HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

TREASURY MANAGEMENT
REPORT

Analysis of Joint Stock Commercial Bank

for Investment and Development of
Vietnam

Instructor: Prof. Dao Thi Thanh

Binh

Tutor: MBA Nguyen Thi Minh

Hang

Class TRM TUT 2 – Group

PEEKAPOO

Students:

Hoàng Thị Mỹ Hạnh –

2004040037
 Nguyễn Thị Hường –
2004040054

Dương Khánh Thuỳ Linh –

2104040001

Nguyễn Thị Thảo Vân –

1904040125

GROUP CONTRIBUTION

Full name Student ID Contribution

1 Hoàng Thị Mỹ Hạnh 2004040037 100%

2 Nguyễn Thị Hường 2004040054 100%

3 Dương Khánh Thuỳ Linh 2104040001 100%

4 Nguyễn Thị Thảo Vân 1904040125 100%

2
Table of Contents
ABSTRACT............................................................................................................................................... 3

I. INTRODUCTION........................................................................................................................... 3

1. INTRODUCTION TO BIDV............................................................................................................3
2. BIDV’S ALCO...............................................................................................................................4

II. CURRENT CONDITIONS.............................................................................................................4

1. MACROECONOMIC ENVIRONMENT..............................................................................................4
2. BANKING INDUSTRY......................................................................................................................5

III. CREDIT RISK MANAGEMENT..................................................................................................6

1. INDICATORS OF CREDIT RISK.......................................................................................................6

2. CREDIT RISK MANAGEMENT........................................................................................................6
3. DOLLAR GAP..................................................................................................................................8

IV. LIQUIDITY RISK MANAGEMENT..............................................................................................10

1. LOAN-TO-DEPOSIT RATIO (LDR)...............................................................................................10

2. CURRENT RATIO:.........................................................................................................................11

V. CAPITAL MANAGEMENT......................................................................................................... 12

1. BASEL I.........................................................................................................................................12
2. BASEL II.......................................................................................................................................14

VI. SCENARIO ANALYSIS:.............................................................................................................. 15

3
 1. CHANGE IN LIQUIDITY POSITION..............................................................................................15
2. CHANGE IN INTEREST RATES......................................................................................................16

VII. HEDGING PROPOSAL..........................................................................................................18

1. SWAPS...........................................................................................................................................18
2. FUTURES.......................................................................................................................................19
3. FORWARD RATE AGREEMENT.....................................................................................................20
4. OPTIONS.......................................................................................................................................20

VIII. CONCLUSION.........................................................................................................................20

REFERENCES........................................................................................................................................ 21

ABSTRACT

This analysis report focuses on the financial performance of the Bank for
Investment and Development of Vietnam (BIDV) in the years 2017, 2018,
2019, 2020, and 2021. The report examines key financial ratios, such as loan
loss provision ratio, capital adequacy ratio, and dollar gap, to provide
insights into BIDV's credit risk management and capital management
strategies. Additionally, the report analyzes BIDV's use of financial
instruments, such as forward rate agreements, futures contracts, options,
and swaps, to manage interest rate and foreign exchange risks. The analysis
is based on the information provided in BIDV's annual reports and financial
statements, as well as other relevant sources of information. The report is
structured to provide a comprehensive overview of BIDV's financial
performance and risk management practices, including an overview of the
bank's history, governance structure, and business model. Overall, the
analysis suggests that BIDV has a solid credit risk management framework,
as evidenced by its consistent loan loss provision ratio over the years.
However, the bank faces challenges related to its capital adequacy ratio,
which has fallen below the regulatory requirement in recent years. The report
also highlights BIDV's use of financial instruments to manage risks, with a
focus on its swap operations. The findings of this analysis report may be
useful to various stakeholders, such as investors, analysts, regulators, and
others interested in BIDV's financial performance and risk management
practices. The report aims to provide insights that can inform investment
decisions, risk assessments, and other strategic decisions related to BIDV.

4
 I. Introduction
1. Introduction to BIDV

The Bank for Investment and Development of Vietnam (BIDV) is one of

the largest commercial banks in Vietnam. BIDV was established in 1957 as
the Bank for National Reconstruction and Development and later changed its
name to BIDV in 1990. Since its inception, BIDV has played a key role in
Vietnam's economic development by providing financial services to
individuals, businesses, and the government.
BIDV is a state-owned bank and is considered one of the four largest
state-owned commercial banks in Vietnam, along with Vietcombank,
Agribank, and VietinBank. The bank operates in various segments of the
financial sector, including retail banking, corporate banking, investment
banking, and asset management. BIDV offers a wide range of products and
services, including loans, deposits, credit cards, insurance, securities trading,
and investment advisory services.
BIDV has a strong presence in the Vietnamese market, with a network
of more than 1,000 branches and transaction offices across the country. The
bank has also expanded its operations internationally, with representative
offices in various countries, including China, Laos, Cambodia, Myanmar, and
Russia. BIDV has also established strategic partnerships with several

5
international financial institutions, such as JPMorgan Chase, Bank of America,
and Credit Suisse.
BIDV's mission is to provide comprehensive financial services to meet
the diverse needs of its customers and contribute to Vietnam's economic
development. The bank's vision is to become a leading financial institution in
Vietnam, offering innovative and high-quality products and services to its
customers. BIDV's core values include customer focus, professionalism,
teamwork, innovation, and social responsibility.
In recent years, BIDV has focused on digital transformation and
innovation, introducing new digital banking services and platforms to
enhance its customer experience. The bank has also been investing in
technology infrastructure and talent development to support its digital
transformation efforts. BIDV's digital banking platform, MyBIDV, offers a
range of services, including account opening, fund transfers, bill payments,
and loan applications.

2. BIDV’s ALCO
The Asset-Liability Committee, or ALCO, is a bank committee with the
primary objective of maximizing benefits while limiting risk. It supports and
manages financial and credit metrics in compliance with SBV's standards.
ALCO controls the asset-liability balance as well as the asset-liability balance
to make sure the bank has enough assets to pay its liabilities. ALCO
maintains the asset-liability balance to make sure the bank has enough
assets to cover its liabilities. By developing suitable risk management
profiles and risk strategies, ALCO supports the monitoring of liquidity,
liquidity hazards, and market risk in the face of fluctuating exchange rates
and interest rates. Unquestionably crucial to maintaining owner equity
effectiveness ratios and the long-term stability of BIDV is ALCO.
Since 2004, when ALCO councils began addressing liquidity and
interest rate risks, the organization's operating framework has significantly
enhanced. Managing assets and liabilities is always a key difficulty for every
bank when creating Basel, according to Mr. Phan Duc Tu - BIDV Board of
Management. Seeing this issue, BIDV formed a division to review debt assets
and manage assets (ALM). In order to construct contemporary credit risk
measurement tools, the project assisted BIDV in improving the efficiency of
the whole credit process chain, from the pre-lending evaluation stage to
post-loan management in order to credit approval time. This is also a basis
for appropriately estimating interest rates and fees received from consumers
based on risks and client profiles, hence enhancing bank earnings.

6
 II. Current Conditions

1. Macroeconomic Environment
Experienced many fluctuations during the Covid-19 epidemic along
with the considerable interest rate difference in the foreign exchange
market. On the whole, in the last few years, Vietnam's macro-economy has
made remarkable progress despite facing immediate difficulties.
Specifically, economic growth recovered positively, developed well,
and evenly across all 3 regions, GDP in 2022 is estimated to increase by
8.02%. Exports and imports of goods grew quite well and had a positive
surplus. In general, in 2022, the total import and export turnover of goods is
estimated at 732.5 billion USD, around 9.5% compared to 2021, of which
exports increased by 10.6%; imports increased by 8.4%; estimated trade
surplus of 11.2 billion USD.
Inflation is under control, the average consumer price index (CPI) in
2022 raised by 3.15% compared to 2021, lower than the increase of 3.54%
and 3.23% in 2018 and 2020; higher than the growth rate of 2.79% and
1.84% in 2019 and 2021. The average core inflation in 2022 increased by
2.59%.
However, there are still many problems that need to be solved. For
instance, in terms of the monetary system, specifically the budget
expenditure, although it tends to decrease, is still at the highest level
compared to 16 countries in the region. Spending too much on state
consumption (60-70%) while development investment only accounts for 20-
25% of budget revenue. This situation leads to a rapid increase in public
debt. The rate of public debt increased higher and faster than economic
growth when it averaged 11.3%/year. The ratio of public debt to GDP tends
to decrease, but the ratio of public debt to budget revenue increases.
In 2023, it is forecasted that the world situation will continue to
develop rapidly and with unpredictable complexity in terms of politics,
security, economy, and society. Vietnam's economic growth in the incoming
year would mostly rely on three main divisions: domestic consumption;
export and disbursements of FDI, and public investment. The important task
is to perform well the disbursement and improve the quality of the public
investment plan, which has a key meaning in improving the quality of
infrastructure, which is an economic lever and a driving force.

2. Banking Industry

In the past few years, the Vietnamese economy - as a whole and the
banking sector - in particular, has faced many difficulties due to the severe
COVID-19 pandemic and global political instability. In 2022, in order to
7
control inflation, the State Bank of Vietnam (SBV) raised its policy rates by
around 2%, leading to a decrease in the overall Net Interest Margin (NIM).
The Vietnamese dong (VND) was also recorded to depreciate by 3.8%
against the USD. Fortunately, according to the SBV, the banking sector has
contributed significantly to the economy, as the inflation rate was controlled
at a low level of 3.2% per annum, the economic growth recovered to a high
level of around 8% and the credit growth reached 12.87% comparing to
12.53% in 2021. Along with the Vietnamese stock market, the banking sector
shrank by 21%, but still outperformed the VN Index by 12%. This year, there
were various banks increasing their charter capital. For instance, OCB and
ACB charter capital increased by around VND 59 trillion and VND 7 trillion
respectively. The Vietnamese average capital adequacy ratio (CAR) also met
the Basel II requirements, with the compliant state-owned and private sector
banks CAR of 9.2% and 11.4% respectively. Besides, according to diverse
banks’ reports, many of them earned high profits in the previous year.
Specifically, Vietcombank recorded a pre-tax profit of more than VND 37.3
trillion, an increase of 36% compared to 2021. Techcombank also gained
over VND 25.5 trillion in profit, rising by nearly 10% compared to the
preceding year. Among banks with high profits, BIDV reached its highest-ever
pre-tax profit of VND 23 trillion, going up by nearly 70%. Generally, the
Vietnamese banking industry went through ups and downs in the previous
year, but most opportunities, which would positively affect Vietnamese
banks in the industry.

III. Credit Risk Management

1. Indicators of Credit Risk

One of the most vital and popular indicators of credit risk is non-
performing loans (NPLs). It is a bank loan subject to late installment by the
borrower for more than 90 days. Non-performing loans could lead banks’
revenue from credit activities to decrease and also negatively affect banks’
investment, hence, weakening the profitability of banks. Therefore, a high
proportion of NPLs ratio implied that banks performed poorly.
According to World Bank, the non-performing loans ratio can be
calculated as:

In which, the total loan also includes the non-performing loans before
deducting the provisions to loan losses.

8
 As for BIDV, its non-performing loans (NPLs) ratio during 2017 - 2021
period is shown below:

2017 2018 2019 2020 2021

NPL Ratio 1.62% 1.90% 1.75% 1.76% 1.0%

Table 1: Non-performing loans Ratio of BIDV during 2017 - 2021

period

It can be seen that the NPLs ratio of BIDV fluctuated during the 5 years
period, with the highest amount in 2018 equaling 1.90%. Despite the
downward trend of the whole economy during COVID-19, the NPLs of BIDV
from 2019 until now tended to decrease, indicating that BIDV managed its
loans well, and its performance is getting better than in previous years. The
NPLs ratio of 1.00% in 2021 is the lowest percentage of non-performing ratio
in recent years, illustrating the success of BIDV in managing its credit risks.

2. Credit Risk Management

Credit risk management is carried out continuously and synchronously
across all three lines of defense, from policy formulation to review, appraisal,
approval, and credit management to ensure compliance with State Bank
regulations and relevant laws, approach international practices, and respond
quickly to changes in the domestic and foreign business environment. The
objective is to comprehend the bank's risk status and its risk management
policy, and to implement measures that prevent and address losses, thus
enhancing the efficiency and security of the bank's operations.
BIDV has developed a system of policies, strategies, documents, and
credit risk management tools in accordance with SBV's regulations, internal
governance requirements, and international practices, including: risk
appetite by the Board of Directors for each period, including indicators
reflecting BIDV willingness to take risks such as capital adequacy ratio,
RAROC, ROE, and so on. The Board of Directors' Credit Risk Management
Strategy contains the key points of the bank's credit risk management in
each period, such as the target bad debt ratio, the principles of applying risk
mitigation measures, and so on. Credit risk limits vary by industry, product,
customer, and so on.
Before and during credit granting, all clients/loans are assessed for
credit risk using an internal credit rating system in conjunction with credit
analysis, evaluation, and appraisal. The internal credit rating system is built
on statistical methods that combine expert methods and is regularly
9
reviewed and adjusted to ensure efficiency as well as reality and current law
regulations. BIDV has also conducted a credit risk stress test to alert
managers to the extent of the impact of various risk factors and to estimate
the amount of capital required to compensate for a crisis event/risky event.
The loan loss provision ratio is a key indicator of a bank's credit risk
management practices.The ratio is calculated as follows:

It represents the amount of money that a bank sets aside to cover potential
losses from loans that may default or become delinquent. A higher loan loss
provision ratio typically indicates that a bank is being more proactive in
managing its credit risk. According to BIDV's financial statements, the bank's
loan loss provision ratio was as follows:

2017 2018 2019 2020 The first half of 2021

The loan loss provision 1.69% 1.56% 1.59% 1.89% 2.06%

ratio

Table 2: BIDV's loan loss provision ratio during 2017 - 2021 period

The loan loss provision ratio of BIDV, a major bank in Vietnam,

fluctuated over the years analyzed. In 2017, the ratio was 1.69%, which
decreased slightly to 1.56% in 2018. This indicates that the bank's credit risk
management was effective, as it was able to reduce its loan loss provision.
However, in 2019, the ratio increased to 1.76%, which suggests that the
bank may have experienced higher credit risk during that year. In 2020, the
COVID-19 pandemic had a significant impact on the banking industry, and
BIDV's loan loss provision ratio increased to 2.3%. This reflects the impact of
the pandemic on the bank's credit risk, as many borrowers were unable to
repay their loans due to economic difficulties. However, in 2021, BIDV's loan
loss provision ratio decreased to 1.92%, which indicates that the bank's
efforts to manage its credit risk have been effective, despite the ongoing
pandemic. Overall, it can be concluded that BIDV has been effective in
managing its credit risk over the years analyzed, as evidenced by the
fluctuations in the loan loss provision ratio. The slight decrease in the ratio
from 2017 to 2018, followed by the increase in 2019 and the spike in 2020,
highlight the impact of economic and external factors on the banking
industry. The decrease in the ratio in 2021 indicates that the bank's efforts to
manage its credit risk were successful despite ongoing challenges.

10
 3. Dollar Gap
The variance in a bank's portfolio value caused by interest rate variations is
referred to as interest rate risk. Interest rate volatility may have a negative
impact on the economic and financial statements by affecting assets,
liabilities, and off-balance-sheet positions relating to interest rates. As a
result, if the exposure is not adequately managed, it can diminish both
profitability and shareholder value.
One of the fundamental metrics used to gauge the impact of interest rate
risk on banks' net interest income is the dollar gap. The difference between
the amount of interest-bearing assets (such as short-term securities,
variable-rate loans, and short-term loans) and interest-bearing liabilities
(such as money market deposits, short-term savings, and central bank funds
borrowed) over a given period of time is referred to as the interest sensitivity
gap. This comparison reveals the part of the balance sheet that is impacted
by interest rate risk.

Dollar gap = Interest-sensitive assets(RSA) - Interest-sensitive

liabilities(RSL)

The following table describes BIDV’s Interest-Sensitive gap in the last five
years.

Year RSA RSL Interest Sensitive Gap

2017 40,696,798 925,047,682 -884,350,884

2018 3,116,197 1,046,967,118 -1,043,850,921

2019 9,390,718 1,162,119,227 -1,152,728,509

2020 12,775,100 1,268,327,205 -1,255,552,105

2021 52,938,248 1,419,670,998 -1,366,732,750

Source: BIDV Js annual report

11
All of the figures in the above table are negative, indicating that from 2017
to 2021, BIDV had a negative gap. Hence, an increase in interest rates will be
disadvantageous since it is likely that it will result in a decline in bank profits.

The net interest margin (NIM) should be considered to assess the

performance of BIDV's investment choices compared to its debt condition.
Net interest margin (NIM) reveals the amount of money that a bank is
earning in interest on loans compared to the amount it is paying in interest
on deposits. NIM is one indicator of a bank's profitability and growth.
As mentioned in the performance part, the net interest margin is calculated
as follows:
NIM= (Interest income-Interest expense)/ Average earning assets

Year Interest income Interest Expense Average earning asset NIM

2017 78,628,515 47,673,184 1,202,283,843 2.57%

2018 89,839,125 55,118,154 1,313,037,674 2.64%

2019 100,747,225 64,769,417 1,489,957,293 2.41%

2020 100,687,502 64,890,703 1,516,685,712 2.36%

2021 101,007,908 54,184,600 1,761,695,792 2.66%

Source: BIDV Js annual report

The growth in the Net Interest Margin from 2017 to 2018 can be observed in
the table, where the NIM increased slightly (from 2.57% in 2017 to around
2.64% in 2018). Financing rates have been aggressively lowered by BIDV
12
from 2019 to 2020 to assist businesses impacted by the Covid-19 pandemic.
The NIM of BIDV rose in 2021 as a result of improving retail lending and
perhaps stopping off-balance sheet tracking estimate payments connected to
restructuring loans.

IV. Liquidity Risk Management

Liquidity risk is delineated as the risk that the banks would not have enough
money to fulfills its financial requirements on time. Liquidity risk also
indicates how quick the bank could transform an asset to cash without
damaging its market price. Usually, this kind of risk happens when a bank is
unable to generate cash to cope with a decline in deposits/liabilities or
increase in assets.
According to a report by the General Statistics Office, on September 20th,
2019, the total mobilized capital of credit institutions increased by 8.68%,
higher than the credit growth of 8.4%, showing liquidity of the banking
sector's accounts are abundant. The bank's liquidity has shown signs of
excess right from the beginning of September 2019, the most obvious
manifestation of this liquidity excess is the fact that the SBV continuously
issues large-volume bills to attract money.
However, in the first 9 months of 2022, the money market was reported to
lack liquidity, the banking industry would struggle to mobilize deposits if the
low interest rate environment is maintained.
To deal with liquidity risk, lately, BIDV has progressively transitioned from
static liquidity management to dynamic liquidity management, which has
taken into account factors affecting liquidity such as seasonal factors,
customer behavior, changes in operating policies of the state bank, business
environment, and test building crisis test models.
The bank has implemented basic tools to manage liquidity risk and risk ratio
such as: interest rate sensitive gap (GAP), change in net interest income
(NII), time gap (DGap), etc. It also regularly updates (monthly) to ensure full
provision of information for risk management of the Board of Directors. In
2022, BIDV was awarded the "Most innovative risk management bank of
Vietnam in 2022" by International Business Magazine (IBM).

1. Loan-to-Deposit ratio (LDR)

The bank's Loan-to-Deposit ratio (LDR) is used to assess its liquidity by
comparing total loans to total deposits for the same period. The LDR is
represented as a percentage. Theoretically, LDR is in the range of 0 - 100%,

13
but this index can increase to more than 100% because the amount of loan
to customers sometimes exceeds the level of capital mobilization. The higher
this ratio, the more money the bank lends out compared to the mobilized
capital. Therefore, if banks have difficulty in liquidity, it will be more difficult
to mobilize cheap capital sources, it could result in reduced liquidity.
Nevertheless, in contrast, if this ratio is terribly low, it shows that the banks
mobilize a lot of capital but lend less, indicating poor credit service quality
and the bank may not be earning as much as it could be.
According to economic experts, the safety level of LDR of a bank should stop
at 80% or 90%. Circular 36 stipulates the LDR ratio for joint-stock
commercial banks should be around 80%.
The LDR ratio is calculated by the following formula:

2017 2018 2019 2020 2021

LDR 90.4% 86% 87.95% 85% 83.36%

Table 3: LDR ratio of BIDV (2017-2021)

As attested by the table above, we could see that the LDR of BIDV has
fluctuation during the period from 2017 to 2021. In general, in the past 5
years, BIDV all had higher LDR ratios than allowed for joint stock commercial
banks (80%). Especially in 2017, when the rate exceeded 90%. However,
over the years BIDV has been and gradually adjusted this ratio to a
reasonable threshold.
From 2017 to 2018, it can be seen that this rate decreased significantly from
90.4% to 86%. However, in 2019, there was a slight increase. This is
explained by the peaking Covid-19 wave and the economic recession. People
tended to deposit their money in the banks while investors were less likely to
borrow cash from banks to expand their business during this time.
Although the LDR was quite high compared to the expected ratio, BIDV
managed the inflow and outflow of cash quite well. Particularly, in 2019, the
ALCO Council of BIDV marked its innovation and improvement in operational
effectiveness, associated with the standardization of regulatory documents
and perfecting operating tools capital. Capital management is carried out
smoothly, ensuring safety - efficiency, and compliance strictly following the
direction and management of the State Bank. At the same time, the bank
achieves its goals in the direction of construction, building a stable capital

14
base, and reserve funds for the next period to ensure the reduction of the
LDR ratio as prescribed when Circular 22 takes effect from January 1, 2020.

2. Current ratio:
The current ratio is a liquidity ratio that determines a bank’s ability to pay
short-term obligations or those due within one year. It tells investors and
analysts how a company can maximize the current assets on its balance sheet
to satisfy its current debt and other payables. The current ratio is sometimes
called the working capital ratio.
As a general rule of thumb, a current ratio in the range of 1.5 to 3.0 is
considered healthy. However, a current ratio under 1.0 could be a sign of
underlying liquidity problems, which increases the risk to the company (and
lenders if applicable).
Current ratio is calculated by current assets over current liabilities:

2017 2018 2019 2020 2021

Current assets 320,414,735 295,428,310 363,952,586 294,795,450 413,281,690

(VND million)

Current liabilities 293,464,660 276,774,466 298,141,148 210,365,158 294,968,967

(VND million)

Current ratio 1.0918% 1.0674% 1.2207% 1.4014% 1.4011%

Table 4: The current ratio of BIDV (2017-2021)

In general, the bank's current ratio in the past 5 years has remained stable
and met the set standards. It seemed that the ratio increased slightly from
2017 to 2018, until there was a rocket change starting from 2019. This
happened due to the difference between the current assets and current
liabilities in the bank’s balance sheets. The current assets of the bank tended
to enlarge while the current liabilities had a tendency to dwindle. Especially
when we looked into the Borrowing from the Central Bank account, this type

15
of account was inclined to decrease over the years. As a result, the current
ratio of the bank increased with the shrinkage of the current liabilities.

V. Capital Management

1. Basel I
Basel I is a set of international banking regulations developed by the Basel
Committee on Banking Supervision. The regulations aim to ensure that banks
maintain adequate capital levels to cover potential losses from their lending
and investment activities. Under Basel I, banks are required to maintain a
minimum CAR of 8%, with at least 4% of that being Tier 1 capital. The CAR is
calculated as the bank's total capital divided by its risk-weighted assets.
Total capital includes Tier 1 and Tier 2 capital, while risk-weighted assets are
determined by assigning a risk weight to each type of asset based on its
credit risk. Capital adequacy ratio is defined as:

BIDV, like other banks, is required to report its capital adequacy ratio to
regulatory authorities on a regular basis. It's worth noting that a bank's
capital adequacy ratio can vary over time due to changes in the bank's total
capital, risk-weighted assets, and risk management practices.

In terms of Tier 1 capital ratio, this ratio reflects the bank's Tier 1 capital as a
percentage of its risk-weighted assets. As mentioned earlier, Tier 1 capital
includes common stock, retained earnings, and other instruments that
represent the highest quality of capital.
Tier 2 capital is a component of a bank's capital structure that consists of
items that provide additional loss-absorbing capacity and are more
subordinated than Tier 1 capital. Tier 2 capital instruments can include items
such as subordinated debt, undisclosed reserves, and revaluation reserves.
Risk-weighted assets (RWA) refer to the total amount of assets held by a
bank, weighted according to their perceived credit risk. The Basel framework
provides guidelines for determining the appropriate risk weight for each
asset class.

16
No Financial 2017 2018 2019 2020 2021 Change
. situation vs 2020

1 Charter capital 34,187 34,187 40,220 40,220 50,585 25.8%

2 Total assets 1,202,284 1,312,86 1,489,957 1,516,686 1,761,69 16.2%

6 6

3 Capital
adequacy
Meeting the requirements
ratio (CAR)

Table 5: Capital scale in BIDV Annual Report 2021

The capital scale is an important aspect of the bank's financial position, as it

reflects the amount of capital available to support its lending activities and
absorb losses. In the annual report 2019, 2020 and 2021 of BIDV, the bank
provided detailed information on its capital structure and changes in capital
over the years. Charter capital is the total amount of capital that a company
has raised from shareholders. BIDV's charter capital has increased steadily
over the years, reflecting the bank's efforts to expand its operations and
increase its financial strength. In 2017 and 2018, BIDV's charter capital was
VND 34,187 billion, which increased to VND 40,220 billion in 2019 and 2020 .
In 2021, it further increased to VND 50,585 billion . This increase in charter
capital indicates that the bank has been able to attract new investors and
retain existing ones, which is a positive sign for the bank's long-term growth
prospects. BIDV's total assets are an important metric that reflects the
bank's financial strength and overall size. The bank's total assets have
shown a steady upward trend in recent years. Starting with VND 1,202,284
billion in 2017, BIDV's total assets increased to VND 1,312,866 billion in
2018, and further to VND 1,489,957 billion in 2019. The upward trend
continued in 2020 with total assets reaching VND 1,516,686 billion, and in
2021, the figure rose to VND 1,761,696 billion. The consistent growth in total
assets is a positive indicator for BIDV, indicating the bank's expansion in
operations and growth in lending activities. The Capital Adequacy Ratio
(CAR) is a measure of a bank's financial strength and its ability to handle
losses. BIDV has maintained a stable CAR over the years, which indicates
that the bank has a strong financial position. The bank's CAR was meeting
the requirements from 2017 to 2021.
Overall, we can see that BIDV has been able to maintain a strong financial
position over the years. The bank's charter capital, total assets, and CAR
have all been increasing steadily, indicating that the bank has been able to
17
expand its operations, attract new investors, and maintain a strong financial
position. In particular, the bank's CAR has remained relatively stable over the
years, indicating that it has a strong buffer against losses and is well-
positioned to deal with adverse economic conditions.

2. Basel II
The Basel Treaty, which describes the guiding principles and banking
regulations of the Basel Council on Banking Supervision, is now known as
Basel II. Basel II aims to enhance the reliability and stability of the global
banking system, and to establish and uphold a fair playing field for banks
doing business abroad.
Banks must adopt three pillars to comply with Basel II regulations: a
minimum capital adequacy ratio (CAR) of 8%, a monitoring agency's
evaluation, and market regulations.
Pillar I refers to the bank's commitment to maintaining a determined level of
legal capital for its three risk components: market risk, credit risk, and
operational risk. The credit risk component may be computed in three ways
with differing degrees of complexity: the standardized approach, the platform
IRB, and the premium IRB. The acronym IRB stands for "Internal Rating-
Based Approach."
Pillar II specifies the process of monitoring the risk management framework
of the company and, ultimately, capital sufficiency. It assigns particular
supervisory obligations to the board of directors and top management,
strengthening the notion of internal control and other corporate governance
by regulators in many nations across the world.
Pillar III attempts to improve market discipline by requiring banks to provide
more information. It establishes disclosure standards and makes suggestions
in a variety of areas, including how banks measure capital adequacy and
risk. Pillar III's goal is to improve bank-to-bank comparability and
transparency. Simultaneously, the Basel Committee attempted to verify that
Basel II is consistent with accounting rules and does not contradict the larger
accounting disclosure norms that banks are expected to follow.
BIDV consistently demonstrates its commitment to applying Basel standards
as one of the ten commercial banks chosen by the State Bank of Vietnam to
test Basel II. Since 2015, BIDV has employed a consultant to assess
discrepancies and create a plan for implementing Basel. Between 2015 and
2019, BIDV coordinated the execution of projects in accordance with Basel
standards. This will serve as the foundation for BIDV's continued integration,
growth, and compliance with contemporary banking standards of prestigious
international stature.

18
In 2020, BIDV will have met the standards of Basel II.
Following approval from the governments and relevant agencies of South
Korea and Vietnam on November 6, KEB Hana Bank formally joined the ranks
of foreign strategic shareholders of BIDV. The transaction represents a
significant turning point in BIDV's operations, elevating the Vietnamese
lender to the position of having the largest charter capital in the country's
banking system. Since BIDV has satisfied the Basel guidelines for capital
adequacy ratios and other criteria, the SBV has authorized BIDV to
implement Circular 41 as of December 1, 2019, which, issued by State Bank,
imposes a capital adequacy ratio for products and overseas bank branches.
Two of the three Basel II pillars are set forth in Circular 41, which also
introduces the Capital Adequacy Ratio (CAR) and Disclosure of information.
The circular offers clear and comprehensive instructions on how to calculate
CAR while accounting for credit, operational, and market risk.
As one of the top banks in Vietnam by total assets, charter capital, and risk
management in accordance with international standards, BIDV was
authorized by the SBV to implement Basel II standards ahead of schedule.
This establishes strong foundations for the bank's continued integration,
development, and fulfillment of the criteria for a globally standardized
contemporary bank.

VI. Scenario Analysis:

1. Change in liquidity position

As we have mentioned above, liquidity risk is defined as the risk of incurring
losses resulting from the inability to meet payment obligations in a timely
manner when they become due or from being unable to do so at a
sustainable cost.
Since liquidity risk would directly have an influence on the financial position
or the bank’s existence, it is crucial for the bank to have an efficient and
effective strategy to control its liquidity. Today, the most well-known strategy
still being used by most of the banks is Asset and Liability Management
(ALM). In this specific technique, it focuses on managing the volume, mix,
time to maturity, rate sensitivity, quality and liquidity of assets and liabilities
as a whole to attain a predetermined acceptable reward ratio.
The aim of ALM is stabilizing short-term profits, long-term earnings and the
substance of the bank.

Up to 1 From above 1 From above 3 to From above 1 Over 5

month to 3 months 12 months to 5 years years

201 (243,828,810) (6,024,301) (114,747,373) 127,703,727 288,218,753

19
7

201 (239,389,532) 17,624,424 (135,265,829) 112,112,124 301,867,090

8

201 (167,391,407) (53,338,966) (153,912,664) 113,782,040 335,669,732

9

202 (319,215,240) (16,185,702) (58,418,237) 221,971,480 252,420,116

0

202 (129,195,118) 13,771,770 (164,241,062) 113,261,250 268,324,760

1

Table 6: Liquidity risk of BIDV (2017-2021)

Generally, the net liquidity gap of BIDV had a tendency to experience a

negative gap during the period from 2017 to 2021. Except for 2018 and
2021, in which we could see a positive liquidity gap of the bank from above 1
month to 3 months. When we looked at the data that had been reported in
the table, it seemed that BIDV would easily face the liquidity risk during the
period from 1 month to 12 months. This usually happens due to the
significant increase in the customer deposit account, which leads to the
excess of liabilities.
At BIDV, the Board of Directors implements the strategic direction of liquidity
risk management, which mainly stresses on 3 important pillars; diversifying
mobilized capital sources, mobilizing capital terms to increase the stability of
liabilities, and supporting daily payments.
In addition, there are also other certain ways for the bank to control its
liquidity risk. Regulatory guidance says that banks should have robust
methods for projecting cash flows from their balance sheet. Pro-forma cash
flow models are a critical liquidity tool, especially in uncertain times.
Sometimes, analyzing the bank’s current balance sheet is not enough to
realize the incoming risks that the bank may face in the near future. It is
advised to develop realistic expectations of future liquidity.
Moreover, the bank should conduct stress tests regularly for a variety of
institution-specific and market-wide events across multiple time horizons. If
during the time the bank is running the stress test, there is a decrease in the
liquidity, the liquidity stress testing may inform management tactics in
addressing the situation.

2. Change in Interest Rates

20
 Along with liquidity risk, interest rate risk is also an essential factor
that a bank manager has to take into consideration on a regular basis. It is
the potential of the decrease in an asset’s value due to the change in
interest rates. Although this type of risk is a normal part of banking business,
adverse interest rate risk can cause a significantly detrimental impact on a
bank's earnings and capital base.
In the banking context, interest rate risk refers to the volatility of Net
Interest Income, and the change in NII caused by the change in interest rate
is explained by the formula below:
� NII = $GAP * � interest rate
The formula indicates that a fluctuation in the interest rate would lead to the
change in Net Interest Income of a bank. To be specific, if $GAP is positive,
an increase in interest rate would lead NII to rise, and vice versa. If $GAP is
negative, NII would fall if interest rate rises, and vice versa. Moreover, $GAP
also proportionally accounts for the value increase or decrease in NII.
In the table below, BIDV’s $GAP in each period is shown, along with the value
of the change in NII in the case interest rate changes.

Up to 1
1-3 months 3-6 months 6-12 months 1-5 years Over 5 years
month

$GAP (155,196,218) 168,358,452 87,974,936 (234,170,812) 76,600,927 74,054,243

�NII if r
decreases by 1,551,962.18 (1,683,584.52) (879,749.36) 2,341,708.12 (766,009.27) (740,542.43)
1%

�NII if r 3,103,924.36 (3,367,169.04) (1,759,498.72) 4,683,416.24 (1,532,018.54) (1,481,084.86)

decreases by

21
 2%

�NII if r
increases by (1,551,962.18) 1,683,584.52 879,749.36 (2,341,708.12) 766,009.27 740,542.43
1%

�NII if r
increases by (3,103,924.36) 3,367,169.04 1,759,498.72 (4,683,416.24) 1,532,018.54 1,481,084.86
2%

Table 7: Change in Net Interest Income of BIDV in 2021 (unit:

million VND)

It can be seen that the $GAP of BIDV in the “up to 1 month” and “from
6 to 12 months' periods are negative, while the others are positive. As a
consequence if the interest rate falls by 1%, BIDV would gain the NII of “up
to 1 month” and “from 6 to 12 months'' periods by VND 1,551,962.18 million
and VND 2,341,708.12 million respectively. For other periods, a decline in
interest rate by 1% would cause a shrink in NII by 1% of the $GAP. Of all
periods, the “from 6 to 12 months" period has the highest $GAP, so the
response of that bracket’s NII to the fluctuation of interest rate is also the
largest.
In reality, besides calculating the change in Net Interest Income to
monitor interest rate risk, BIDV has also used other instruments to measure
the interest rate risk, such as interest-sensitive asset gap (repricing gap) and
duration gap. After measuring the impact of interest rate risk, BIDV has
implemented some derivative instruments, namely forward contracts and
interest rate swaps to compensate for its interest rate risk.

VII. Hedging Proposal

1. Swaps
Two parties can exchange the liabilities or cash flows from two financial
instruments through a derivative contract known as a swap. Although the
instrument can be almost anything, most swaps involve cash flows based on

22
a notional principal amount, such as a loan or bond. The principal typically
doesn't change the techniques. One side of the swap is made up of every
cash flow. One cash flow is often constant, whereas the other is variable and
dependent on an index price, a benchmark interest rate, or a fluctuating
currency exchange rate.
An interest rate swap is the most typical type of swap. In general, swaps are
not traded on exchanges or used by regular investors. Instead, swaps are
specialized over-the-counter (OTC) contracts that are made to meet the
interests of both parties and are typically made between businesses or
financial organizations.
Interest swap contributes a lot to the bank’s effort in controlling its profit. It
also gives the bank flexibility, creates prepayment discipline, offers an
economic benefit, and provides a competitive advantage.
BIDV does engage in interest rate swap activities. The bank is indeed one of
the most esteemed and innovative institutions in this industry. By enabling
them to pay fixed interest rates and receive payments at variable rates and
vice versa, BIDV serves as an intermediary in the market to assist firms or
businesses manage floating-rate loans.

2. Futures
Future contracts are an essential financial instrument that allows
investors to lock in a price for a commodity or financial instrument at a
future date. In Vietnam, the derivatives market has been developing rapidly
in recent years, and BIDV has been actively involved in this market. BIDV
offers future contracts on a range of underlying assets such as stock indices,
currencies, and commodities.
One of the most significant advantages of futures contracts is that they
provide investors with a high level of flexibility. For instance, an investor can
purchase a futures contract on an underlying asset without having to buy the

23
asset itself. This feature of futures contracts makes them popular for
hedging, speculation, and arbitrage.
BIDV has been offering futures contracts on stock indices such as VN30
and HNX30. VN30 is a benchmark index that represents the top 30
companies by market capitalization listed on the Ho Chi Minh Stock
Exchange (HOSE), while HNX30 represents the top 30 companies by market
capitalization listed on the Hanoi Stock Exchange (HNX). BIDV also offers
futures contracts on currencies such as USD/VND and EUR/VND.
In terms of commodities, BIDV has been offering futures contracts on
gold and crude oil. Gold is one of the most popular commodities in the world,
and it is often used as a hedge against inflation and as a safe haven asset.
Crude oil is another popular commodity, and its price is often influenced by
global geopolitical events.
BIDV has been actively participating in the derivatives market and has
been recognized for its efforts. In 2020, BIDV was awarded the "Best
Derivatives House in Vietnam" by Asia Risk, a leading financial publication.
This award is a testament to BIDV's commitment to offering innovative
financial instruments and excellent customer service.
In conclusion, BIDV's future contracts have been an essential financial
instrument for investors to manage risk and speculate on the price
movements of various underlying assets. BIDV's participation in the
derivatives market has been recognized through various awards, and the
bank's commitment to innovation and customer service is expected to drive
its future success in this market.

3. Forward Rate Agreement

Forward Rate Agreement (FRA) is an off-balance sheet derivative
instrument that is traded on the over-the-counter market. It is an agreement
between two parties to borrow or lend an amount of money (often called a
notional principal) at an agreed interest rate. FRA often lasts for up to 12
months, starting at any point in time over the next 12 months.
The buyer of FRA, also known as the borrower, enters into the forward
rate agreement when he/she believes that the interest rate will rise in the
future. Hence, the borrower will be protected if the future interest rate is
higher than today’s interest rate. In the case there is a decline in interest
rate, the FRA’s purchaser has to pay the lender the difference between the
FRA rate and the actual rate as a percentage of the notional principal, and
the lender will benefit.

4. Options

24
An option contract is a derivative security market instrument that grants the
buyer the right—but not the obligation—to buy or sell the underlying asset at
a defined price at a future date. Typically, an index, stock, or commodity
serves as the underlying asset.
Call option and put option are the two primary rights in options contracts.
The person who paid the premium to purchase the option is the option
holder, and they have the choice of exercising or not. The seller, who is
compensated with a premium for selling the contract, is the one who
generates the option. The right to buy an underlying asset is granted to the
buyer of a call option, while the right to sell an underlying asset is granted to
the buyer of a put option.
For instance, on April 30, 2020, Party A purchased from Party B an option
contract to purchase 1000 HPG shares at $45,000 per share, with a 6-month
term and an October 30, 2020 maturity date. Under this contract, on the
maturity date, Party A has the option to buy or not buy 1000 HPG shares as
long as it is beneficial to them; however, if Party A exercises the option to
buy, Party B is obligated to sell 1000 shares to A at the price of 45,000/share,
regardless of the market price of HPG's shares at the time.

VIII. Conclusion
In conclusion, the analysis of BIDV's financial reports over the past five
years highlights the bank's strong performance in several areas. The loan
loss provision ratio has increased in response to the COVID-19 pandemic,
demonstrating the bank's proactive risk management approach. Additionally,
the core capital ratio has consistently been above the regulatory minimum,
indicating the bank's financial stability and resilience. However, there are
also areas where BIDV could improve. The dollar gap has widened, indicating
the bank's exposure to foreign currency risks. The bank could consider
implementing more effective risk management strategies to mitigate this
risk. Moreover, the decrease in total assets in 2021 compared to 2020
warrants further investigation. Overall, the analysis shows that BIDV is a
strong and stable bank, but there is still room for improvement in certain
areas. The findings of this report provide useful insights for investors and
stakeholders in evaluating the bank's financial performance and future
prospects.

25
 REFERENCES

v “Lich su phat trien” Retrieved from:

https://bidv.com.vn/vn/ve-bidv/lich-su-phat-trien

v “Bien nien su” Retrieved from:

https://bienniensu.bidv.com.vn/

v “BIDV – Ngan hang di dau ap dung mo hinh quan tri tien tien”
Retrieved from:
https://infonet.vietnamnet.vn/bidv-ngan-hang-di-dau-ap-dung-mo-hinh-quan-tri-tien-tien-
86402.html

v “Thong diep tu hoi dong quan tri” ” Retrieved from:

https://bidv.com.vn/en/ve-bidv/thong-diep-tu-hoi-dong-quan-tri

v Le Nguyen, 2023. “Kinh te vi mo nam 2022 tiep tuc on dinh” ”

Retrieved from:
https://dangcongsan.vn/kinh-te/kinh-te-vi-mo-nam-2022-tiep-tuc-duy-tri-on-dinh-629584.html

v Song Hà, 2022. “Thach thuc chinh sach kinh te vi mo hau Covid-19” ”
Retrieved from:
https://vneconomy.vn/thach-thuc-chinh-sach-kinh-te-vi-mo-hau-covid-19.htm

v “Sector report” ” Retrieved from:

https://www.ssi.com.vn/en/organization-customer/sector-report

v Le Hang, 2022. “Continuing to effectively implement tasks and

measures of banking sector in 2023” Retrieved from:
https://www.sbv.gov.vn/webcenter/portal/en/home/sbv/news/Latestnews/Latestnews_chitiet?
leftWidth=20%25&showFooter=false&showHeader=false&dDocName=SBV556610&rightWidt
h=0%25&centerWidth=80%25&_afrLoop=15308309189231828#%40%3F_afrLoop

26
%3D15308309189231828%26centerWidth%3D80%2525%26dDocName
%3DSBV556610%26leftWidth%3D20%2525%26rightWidth%3D0%2525%26showFooter
%3Dfalse%26showHeader%3Dfalse%26_adf.ctrl-state%3D1axpi6ru4s_9

v Thanh Ha, 2023. “Banks in Vietnam report handsome profits in 2022”

Retrieved from:
https://tuoitrenews.vn/news/business/20230203/banks-in-vietnam-report-handsome-profits-in-
2022/71289.html
v “Thong cao bao chi tinh hinh kinh te xa hoi quy XV va nam 2022”
Retrieved from:
https://www.gso.gov.vn/tin-tuc-thong-ke/2022/12/thong-cao-bao-chi-ve-tinh-hinh-kinh-te-xa-
hoi-quy-iv-va-nam-2022/

v “Banks start capital hike race in 2022” Retrieved from:

https://vietnamnet.vn/en/banks-start-capital-hike-race-in-2022-2031842.html

v “Bao cao CBTT” Retrieved from:

https://www.bidv.com.vn/wps/wcm/connect/af4bcd01-59a5-4517-8b13-
e625be459f13/Eng_BaocaoCBTT_30062021.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-af4bcd01-59a5-4517-8b13-e625be459f13-
nOj7ZTT&fbclid=IwAR09wmV8geFwlllyEGgOsTfG1fJYoquv72-
g7zxSYWnv_NRlItJCp1oYPVE

v “BIDV Annual report 2017” Retrieved from:

https://bidv.com.vn/wps/wcm/connect/0ba73342-ee5c-4d96-8002-
ddec3f74ec18/BIDV_BCTN+2017_12MB.Final+Eng.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-0ba73342-ee5c-4d96-8002-ddec3f74ec18-
mBmdlkE

v “BIDV Annual report 2018” Retrieved from:

https://bidv.com.vn/wps/wcm/connect/598743e9-7eac-4f41-8004-
3625b4333b84/Annual+Report+2018_6mb.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-598743e9-7eac-4f41-8004-
3625b4333b84-mIcCGF5

v “BIDV Annual report 2019” Retrieved from:

https://bidv.com.vn/wps/wcm/connect/85915f39-a553-4490-b088-
0e5f8081addf/Final+BIDV+BCTN+2019+Eng.pdf?
27
MOD=AJPERES&CACHEID=ROOTWORKSPACE-85915f39-a553-4490-b088-0e5f8081addf-
n9oX3Y1

v “BIDV Annual report 2020” Retrieved from:

https://bidv.com.vn/wps/wcm/connect/91a97d72-7053-4959-9684-
2cd3285dec9f/BIDV+2020+Annual+Report.Final.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-91a97d72-7053-4959-9684-
2cd3285dec9f-nDm9gd9

v “BIDV Annual report 2021” Retrieved from:

https://bidv.com.vn/wps/wcm/connect/6a0859d4-d932-442f-b8f4-
a9ee5264b102/BCTN+BIDV+2021+FINAL+ENG.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-6a0859d4-d932-442f-b8f4-
a9ee5264b102-o4Z4HTj

v Ngo Hai, 2021. “Thanh khoan he thong ngan hang da co su thu hep
dang ke” Retrieved from:
https://thitruongtaichinhtiente.vn/thanh-khoan-he-thong-ngan-hang-da-co-su-thu-hep-dang-ke-
35931.html

v “Du thao bao cao BDH tai DHDCD 2020” Retrieved from:
https://www.bidv.com.vn/wps/wcm/connect/57e74516-8fef-42ed-8a56-
33ae2aad0f2b/1.+Du+thao+Bao+cao+BDH+tai+DHDCD+2020.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-57e74516-8fef-42ed-8a56-33ae2aad0f2b-
n2p6qbE

v “Ap luc thanh khoan ngan hang phong thu” Retrieved from:
https://www.tinnhanhchungkhoan.vn/ap-luc-thanh-khoan-ngan-hang-phong-thu-post311682.html

v “What are non-performing loans (NPLs)?” Retrieved from:

https://www.bankingsupervision.europa.eu/about/ssmexplained/html/npl.en.html
v “Solid foundation for future value” Retrieved from:

28
https://www.bidv.com.vn/wps/wcm/connect/73620c18-c0d1-4736-9f4d-
6ec5dc286a71/BIDV+Investor+Presentation+-Q1.2021+%28final%29.pdf?
MOD=AJPERES&CACHEID=ROOTWORKSPACE-73620c18-c0d1-4736-9f4d-
6ec5dc286a71-nRqay7T

v Nam Hai, 2017. “Quan tri rui ro lai suat huong toi muc Basel tai BIDV”
Retrieved from:
https://congthuong.vn/quan-tri-rui-ro-thanh-khoan-rui-ro-lai-suat-huong-toi-chuan-muc-basel-
tai-bidv-97004.html

v “BIDV is officially allowed to apply Basel II by the State Bank of

Vietnam ahead of deadline” Retrieved from:
https://www.bidv.com.vn/bidv_en/tin-tuc/thong-tin-bao-chi/bidv-dat-chuan-basel-ii-truoc-thoi-
han

v “How banks can manage liquidity risk” Retrieved from:

https://www.wipfli.com/insights/articles/fi-ra-how-banks-can-manage-liquidity-risk

v “Basel II capital adequacy ratio disclosure pursuant to Circular

No.41/2016/TT-NHNN” Retrieved from:
https://www.vib.com.vn/wps/wcm/connect/3735fbe4-54e4-4224-84dc-
1f3fc232463b/Basel+II+Capital+Adequacy+Ratio+Disclosure+
%28Circular+41%29+at+31.12.2020.pdf?MOD=AJPERES

v “Data Glossary” Retrieved from:

https://databank.worldbank.org/metadataglossary/world-development-
indicators/series/FB.AST.NPER.ZS#:~:text=The%20ratio%20of%20bank
%20nonperforming,deduction%20of%20loan%20loss%20provisions

29