Banking System in Vietnam

1
Banking System in Vietnam

• Member
• Nguyen Viet Nhan
• Nguyen Thi Thu Huyen
• Nguyen Thi Tuong Van
• Nguyen Thi Thuy

2
Contents

• Vietnam Economics Overview
• Introduction banking system in Vietnam
• Structure
• Regulations
• Vietnam Banking Sector
• Banking asset
• Banking deposit
• Banking loan
• Credit market
• Capital market
• Financial market
• The rule of Government in driving economics
• SBV and its monetary policy
• Opportunities and threats
• Risks
• Recommendations for banking system in the future

3
Vietnam Economics Overview

• Annual GDP
• Income and Consumer Price index
• Inflation rate
• Interest rate
• FDI
• Import, export and Exchange Rate

4
Vietnam Economics Overview
5
Vietnam Economics Overview

• Annual GDP

6
Vietnam Economics Overview
7
Vietnam Economics Overview

• Income and Consumer Price index

8
Vietnam Economics Overview

• Inflation rate
• High rate due to
• Government of Vietnam aim to control inflation
  rate which impact to its economy growth rate by
  appreciation the local currency
• Unsuccessful, lead to higher inflation,
  especially in food and housing maintenance
• Negative real interest rate vs. inflation

9
Vietnam Economics Overview

• Interest rate
• Sharp rise in VNIBOR in late 2006 reflected a
  slowdown in a local liquidity growth (including
  increased borrowing in domestic market and end of
  the year tax payments)
• SBV set the ceiling interest rate not over 12
  for now
• (VNIBOR Viet Nam Interbank Offered Rates Lai
  suat lien ngan hang VN)

10
Vietnam Economics Overview

• FDI
• Major goal of Vietnam's FDI policy is to attract
  capital, advanced technology, and management
  skills in order to effectively explore the
  country's potential, increase savings, improve
  people's living standard and realize the cause of
  modernization and industrialization
• By 2010, the government aims to achieve the
  increase investment relative to GDP to 40, of
  which domestic capital accounting for 65 and
  external for 35

11
Vietnam Economics Overview

• Import, export and Exchange Rate
• Despite reduction of import tariff, strong FDI,
  Vietnam still face with trade deficit due to
  increase in domestic consumption, higher import
  prices
• The decision of the State Bank of Vietnam to
  tighten monetary policy (raised the base rate to
  8.75 percent from 8.25 percent, refinancing rate
  to 7.5 percent from 6.5 percent, and discount
  rate to 6 percent from 4.5 percent. )
• ? Given the rise in inflation, widening of the
  trade deficit and increasing interest rate

12
Vietnam Economics Overview

• Overall overview of economics in terms of sectors

13
Equitisation Schedule
14
Introduction Vietnam Banking System

• The State Bank of Vietnam
• Being a Government agency and the Central
  Bank of the Socialist Republic of Vietnam
  performing state management on monetary issues
  and banking activities being the money issuer,
  the bank for credit institutions and doing
  banking services for the Government, the SBV
  works to aim at stabilizing the currency value,
  contributing to ensure the safety of the banking
  and financial system promoting socio-economic
  development.
• The SBV consists
• SBV headquarter (based in Hanoi)
• SBV branch offices in provinces and cities
• Representative offices overseas

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Introduction Vietnam Banking System

• Commercial bank system in Vietnam consists
• 5 State-owned Commercial Banks (SOCBs)
• Bank for Foreign Trade of Vietnam (VIETCOMBANK)
• Industrial and Commercial Bank of Vietnam (ICB)
• Bank for Investment and Development of Vietnam
  (BIDV)
• Vietnam Bank for Agriculture and Rural
  Development (VBARD)
• Mekong Housing Bank (MHB)
• 34 joint-stock commercial banks
• Eximbank ACB Sacombank VPbank - SBIT
• 4 joint-venture banks,
• Indovinabank VID public bank Vina Siam bank
• 35 branch offices of foreign banks and
  representative offices
• 6 Financial companies
• 10 Finance-leasing Companies
• Foreign Banks
• HSBC - ANZ

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Introduction Vietnam Banking System

• Market share
• 5 SOCBs Vietcombank Incombank BIDV
  Agribank MH Bank

17
Introduction Vietnam Banking System

• Legal status
• Vietnamese banks, branches of foreign banks,
  financial institutions as well as credit funds
  are operating under the Vietnamese law and are
  equally treated by the law.
• Commercial banks have the right to control over
  their own financial matters, bear
  responsibilities for their own business results.
• Deposits by the public are insured..
• Foreign shareholding
• Total lt 30 of chartered capital for SOCBs
• Total lt 30 of chartered capital JSBs
• Not more than 50 of chartered capital for JVBs
• Capital adequacy ratio
• 8 the same as international standard (Basel)
• Credit Risk Compliance (CAMEL, BASEL) Required
  according to the regulation No 457/2005/QD-NHNN
  dated 19/04/2005 on prudential ratios on
  operation of credit institution
• Treasury
• All are subject to the same regulation
• Circular 03/2008/QD-NHNN dated 11/04/2008 on
  treasury services offered by credit institution.
• Under this regulation, banks which are subject to
  some conditions and permitted by SBV could
  conduct treasury activities

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Vietnam Banking Sector

• The 2007
• Deposits at banks grow 55 - over VND442.5
  trillion
• Outstanding loans up 51 to almost VND347
  trillion.
• Joint-stock banks
• A market share of 46.3 in deposits and 46.8 in
  lending terms,
• The State-owned lenders
• Shares of 35.3 in deposits and 30.8 in lending
  terms
• The central Bank expects for 2008
• Deposit at banks grows 35-37
• Outstanding loans grows 32-34
• Profits grows 35-40

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Vietnam Banking Sector

• Financial activities grew 17.9 YoY in 2007, up
  from 16.8 in 2006 due to increasing industry
  penetration, introduction of new technology (ATM
  cards) and continued banking sector reforms.
• The banking sectors contribution to GDP was 1.8
  in 2007, unchanged from 2006.
• The number of existing bank accounts represents
  less than 10 of the population (c. 8m)
• The number of bank cards issued increased
  strongly with a CAGR of 268 over the 1996-2006
  period.
• This occurs despite the fact that domestic credit
  has more than tripled since 2000, reaching
  approximately USD63bn at Y/E 2007.
• As part of its WTO commitments, Vietnams banking
  sector is gradually opening up to foreign banks.
  In 2012, foreign banks with minimum assets of
  USD20bn will be able to set up a bank in Vietnam
  and operate under the same regulatory
  requirements as domestically owned banks. The SBV
  has recently approved in principal the
  establishment of two 100 foreign-owned banks,
  HSBC and Standard Chartered Bank.

20
Vietnam Banking Sector - Assets

• Banking asset
• Domestic banks must have a registered capital of
  1 trillion dong to be qualified to sell shares to
  foreign banks. Vietnam caps foreign ownership of
  a domestic bank at 30 with a 15 limit for a
  strategic investor.
• A foreign bank can own 10 and a non-bank
  investor that is not a strategic investor can own
  5. In exceptional cases, the government could
  allow a foreign strategic investor to own 20 of
  a Vietnamese bank .
• 10 of Vietnam's 85 million people have bank
  accounts
• There are 4,000 bank branches, half of them
  belonging to Agribank, Vietnam's largest
  enterprise.
• The central bank has given initial approval for
  nine banks to start operations.
• Oil and Gas Bank
• Lien Viet Bank
• Bao Viet Bank
• FPT Bank
• Energy Bank
• Asia Foreign Trade Bank
• Vietnam Star Bank
• Dong Duong Thuong Tin Bank
• Bao Tin Bank
• Lien Viet Bank, or the United Vietnamese Bank,
  which has aregistered capital of 3.3 trillion
  dong and has Agribank, Vietnam's largest bank, as
  one of its co-founders, had said it would start
  operations in late April.

21
Vietnam Banking Sector - Deposit

• Deposit is increasing
• Racing interest rate among banks to attractive
  capital

22
Vietnam Banking Sector - Loans

• Loans for real estates and securities
• SVB warnings to stop loans for real estates and
  securities
• Weak liquidity of mortageable stocks in security
  market
• Consequences
• Loans for import activities and commodity demand
  are prioritized
• Loans for consumption is continued to apply in
  big-scale banks
• Outstanding loans continues in decline
• Deflation purpose of SVB
• Effective investment will be focused by debtors
  due to high interest rate and too difficult for
  any long-term loans.
• No signal of recovery in real estates and
  security market in 2008
• End April 2008 outstanding loans increasing by
  14.73 vs end year 2007 while targeted level is
  35-37 for full year 2008.
• April 2008 outstanding loans increasing only
  1,66 vs March.

23
Vietnam Banking Sector Credit Market

• In the first quarter of 2008
• Banks' mobilized capital VND518.5tril
• Total outstanding loans VND460tril
• ?the loaned sums accounted for 88 of mobilized
  capital, a very high proportion.

24
Vietnam Banking Sector Capital Market

• The banking financial services sector
  contributed 12 (USD2.0bn) to total market
  capitalization on the HOSE as at end-Feb 08, the
  same percentage as at end-January 2007 (USD1.8bn)
• There are 2 exchanges
• Ho Chi Minh City Security Trading Center (HOSTC)
  began operations in 2000
• 30 list firms in 2005 110 in early 2007
• The value US4bn by the end 2005 US13.4bn at
  the end of 2006 close to US17.6bn as of April
  2007
• An over-the-counter exchange in Hanoi (HSTC)
  started in 2005
• 77 firms by the end of 2006
• Total exchange value US677m
• In value and daily turnover
• Foreign participation 25
• Ownership
• Foreigner 49
• Banks 30

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Vietnam Banking Sector

• Joint Stock Banks
• ACB and Sacombank are very strong in service
  offering
• For most banks, interest income accounts for more
  than 50 of total income
• Increases in non-interest income are caused by
  expansion of non lending activities

26
Vietnam Banking Sector

• Foreign Banks with their market share
• HSBC acquired 15 share in Techcombank
• ANZ acquired 10 share of Sacombank is 10
• Standard Chartered acquired 15 share of ACB

27
The rule of Government in driving economics

• Supporting the stock market
• Government asked SBV to boost foreign exchange
  purchases, including indirect foreign investment
  inflows ensure sufficient dong liquidity by
  offering a rediscount rate at 9 and to request
  banks to hold back on the sales of collateralized
  stocks and repurchase agreements
• the government narrowed the intraday share
  trading band to /-1.0 from /-5, effective 27
  March, which left the market virtually illiquid
• Attracting more foreign capital
• Raised the foreign investor limit on nonlisted
  companies to 40 from 30 ? have pushed the VND
  into overvalued territory nominal appreciation
  combined with rapid inflation is pushing the real
  exchange rate higher while the trade balance
  deteriorates alarmingly

28
The rule of SBV in driving economics

• Monetary tightening leads to liquidity crunch
• The SBV increased the reserve requirement by
  100bps to 11 and raised the discount,
  refinancing and base lending rates by 150bps,
  100bps and 50bps, respectively, to 6, 7.5, and
  8.75 ? interbank overnight rates rose as high as
  40 at the height of the liquidity crisis
• The SBV announced its decision to require banks
  to buy VND20.3bn worth of treasury bills by 17
  March
• By approving for establishing of 21 joint stock
  banks ? help the SBV control credit growth and
  curb inflation, particularly without a proper
  regulatory system in place
• Controlling the inflation
• SBV widened the FX trading band to /-1.0 from
  /- 0.75 to fight inflation ? widen the trading
  band to try to reduce the need for the SBVs
  intervention in the FX market, thereby easing the
  burden of sterilization.
• Higher interest rate On May 18th 2008, SBV
  remove the deposit rate cap of 12 which allow
  commercial banks to lift deposit and lending rate
  up to 18 (150 of prime rate)? this help to
  reduce the gap between nominal interest rate and
  inflation rate, attract more deposit and ease the
  liquidity pressure.
• Credit control strict monitoring on credit
  quality, tighten loans for stock trading,
  property investment and consumer finance
• Exchange rate maintain a downward crawl against
  the USD, slow down the depreciation pace

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Vietnam Banking Sector - Opportunities

• High potential market increasing demand on
  banking service and capital (10mil. Bank account,
  5 mil. ATM cards)
• Very interested market for credit cards (while
  almost people have habits of using cash
• Barrier is gradually removed for equitization and
  privatization process.

30
Vietnam Banking Sector - Threats

• Economic risk
• Inflation increasing
• Interest rate rise
• Economic overheating threatening sustained
  economic growth over the medium term (Credit
  growth has risen to about 50 percent,
  contributing to a rise in inflation, which
  exceeded 14 percent in January 2008)

31
Vietnam Banking Sector - Threats

• Weakness of Banking system
• Poor performance for Vietnamese banks
• Low competitiveness
• Weak finance resources
• Small scale
• Low quality and efficiency
• Low professional management skills
• Low technology
• Poor risk management
• Problem of bad loans
• Poor credit appraisal skill of staff and loan
  monitor system

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Vietnam Banking Sector - Threats

• Financial risk
• Current account deficit Sharp widening of the
  trade deficit (external current account deficit
  is about 10 percent of GDP in 2007 and that its
  financing shifted toward capital flows other than
  foreign direct investment and aid flows)

33
Vietnam Banking Sector - Threats

• Financial risk
• Liquidity risk
• Current policy regime from SBV credit limit of
  30 ? Cash shortage
• Impact from real estate market

34
Vietnam Banking Sector - Threats

• Threats from joining WTO
• High credit risk, small scale in asset and
  equity, less competitiveness, weak management?
  Bankruptcy
• Challenging from maintaining market share and
  expand internationally
• Inadequate and inefficient law system
• Growing competitive pressure in domestic market
  for banking

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Recommendations

• Completing legal framework for banking (include
  law on state bank and credit institution to be in
  line with the socio-economic development,
  strategy for banking system development, develop
  and effectively operate the money market)
• Building a safe and efficient banking system in
  Vietnam
• Financial restructuring more chartered capital
  required for commercial banks
• Banking supervision and inspection restructuring
• Expansion plan, technology modernization,
  competitiveness improving
• Following international standards in risk
  management, asset and liability management,
  capital management, modern credit system and
  credit manual based on international standard
• A reduction in the governments growth target
  would add credibility to the central banks
  anti-inflation policy by explicitly noting that
  the trade-off between growth and inflation

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Thank you for your attention!