annual report 2008 vietinbank vietnam joint stock commercial bank for industry and trade

noi CE t, Ha OFFI Stree D ao HEA 030 ng D 42 n Hu Tra 4.39 :0 108 032 42 4.39 :0 Tel bank ietin w.v : ww Fax site Web rt po l re a nnu a 008 Vietnam Joint Stock Commercial Bank for Industry and Trade Content 02 • Loans to the Economy Message from the Chairman of the Board of Directors 04 An Overview of Vietnam Economy in 2008 06 The Board of Directors 08 The Board of Management 10 Milestones of Success in 2008 13 VietinBank’s Performance in 2008 • Investment • Fund Mobilization • Banking Services 19 Risk Management 25 Business Plan for 2009 28 VietinBank and Equitization Process 30 Organization Chart 33 Independent Auditors’ Report Message from the Chairman of the Board of Directors Annual Report 2008 VietinBank Ladies and gentlemen, The Vietnamese economy first faced challenges in 2008 as the result of the increased trade deficit of USD 17 billion and an inflation rate of 22.9% Later in the year the global economic turmoil further strained the economy as we saw dramatic swings in commodity prices such as steel, oil, gold and foreign exchange rates The impact was broad as both trading volumes and liquidity declined sharply in the capital and property markets Hit especially hard were the small and medium enterprises across the economic horizon In response to these many shocks, the Government took decisive action on several fronts Eight solution packages were introduced that resulted in lower inflation while allowing the economy to grow at 6.23% Industrial production increased 14.6% while export turnover reached VND 62.9 billion In addition, for the first time total registered Foreign Direct Investment rose to USD 64 billion Within the context of these adverse economic times, Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) managed to achieve a lot in 2008 We closely managed liquidity throughout the year while being able to sharply increase fee based income Great strides were made in managing risk and performance ratios improved The bank was able to expand our branch network, grow total assets by 17% and increase equity to VND 12,300 billion These achievements were largely the result of a conservative and strong management team remaining focused on prudent banking principles The year was also a milestone for the bank in a number of other aspects After 20 years the bank went through a rebranding exercise, launching a new brand name of VietinBank Additional accomplishments included centralization of Trade Finance processing to reduce risk and improve efficiencies (Main Operation Center No 3), establishment of a Disaster Recovery Data Backup Center, inauguration of the Human Resource Developing and Training School and was awarded Second-Place Independence Medal presented by the State These were all important steps for the development, modernization and global integration of VietinBank The final accomplishment for the Annual Report 2008 VietinBank year came about on 25th December 2008 when we became among the first State owned banks to launch our Initial Public Offering With the anticipation of continuing economic challenges domestically and globally, 2009 will be at least partly internally focused While participating in the Government’s Monetary Policies, VietinBank will focus on expense management in order to provide more favorable interest rates and fee structures to our customers Industries the bank will continue to primarily focus on are exporters, the agricultural sector and small and medium industries The goals for 2009 include a 24% increase in mobilized funds, and loan growth of 29% while maintaining nonperforming loans below 3% Projected earnings for the year are estimated to reach over VND 2,500 billion, with fee income contributing VND 800 billion Listing on the local stock exchange is also scheduled in July 2009 Longer term goals of the bank will focus on Modernization whereby the bank will be transformed Areas of focus include improved financial transparency, standardization of services, implementation of strong corporate governance and improved human resource development programs The objective will be while growing and expanding across all areas of the financial services industry, VietinBank plans to build an institution based on prudent and efficient policies that will allow us to meet international practices and standards On this occasion, the Board of Directors, the Board of Management and all of the VietinBank Staff would like to express our thanks to customers, local and foreign partners for your trust and cooperation which have contributed to VietinBank successes in 2008 We hope that VietinBank will continue to receive your kind support and cooperation Pham Huy Hung Chairman of the Board of Directors An Overview of Vietnam Economy in 2008 In 2008 the economy of Vietnam encountered complicated and unpredicted movements of the world economy and domestic difficulties In the first half of 2008, Vietnam suffered the impact of overheating economy, high inflation, trade deficit, real estate bubble and declined investment quality In an effort to stabilize the macro-economy, the Government adjusted from high growth target to inflation control and maintaining of appropriate growth In the late of 2008, the risks of sub-prime mortgage in the US inflamed the global financial crisis which brought not only developed countries but also emerging economies in the financial triangle Asia-Europe-US to recession Although Vietnam was not severely impacted, the country’s economy was facing numerous difficulties and challenges as a consequence of such crisis In 2008, Vietnam’s economic growth tended to slow down and remained at only 6.2 percent after high growth of over percent in consecutive years Notwithstanding such difficult situation, Vietnam export turnover in 2008 attained nearly USD 63 billion, which was an encouraging result Export turnover of all commodities experienced increase against the previous year with crude oil reaching USD 10.4 billion (increasing by 23.1%), textiles: USD 9.2 billion (increasing by 17.5%), coal: USD 1.5 billion (increasing by 44.4%), rice: USD 2.8 billion (increasing by 94.6%) In 2008, the banking system of Vietnam also saw unprecedented movements The tightened and flexible monetary policy implemented in early 2008 was gradually shifted to prudently loosen in the second half of the year In line with this process was the State Bank of Vietnam’s unprecedented adjustment of management instruments, which focused mainly on key interest rates, reserve requirement and exchange rate control GDP growth rate was 6.2 % in 2008 The year of 2008 saw times of base interest rate increase and times of base interest rate reduction by the State Bank of Vietnam Re-financing interest rate and rediscount interest rate experienced the same adjustment frequency Reserve requirement rate increased in February and experienced decline for times in the last months of the year (including times of decline in foreign currency reserve Annual Report 2008 VietinBank requirement) Interest rates applicable to reserve requirement saw times of adjustments (including times of increase and times of reduction) Foreign exchange control mechanism experienced exceptional adjustments with exchange rate band being widened for times, average interbank exchange rate being strongly adjusted in June and late December The exchange rate in 2008 was characterized with opposite fluctuations In early 2008 the market saw surplus of foreign currencies with VND/USD exchange rate falling to the “bottom level”, equivalent to VND 15,300, while the scarcity of USD supply occurred both in official and free markets from May Nevertheless, thanks to the State Bank’s intervention and foreign exchange reserve capacity which was officially publicized for the first time, the exchange rate was gradually stabilized in late of the year In summary, Vietnam Economy in 2008 coped with major difficulties such as reduced growth rate, increased inflation and imports surplus, unstable securities and real estate markets, difficult production and business activities In 2009, the economy of Vietnam will certainly face numerous challenges and the danger of reduced growth rate However, given the flexible policies of the Government and the great efforts of the whole society, the country will strongly sustain and create a momentum for sustainable growth in the following years 16 The movements of the major interest rates in 2008 (%) 15 14 14 13 13 12 12 12 11 12 11 10 11 8.75 8.25 13 12 13 11 10 14 10 7.5 9.5 8.5 7.5 6 Base Rate Refinancing rate Discount rate 1/1 Annual Report 2008 1/2 19/5 VietinBank 11/6 21/10 5/11 21/11 5/12 22/12 Board of Directors Dr PHAM HUY HUNG Chairman of the Board of Directors Annual Report 2008 VietinBank NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 26 NET GAIN FROM DEALING IN FOREIGN CURRENCIES 2008 VNDm 2007 VNDm 546,190 92,674 Income from dealing in foreign currencies Income from foreign exchange spot rate differences Income from dealing in gold - - 74,764 4,256 (136,102) (22,123) - - (194,806) (10,720) 290,046 64,087 2008 VNDm 2007 VNDm 104,733 139,623 (127,520) (68,249) (38,596) (169) (22,787) Income from monetary derivative financial instruments 71,374 Expense from dealing in foreign currencies Expense from foreign spot rate differences Expense from dealing in gold Expense from monetary derivative financial instruments Net gain from dealing in foreign currencies 27 NET GAIN / LOSS FROM SECURITIES TRADING Income from trading of investment securities Expense from trading of investment securities - In which: Provision for impairment of investment securities 28 NET SHARE OF PROFIT IN ASSOCIATES AND JOINT VENTURES AND DIVIDEND INCOME 2008 VNDm 2007 VNDm 12,802 5,445 19,998 - 102,299 82,802 101,897 82,802 402 - 135,099 88,247 Profit of subsidiaries From equity trading securities Profit of the Bank From other long-term investments Share of profit in associates and joint ventures under equity method (See note 12.1), in which: Indovina Joint venture Bank Asian Insurance Joint venture Company (before the Bank repurchases) 87 VietinBank Annual Report 2008 88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 29 NET GAIN FROM OTHER OPERATING ACTIVITIES 2008 VNDm 2007 VNDm 647,722 1,345,623 - 43,138 Incomes from other operating activities Recovery of bad debts written off Income from debt trading activities Income from assets disposal 3,090 1,414 13,667 16,660 664,479 1,406,835 Expense for other derivative financial instruments - - Other operating expenses - - - - 664,479 1,406,835 2008 VNDm 2007 VNDm Other gains Expenses for other operating activities Net other operating income 30 OTHER OPERATING EXPENSES Taxes and fees expenses 64,216 18,606 Materials for banking activities 93,130 69,164 Business trip expenses 57,206 43,252 Training expenses 24,070 23,734 Research and development expenses 37,938 11,665 Telecommunication expenses 31,725 27,974 Publication, marketing, promotion and reception expenses 110,060 65,047 General administration expenses 399,947 277,466 Asset repair and maintenance expenses 131,526 93,171 64,351 53,307 5,255 4,571 Office rental 72,811 48,870 Insurance for customer deposits 71,549 62,072 Tool and equipment expenses Asset insurance expenses Other operating expenses 19,720 35,917 1,183,504 834,816 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 31 CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the consolidated statement of cash flows comprise the following amounts: 31/12/2008 VNDm 31/12/2007 Reclassified VNDm Cash and cash equivalents 1,980,016 1,743,604 Balances with the State Bank of Vietnam 6,010,724 8,496,135 Placements with other banks 6,038,534 4,829,941 Term deposits with and loans to other banks under three months 11,580,315 6,280,645 6,503,226 2,076,064 32,112,815 Investment securities under three months 23,426,389 32 EMPLOYEES’ REMUNERATION Actual incurred in 2008 VNDm I Total number of employees (person) II Total salary 16,923 17,147 2,747,653 1,462,200 Employees’ income (VNDm) Actual incurred in 2007 VNDm Allowance for lunch 69,781 65,986 2,817,434 1,528,186 Monthly salary 13,53 7,11 Monthly income 13,87 7,43 Total income (1+2) 33 COLLATERALS AND MORTAGES Book value 31/12/2008 VNDm 31/12/2007 VNDm 135,827,042 117,266,861 Movable assets 58,755,351 44,273,088 Valuable papers 15,884,182 7,294,981 Other assets 18,536,950 15,876,050 229,003,525 184,710,980 Real estate properties 89 VietinBank Annual Report 2008 90 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 34 CONTIGENT LIABILITIES AND COMMITMENTS In normal course of business, the Bank is a party to financial instruments which are recorded as off-balance sheet items These financial instruments mainly comprise financial guarantees and commercial letters of credit These instruments involve elements of credit risk in excess of the amounts recognized in the balance sheet Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss because any other party to a financial instrument fails to perform in accordance with the terms of the contract inancial guarantees are conditional commitments issued by the Bank to guarantee the performance of a F customer to a third party including guarantee for borrowings, settlement, performing contracts and bidding, The credit risk involved in issuing guarantees is essentially the same as that involved in extending facilities to other customers ommercial at sight letters of credit represent a financing transaction by the Bank to its customer where the C customer is usually the buyer/importer of goods and the beneficiary is typically the seller/exporter Credit risk is limited as the merchandise shipped serves as collateral for the transaction eferred payment letters of credits represent the amounts at risk should the contract be fully drawn upon and D the client defaults in repayment to the beneficiary Deferred payment letters of credit that were defaulted by clients are recognized by the Bank as granting of a compulsory loan with a corresponding liability representing the financial obligation of the Bank to pay the beneficiaries and to fulfill the guarantor obligation he Bank requires margin deposits to support credit-related financial instruments when it is deemed necessary T The margin deposit required varies from nil to 100% of the value of a commitment granted, depending on the creditworthiness of clients as assessed by the Bank The outstanding commitments and contingent liabilities as at 31 December are as follows: 31/12/2008 VNDm 31/12/2007 VNDm Financial letter of guarantees 8,050,418 6,082,241 At sight letters of credit 7,630,647 12,251,065 251,863 1,744,579 15,932,928 20,077,885 Contingencies Deferred payment letters of credit 35 RELATED PARTY TRANSACTIONS Related party transactions include all transactions undertaken with other parties to which the Bank is related, A party is related to the Bank if: (a) directly, or indirectly through one or more intermediaries, the party:: ► controls, is controlled by, or is under common control with, the Bank (this includes parents, subsidiaries and fellow subsidiaries); ► has an interest in the Bank that gives it significant influence over the Bank; or; ► has joint control over the Bank NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 35 RELATED PARTY TRANSACTIONS (continued) (b) the party is a joint venture in which the Bank is a venturer (see VAS 8“Interests in Joint Ventures”); (c) the party is a member of the key management personnel of the Bank or its parent; (d) the party is a close member of the family of any individual referred to in (a) or (c); (e) the party is a Bank that is controlled, jointly controlled or significantly influenced by, or of which, significant voting power in such Bank resides with, directly or indirectly, any individual referred to in (c) or (d) Significant transactions with related parties in the year 2008 are as follows: Related party Relationship Transactions The SBV Direct controller Decrease in settlement deposit 2,483,526 VNDm The SBV Direct controller Compulsory investment in treasury bills 3,000,000 The MOF Direct owner The MOF Direct owner Indovina JV Bank Investee Deposits for specific purposes Receipts of interest income from Special Government bonds Demand deposit 3,347 72,600 6,948 Amount due to and due from related parties as at 31 December 2008 are as follows:: Related party Relationship Transactions The SBV Direct controller The MOF Direct controller The MOF Direct controller Settlement deposits Deposits for specific purposes Term deposit Indovina JV Bank Investee Receivable VNDm Payable VNDm 6,010,723 - - (13,401) - (417,283) 364 (1,817) Deposits Chi tiết giao dịch lớn với bên liên quan năm 2007 sau: Related party Relationship Transactions VNDm The SBV Direct controller Net increase in deposits for settlement and compulsory reserves The SBV Direct controller Borrowings from SBV The MOF Direct controller Specific deposits of the MOF The MOF Direct owner The MOF Direct owner 72,600 The MOF Direct owner Increase in term deposit Receipts of interest income from Special Government bonds Interest rate supported Indovina JV Bank Investee Deposits 48,457 2,875,823 391,360 1,420 - 7,249 91 VietinBank Annual Report 2008 92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 35 RELATED PARTY TRANSACTIONS (continued) Amount due to and due from related parties as at 31 December 2007 are as follows: Related party Relationship Transactions Receivable VNDm Payable VNDm The SBV Direct controller Net increase in deposits for settlement and compulsory reserves 8,496,135 - The SBV Direct controller Net decrease in borrowings - (120,563) The SBV Direct controller Borrowings - (65,021) The MOF Direct controller Specific deposits - (12,477) The MOF Direct owner Interest rates supported 16,047 - Indovina JV Bank Investee Deposits 235 - 36 CURRENCY RISKS Currency risk is the risk that values of financial instruments fluctuates due to changes in foreign exchange rate As the Bank was incorporated and operates in Vietnam, its reporting currency is Vietnam dong (VND), which is also the major currency in which the Bank transacts The Bank’s loans and advances were mainly denominated in VND with the remainder mainly in US dollar (USD) Nonetheless, some of the Bank’s other assets are in currencies other than VND and USD To better manage currency risks, quarterly, Alco Planning and Supporting Department analyses and projects cash-in and cash-out flow and proposes fund planning plan for each type of currency (mainly VND, USD and EUR equivalent) to the Bank’s Board of Management) based on actual cash flows and growth target registered by business units The plan determines limits, fund growth rate and fund utilization for the whole bank as well as each branch It is managed based on daily outstanding balance in accordance with guidance to ensure the safety and effectiveness of the whole system The Bank establishes the policy that centralizes the management of whole bank’s foreign currency position at Head office, and that prescribes daily foreign currency position to each branch and overall position of the whole bank so that the daily foreign currency position of the whole bank is reasonable, safe as well as compliant with the requirements of the State Bank of Vietnam Beside the fund planning and foreign currency position management, the Bank also centralizes the foreign currency trading activities with other credit institutions at Head office, builds up limits for international transactions as well as enters into derivatives such as swaps and forward contracts to minimize foreign currency risks During 2008, significant fluctuation in local currency exchange rate against USD has impacted remarkably on the Bank’s balance between local currency and foreign currencies denominated capital, especially USD denominated capital source In May 2008, Vietinbank experienced the surplus in USD denominated capital while having deficit in VND denominated capital In order to raise sufficient VND funds to meet the economy’s growing credit demand as well as lending demand for purchasing foods for export and import necessities of gasoline, medicines and fertilizers, etc, the Bank asked for approval of SBV to use swap contract, accordingly, the Bank swapped USD 300 million for VND equivalent capital in July and August in 2008 (*) These items not include provision 3,251,370 3,256,609 Off-balance sheet currency position 5,239 2,647,013 - 146,155 Total currency position Balance sheet currency position Total liabilities and owners’ equity Owner’s equity Other liabilities (*) - Debts issued and other borrowed funds 2,229,505 Issuing valuable papers Customers deposits and other amounts due to customers Deposits and borrowings from other banks (including SBV) 271,353 2,652,252 Liabilities and owners’ equity Total assets 128,353 Fixed assets and investment real estates Other assets - Investment securities (*) Long term investments (*) 10,550,048 12,325,400 (1,775,352) 29,492,457 2,241,756 286,302 1,800,752 22,230,708 2,932,938 27,717,105 1,991,992 - - 36,894 18,816,983 - - 5,202,195 1,307,152 361,889 USD equivalent VNDm 1,563,216 Derivatives and other financial assets Loans to customers (*) - 862,320 - 98,363 EUR equivalent VNDm Trading securities (*) Placements with and loans to financial institutions (*) Balances with the SBV Cash and cash equivalents Assets 36 CURRENCY RISKS (continued) 3,327,381 356,158 2,971,223 160,783,009 12,336,158 3,771,659 3,172,819 38,416,954 97,174,253 5,911,166 163,754,232 1,899,362 1,995,515 907,724 40,922,185 98,799,147 86,810 796,927 12,209,334 4,619,923 1,517,305 VNDm 1,179,905 - 1,179,905 478,930 - - - - - 478,930 1,658,835 - - - - 1,572,727 - - - 83,649 2,459 Other currency VNDm 18,313,943 15,932,928 2,381,015 193,401,409 12,336,159 6,159,570 3,459,121 40,217,706 121,634,466 9,594,387 - 195,782,424 4,019,707 1,995,515 907,724 40,959,079 120,752,073 86,810 796,927 18,273,849 6,010,724 1,980,016 Total VNDm NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 93 VietinBank Annual Report 2008 94 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 37 LIQUIDITY RISKS The maturity of monetary assets and liabilities represents the remaining terms of these assets and liabilities from the balance sheet date to the maturity date according to the underlying contractual agreements or terms of issuance The following assumptions and conditions have been adopted in the preparation of the Bank’s maturity analysis: ► Balance with the State Bank of Vietnam is considered as current, this includes the compulsory reserves, which is dependent upon the composition and maturity of the Bank’s customer deposits ; ► The maturity of investment securities is based on redemption dates established by the issuer of these financial instruments ► The maturities of amounts due from other banks and loans and advances to customers are based on the contractual maturity date The actual maturity sometimes varies from contractual term when the contract is extended In addition, loans and advances to customers are shown as net of provisions for impairment loss ► The maturity of equity investments is considered to be over one year as equity investments have no stated maturity ► Amounts due to other banks and owed to customers are determined based on either the nature of the amount or the maturity of their contractual agreements For example, Vostro accounts and current accounts paid upon customers’ demand are considered to be current The maturity of term deposits is based on their contractual maturity date In practice, such items may be rolled over and maintained for longer periods without withdrawal or repayment Up to 31 December 2008, as the Bank has not set up asset/ liability management committee, liquidity risk is managed by Alco Planning and Supporting department and Investment department Alco planning and supporting department analyses and projects flow of cash-in, cash-out in accordance with fund planning and balancing plan, which is approved quarterly and annually; and provides decisions on available fund management based on monthly, quarterly and annually movement of the Bank’s capital and its expected utilization Based on the projection of available capital movement, Investment Department creates the Bank’s liquidity buffer through purchasing highly liquid valuable papers, which could be converted into cash through secondary market Investment Department might decide to either sell back valuable papers to SBV in open market, or to borrow to replenish working capital’s deficiency to ensure liquidity position of the whole bank The Bank maintains liquidity through calculating and maintaining average actual balance of deposits in VND and foreign currencies at the SBV not less than the required level of compulsory reserve to be maintained; and maintaining its liquidity ratios within the levels regulated by the SBV In addition to complying with liquidity regulations of SBV, Vietinbank also estimates and maintains a reasonable and safe level of liquidity assets in forms of cash, cash equivalents, high liquid deposits, Nostro accounts, monetary market instruments and special reserves at the SBV (contributed to around 25% of total assets) to be able to cope with any possible liquidity problem Besides, Investment Department also establishes credit limit with other banks for mutual assistance when needed 37 Overdue over months - VNDm VNDm Over due Overdue within months - - Balances with the SBV Placements with and loans to other banks - 915,358 Long-term investments Fixed assets and investment real estates Other assets Total assets - - Issuing valuable papers Other liabilities (*) (*) These items not include provision NET MATURITY RISK STATUS 915,358 - - Debts issued and other borrowed funds Total liabilities - - Customer deposits and other amounts due to customers 1,688,728 - - - Deposits and borrowings from other banks (including SBV) - - Borrowings from the MOF and SBV Liabilities 1,688,728 - - 1,688,728 915,358 Loans and advances to customers Investment securities - - Trading securities (*) Derivatives and other financial assets Cash and cash equivalents - - Assets LIQUIDITY RISKS (continued) (48,358,856) 69,251,582 - 1,513,409 2,917,253 62,186,555 1,968,678 665,687 20,892,726 - - - 6,600,116 176,526 86,810 - 6,038,534 6,010,724 1,980,016 VNDm Due within month Current 9,220,266 48,488,921 3,038,576 985,116 10,478,410 32,177,095 1,809,724 - 57,709,187 4,019,707 - - 3,212,770 38,131,995 - 109,400 12,235,315 - - VNDm 30,840,394 51,558,986 2,932,046 960,596 15,250,883 27,270,816 5,046,308 98,337 82,399,380 - - - 6,141,860 75,569,993 - 687,527 - - - VNDm Due from Due from months to a year to months 13,558,850 11,765,761 188,948 - 11,571,160 - - 5,653 25,324,611 - 1,995,515 - 19,059,623 4,269,473 - - - - - VNDm Due from to years 6,852,434 - - - - - - - 6,852,434 - - 907,724 5,944,710 - - - - - - VNDm Due over years 14,717,174 181,065,250 6,159,570 3,459,121 40,217,706 121,634,466 8,824,710 769,677 195,782,424 4,019,707 1,995,515 907,724 40,959,079 120,752,073 86,810 796,927 18,273,849 6,010,724 1,980,016 VNDm Total NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 95 VietinBank Annual Report 2008 96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 38 INTEREST RATE RISKS Repricing terms of effective interest rate is the remaining period from balance sheet date to closest interest rate repricing date of assets and liabilities The following assumptions and conditions have been adopted in the analysis of the Bank’s interest rate risk: ► Cash and cash equivalents; long term investments and other assets (including fixed assets, investment properties and other assets) are classified as non-interest bearing; ► Balances at the State Bank of Vietnam are considered as current, therefore, its interest rate repricing term are classified as within month; ► The interest rate repricing term of investment and trading securities are considered based on the actual maturity of each type since the balance sheet date; ► The interest rate repricing term of placements with and loans to financial institutions; loans to customers; borrowing from Government and State Bank of Vietnam; deposits and borrowings from financial institutions and customer deposits are determined as follow: ► Items with fixed interest rate during the contractual term: The effective interest rate repricing term is determined based on actual remaining term from the balance sheet date ► Items with floating interest rate: The interest rate repricing term is determined based on the closest repricing date since the balance sheet date ► The interest rate repricing term of valuable paper issued are based on the actual maturity date of each type; ► The interest rate repricing term of Debts issued and other borrowed funds of which the financial institution bearing the risk are categorised into to years; ► The interest rate repricing term of other liabilities are categorised into to months In practice, these items may have different repricing terms As interest rate fluctuates dramatically in 2008, almost all of Vietnam commercial banks have more or less suffered from interest rate risk Market interest rate sometimes reached extremely high levels Vietinbank has prudently managed its deposit and lending interest rate policy while still maintained a reasonable level of flexibility to ensure the operational effectiveness and market share growth Investment activities: main factors and information being considered are: ► The balance of the Bank’s working capital in short term and long term; ► The balance of capital flows in the market and market interest rate trend forecast (using Reuter, interview, etc); ► Information from large banks and other parties; ► Policies from the SBV; and ► Other sources of information The Bank forecasts fluctuation of market interest rate and makes appropriate investment decisions If a decreasing trend in interest rate is forecasted, the Bank will invest more in long term instruments to gain profitability On the contrary, if market interest rate is projected to increase, the Bank will focus on short term investments to minimise interest rate risk NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 38 INTEREST RATE RISKS (continued) Fund mobilization and utilization: interest rate for fund mobilization is determined under market price principles, in which interest rate is subject to demand, fund mobilization scale and market interest rate movements Fund is mobilized mainly in short term with the following structure: ► Within 12 months: 67.4% ► From 12 months to 24 months: 24.4% ► Over 24 months: 4.4% ► Fund mobilized from other financial institutions (mainly within 12 months): 3.8% Lending activities: Vietinbank determines lending interest rate based on the cost of funds, management expense plus targeted profit margin Branches apply the floor lending interest rate regulated by the Head office Since most of the funds mobilised by the Bank is short term (having maturity within 12 months), Vietinbank requires all medium and long term loans to have floating interest ► Medium and long-term loans’ interest rates equal to the 12 month interest rate plus/minus certain margin The Bank adjusts the interest rates every or 12 months basing on 12 month interest rate 97 VNDm - VNDm - - - Other liabilities (*) TOTAL LIABILITIES 1,325,384 (*) These items not include provision Interest rate risk Off balance sheet interest rate risk - - - - 1,278,702 - - Debts issued and other borrowed funds - - Valuable papers issued - 1,278,702 - Customers deposits and other amounts due to customers - - 1,278,702 - - - - 1,278,702 1,325,384 - Deposits and borrowings from other Banks Balance sheet interest rate risk - Borrowings from the MOF and SBV LIABILITIES 1,325,384 Other assets TOTAL ASSETS - Fixed assets and investment real estates 1,325,384 Loans to customers (*) - - - - Trading securities (*) Derivatives and other financial assets Long term investments - - Investments in securities - - Balances with the SBV Placements with and loans to other credit institutions - - - Cash and cash equivalents ASSETS Over due Over due Over due over less than motnhs motnhs 38 INTEREST RATE RISKS (continued) 1,980,016 - 1,980,016 - - - - - - - 1,980,016 - - - - - - - - - 1,980,016 VNDm Non bearing interest (37,890,667) - (37,890,667) 69,251,581 - 1,513,409 2,917,253 62,186,555 1,968,678 665,686 31,360,914 - - - 6,508,858 4,306,773 86,810 - 14,447,749 6,010,724 - VNDm Due within month 3,094,430 - 3,094,430 48,735,922 3,038,576 985,116 10,478,410 32,177,095 2,056,725 - 51,830,352 4,019,707 - - 6,262,750 38,131,995 - 109,400 3,306,500 - - VNDm From – motnhs 32,226,105 - 32,226,105 48,792,628 2,888,144 960,596 12,775,428 27,270,816 4,799,307 98,337 81,018,733 - - - 8,371,860 71,439,746 - 687,527 519,600 - - VNDm From 3- 12 motnhs In due 9,152,300 - 9,152,300 14,139,671 87,402 - 14,046,615 - - 5,654 23,291,971 - 1,995,515 - 17,026,983 4,269,473 - - - - - VNDm From – years 3,550,904 - 3,550,904 145,448 145,448 - - - - - 3,696,352 - - 907,724 2,788,628 - - - - - - VNDm Over months 14,717,174 - 14,717,174 181,065,250 6,159,570 3,459,121 40,217,706 121,634,466 8,824,710 769,677 195,782,424 4,019,707 1,995,515 907,724 40,959,079 120,752,073 86,810 796,927 18,273,849 6,010,724 1,980,016 VNDm Total Annual Report 2008 VietinBank 98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 39 GEOGRAPHICAL DENSITY OF ASSETS, LIABILITIES AND OFF-BALANCE SHEET ITEMS Derivatives (Total transaction values per contracts VNDm) Trading and investment in securities VNDm Total loan balance VNDm Domestic Total deposit VNDm Credit commitments VNDm 121,152,073 14,332,663 7,399,770 86,810 41,756,006 - 3,541,186 8,533,158 - - Oversea 40 CAPITAL AND OPERATING LEASE COMMITMENTS 2008 VNDm Capital commitments: premises construction, and equipment acquisition Capital commitments: equity investments Non-cancelable operating lease commitments 2007 VNDm 401,155 90,498 24,878 33,000 168,825 67,448 47,198 11,071 103,220 43,274 18,407 13,103 Of which: - due within one year - due from two to five years - due after five years 41 EVENTS AFTER BALANCE SHEET DATE Other than as disclosed in Note about the equitization and initial public offering, at the date of this report, there were no events which occurred subsequent to 31 December 2008 that might significantly impact to the financial position of the Bank as at 31 December 2008 99 VietinBank Annual Report 2008 100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) as at and for the year ended 31 December 2008 42 EXCHANGE RATES OF APPLICABLE FOREIGN CURRENCIES AGAINST VIETNAMESE DONG AT YEAR-END 31/12/2008 VND 31/12/2007 VND USD 16,977 16,114 EUR 24,447 23,484 GBP 24,992 31,816 CHF 16,373 14,171 JPY 191,56 142,15 SGD 12,038 11,033 CAD 14,221 16,267 AUD 11,949 14,016 NZD 9,989 12,347 THB 458,42 422,58 SEK 2,241 2,496 NOK 2,481 2,956 DKK 3,281 3,153 HKD 2,232 2,045 Currency Prepared by: Approved by: Approved by: Mr Dinh Quoc Tuan Head of Accounting Department Mr Nguyen Van Chung Chief Accountant Mr Nguyen Van Thanh Deputy General Director Hanoi, Vietnam 20 May 2009 ... at and for the year ended 31 December 2008 CORPORATE INFORMATION V ietnam Bank for Industry and Trade (herein referred to as ? ?VietinBank? ?? or “the Bank? ??) is a Vietnamese stateowned commercial bank. .. the Vietnam Joint Stock Commercial Bank for Industry and Trade The State Bank of Vietnam will assign representatives for the State ownership and participate in the Board of Directors of the Bank. .. Accountant Annual Report 2008 VietinBank Milestones of Success in 2008 The launching of new brand name ? ?VietinBank? ?? in replacement of the former name “Incombank” On 15th April 2008, the new brand name