. This could reduce their
motivation in his responsibility with ACB to increase the profitability of
shareholders OECD.
INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING
MACROECONOMIC ANALYSIS
Vietnam-Asia's top-performing economy amid Covid pandemic
demonstrates healthy banking system
The banking sector, which each year the banking system contributes over
10% of the total economic growth of the country, has been proactive and
flexible in operating monetary policy, making an important contribution to
inflation control and macroeconomic stability in the pandemic. Vietnam
has delivered one of the highest growth rates (2.9%) in 2020 where the
rest of the world was in deep recessions. As seen in the figure, although
the growth rates of Vietnam decreased 58% from 7%, it is the only one
that has positive GDP growth in Southeast Asia (Figure 7). According to
ADB, Vietnam is forecasted, in 2021, to grow at 6.7%, which is higher than
Malaysia, Philippines... The great growth is a result of high domestic
demand, a strong manufacturing and processing industry, and high
Foreign Direct Investment (FDI). Regarding FDI, there was a slight drop of
less than 10% YoY in the realized capital, but given the broken supply
chain, this is a highlight (Figure 8).
Vietnamese favorable demographic drives greater levels of credit
demand for housing and cars
Vietnam’s population has grown consistently in recent years, of which
each year about 1.5 million people join the middle class, expected to reach
33 million by 2022. (Figure 9) Moreover, the urban growth in Vietnam is
the highest in South-East Asia at 2.6% in 2015-2020. Moreover, their
disposable income is set to rise at 9.9% CARG in the coming years
(Figure 10Error! Reference source not found.). This urban middle class
whose lifestyles are changing towards more debt acceptance is one of the
driving forces behind stimulating consumption and credit for Vietnam’s
housing and car market. In 2019, the car ownership rate of Vietnamese is
low compared to other countries in region (only 23 cars per 1,000 people)
(Figure 11) However, Vietnam has many motivations to boost the growth
of automobile demand, as per capita income is on the rise, expected at 8-
10% per year, the demand for cars will explode, turning this item into a
popular consumer product. Correspondingly, the proportion of young
people under 35 years old who wants to own a house is increasing,
currently at 23%. Nearly 4 out of 10 young people own their own homes.
In Vietnam every year, more than 50,000 young married couples have
housing needs, which will support the sustained growth of consumer credit
in coming years.
Covid-19 raises concerns about assets’ quality of loans
It is worrisome as the bad debt may increase because many businesses
are facing difficulties due to the Covid-19 epidemic. Most banks showed a
Felix | 4
Figure 13: Banking industry Net interest
margin
Source: Team research
Figure 14: APE - new issuance without CFI
(VNDbn)
Source: FiinPro, Team's compilation
Figure 15: Structure of service fees
Source: FiinPro
Figure 16: Number of non-cash domestic
payment transaction (VNDmn)
Source: SBV, Team's compilation
reasonable rise in NPL ratio after the 9 first months of 2020, which
increased by more than 15% than at the end of 2019. However, in Q4
2020, the bad debt ratio decreased as banks used a large amount of
provision to write off bad debts and “clean” the balance sheet. VCB, ACB,
MBB actively wrote off bad debts in Q4 2020, which was bigger than the
amount written off in 9 first months. Issuing Circular 01, on the bright side,
may benefit banks from not having to increase the provision due to the
increase in bad debts and increase the revenue soon but might cause
banks to experience its side effect that the bad loan can be revealed after
repayment periods restructuring and cause deteriorated asset quality. On
17th May 2021, Circular 03 will take effect, it states commercial banks
must set aside money for potentially unrecoverable COVID-19 affected
loans within three years, starting from 2021. This new Circular will ensure
the safety of credit institutions and the national financial system.
The liquidity of banks is still abundant although credit growth has
recovered
After the easing monetary policy of SBV, by the end of quarter 1/2021,
credit growth was 2.93%, an increase of about 1.31% YoY (SBV). In
contrast, deposit growth, as of March 19, 2021, was only 0.54% due to
low-interest rates. Therefore, the deposit and credit gap is showing signs
of narrowing. Nevertheless, inter-bank interest rates were still stable at a
low level, interest rates on the market also only had a slight adjustment,
which demonstrates that banks' liquidity remains rich.
INDUSTRY ANALYSIS
Retail lending - a bigger slice of a growing pie
Retail lending in Vietnam has increased strongly since 2013 on the back
of rising affluence amid strong economic growth. Banks have expanded
their consumer portfolios by a 21.7% CAGR over 2016-2019 (Figure 12).
As a result, the proportion of consumer loans has increased to an
estimated 44% of total loans by end-2020, from 24% at end-2013. We
expect a rising urban population, the rapid emergence and explosive
growth of the middle class, higher contributions from domestic
consumption underpinning GDP growth, and greater acceptance towards
mortgage financing to continue to drive retail-loan demand over the next
few years. We believe retail loans’ generally higher yields and more
favorable risk-weighting treatment for mortgages compared with corporate
lending, under the local Basel II standards (Circular 41) have incentivized
banks to continue to focus on expanding their consumer portfolios.
Therefore, this segment will face a higher level of competition as more and
more banks switch their focus. However, the potential to increase retail
credit proportion remains as Vietnam's proportion of retail loans is still
lower than that of developed countries and people's lifestyles are changing
towards more debt acceptance.
NIM remains high despite low credit growth
The SBV took measures to support the economy, and mitigate the impacts
of the Covid-19 pandemic by cutting sharply the interest rates. Banks' cost
of funds decreased slightly in the first 3 quarters and dropped about 0.6%
in the final quarter of 2020. Banks also reduced their lending rates but it
was slower than COF, which made the NIM ratio of the banks' sector stay
high despite low credit growth (Figure 13). NIM of the banks' sector, after
a deep drop in Q3 2020, bounced back at 0.89%, even higher than the
previous quarters. These low interest rates can continue to remain at this
level as Vietnam stimulates the economy in recession and banks to focus
on raising CASA to reduce COF.
The rebound of bancassurance intensify non-interest income’s
contribution
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Figure 17: Non-cash domestic payment
transaction value (Trillion)
Source: SBV, Team's compilation
Figure 18: ACB's credit & deposit growth
Source: Team estimates
Figure 19: Number of active customers
Source: SBV, Team estimates
Figure 20: Brand loyalty ranking
Source: Mibrand, Banking industry report
2019
Figure 21: Upfront fee/customer
Bancassurance sales have shown impressive growth in Vietnam,
accounting for 30% of total premium revenue currently compared to 10%
in 2016. A lot of successful major deals had been signed between banks
and insurers. Adding in the context of closer control on credit growth and
more limited room to expand net income margin (NIM), banks are trying to
boost service income from cross-selling activities. This channel is a
strategic development for both a stable income stream and diversification
in satisfying customer demand. Accordingly, a favorable economic
condition combined with a young population with rapidly growing income
creates great potential for the insurance industry. We believe there is a
strong future for bancassurance in the Vietnam banking industry and the
upfront fee and commission fee from the bancassurance agreement will
become a crucial growth driver of banks’ non-interest income (Figure 15).
The surge of banking transaction volume and value thanks to digital
transformation blooming
The trend of non-cash payment also facilitated a constant upward trend in
domestic payment through bank cards, transfer, and direct debit both in
terms of transaction value and volume. (Figure 16) In the 2016-2020
period, we witnessed impressive growth in the number of transactions and
total value, respectively at 68% CAGR and 57% CAGR. (Figure 17)This
escalation is far beyond the 22% CAGR of volume in Asia-Pacific region.
These would be growth engines for payment and card fees, traditionally
being the two most popular fee income sources. Free transfers have
gradually become the trend among the group of dynamic banks while large
banks tend to reduce transaction fees. The fee exemption combined with
other forms of customer experience enhancement helps banks attract
regular customers, reducing capital costs as CASA increases and gains
deposits. The emergence of COVID-19 along with changes in consumer
behavior and support from the Government bolstered this transformation.
COMPETITIVE POSITIONING
Loyal customer base built from a wide range of professional services
After the crisis in 2012, ACB loyalty customers strongly contributed to the
bank's recovery. In 2012, ACB deposit growth decreased to -0.5% and
banks reduced lending to -11.9%. However, within a year, ACB recovered
with impressive numbers like deposit growth of 4.2% in 2013 and 8.6% in
2014 (Figure 18). In addition, the customer base of ACB grew
continuously from 2016-2020, and was higher than the average of the
industry from 2016-2018 (Figure 19).
ACB’s customer base is well-known for its loyalty thanks to the principal
focus on customer experience since the establishment. ACB’s customer
loyalty is on top 2 of the market in 2020 (Figure 20). All of the products
of ACB were customized and convenient (Appendix 14) for all of its
customers' demands. Furthermore, banks’ customers tend to be loyal to
their service providers: most people do not switch banks due to the
inconvenience. As a result, ACB’s customer loyalty is a strong asset to
keep operating in the highly competitive retail segment.
High customer quality accumulated for years foster the growth of
ACB
For 28 years prioritizing retail banking, ACB accumulated a high-quality
customer base that provides strong sources to grow and low default risk.
As a result, ACB successfully signed a Bancassurance contract with
Sunlife for a significant record value at VNDbn8,500 for 15 years of
business (Figure 21). The bancassurance also saw significant growth
compared with other peers in the last 2 years ACB ranked 4th in the market
in 2020 while its 2019 position is 7th (Figure 22). It indicates that ACB has
room to increase revenue in the coming year.
Felix | 6
Source: Team estimates
Figure 22: Revenue from sale of insurance
Source: Team’s compilation
Figure 23: Customer’s debt/ income
Source: Team estimates
Figure 24: Government Bond to Asset
Source: Team’s complitaion
Figure 25: Profitability ratio
Source: Company data, Team compilation
Figure 26: ACB's credit growth 2016-2020
Source: Company data, Team compilation
As most customers are end-users with high salaries, the default risks
seem to be not significant. The ratio of debt per customer divided by
annual income of customers fell significantly from 2.01 to 1.73, which
means the customer has a strong base to pay the debt leading to the low
bad debt bank in the next few years. (Figure 23)
Well-established prudent policies are the root for ACB to overcome
the hard situation
After the 2012 crisis, ACB established a strong asset quality in term of
NPL. ACB holds a high level of government bonds compared to other
peers (Figure 24). With that level of government bond, ACB can boost its
liquidity in emergency situations. The prudent policies can be seen in the
loan term, ACB focuses on credit with Collateral which is mostly land &
real estate with legal guarantees. After the Covid outbreak, the NPL is
lowest in the system with the 2nd highest provision (Figure 3) that secures
the bank from bank-run in this chaotic period.
FINANCIAL ANALYSIS
Profit from credit activities continues to increase by improving NIM,
stable credit growth, and reasonable cost management
ROE in the period of 2016-2020 reached the highest level of 27.7% in
2018, then decreased to 24.3% in 2020, but still higher than the industry
average of 17.31%. This indicates that ACB has an optimistic rate of return
in the whole system. The main driver of this is the rising equity multiplier,
which comes from the growth of ACB’s total deposits, with a CAGR of
14.63% in 2020. However, we also have to pay attention to the ROA
movement when assessing the factors that influence ROE. For the past 5
years, ROA has constantly increased from 0.61% in 2016 to 1.86% in
2020. This was mainly attributable to improve NIM and steady credit
growth as well as strict operation cost management.
In the 2016-2020 period, upward ROA and downward ROE is the
indication of the bank’s solid operation and less dependence on leverage
(Figure 25). Looking ahead, we project that this trend will continue at ACB
in the coming years. In detail, ROA is expected to reach nearly 1.44% in
2021 and gradually approach 1.79% in 2025 due to the main drivers of the
increasing non-interest income and capital raised from exclusive
bancassurance contracts with Sunlife.
Credit growth keeps stable despite the influence of Covid 19
ACB's credit growth in the period 2016-2017 peaked at 21% and 2018-
2020 reached over 16% (Figure 26), which is currently higher than the
average growth of the banking industry and more stable than that of its
main peers. This growth mainly came from the increase in retail lending,
especially concentrating on individual and SME customers. Individual
loans in 2017 reached 111 trillion and by 2020 it has increased to 193
trillion, accounting for 62% of total bank lending. According to our
research, 40% of ACB’s individual loans are mortgage loans, resulting in
an average CAGR of more than 20% for the past 5 years. In the following
years, ACB's credit growth is expected that there is still room for future
advance due to the expansion of the customer base and the rising demand
for mortgage and car loans as well as promoting SME lending when the
economy gradually recovers from the pandemic.
NIM's growth is steady but not too significant due to the pursuit of
safe development business orientation characteristic of retail
segmentation
From 2016 to 2020, ACB’s NIM ratio has tended to be stable while peers
tend to increase slightly. This ratio is around 3.3% and lower than its direct
peers (Figure 27). Given the risk appetite as well as prudent lending
standards, we believe that the current NIM ratio now is encouraging.
Looking ahead, we forecast ACB's NIM will continue its trend of stable
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Figure 27: Banking's NIM 2016-2020
Source: FiinPro, Team compilation
Figure 28: CASA (VND trillion)
Source: Company data, Team's
compilation
Figure 29: Income break-down and CIR
Source: Company data, Team's
compilation
Figure 30: Income from Treasury bonds
(VND Bn)
Source: Company data, Team compilation
increase, sustain above 3.5% and likely reach 3.6% in 2025 (Figure 25).
The key drivers of this assessment are CASA's growth, which is not too
explosive but very sustainable, effective cost management as well as
lower COF thanks to Upfront fees from bancassurance contracts.
+ CASA has increased but at a low level: As of 2020, ACB has a CASA
ratio of 20.97%, which is below the industry average and its main peers.
This is due to the characteristic of retail business when individual
customers' deposits at ACB are mainly for savings purposes. After a
period of stagnation, ACB's CASA has shown signs of strong advance
again since 2019, and CASA growth set a new record of 32.12%, the
highest rate for the past 5 years. Going forward, we expect that ACB’s
CASA ratio will have a steady improvement in the future, possibly reaching
around 22.5% in 2021 and up to 25.5% in 2022 (Figure 28) thanks to the
employee banking strategy along with the pushing in IT investment.
In addition, COF tends to decrease thanks to Upfront fee flow from
insurance: ACB is likely to record the Upfront fee spread over 15 years
when the exclusive bancassurance contract with Sunlife will start rolling
out in 2021. This fee is equivalent to 24% of equity and 2.4% of mobilized
capital. This will help ACB reduce the pressure to raise capital while still
having resources to increase lending, thereby reducing the cost of funds
and improving the bank's NIM.
Improving cost to income ratio (CIR)
CIR has been staying above the industry average of 40-50% since 2016.
Such high CIR could be largely explained by the retail lending‘s high
operating cost nature: high marketing and distribution cost as well as
focusing on human resource investment. However, ACB’s CIR has been
on a downtrend from the ratio of 62% in 2016. In 2020, ACB recorded a
decrease in CIR ratio of 8% compared to 2019 to only 41.98% (Figure
29), due to the main driver of the provision refund for “Other assets'' valued
at VND 646 bn. To improve CIR in the following years, ACB aims to set
out a strategy on banking digitalization to cut down operating costs and
improve working efficiency, thereby improving revenue.
Widening non-interest income contribution
● Unrealized gain from Treasury Bonds
In 2020, when the interest rate dropped sharply due to the SEC's policy to
support the economy, ACB took advantage of this chance to benefit from
investments in the previous period. Specifically, the proportion of profit
earned from investment securities in 2020 has increased dramatically at
4.95% compared to 0.8% in 2019 (Figure 30). In 2021, when the
pandemic is still complicated, the interest rate is expected to go sideways
and this is an opportunity for ACB to keep holding and take profits from
selling investment units in previous years.
● Good growth of non-interest income driven by fee income and
bancassurance
In the period of 2016-2020, the increase of fee income in which the main
drivers are high credit growth, which led to the increase in customer
service; and the strong growth of the stock market over the past two years
also led to an increase in fee income from securities services. In 2020,
non-interest income reached VND 3579 bn, doubling compared to 2016
and accounting for 20% of TOI thanks to the expansion of service
offerings. Other major non-interest income included commission from
insurance, which accounted for 38.1% of ACB’s total non-interest income
(Figure 31). In 2021, with a bancassurance contract worth VND 8500 bn
with a term of 15 years, it is estimated to bring a profit of 560 bn each year,
which will help increase ACB's non-interest income in the following years.
With an average growth of 18.92% between 2016-2020, fees and
commissions are forecasted to deliver 20% growth in 2021-2022 (Figure
32). Looking forward, we expect that ACB’s non-interest income proportion
Felix | 8

Figure 31: Non - interest income structure
Source: Company data, Team compilation
Figure 32: Fee and Commission (VND bn)
Source: Company data, Team compilation
Figure 33: ACB's NPL
Source: Company data, Team compilation
Figure 34: Loan to deposit ratio (LDR)
(forecast only for ACB)
Source: Company data, Team compilation
Figure 35: Capital Adequacy
is constantly rising because of the bank strategy to focus on promoting
fee-generating products, favorable policy for cross-selling, taking
advantage of the SMEs ecosystem to expand the customer base, and
starting Bancassurance pushing.
High-quality assets thanks to effective bad debt processing and
good control of the loan process
ACB is currently considered one of the best asset quality banks in
Vietnam. That is proven by the following factors:
● NPL has been on a downtrend in the period of 2016-2020, reflecting an
improvement in asset quality. In 2020, the NPL ratio at ACB will reach
0.59%, a slight increase compared to 2019 due to the impact of the
pandemic on the entire economy, but this is still the lowest level of NPL
ratio in the whole system. In addition, ACB’s strong asset quality has been
premised on its strict loan appraisal, with 90% of loan books secured.
These loans are considered highly recoverable because they are secured
by assets of larger value. In the following years, ACB's NPL is expected to
remain at a low level, below 1% as a result of prudent credit policy and
experience in handling pandemic volatility (Figure 33).
● High provision coverage: Although most of the bad debt has been dealt
with as well as having the lowest rate in the industry, nevertheless, ACB
still always has to extract a high LLC ratio over the years. As of 2020, the
LLC ratio of ACB is 160%, the second-highest in the banking industry as
a result of active provisioning and NPLs handling.
● High liquidity: ACB keeps maintaining high liquidity in 2020, with an LDR
of 88.19%. ACB’s LDR has increased slightly over the past 5 years. ACB
currently has a quite low LDR ratio compared to other peers in the industry.
In YE2020, this ratio of ACB is at 88.19% while the average ratio of the
banking industry is about 95.52%. This indicates a good liquidity position
while still optimizing capital usage for higher NII. In the upcoming years,
we expect ACB’s LDR to improve steadily and possibly up to 89% in 2025
owing to a combination of positive credit and deposit growth (Figure 34).
Furthermore, holding a large amount of Treasury bonds, which account for
14% of total assets, is also a factor that improves ACB’s liquidity.
Strong capital adequacy
ACB has met capital adequacy standards according to international
standards Basel II (Circular 41/2016/TT-NHNN, abbreviated as TT41)
since 2019. As of the end of 2020, the CAR ratio and Tier 1 capital ratio
were 11.06% and 10.37% respectively, which are higher than that of 2019
(Figure 35). ACB’s CAR and CAR Tier 1 tend to increase due to retained
earnings. ACB has constantly implemented the plan of stock dividends
since 2018. Specifically, in 2018 and 2019, the bank paid a stock dividend
at the rate of 30% and 25% expected in 2020. In the following years, we
expect that the capital increase will continue to be done through this form
of the stock dividend. In addition, by 2020, ACB has planned to issue
international bonds, this helps ACB expand Tier 2 capital. With a persistent
focus on secured lending to reduce risky assets along with Tier 1 and 2
capital, we forecast ACB’s CAR to persistently improve in the following
years.
VALUATION
We employ a 50:50 weighted average valuation of two methods: Residual
Income and multiple valuation method using P/B. Our one-year target price
is VND41,650, a 24.8% upside to the current VND36,000. The weighting
that we assigned on P/B method is to mitigate the high sensitivity of the
Residual Income method to explicit assumptions.
Residual Income model (RIM)
Felix | 9
Source: Company data, Team compilation We chose Residual Income model is a stages model with the first phase
Figure 36: Residual model created by forecasting book value and PAT over a five-year period and the
Key figure Value
residual income of remaining phase will grow at terminal growth of 5.1%
Risk free rate 2.0% (Appendix 5 ).
Market premium 8.21% ● Cost of equity is calculated based on CAPM model with Rf - 5-year
Beta 1 Vietnam government bond yield, Vietnam market premium taken from
Cost of equity 10.2% Damodaran’s research.
Terminal growth 5.1% ● Residual Income is determined by taking NI subtracting cost of equity.
Equity value (VND ml) 107,805,080
The model resulted in a share price of VND 39,900 with the terminal
accounting for 55% of the equity value.
Number of shares (ml) 2,702,948
Price/share 39,900 P/B Model
Source: Team estimate Our P/B multiple valuation has concluded the 1-year target price for ACB
of VND43,200 which weigh 50% of the final target price. Regarding
Figure 37: P/B comparison
Mkt multiple valuation, we adopt and place the weight of 50% on
P/B ROE NPL
cap the equity multiple P/B.
ACB 80,842 2.09 24.3 0.59% By considering ACB’s far superior asset quality due to its NPL clearing
VCB 367,179 3.46 21.1 0.62% efforts and conservative lending, we believe that the ACB’s book value
BID 168,321 2 8.9 1.76% reflects well its intrinsic value, much more so than its domestic peers.
Moreover, its position as a leading retail banking franchise reinforces our
CTG 182,074 1.95 16.8 0.94%
belief that ACB should be traded at a 20% premium to its domestic peer.
TCB 175,946 2.22 18.0 0.47%
(Figure 37)
MBB 96,557 1.8 18.4 1.09%
HDB 51,001 1.9 18.9 1.32% INVESTMENT RISKS
VIB 68,560 3.47 29.6 1.74%
[COV] Covid -19 pandemic causes the disruption of demand and
Median 132,439 2.05 18.6 1.01%
weak absorption of credit. (Low Impact, High Probability)
Source: Vietstock, Team compilation
In 2020, the income of consumers was adversely affected by the COVID-
Figure 38: P/B model 19 pandemic, causing a decreasing demand for consumer loans. The
Key figure Value difference from the trend of credit and deposit growth in previous years
Current peers’ P/B 2.05 shows that the influence of the Covid-19 pandemic on credit demand is
ACB primium 20%
quite large. Even when the pandemic is controlled, the SBV is likely to
tighten monetary policy to reduce macroeconomic risks, protect exchange
ACB’s P/B 2.454
rates and curb inflation.
BVPS (VND) 17.613 Mitigation: Boosting service income and cost-cutting are the ways to
Price/share (VND) 43,200 mitigate the impact of deceleration in credit growth.
Source: Team estimate [NPL] Increase NPL due to circular 01 expiration (Moderate Impact,
Moderate Probability)
Figure 39: Risks matrix
Vietnam banks' asset-quality metrics continue to benefit from regulatory
forbearance, allowing them not to classify the Covid-19-affected
restructured loans as NPLs, approximately 4% of system loans. We
believe that under-reporting of soured loans remains a perennial issue for
the banking system. Particularly, an increase in ACB’s bad debt coming
from restructured customers is expected to be at 0.3% of the total loan
balance According to circular 03, ACB estimates to expense 300bn for
restructured loan provision, which will be recorded next quarters.
Mitigation: ACB made strong provisioning in 2020 for potential bad debts
coming in the future and will be under less pressure to increase provision
expense in 2021.
Source: Team estimates
[RE] Credit risk occurs when there is a downturn in the real estate
market. (High Impact, Low Probability)
ACB’s collateral for its bad debt written-off is mostly real estate. By
liquidating the collaterals, recovery is estimated to be around
(VND1,500bn) for 2021. Thus, a future scenario of a real estate downturn
may severely affect ACB’s profitability both in terms of collateral liquidation
value and growth in its mortgage loan book. However, the State’s early
intervention prevents this. Land developers’ lending is now subject to the
top risk weight of 200%, and SBV’s recommendation is also against
unsecured real estate loans.

Felix | 10
 Mitigation: by not lending to real estate businesses, as well as being
cautious in receiving mortgaged real estate, ACB has separated itself from
the spin of the real estate bubble.

ABBREVIATION FULL TERM

LLR Loan loss reserve

NPL Non-performing loan

SME Small and medium sized enterprises

CAGR Compound annual growth rate

DCF Discounted cash flow

CASA Current Account and Savings Account

HNX Hanoi Stock Exchange

HOSE Ho Chi Minh Stock Exchange

CIR Cost Income Ratio

BOD Board of director

OECD Organization for Economic Co-operation and Development

ADB Asian Development Bank

FDI Foreign direct investment

GDP Gross domestic product

SBV The State Bank of Vietnam

NIM Net interest margin

COF Cost of fund

ROE Return on equity

ROA Return on asset

SEC The Securities and Exchange Commission

LDR Loan-deposit ratio

CAPM The Capital Asset Pricing Model

Felix | 11
 APPENDIX

APPENDIX 1: BALANCE SHEET (VND in billion)

Historical Projected
December 31,
2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
Assets

Cash on hand, gold and

2,806 3,541 4,852 6,129 6,438 6,968 8,219 8,250 12,093 19,335 27,868
gemstones
Balances with the
4,609 5,119 8,315 10,684 10,420 16,617 24,222 27,711 31,734 36,376 41,736
Statebank of Vietnam

Deposits with and loans to

10,122 8,152 8,942 18,770 30,342 31,671 38,351 48,264 58,179 66,689 76,516
other credit institutions

Trading securities 100 1,183 1,237 1,178 2,985 6,168 8,074 11,546 13,222 15,156 17,390
Derivatives and other
48 16 0 0 88 54 40 46 53 61 71
financial assets

Net loans to customer 133,807 161,604 196,669 227,983 266,165 308,529 353,154 407,049 469,340 541,361 624,665

Investment securities 38,679 42,801 52,718 53,380 55,956 63,399 68,840 78,515 89,913 103,064 118,253

Long-term investments 208 190 190 156 98 99 100 100 100 100 100

Investment properties 62 212 256 247 362 349 349 349 350 350 351

Tangible fix assets 2,054 2,339 2,475 2,641 2,721 2,717 2,720 2,722 2,725 2,728 2,731

Other Intangible Assets 425 512 533 593 1,049 1,066 1,098 1,131 1,165 1,200 1,236

Other Assets 8,536 8,010 8,131 7,573 6,891 6,893 8,695 10,207 11,763 13,562 15,643

Total Assets 201,457 233,681 284,316 329,333 383,514 444,530 513,862 595,891 690,636 799,982 926,558

Liabilities

Deposits from customers 174,919 207,051 241,393 269,999 308,129 353,196 403,694 461,853 528,899 606,259 695,604
Liabilties from the State
5,179 0 0 3,074 0 0 0 0 0 0 0
Bank of Vietnam

Deposits and borrowings

2,433 2,235 15,454 20,718 19,249 23,875 27,464 31,610 36,399 41,935 48,337
from other CI

Trust investments and

162 123 136 160 156 117 107 124 142 164 189
other borrowings
Valuable securities issued 3,075 6,615 6,761 8,291 20,831 22,050 25,081 28,867 33,241 38,296 44,143

Other liabilities 2,901 3,594 4,541 6,073 7,384 9,844 8,958 10,310 11,872 13,677 15,765

Total Liabilities 188,669 219,618 268,285 308,315 355,749 409,082 466,272 533,876 611,835 701,810 805,741

Shareholders' Equity

Shareholders' capital 9,377 9,377 10,273 12,886 16,627 21,616 27,019 32,423 38,908 46,690 56,028

Share premium 0 0 0 0 272 272 272 272 272 272 272

Treasury Share -666 -666 -666 -666 -100 0 0 0 0 0 0

Fund of credit institutions 2,374 2,590 2,914 3,693 4,596 5,742 7,464 9,704 12,615 16,399 21,319

Undistributed earnings 1,702 2,761 3,510 5,105 6,370 7,819 12,834 19,616 27,006 34,812 43,199
Total Shareholders'
12,788 14,063 16,031 21,018 27,765 35,448 47,590 62,015 78,801 98,172 120,817
Equity
Total Liabilities &
201,457 233,681 284,316 329,333 383,514 444,530 513,862 595,891 690,636 799,982 926,558
Equity

Felix | 12
APPENDIX 2: INCOME STATEMENT
REVENUE BREAKDOWN (VND in billion)
Historical Projected
December 31, 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
Net Interest Income 5,884 6,892 8,458 10,363 12,112 14,582 17,223 20,189 23,551 27,269 31,430
Net come from
745 944 1,188 1,498 1,896 1,695 2,203 2,423 2,787 3,205 3,686
services
Net income from forex
121 230 237 241 430 687 825 990 1,187 1,425 1,710
trading
Net income from
15 72 25 -78 75 167 202 232 267 307 354
trading securities
Net income from
(808) (886) 603 169 54 732 552 632 726 835 962
investment securities
Net income from other
242 285 892 1,815 1,500 280 308 338 372 409 450
activities
Income from capital
contribution, share 21 25 36 26 29 19 20 20 20 20 20
repurchase
Total Non-Interest
337 671 2,981 3,670 3,985 3,579 4,110 4,635 5,359 6,201 7,181
income
Total Operating Income 6,220 7,563 11,439 14,033 16,097 18,161 21,333 24,824 28,910 33,470 38,611
Total Operating
4,022 4,678 6,217 6,712 8,308 7,624 10,413 12,117 14,111 16,337 18,847
Expenses
Operating profit before
provision for credit 2,199 2,885 5,222 7,321 7,790 10,537 10,920 12,707 14,799 17,133 19,765
losses
Provision for Credit
884 1,218 2,565 932 274 941 2,246 1,123 786 786 786
Losses
Income Before Taxes &
1,314 1,667 2,656 6,389 7,516 9,596 8,674 11,584 14,013 16,347 18,979
Gains
Income Tax Exp. /
286 342 538 1,252 1,506 1,913 1,735 2,317 2,803 3,269 3,796
(Benefit)
Net Income 1,028 1,325 2,118 5,137 6,010 7,683 6,940 9,268 11,210 13,078 15,183
Weighted Avg. Basic
995 1,025 1,342 1,285 2,157 2,188 1,912 2,321 2,552 2,707 2,857
Shares
Basic EPS (Excl.
1.033 1.293 1.578 3.999 2.780 3.511 $ 3.63 $ 3.99 $ 4.39 $ 4.83 $ 5.31
Gains)

APPENDIX 3: BALANCE SHEET DRIVER

KEY DRIVER

Loan to customers:
We break down loans by types of customers. For SMEs, Vietnam has controlled Covid-19 quite well and the credit
growth has seen increased recently, but with the complicated course of this disease, SMEs will not rapidly borrow
money to promote investment, expand production, then the credit growth is projected to rise to 12% and stay there
for the forecast period. Individual loan growth rates which supported by high demand of mortages and car loans
can keep growing. However, we have seen a decrease in growth rate over the past 5 years, together with the
effect of Covid-19, we forecast it will stay at 17% in coming year. Overall, the credit growth rates will be 15% in the
next 5 years.

Felix | 13
 Historical Projected
December 31,
2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
Loan categorized by
customer
State-owned
1,909 1,767 1,407 1,193 1,171 1,177 1,182 1,188 1,194 1,200
enterprises
Joint Stock and Limited
72,951 82,866 94,574 103,724 115,574 129,443 144,976 162,373 181,858 203,681
Company

Foreign enterprises 872 1,233 612 881 777 823 873 925 981 1,039

Cooperatives and
83 108 103 212 206 227 250 272 297 324
private companies

Individual 86,428 111,135 133,043 162,160 193,317 226,181 264,632 309,620 362,255 423,838

Joint venture company 1,157 1,404 788 530 434 451 469 488 507 528

Total Loans: 163,401 198,513 230,527 268,701 311,479 358,302 412,382 474,866 547,092 630,610

Loan Growth Rates:

State-owned
15.0% -7.4% -20.4% -15.2% -1.9% 0.5% 0.5% 0.5% 0.5% 0.5%
enterprises

Joint Stock and Limited

12.8% 13.6% 14.1% 9.7% 11.4% 12.0% 12.0% 12.0% 12.0% 12.0%
Company

Foreign enterprises -45.2% 41.3% -50.3% 43.9% -11.8% 6.0% 6.0% 6.0% 6.0% 6.0%

Cooperatives and
30.1% 29.5% -4.8% 106.8% -2.8% 10.0% 10.0% 9.0% 9.0% 9.0%
private companies

Individual 29.9% 28.6% 19.7% 21.9% 19.2% 17.0% 17.0% 17.0% 17.0% 17.0%

Joint venture company 45.3% 21.3% -43.9% -32.8% -18.1% 4.0% 4.0% 4.0% 4.0% 4.0%

Total Loans: 20.7% 21.5% 16.1% 16.6% 15.9% 15.0% 15.1% 15.2% 15.2% 15.3%

NPL
NPL can moderately climb from 0.59% to 0.9% because of the concern about the restructuring debts after Circular
03’s duration. However, with the good recovery of the restructuring loans and the strong provision “buffer”, the
NPL of ACB will be below 1% and lower in the next years.

Historical Projected
December 31,
2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
Loan categorized by
customer

Group 1 97.89% 99.07% 99.11% 99.22% 99.22% 99.20% 99.13% 99.08% 99.15% 99.21%

Group 2 1.24% 0.23% 0.17% 0.24% 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%

Group 3 0.12% 0.16% 0.07% 0.09% 0.07% 0.08% 0.08% 0.08% 0.08% 0.08%

Group 4 0.11% 0.14% 0.15% 0.12% 0.13% 0.12% 0.11% 0.12% 0.11% 0.10%

Group 5 0.64% 0.40% 0.50% 0.34% 0.39% 0.42% 0.50% 0.53% 0.48% 0.43%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Deposit
Since the loan to deposit ratio of ACB is still smaller than SBV’s regulation at 85%, ACB will obtain this chance to
increase LDR to improve NIM in upcoming years (currently 73.3% with). We create assumption base on the
growth of LDR.

Felix | 14
OTHER ASSUMPTION
ASSETS LIABILITY
Accounts Assumptions
Cash on hand, gold and Deposits and borrowings
gemstones from other CI
Balances with the State % Loan to customer
Trust investments and
Bank of Vietnam
other borrowings
% Customer deposits
Deposits with other credit
institutions Valuable securities issued % growth

Trading securities
EQUITY
Pay dividend stock
and sell treasury
Fix assets The growth of branches Charter capital
share to increase
charter capital
% current loan (Loan in
Group 1) Separate items
Other assets Reserves % Profit after tax
related to group 6
companies.

APPENDIX 4: INCOME STATEMENT DRIVER

KEY DRIVER

Net interest income:

Interest income is projected by the percentage of average interest assets and liabilities. The interest income
delivers a growth of 20% in 2021 and calms down for the next 4 years because (1) considering ACB’s strategy for
gaining customer base and increase the retail segment that ACB is a leader. (2) Deposit interest rates have been
decreased, then ACB can obtain low-interest expense in the following years.

Historical Projected
December 31,
2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Net Interest Income:

Interest Income: 14,082 16,448 20,320 24,015 28,318 31,856 36,877 42,682 49,346 56,874

Interest Expense: (8,198) (9,556) (11,862) (13,652) (16,205) (17,274) (19,578) (22,348) (25,600) (29,352)

Net Interest Income: 5,884 6,892 8,458 10,363 12,112 14,582 17,299 20,334 23,747 27,522

Growth rate 17.1% 22.7% 22.5% 16.9% 20.4% 18.6% 17.5% 16.8% 15.9%

83 108 103 212 206 227 250 272 297 324

Avg. Interest-Earning
188,758 204,116 243,981 290,924 339,390 394,292 456,441 528,294 610,782 703,956
Assets (IEA)

Avg. Interest-Bearing
188,508 204,002 243,822 288,152 331,874 382,279 437,081 498,918 571,525 655,289
Liabilities IBL)

% interest as

% of Interest Income as
7.5% 8.1% 8.3% 8.3% 8.3% 8.1% 8.1% 8.1% 8.1% 8.1%
Avg. IEA

Interest Expense as
4.3% 4.7% 4.9% 4.7% 4.9% 4.5% 4.5% 4.5% 4.5% 4.5%
Avg IBL

Interest Rate Spread: 3.1% 3.4% 3.5% 3.5% 3.5% 3.6% 3.6% 3.6% 3.6% 3.6%

Felix | 15
APPENDIX 5: RESIDUAL INCOME MODEL
KEY DRIVER

Figures Value Assumption References

Equal with the rate of 5-year Vietnam

Risk-free rate 2.0% SBV website
government bond

http://pages.stern.nyu.edu/~adamodar/New_Ho
Market risk me_Page/datafile/ctryprem.html?fbclid=IwAR3x
8.21% Damodara analysis L2kObuVXw1oRvVWc9nPoGlM9d3bnIYFJIM3i
premium
W85C3StTHchyGpk7tEk

Covariance (VN-index, ACB)/Var

Beta 0.998
(VN-index)

R = Rf + Beta*Market risk premium

Cost of Equity 10.2%

Terminal
5.1% PwC – The world in 2050
growth rate

RESIDUAL INCOME MODEL

Historical Projected
December 31, 2019 2020 2021E 2022E 2023E 2024E 2025E

Net income attribute to

27,765 35,448 47,590 62,015 78,801 98,172 120,817
shareholders

Cost of equity 2,835 3,619 4,859 6,332 8,046 10,023 12,335

Residual income 3,915 4,044 2,091 2,997 3,248 3,163 2,994

Felix | 16
APPENDIX 6: FINANCIAL RATIOS

Felix | 17
APPENDIX 7: 2012 SCANDAL

By the end of 2011, ACB was also rated as the bank with the best financial health with a high-profit margin and
low bad debt at that time. However, ACB was the bank that implements the most complex ownership, investment,
and cross-lending.

In 2012, Nguyen Duc Kien, ACB’s key founder, conducted fraud gold trading and related-party lending which
caused ACB a big forex exchange loss and surging low non-performing loans (NPL). ACB was then put under the
restrictive scheme of SBV.

To overcome the consequences of the scandal, ACB took the following actions:

(1) Restructuring the board of management: Mr. Tran Mong Hung and a group of foreign shareholders working
together to govern the bank.
(2) Sharply reducing its activities in the interbank market: deposits and loans to other credit institutions
decreased by 73% in 2012. At the same time, ACB made the settlement of receivables related to gold trading from
domestic and foreign customers, which resulted in a loss of 1864bn in 2012.
(3) Strongly enhancing investment in Treasury bonds, reducing outstanding loans: Taking advantage of the
risk-free nature of Treasury Bonds and the significant difference between the average yield and the average
deposit rate, ACB has made a profit to overcome the consequences of the scandal.

APPENDIX 8: MACROECONOMICS OUTLOOK

The world economy is forecasted to experience the most serious recession in history due to the negative effects
of the Covid-19 pandemic. However, Viet Nam’s economy still maintained growth with GDP growth estimated to
increase by 2.91%. A bright spot in the economic picture in 2020 that cannot be ignored is that export has overcome
difficulties in the pandemic situation, maintained positive growth; trade surplus reached a record high (19.1 billion
USD) and trade balance maintained trade surplus for 5 consecutive years (trade surplus of goods in 2016-2020
period respectively: 6 billion USD; 1.9 billion USD; 6.5 billion USD; 10.9 billion USD; 19.1 billion USD). The signing
of Free Trade Agreements has brought positive signals to the Viet Nam economy, especially the Free Trade
Agreement between Viet Nam and the EU (EVFTA). This reflects the high growth of domestic production capacity,
favorable investment, production and business environment, and the success of Viet Nam's international economic
integration process. Vietnam’s consumer price index (CPI) in 2020 rose 3.23% against the previous year, which is
below the target of 4% set by the National Assembly, according to data released by the General Statistics Office
(GSO)

Figure 40: Average CPI 2015-2020 Figure 41: Vietnam's exports, YoY change (%)

Source: GSO Source: GSO

APPENDIX 9: HOUSING AND CAR MARKET PRESENT ATTRACTIVE GROWTH IN THE FUTURE

Corresponding to high demand, the auto market and house market has seen rapid development. Regarding the
car market, car sales accelerated from 20,630 units of passenger cars in September 2020 to 36,856 units in
December 2020 despite the dreary car market in the first 9 months. The Industrial Policy and Strategy Institute
(IPSI) said that with the high demand of the middle class, car sales were set to respectively rise by 22.6% each
year from now to 2025 and 18.5% in the following years. VAMA has also calculated that from now to 2030, about
5 million more cars will be sold. The demand for houses boosts the household debt to GDP ratio in 2019 increasing
about double in 2013. Along with that the absorption rate in the property market is always high and quickly rebound

Felix | 18
after the pandemic. The room for these markets to grow is still enormous, since comparing to other similar countries,
Vietnam's car and housing market relatively small.

Figure 42: The absorption rate (%) in property market Figure 43: Car markets in Southeast Asia 2019 (million units)

Source: AAF, VAMA

Source: CBRE

Figure 44: Sales in car market per month in 2020 (units) Figure 45: Household debt-to-GDP ratio

Source: VAMA
Source: BIS, IMF

APPENDIX 10: CIRCULAR 01 AND CIRCULAR 03

Circular 01, which took effect from March 13, 2020, and was composed of 03 Chapters and 10 Articles, is about
the outstanding amounts of principal and/or interest that arising from lending activities, financial leasing, and the
obligation to repay the principals and/or interest arising between January 23, 2020, and the following day after 03
months from the date the Prime Minister announces the end of the Covid-19 epidemic. These debts are subject to
rescheduling and are maintained by the classified debt groups and are waived and reduced their interest and fees.

After 5 months, gross loan that is restructured following Circular 01, saw a slight drop in most banks, except for
HDB. (Figure 46). With the good recovery of restructuring loans, the increase in bad debts from customers is
expected to be at 1% of total outstanding loans and there is a strong division among banks depending on asset
quality. Besides, the bank has made a strong provision in 2020, there will be less pressure to increase provision in
2021

Felix | 19
 Figure 46: Restructured loan and provision for loans to customers in 2020

Source: Team compilation

Figure 47: The roadmap for setting up provisions for restructured debts
according to Circular 03
On April 2, SBV officially promulgated
Circular No.03/2021/TT-NHNN, announcing
additional conditions for debt restructuring
and extending the roadmap for restructuring
debt provisions until 2023. Specifically,
Circular 03 stipulates that those restructured
debts will maintain their debt categories
instead of applying the general rules for
overdue debts. However, to avoid a “profit
shock” at the end of the restructuring period,
banks are required to start making provisions
following the nature of those outstanding
loans. We expect that banks’ debt
restructuring portfolios will slightly increase
in 2021 as restructuring conditions are
expanded. However, the impact on asset
yields is minimal. In fact, since the end of
2020, several commercial banks have
ceased debt restructuring portfolio
expansion in fear of conditions regarding
repayment time from Circular 01.

Felix | 20
APPENDIX 11: FIVE FORCES ANALYSIS
Figure 48: Five forces analysis

Source: Team’s compilation

Existing Rivalries: High

Regarding ACB’s model focusing on Retail and SME segments, it is the core operation in upcoming years of many
commercial banks (from state-owned enterprises like VCB to fast-growing medium banks like TPB). They have
promoted their activities in expanding their market shares in Retail and SME segments by investing a lot of capital
into the digital banking ecosystem. Hence, efforts in trying to increase revenue by improving NIM will be limited by
fierce competition. ACB’s goal is to increase the proportion of non-interest income in total income. This strategy is
the potential to be achieved if ACB improves customer satisfaction, number, and transaction value of credit cards
among JSC banks.

Bargaining Power of Buyers: High

Due to a very competitive credit market and low switching cost, customers have a wide choice of receiving their
most preferable loans- with the lowest interest rate. Increase the young population with a faster-growing
urbanization rate (40% in 2020) contribute to a key driver of high demand for credit, especially in retail and SME
segments. A variety of choices accompanied by low switching costs from many commercial banks increase the
bargaining power of customers. To hedge for that, ACB has implemented different customer-based policies such
as flexible payment schedules or no penalty on early payment. Thus, customers would prefer to work with ACB

Threat of New Entrants to the Marketplace: Medium

Besides MBB, TCB, VPB- ACB’s main competitors, other banks have promoted their retail lending making this pie
under fierce competition. Unlike the wholesale segment, the retail and SMEs segment do not require a substantial
amount of capital, thus making it attractive for new entrants in penetrating this field. However, they will expose to
more risks in this segment. Regarding ACB’s 27 years of experience and competitive advantages in this segment
would maintain its position in the market shares.

Bargaining Power of Suppliers: High

Unlike other normal industries, in the banking industry customers are both suppliers and buyers. Therefore, similar
to the high bargaining power of buyers, Bargaining Power of Suppliers is relatively high. Main suppliers of banks
stem mainly from customer deposits, ACB’s deposits at other banks only account for a small percentage.
Customers would try to maximize their deposits with a highly satisfactory interest rate, especially with low switching
costs. ACB has successfully retained its customers with appropriate customer-based policies such as customers
are free to take out their deposits even when the bank is in trouble times. ACB’s achievements in satisfying
customers have been proved through its ups-and-downs history

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Threat of Substitutes: Very low

The Vietnamese banking industry has a history of almost 20 years and the main players in this industry have
remained relatively stable since then. An explanation for this lies in the high capital requirement, efficient risk
management, and most importantly is government control and regulations. Therefore, threat of substitutes would
be relatively low for such a large Jsc Bank like ACB.

APPENDIX 12: GOVERNANCE ASSESSMENT

ACB’s corporate governance is assessed using the framework from G20/OECD Principles of Corporate
Governance and Vietnam Corporate, Governance Scorecard 2012 from International Finance Forum, member of
World Bank Group

Figure 49: Corporate governance assessment

Source: Team’s estimate

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APPENDIX 13: TRANSACTION BANKING AND BANCASSURANCE INTENSIFY FEE INCOME’S
CONTRIBUTION

Figure 50: Vietnam bancassuarance market in region Large growth potential for Vietnam banking services in
long-term

Payment fees and card fees are expected to maintain growth

momentum upon the promotion of non-cash payment, as banks
are focusing on the retail segment and digital transformation.
Additionally, bancassurance fees should continue to see solid
growth upon stronger penetration of insurance and the
contribution of Banca channel on total insurance premiums
(especially life-insurance), while fee income structure can also
be diversified with other activities such as bank guarantee, bond
services, and brokerage. The total number of cards in circulation
and the total number of bank accounts have seen an upward
trend in recent years, yet the growth rate is leveling off.
Source: Worldbank Data

Figure 51: Gross Written Premium (GWP) via The Rise of Bancassurance in the Land of Opportunity for
bancassuarance channel life insurers

The number of insurance agents increased at a CAGR of 28% in

Source: VIA, team's compilation
Figure 52:Number of agents
2014-2019 and reached more than 1 million in 2019. Insurers
recognize and unlock the significant potential of bank
partnerships, with many entering into exclusive partnerships with
banks and placing more financial resources into the channel,
including paying upfront fees to the bank in return for exclusivity.
Even at a 29% share of the total insurance market (as achieved
in 2019), there is still room for bancassurance to expand further
to take a larger percentage of the total insurance business in
Vietnam. Looking across Asia at other markets, the proportion of
bancassurance in Vietnam’s market is still low. The future is
bright for both insurers and banks to further tap into the bank’s
client base to reach large segments of the uninsured Vietnamese
population. We should look for a bancassurance business to
continue to expand on top of the already rapid expansion of the
life insurance market in the coming years.

Source: IVA

Figure 53: Life insurance bancassurance Partnership

Source: Local presses, team's compilation

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APPENDIX 14: ACB’ PRODUCTS

ACB have a wide range of products from card services, credit products to monnetary products Card services:
Credit card, debit card, prepaid cards.

• E-banking: ACB Mobile Banking, ACB online, Customer center 24/7

• Insurance: ACB – Sunlife, ACB health care
• Deposits: Term deposits

Especially, ACB tailored their product in Payment services and Credit products for their customers:

Products Customer Detail

• Quick Money transfer
• Multi-currency payment
Business • L/C
• Payment of bill and tax
Payment services
• Payment management
• 24/7 International money transfer
Personal • 24/7 International money payment
• Payment of bills and tax
• Import Export finance
Business • Trade finance
• Financing project and investment for SME company
Business loan
• Sustainable Buildings
• Loans for Production and Business Investment
• Fixed Asset Investment
• Working Capital Supplemental Loan
Housing loan
Credit products • Loan to Buy House - Land
• Construction Loan - Home
Individual
• Repair Loan to Buy Project Apartment
Consumer loans
• Flexible Consumer Loans
• Unsecured Consumer Loans
• Loans to serve life needs with collateral
• Mortgage Loans
• Car Loan Program
• Study Abroad Loans

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REFERENCE
1. Turicum Investment Management, (2021). Vietnam banking sector – 2020 review and 2021 outlook. [online]
timvest.ch. Available at: https://timvest.ch/vietnam-banking-sector-2020-review-and-2021-outlook/
Vietcombank securities, (2021). BANKING SECTOR REPORT 2021. [online] VCBS. Available at:
https://vcbs.com.vn/en/Communication/GetReport?reportId=8205

2. McKinsey &amp. Company, (2019). Asia-Pacific Banking Review 2019 Bracing for consolidation: The quest for
scale. [online] Mckinsey. Available at: https://www.mckinsey.com/asia-pacific-banking-review-2019-vf.ashx

3. EY, (2019). Asia-Pacific insurance outlook 2019. [online] Assets. EY. Available at:
https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/insurance/insurance-pdfs/ey-insurance-outlook-
asia-pacific.pdf

4. SBV, (2020). SBV issued Circular to support customers affected by Covid-19 epidemic. [online] SBV. Available
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5. SSI, (2021). Triển vọng ngành Ngân hàng năm 2021: Nền kinh tế phục hồi – chất lượng tín dụng là trọng tâm.
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ssiresearch-pdf.pdf

6. Ministry of finance (2021), Announcement of the results of issuing government booked 069, 070, 071, 072 in
2021. Available at:
https://vst.mof.gov.vn/webcenter/portal/kbnn/r/o/tpcp/kqph;jsessionid=dDCKrvo1bN1VUPdSzF2h5r1HsTlaKUI3u
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Disclosures:

Ownership and material conflicts of interest

The author(s), or a member of their household, of this report, does not hold a financial interest in the securities of
this company.

The author(s), or a member of their household, of this report, does not know of the existence of any conflicts of
interest that might bias the content or publication of this report.

Receipt of compensation

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as an officer or a director

The author(s), or a member of their household, does not serve as an officer, director, or advisory board member
of the subject company.

Market making

The author(s) does not act as a market maker in the subject company’s securities.

Disclaimer

The information set forth herein has been obtained or derived from sources generally available to the public and
believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express
or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any
investment decisions by any person or entity. This information does not constitute investment advice, nor is it an
offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a
recommendation by any individual affiliated with RMIT Research Challenge with regard to this company’s stock.

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