Nghiên cứu phân tích về ngân hàng Vietinbank, quản lý nguồn vốn, quản lý rủi ro, phân tích sự thanh khoản, Treasury management, đưa ra các chính sách giảm thiểu rủi ro và phân tích. Đại học Hà Nội khoa FMT ngành tài chính ngân hàng, chi tiết đầy đủ và điểm cao
Hanoi University FACULTY OF MANAGEMENT AND TOURISM COURSE: TREASURY MANAGEMENT Vietnam Joint Stock Commercial Bank for Industry and Trade Tutorial – Group Tutor: Ms Nguyen Thi Minh Hang Students: Nguyen Thi Thanh Hang – 1904040040 Do Thi Mai Trang – 1904040118 Nguyen Thuy Trang – 1904040121 Vu Trang Tho - 1904040115 ABSTRACT In recent years, financial institutions and the services they provide have become more internationalized, and most financial service providers have grown in size and scale complexity This leads to an urgent requirement to reduce risks and increase income for banking activities VietinBank (Vietnam Joint Stock Commercial Bank for Industry and Trade) is now known as one of the four banks that play a key role in leading Vietnam's economy This report is intended to provide a detailed summary of Vietinbank's performance through current status, credit risk, interest rate risk, and liquidity risk in the previous years (2018-2022) In addition, the parameters will be selected and studied, thereby showing the impact of changes in liquidity status and interest rates on VietinBank's income and capital At the same time, this report shows some hedging proposal in order to reduce some current risk of Vietinbank TABLE OF CONTENTS I INTRODUCTION II MARKET CONDITION Macroeconomics factors and overall banking industry Vietinbank overall indicators III RISK MANAGEMENT Credit risk Interest rate risk Liquidity 10 3.1 ALCO 10 3.2 IV SCENARIOS ANALYSIS 12 Income impact 12 1.1 Changes in interest rate 13 Capital Impact 14 2.1 V Liquidity ratio .11 Changes in liquidity 15 HEDGING PROPOSAL 16 Forward Rate Agreement (FRAs) 16 Options 17 Future (forward) contracts .17 Swaps 17 VI CONCLUSION 18 I.INTRODUCTION One of the biggest commercial banks in Vietnam with many years of expertise in the financial industry is the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) Vietnam Investment and Development Bank (VIDB), the earlier version of today's VietinBank, was founded in 1988 Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) has been the new name of Vietnam Investment and Development Bank (VIDB) since 2008 With total assets of more than 1.81 trillion VND and a nationwide customer service network that includes more than 1,000 transaction sites throughout 63 provinces and cities, VietinBank is now one of the biggest banks in Vietnam Loans, deposits, payments, credit cards, stocks, insurance, and goods and services for businesses are among the many financial services and products that VietinBank provides After 35 years of operation and growth, VietinBank has established itself as one of the most trustworthy addresses for clients both in Vietnam and around the world The banking and finance industry has seen significant successes for VietinBank For many years, it has been recognized as the best bank in Vietnam and Southeast Asia Finance Asia Magazine named it "Vietnam's Best Service Bank," and it has an A+ rating from Standard & Poor's Additionally, Vietinbank got the title of "Most Innovative Digital Bank in Asia-Pacific" in 2022 Since its establishment, VietinBank has always maintained its core values, which include fulfilling customers' needs effectively, continuously aiming to improve the quality of products and services, managing sustainable business growth with social responsibility, and maintaining the bank's reputation in society as a whole As a result, VietinBank has earned its position as the top bank in the Vietnamese banking sector by offering modern, innovative, practical, and global banking and financial services II MARKET CONDITION Macroeconomics factors and overall banking industry The current state of the economy and future trends have an impact on the success and strategy of a bank, the main factors that many banks often analyze are the economy's growth rate, interest rates, interest rates, and interest rates exchange rates, inflation, and capital mobilization From 2020 onwards, the banking industry will face difficulties when the credit growth of the whole industry will only reach 12.1%, the lowest in recent years due to the impact of the epidemic on the economy, causing credit demand to decline Although banks have limited personal lending during this period to avoid bad debts, such a high credit growth rate proves that credit demand has recovered very well since the end of 2020 In 2022, the world economic situation with many complicated fluctuations such as oil price, US dollar price, the gold price fluctuates up and down, food price fever soars like the Fed interest rate change event – The US Federal Reserve, many unprecedented developments such as military conflicts in Russia - Ukraine, record-high inflation in many countries; Natural disasters persisted on a large scale in many regions Facing that situation, major countries adjusted their monetary policies towards tightening, applying all measures to ensure energy security directly to the global economy, including Vietnam However, Vietnam's economy has had a strong recovery, achieving positive and comprehensive results GDP growth in 2022 will reach 8.02%, which is the highest growth rate in the past 10 years and exceeds the set target of 66.5% Major balances are always guaranteed, and the macro foundation continues to remain stable In addition, actions to tighten the money supply such as sucking up VND through OMO channel and selling foreign currencies to control exchange rate fluctuations are supported expected to continue in the short term Actively contributing to the achievements of the economy, the State Bank has balanced key macroeconomic targets and implemented synchronous and flexible solutions to manage monetary policy, stabilize exchange rates, and concurrently regulate monetary policy inflation, ensuring operational safety for the financial system Credit construction of the whole industry in 2022 will increase by about 14.2%, meeting the capital needs of the economy At the same time, the SBV continues to orient and direct commercial banks to use reasonable costs, focus on digital transformation, make efforts to reduce lending interest rates, and support businesses and operators to restore production activities doing business after the prolonged epidemic period Vietinbank overall indicators Due to the COVID-19 pandemic, the banking industry in Vietnam has changed dramatically, and so has VietinBank The table below shows an overview of the financial factors, namely total assets, gross loan, funding, and equity of VietinBank for years from 2018 to 2022 Financial factor (VND billion) 2018 2019 2020 2021 2022 Total asset 1,64,434 1,240,71 1,341,43 1,531,587 1,808,42 Revenue 22,212 33,199 35,580 41,778 47,792 Net income 6,559 11,781 17,120 17,589 20,946 Shareholders’ Equity 67,316 77,355 85,439 93,650 108,167 Total Funding 825,816 892,785 990,331 1,161,848 1,249,17 Gross Loans 888,216 953,178 1,027,54 1,141,454 1,245,05 Fee and Commission Income 5,964 7,888 8,359 9,573 12,399 Figure 1: Vietinbank’s financial indicators Despite the declining trend of the world economy, Vietinbank has achieved impressive achievements in most aspects of operations, especially in 2022 The total assets of VietinBank reached VND 1,691 trillion, an increase of 10 4% compared to the end of 2021 and an increase of approximately 39.9% compared to 2018 Customer deposits reached VND 1,249 trillion, an increase of 3.8% compared to the end of 2021 and 54.3% compared to 2018 In general, in 2022, with the continued proactive restructuring of all aspects of operations, drastic transformation of business models, restructuring of outstanding loans, increase of non-interest income, optimization of control, and efficiency capital and operating costs of the bank Consolidated EBT in 2022 reached VND 20,946 billion, an increase of 19.1% compared to 2021, creating a strong financial resource for VietinBank to continue to promote well its role as a key State-owned commercial bank, a pillar of the economy, playing a key role in the economy contribute greatly to the State budget and the country's socio-economic development in the coming time Total operating income in 2022 will reach VND 64.6 trillion (+21.5%) Net interest income increased by 15% due to VietinBank's optimal structure of credit portfolio coupled with risk control, net income from foreign exchange business continued to grow strongly by 97%, because VietinBank continue to diversify the structure of foreign exchange products, and promote the development of new customers in the market Which, cash deposits to CASA have improved compared to the end of 2021 (CASA balance reached VND 240 trillion, up 2.7% compared to the end of 2021, accounting for 19.9% of total customer deposits) Deposits from customers still account for a large proportion, 75% of the total capital, which is a factor of high-quality capital Loans to customers reached VND 1,245 trillion, an increase of 9.5% compared to the end of 2021 Some other financial indicators such as ROA, ROE, CAR are placed under strict control VietinBank has a strong capital foundation for future growth Equity reached VND108.167 billion (up 46.9%) from the end of 2018 to the end of 2022, the Basel II consolidated CAR ratio of 8.5% is considered low among banks listed on HOSE, However, it still meets the requirement of over 8% according to Circular 41 III RISK MANAGEMENT Credit risk According to the Corporate Finance Institute, credit risk is the risk that borrowers or counterparties fail to meet the obligations specified in the contract or default to fulfill their commitments In other words, it refers to the risk that the bank cannot receive the loan’s principal and interest payment Besides, credit risk is considered to be one of the biggest risks for banks It can arise from individual loans, business loans, mortgages, car loans, credit cards… and eventually derivatives and guarantee activities The ratio that helps to control credit risk effectively is NPL (non-performing - loans ratio), also known as the percentage of non-performing loans in a bank's loan portfolio divided by the total amount of outstanding loans held by the bank As stated in the Annual Report of VietinBank in 2021, since the beginning of 2015, credit institutions and foreign bank branches have been required to use the most updated information from the Credit Information Centre (“CIC”) about the loan group of clients at the time of loan classification to modify the classification group of loans and off-balance sheet items (This regulation does not apply to the results of loan classification for customers of the Vietnam Development Bank provided by CIC) Accordingly, loan portfolios are allocated based on the level of risk as follows: Current, Special Mention, Substandard, Doubtful, and Loss while Non-performing loans are only included in Substandard, Doubtful, and Loss Year 2018 2019 2020 2021 2022 Current (Overdue less than 10 days) 846,022,474 918,780,095 1,002,771,068 1,104,465,335 1,229,062,250 Special mention (Overdue from 10 days to 90 days) 5,194,126 5,677,439 2,965,260 11,901,967 29,958,469 Sub-standard (Overdue from 90 days to 180 days) 2,139,221 2,062,615 1,891,960 7,095,731 7,305,070 Doubtful (Overdue from 180 days to 360 days) 2,016,689 1,546,701 1,627.523 2,003,066 2,261,011 Loss (Overdue more than 360 days) 9,553,438 7,204,095 6,077,459 5,210,668 6,234,899 Non-performing loan = (3) + (4) + (5) 13,709,348 10,813,411 9,596,942 14,300,465 15,800,980 Total = (1) + (2) + ( 3) + (4) + (5) 864,925,948 935,207,945 1,015,333,270 1,130,667,767 1,274,821,709 NPL 1.585% 1.156% 0.945% 1.256% 1.239% Figure 2: Non-performing loan ratio Unit: Million VND Overall, the NPL ratio witnessed a downward trend of 0.64% in the years period from 2018 to 2020 due to the significant decrease in debts that are overdue for a period of more than 360 days and the remarkable rise of current loans From 2020 to 2021, this ratio increased moderately from 0.945% to 1.265% because of the increase of nearly six times in the number of debts overdue from months to months In 2022, this ratio experienced a slight decline of 0.025% as the number of current loans and special mention loans grew. To control credit risk, there are some tools used by VietinBank as mentioned in the Annual Report In terms of credit activities, the Bank manages and controls credit risk by setting limits for credit risk control that are in line with the Bank’s risk capacity for each client, segment, geographical area, and industry A credit quality review process is also established to identify the potential changes in the financial position as well as the solvency of counterparties based on the qualitative and quantitative elements The limit for credit risk control corresponding to each counterparty is established based on the risk rating assigned by the credit rating system This risk rating can be adjusted and updated frequently For investment activities/interbank lending activities, the Bank controls and manages risks by setting interbank investment limits for each distinct counterparty based on the analysis and evaluation of the Bank for that counterparty’s risk level These limits are determined by the Financial Institution Committee and carried out by the Treasury Trading Department Interest rate risk Interest rate risk is the possibility of income or asset value being affected when the market interest rate fluctuates Interest rate risk represents one of the important risks that a bank might cope with It can be concluded that interest rate changes will have a negative effect on a bank’s revenue, asset and liability, and off-balance sheet items In this paper, the Dollar Gap is used to evaluate VietinBank’s exposure to interest rate risk The interest-sensitive gap (IS GAP) or Dollar gap is well-known as the difference between interest-sensitive assets (RSA) and interestsensitive liabilities (RSL) The dollar gap ($GAP) is calculated by taking Rate-sensitive assets minus Rate-sensitive liabilities $GAP = Rate-sensitive assets - Rate-sensitive liabilities Year 2018 2019 2020 2021 2022 Deposits in the State Bank of 23,182,208 24,873,714 57,616,650 23,383,443 29,727,110 Vietnam Deposits and credit to other credit institutions 130,512,012 129,388,518 102,532,818 149,316,646 242,431,953 Investment in securities 102,100,093 104,615,279 114,941,998 177,544,548 180,312,848 Loans to customers 851,865,984 922,325,251 1,002,750,890 1,104,872,665 1,245,057,876 RSA 1,107,660,297 1,181,202,762 1,277,842,256 1,455,117,302 1,697,529,787 Borrowings to the State Bank of Vietnam 62,600,159 20,602,893 44,597,188 33,294,404 104,779,302 Deposits and borrowings from other credit institutions 111,399,612 109,483,069 128.519,115 138,833,846 209,429,843 Customer deposits 825,816,119 892,785,228 990,331,285 1,161,848,113 1,249,176,034 Valuable papers 46,216,359 57,066,353 59,875,570 64,496,785 91,370,419 RSL 1,046,032,249 1,398,473,148 1,654,755,598 $GAP 61,628,048 56,644,154 24,774,189 1,129,937,533 1,223,323,158 51,265,229 51,265,229 Figure 3: Dollar gap Unit: Million VND From the table, it can be seen that VietinBank had positive Dollar Gaps during the five years as its rate-sensitive assets were always greater than its rate-sensitive liabilities Therefore, the Bank was considered to be asset-sensitive In addition, there was also a fluctuation in the Dollar Gap It decreased significantly in 2019 then increased slightly during the next 2-year period before witnessing a remarkable decline in 2022 A positive gap shows that growth in market interest rates creates an increase in net interest margins and vice versa In accordance with VietinBank’s annual report, the interest rate risk of the Bank can be derived from investment activities, capital mobilization, and lending activities The market's movement and the bank's cost of capital are the two main determinants of the investment interest rate for interbank short-term lending activities For capital mobilization activities, interest rates are set in accordance with the market price, the business orientation of the Bank’s management, the Bank’s capital balance, and the regulations of the State Bank of Vietnam For lending activities, to secure its competitiveness and efficiency the Bank determines lending interest rates following the coverage of cost of capital, management cost, riskiness, value of collateral, and market interest rate The lending interest rate floor for each period is regulated by the Head Office As long as the lending interest rates are not lower than the set floor rate and the annual budgeted profit is guaranteed, branches may determine the rates for each customer each period based on credit risk analysis and assessment Besides, due to the capital structure mainly comprising funds with short interest rate repricing terms, the Bank requires that all long-term and medium-term loans’ interest must be floating (interest rates are not fixed during the whole loans’ periods) to minimize possible arising interest rate risk. In addition, the Bank mandates that all long-term and mediumterm loans' interest be floating rate (interest rates are not fixed for the entire loans' periods) in order to minimize any rise in interest rate risk This is because the capital structure mainly comprises funds with short interest rate repricing terms Liquidity Liquidity risk is defined as the risk that VietinBank has difficulties in meeting obligations associated with its financial liabilities Liquidity risk arises when the Bank might be unable to meet its payment obligations at their due dates or when the Bank has to pay at a higher cost to meet its obligations In order to proactively take action in the event of market volatility, the Bank has issued some regulations and procedures on liquidity management, consisting of guidelines for managing liquidity gaps through maturity, liquidity risk ratios, stress test scenarios, and backup plans. 3.1 ALCO One of the major topics to be discussed at monthly ALCO Council meetings is the bank's fund balance and liquidity Meetings of the Risk Management Committee and the Risk Management Council also examine and report on the compliance of the liquidity risk appetite and risk capacity The Board of Directors and Management receive recommendations from the Risk Management Committee/ALCO/Risk Management Council based on analysis and review for how to most effectively and safely preverse the bank’s solvency Total assets Up to month From to months From to 12 months From to years Over years 350,285,860 334,724,247 564,292,921 229,908,613 313,526,430 Total liabilities 458,584,038 Net liquidity Cummulative Gap 250,158,536 677,192,453 275,752,193 36,536,097 (108,298,178) 84,565,711 (112,899,532) (45,843,580) 275,990,333 (108,298,178) (23,732,467) (136,631,999) (182,475,579) 93,514,754 Figure 4: Liquidity Gap in 2022 Unit: Million VND Overall, the net liquidity of month, from to months, and from to years maturities was negative while 1-3 months and over years terms were greatly positive The biggest gap belonged to over years of maturity which was nearly 300,000,000 million VND This can be explained by the effort of the Vietnamese government in supporting businesses to recover from Covid pandemic Specifically, the Bank had reduced lending interest rates by 2% annually for firms in the areas serving people’s basic needs On the other hand, the Bank also cut its deposit interest rates due to a credit growth slowdown in the recovery of the economy after the pandemic (The Ministry of Finance) The total cumulative gap was more than 90,000,000 VND indicating that VietinBank had sufficient cash on hand to ensure that they are able to meet customer deposit withdrawals at any time and not have too many deposits loaned out 3.2 Liquidity ratio Apart from the liquidity gap, many other liquidity ratios are essential to evaluate the bank's liquidity risk In this paper, the Loan-to-deposit ratio (LDR) will be used to assess the liquidity risk of VietinBank LDR = Total Loan / Total Deposit Loan-to-deposit ratio 2018 2019 2020 2021 2022 88.0% 88.1% 86.1% 81.9% 81.8% 0.10% -2.00% -4.20% -0.1% 90% 85% 85% 85% Change in LDR SBV requirement for state-owned commercial banks 90% Figure 4: Loan-to-deposit ratio The LDR ratio of VietinBank remained at around 88% which was below the maximum requirement of 90% in the first years In the next year, it exceeded the ceiling rate of 85% due to the rapid change in the LDR ratio requirement set by SBV for state-owned commercial banks in 2020 However, as stated by VNDIRECT’s Hien, the LDR ratio is not only the indication to evaluate the liquidity risk of a bank, commercial banks usually have this ratio high An example of this is that most banks have this ratio exceeding 85%, especially Techcombank, and VPBank From 2021 to 2022, this ratio was controlled effectively by VietinBank to be steadily lower than 85% IV SCENARIOS ANALYSIS Income impact Year 2018 2019 2020 2021 2022 Profit before tax 6,730,402 11,780,993 17,084,849 17,589,156 20,946,059 Owners' net profit 5,413,949 13,693,588 9,461,267 14,088,760 16,775,074 EPS 1,454 3,678 1,966 2,510 3,491 Figure 5: Vietinbank’s Income Statement Unit: Million VND Vietinbank's profit after tax has climbed over the years, reaching a peak in 2022 with VND 20,946 billion, an increase of 19.1% over 2021, as can be seen from the statistics in the above table This outcome was made possible by VietinBank's achievement of profitable business outcomes in all facets of operations in 2022 To be more specific, in 2022, VietinBank actively implemented business solutions in sync, making efforts to promote innovation and restructuring, comprehensively operating in the direction of strongly transforming growth model, rapidly shifting income structure, implementing customer-centric strategy, determining competitive methods in the direction of focusing on developing financial solutions modern system, improve consulting capacity, service quality, and meet the financial needs of customers to the maximum Owners' net profit and earnings per share (EPS) both increased during this period, with Owners' net profit rising by 209.85% from 5,413,949 million in 2018 to 16,775,074 million in 2022 and EPS rising from 1,454 million in 2018 to 3,491 million in 2022, regardless of some fluctuations over the years All of the above indications indicate that Vietinbank has generated profits over the previous five years, despite a challenging time owing to the Covid-19 epidemic 1.1 Changes in interest rate In actuality, banks have highly sensitive views about interest The profitability and asset value of banks will be impacted in different ways by each change in interest rates In other words, whenever interest rates change, interest income and expenses also change As a result, one of the most crucial indicators of banks, Net Interest Income, may be in danger Therefore, it's critical to accurately identify, quantify, track, and manage interest rate risk exposure In light of this, we used Dollar Gap: An Analysis to determine how Vietinbank's NII would vary if interest rates rose or fell by 1% to 2% ΔNII = $GAP * ΔInterest rate In VND million $GAP Up to month 166,774,45 25,520,70 (70,818,143) 129,137,183 (197,484,061) 69,851,091 ∆NII if r↑ by 1% (708,181) ∆NII if r↓ by 1% 708,181 ∆NII if r↑ by 2% (1,416,363) ∆NII if r↓ by 2% 1-3 months 3-6 months 6-12 months 1-5 years Over years 1,416,363 1,667,745 1,291,372 (1,667,745) (1,291,372) 3,335,489 2,582,744 (3,335,489) (2,582,744) (1,974,841) 255,207 698,511 1,974,841 (255,207) (698,511) (3,949,681) 510,414 1,397,022 3,949,681 (510,414) (1,397,022) Figure 6: The change in Net Interest Income of VietinBank Unit: Million VND The data from the table above make it clear that a rise in interest rates to 1% or 2% will result in a decline in net interest income for maturity buckets with negative $GAP, such as those with a maturity of up to month and to 12 months With an NII loss of 1,974.841 million, the maturity of to 12 months will specifically experience the most impact from this decline On the other hand, when interest rates fall to 2% for negative $GAPs, NII will record rises The remaining buckets with positive $GAP will have a positive connection with interest rate, in contrast to the buckets with negative $GAP The NII will rise in the event that the interest rate is raised by to 2%, and it will rise highest for the bucket with the largest $GAP Similar to how NII will drop in reaction to an interest rate reduction After the analysis, it is clear that interest rate risk is one of the particular risks that cannot be eliminated in the banking sector However, Vietinbank should diversify its loan portfolio and raise capital in addition to adopting a few popular derivatives including interest rate swaps, options, futures, and forward rate agreements (FRAs) to hedging interest rate risk Capital Impact Basel I 2018 2019 2020 2021 2022 Tier ratio 5.55% 5.90% 5.48% 4.92% 5.74% 10.62% 9.25% 8.48% 8.60% Figure 7: The Tier and CAR ratio of Vietinbank 10.08% CAR Unit: % It is clear from the results in the table above that Vietinbank's Tier and CAR indexes for the years 2018 to 2022 both meet Basel I requirements Basel I mandates that international banks maintain a minimum of 8% in capital based on their risk-weighted assets, with Tier capital accounting for at least 4% of the total risk-weighted asset Tier specifically depicts a tendency of growth from (5.55% in 2018 to 5.74% in 2022), with the highest rise being a 0.82% increase from 2021 to 2022 The main reason is due to undistributed profits grew strongly in 2022 with VND 33364370 million (up 55.27% compared to 2021), which made Tier capital increase. This is undeniable given that all of Vietinbank's sources of income increased significantly in 2022 compared to the previous year In spite of the many difficulties and challenges the domestic and global economies are facing, the entire VietinBank system was able to increase pre-provision profit in 2022 by VND 9.1 trillion, or 25.4% more than in 2021 Consolidated income before tax also increased by 19.1% to VND 20,946 billion, from 2021 Additionally, Vietinbank successfully raised its charter capital in 2021 from VND 37,234 billion to VND 48,058 billion in order to boost its own capital capacity and encourage the growth of Tier Contrary to the Tier ratio, the CAR ratio has generally dropped over this time (from 10.62% in 2018 to 10.08% in 2022) by 0.54% However, this is not a cause for concern because after two consecutive years of decline since the CAR peak in 2018, the index once again shows signs of recovering growth from 2021 to 2022 Because in 2022, the CAR index has risen to roughly 10% again This can be explained by the fact that Vietinbank's Tier capital and Tier capital both reached their highest levels in 2022, with Tier reaching VND 96,126,743 million, up 51.12% from the lowest year 2018 with VND 63,610,430 million, and Tier reaching VND 72,878,141 million, up 79.55% from 2019 (lowest with VND 40,588,919 million) The increase in Tier as previously mentioned is caused by an increase in undistributed profits and charter capital, whereas the significant increase in Tier in 2022 with a provision for credit losses on customer loans of VND 29,763,833 million (compared to only VND 12 to 13 trillion in the first three years of the period) is primarily responsible This makes sense given that Vietinbank's consumer loans consistently grow year over year, reaching a peak of VND 1,245,057,876 million in 2022 The financial provision buffer for customers should therefore be increased in order to raise the bad debt coverage ratio VietinBank has been proactive in raising its risk provisioning in response to the current challenging economic environment and unforeseen changes 2.1 Changes in liquidity Liquidity risk is another major concern that banks have, along with interest rate risk Liquidity risk is described as occurring when credit institutions, foreign bank branches are unable to implement debt repayment obligations when due; or have the ability to perform a debt payment obligation when it is due, but must incur high costs to so This definition comes from Circular 08/2017/TT-NHNN, which specifies the order and procedures for banking supervision This kind of risk directly affects company operations, which could harm the bank's profitability and reputation Therefore, it is crucial and essential to proactively plan and analyze potential liquidity possibilities This will enable banks to assess their ability to satisfy their liquidity obligations and prepare contingency plans to best address any potential issues The table below has clearly shown the structural liquidity of VietinBank in 2022: VND million Up to month Asset (Total inflow) 350,285,860 334,724,24 564,292,921 229,908,613 313,526,430 458,584,038 250,158,53 677,192,453 275,752,193 37,536,097 Liabilities (Total outflow) Net Liquidity Gap 1-3 months 3-12 months 1-5 years Over years (45,843,580 (108,298,178) 84,565,711 (112,899,532) ) 275,990,333 Figure 7: VietinBank’s Net Liquidity Gap in 2022 Unit: VND million As can be observed from the data sheet, the maturity buckets "up to month," "from to 12 months," and "from to years" all exhibit negative net liquidity gaps It indicates that liabilities outstrip assets, meaning that Vietinbank did not have enough assets to cover its obligations for both short-term and medium-term.In this instance, Vietinbank faced a liquidity risk. In order to compensate for this lack of liquidity, the bank could fund the gap by borrowing funds from money markets, repurchase agreements or decreasing its assets such as by selling off assets In addition, Vietinbank also needs to actively use open market operations to diversify and attract capital; restructuring loans and mobilized capital reasonably between medium and short term to be able to meet short and medium term obligations The remaining two buckets, one for over years and the other for one to three months, both exhibit positive liquidity gaps This demonstrates that in certain maturity buckets, Vietinbank has more assets than liabilities Notably, Vietinbank showed a high ability to meet its long-term liquidity obligations over years with a net liquidity of VND 275,990,333 million This allows for flexibility, growth, and an overall comfortable financial position. V HEDGING PROPOSAL It is clear at this time that Vietinbank, as well as banks in general, have had to deal with a wide range of concerns, including interest rate risk, liquidity risk, and credit risk Vietnamese banks utilize highly efficient hedging techniques in order to minimize the negative effects that these risks involve Vietinbank is one of the top banks in the derivatives trading industry in Vietnam with regard to hedging instruments as a whole and derivatives in particular Nowadays, Vietinbank employs a wide range of techniques to mitigate risks Vietinbank specifically uses a cutting-edge credit risk management system that aids in assessing and reducing risks while lending and managing outstanding loans However, given the Fed's policy of raising interest rates, our view is that banks should think about using forward rate agreements (FRAs), options, and future (forward) contracts as well as swaps to be able to most effectively hedge risk, while providing the sustainability and steadiness of a bank's financial operations, like VietinBank Forward Rate Agreement (FRAs) A derivative tool called a FRA (Forward Rate Agreement) is used to protect banks from potential risks associated with future interest and currency rates The FRA may be used by VietinBank to determine pricing and prevent unforeseen changes in the exchange rate or interest rates VietinBank can utilize FRA to specifically defend against interest rate risk if the bank has a loan with a variable interest rate With FRA, the bank may set a fixed interest rate for the future, thereby reducing interest rate risk and avoiding changes in market interest rates In the event that VietinBank has receivables or deposits in foreign currencies, FRA can also be used to determine and hedge exchange rate risk VietinBank can fix an exchange rate in the future using FRA, preventing swings and lowering risks However, using FRA also entails certain risks, such as the threat of market swings or counterparty insolvency To ensure efficacy and lower related risks, FRA needs to be used in concert with other risk management techniques Options Options contracts can be used by the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) to reduce risk in its financial management In particular, VietinBank may take advantage of FX options or interest rate options to help protect itself from exchange rate risk agains interest rate risk VietinBank is able to buy and sell foreign exchange and interest rate options through options contracts at a predetermined fixed price at a later date VietinBank uses these contracts to reduce risk, provide stability in its financial operations, and protect itself from unforeseen changes in exchange rate or interest rate However, using options contracts also entails challenges, particularly when the set price that was previously agreed upon does not coincide with the market price when the contract expires Therefore, VietinBank needs a comprehensive risk management strategy to ensure effective use of options contracts and minimize the risks associated with this Future (forward) contracts Futures contracts are a derivative tool used to minimize future risk Forward contracts can be used by Vietinbank to mitigate the following risks In order to price and hedge against currency rate risk, VietinBank may employ money market forward contracts VietinBank may ensure a set price for foreign currencies in the future with the aid of forward contracts, assisting in preventing volatility in exchange rates and reducing risks Moreover, VietinBank can set prices and hedge against future interest rate risk through forward contracts in the interest rate market VietinBank can guarantee a fixed interest rate for loans or interest-related investments through the use of forward contracts, assisting in preventing fluctuations in market interest rates and reducing risk Swaps Swaps are a financial instrument used to mitigate the risk associated with changes in interest rates or exchange rates For VietinBank, the use of swaps can help them minimize financial risks as follows The first is about Interest Rate Risk Using an interest rate swap, VietinBank can exchange it for a fixed interest rate instead of a market-changing interest rate This helps VietinBank to hedge against interest rate risk, especially when the market fluctuates greatly In addition to minimizing interest rate risk, Vietinbank can also use swaps as a tool to reduce exchange rate risk Using an exchange rate swap, VietinBank can minimize the risk associated with exchange rate changes In addition to providing foreign currency loan services to customers, VietinBank also borrows foreign currency from international capital sources to serve its operations Currently, VietinBank's total outstanding foreign currency loans are relatively large To minimize exchange rate risks, Vietinbank may use swaps to convert foreign currency loans into Vietnamese dong to minimize exchange rate risk VI CONCLUSION To sum up, our report has based on Vietinbank's overview of market conditions as well as general indicators of Vietinbak to provide a detailed analysis of Vietinbank's current risks At the same time, it points out changes in interest rates and changes in liquidity of Vietinbank related to income impact and capital impact respectively so as to suggest useful tools that can help Vietinbank reduce the current risks Vietinbank, in general, is still one of the highly appreciated products in the working process of the bank to manage and control the risks that the Vietinbank encounters However, Vietinbank should apply reasonable measures and tools to prevent risks and bad cases caused by market fluctuations We believe that Vietbank has always maintained its position as one of the most prestigious banks In addition, Vietinbank can still ensure good operation and meet the needs of customers in the future