Q2 2015 www.bmiresearch.com VIETNAM COMMERCIAL BANKING REPORT INCLUDES 5-YEAR FORECASTS TO 2019 ISSN 1758-454X Published by:BMI Research Vietnam Commercial Banking Report Q2 2015 INCLUDES 5-YEAR FORECASTS TO 2019 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: February 2015 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2015 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Commercial Banking Report Q2 2015 CONTENTS BMI Industry View Table: Commercial Banking Sector Indicators Table: Commercial Banking Sector Key Ratios, October 2013 Table: Annual Growth Rate Projections 2013-2018 (%) Table: Ranking Out Of 73 Countries Reviewed In 2014 Table: Commercial Banking Sector Indicators, 2012-2019 SWOT Commercial Banking Political 10 Economic 11 Operational Risk 13 Industry Forecast 15 Economic Analysis 15 Industry Risk Reward Ratings 20 Asia Commercial Banking Risk/Reward Index 20 Table: Asia Commercial Banking Risk/Reward Index 21 Market Overview 22 Asia Commercial Banking Outlook 22 Table: Banks' Bond Portfolios, 2013 22 Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios, 2015 22 Table: Comparison of Total Assets & Client Loans & Client Deposits (USDbn) 23 Table: Comparison of USD Per Capita Deposits, 2015 24 Expecting Sustained Growth Momentum In 2015 25 Table: Economic Activity (Vietnam 2009-2018) 29 Competitive Landscape 30 Market Structure 30 Protagonists 30 Table: Protagonists In Vietnam's Commercial Banking Sector 30 Definition Of The Commercial Banking Universe 30 List Of Banks 31 Table: Financial Institutions In Vietnam 31 Company Profile 33 Agribank 33 Table: Balance Sheet (VNDmn) 35 Table: Balance Sheet (USDmn) 35 Table: Key Ratios (%) 35 Bank for Foreign Trade of Vietnam (Vietcombank) 36 Table: Stock Market Indicator 38 © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2015 Table: Balance Sheet (VNDmn) 38 Table: Balance Sheet (USDmn) 39 Table: Key Ratios (%) 39 Eximbank 40 Table: Stock Market Indicators 42 Table: Balance Sheet (VNDmn) 42 Table: Balance Sheet (USDmn) 42 Table: Key Ratios (%) 43 Sacombank 44 Table: Stock Market Indicators 46 Table: Balance Sheet (VNDmn) 46 Table: Balance Sheet (USDmn) 46 Table: Key Ratios (%) 47 VietinBank 48 Table: Stock Market Indicators 50 Table: Balance Sheet (VNDmn) 50 Table: Balance Sheet (USDmn) 51 Table: Key Ratios (%) 51 Regional Overview 52 Asia Overview 52 Global Industry Overview 56 Global Commercial Banking Outlook EM External Corporate Debt A Potential Risk To Financial Stability Eurozone and US Banking Outlooks Emerging Market Regional Outlooks 56 56 58 58 Demographic Forecast 63 Table: Population Headline Indicators (Vietnam 1990-2025) 64 Table: Key Population Ratios (Vietnam 1990-2025) 64 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 65 Table: Population By Age Group (Vietnam 1990-2025) 65 Table: Population By Age Group % (Vietnam 1990-2025) 66 Methodology 68 Industry Forecast Methodology 68 Sector-Specific Methodology 69 Risk/Reward Index Methodology 70 Table: Commercial Banking Risk/Reward Index Indicators 71 Table: Weighting Of Indicators 72 © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2015 BMI Industry View Table: Commercial Banking Sector Indicators Total assets Date Client loans Bond portfolio Liabilities and capital Other Capital Client deposits Other October 2012, VNDbn 3,688,076 2,938,250 355,697 394,129 3,688,076 583,666 2,861,204 243,206 October 2013, VNDbn 4,257,985 3,309,020 502,944 446,021 4,257,985 636,710 3,580,465 40,810 % change y-o-y 15.5% 12.6% 41.4% 13.2% 15.5% 9.1% 25.1% -83.2% October 2012, USDbn 176.9 140.9 17.1 18.9 176.9 28.0 137.2 11.7 October 2013, USDbn 201.8 156.8 23.8 21.1 201.8 30.2 169.7 1.9 14.1% 11.3% 39.7% 11.8% 14.1% 7.8% 23.7% -83.4% % change y-o-y Source: BMI; Central banks; Regulators Table: Commercial Banking Sector Key Ratios, October 2013 Loan/deposit ratio Loan/asset ratio Loan/GDP ratio GDP Per Capita, USD Deposits per capita, USD 92.42% 77.71% 93.8% 2,007.2 1,853.9 Falling Falling Falling n.a n.a Source: BMI; Central banks; Regulators Table: Annual Growth Rate Projections 2013-2018 (%) Assets Loans Deposits Annual Growth Rate 10 CAGR 11 Ranking 23 28 46 Source: BMI; Central banks; Regulators © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2015 Table: Ranking Out Of 73 Countries Reviewed In 2014 Loan/deposit ratio Loan/asset ratio Loan/GDP ratio 15 17 Local currency asset growth Local currency loan growth Local currency deposit growth 18 22 30 Source: BMI; Central banks; Regulators Table: Commercial Banking Sector Indicators, 2012-2019 2012 Total assets, VNDbn Total assets, USDbn Client loans, VNDbn Client loans, USDbn Client deposits, VNDbn Client deposits, USDbn 2013 2014e 2015f 2016f 2017f 2018f 2019f 3,917,557 4,466,015 5,091,257 5,753,121 6,443,495 7,152,280 7,939,030 8,759,397 188.0 211.7 238.0 267.0 301.8 338.2 379.0 422.1 3,077,700 3,447,024 3,860,667 4,285,340 4,713,874 5,138,123 5,600,554 6,067,267 147.7 163.4 180.5 198.9 220.8 242.9 267.3 292.4 3,080,455 3,388,501 3,693,466 3,988,943 4,268,169 4,524,259 4,795,715 5,051,486 147.8 160.6 172.7 185.1 199.9 213.9 228.9 243.4 e/f = estimate/forecast Source: BMI; Central banks; Regulators © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2015 SWOT Commercial Banking Vietnam Commercial Banking SWOT Strengths ■ Untapped market with potential for increased participation of foreign banks ■ Large population with a high savings rate and potential for income growth ■ The Vietnamese government aims to speed up the process of privatising state-owned banks, which will help modernise the industry ■ State-owned banks will play a lesser role going forward, and the risks associated with state-directed lending will decrease over time Weaknesses ■ Domestic banks continue to lag behind their foreign peers in terms of financial strength and the technological curve ■ Accounting standards lag behind international standards and the lack of transparency entails significant risks for foreign investors ■ Small banks have an overwhelming exposure to real estate and individual loans, resulting in highly skewed and risky loan portfolios Opportunities ■ The country remains one of the most underbanked in the region, with significant potential for adopting cash-free payment systems and new mobile banking technologies ■ Rising income levels and deepening capital markets could give rise to opportunities in more sophisticated financial products and growth for the local asset management industry Threats ■ Track record of macroeconomic instability threatens the credibility of the government and could potentially drive economic policy away from further liberalisation ■ The high level of government debt risks triggering a fiscal crisis, undermining confidence in the banking sector © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2015 Political SWOT Analysis Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and we not expect major shifts in policy direction over the next five years The oneparty system is generally conducive to short-term political stability ■ Relations with the US have witnessed a marked improvement, and Washington sees Hanoi as a potential geopolitical ally in South East Asia Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party ■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has acted to clamp down on graft among party officials ■ Vietnam has allowed legislators to become more vocal in criticising government policies This is opening up opportunities for more checks and balances within the one-party system Threats ■ Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable ■ Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause wide-scale environmental damage © Business Monitor International Ltd Page 10 Vietnam Commercial Banking Report Q2 2015 We hold a largely positive outlook for the banking sector in Asia While an economic slowdown in China and ongoing weakness in the Japanese economy will act as headwinds to regional loan expansion, we nevertheless continue to see immense opportunities for banking sector revenue growth in the region over the coming years Countries that have low banking sector penetration rates still have substantial room for continued loan expansion India, Indonesia, the Philippines, as well as frontier markets like Bangladesh and Sri Lanka, have banking penetration rates that are below the regional average In particular, we are optimistic about the loan growth prospects in India, Indonesia and the Philippines As regards regional banks, ongoing economic integration within ASEAN will also provide significant growth opportunities Growth Potential In Countries With Low Banking Penetration Rates Asia - Total Banking Assets By Countries, % Of GDP Source: Central Banks, Banking Supervisory Boards, BMI Things are not so rosy for banks in the Middle East and North Africa region following the dramatic fall in oil prices over recent months We believe Gulf Cooperation Council (GCC) banks are fundamentally stable as governments continue with infrastructure programmes, however, there will be a slight decline in liquidity due to a slowdown in deposits The outlook for Iran is concerning given elevated fiscal deficits and a far weaker economic backdrop On a positive note, however, we believe that in Morocco and Egypt, lower oil © Business Monitor International Ltd Page 59 Vietnam Commercial Banking Report Q2 2015 prices will bolster consumers' spending power and improve liquidity in the banking sector through deposit growth Crowding Out Risks To Fade In Egypt MENA - Government Securities Held By Banking Sector, % of Total Assets Source: BMI, respective central banks In Central and Eastern Europe, the banking sector has been shaken by the shock move by the Swiss National Bank (SNB) to remove the EURCHF ceiling on Jan 16 Although the impact should be relatively contained and systemic risks are low, there will be anegative impact on several countries, with Poland the worst affected In Poland, 37% of the housing loan portfolio is comprised of CHF-denominated loans The removal of the Swiss ceiling has seen the CHFPLN cross-rate decrease by around 20%, which will increase debt servicing costs on these loans However, we not believe recent events pose a systemic risk to Poland or its banking sector for several reasons Firstly, the borrower profile of CHF mortgagors is much stronger than average Furthermore, the Polish mortgage market is still quite small relative to the economy by developed market standards © Business Monitor International Ltd Page 60 Vietnam Commercial Banking Report Q2 2015 Significant CHF Exposure Poland - House Loans By Currency, % Source: NBP, BMI In Latin America, weak economic activity and muted consumer and business confidence will negatively affect demand for credit in most economies over the coming years Moreover, interest rates have bottomed in several economies and will head higher in the quarters ahead These factors will lead to slower asset and loan growth across the region through 2019, even as rising incomes and a large unbanked population offer room for significant expansion over a longer-term time horizon Despite slower growth, systemic risk in Latin America's commercial banking sector will remain low, as banks are well placed to absorb unforeseen external shocks or deterioration in asset quality Mexico's commercial banking sector stands out as a bright spot within Latin America Financial sector reform passed in 2014 will increase competition between banks beginning this year © Business Monitor International Ltd Page 61 Vietnam Commercial Banking Report Q2 2015 Mexico Bucking The Trend Latin America - Average Asset Growth, % chg y-o-y e/f = BMI estimate/forecast; Source: Respective banking authorities, BMI Key banking sectors in Sub-Saharan Africa will experience a notable slowdown over the next few years, but the region will also offer the most exciting growth stories globally over the same period Although categorising regional trends is difficult, we believe East Africa is the most attractive region from a growth and profitability perspective, whereas some of the key West African banking sectors will experience much weaker growth, albeit for different reasons Southern Africa is more mixed, with bright spots in Zambia and Namibia overshadowed by persistent structural issues in Zimbabwe and weak growth in South Africa © Business Monitor International Ltd Page 62 Vietnam Commercial Banking Report Q2 2015 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050 The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 63 Vietnam Commercial Banking Report Q2 2015 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,909 80,887 84,947 89,047 93,386 97,057 99,811 na 1.1 0.9 1.0 0.9 0.7 0.5 Population, total, male, '000 33,892 39,827 41,830 43,970 46,158 47,980 49,302 Population, total, female, '000 35,017 41,060 43,117 45,077 47,228 49,076 50,508 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) 1990 Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 2000 2005 2010 2015f 2020f 2025f 39,197 50,153 56,330 62,305 66,093 68,401 70,001 56.9 62.0 66.3 70.0 70.8 70.5 70.1 29,712 30,733 28,617 26,741 27,292 28,655 29,810 75.8 61.3 50.8 42.9 41.3 41.9 42.6 Page 64 Vietnam Commercial Banking Report Q2 2015 Key Population Ratios (Vietnam 1990-2025) - Continued 1990 2005 2010 2015f 2020f 2025f 25,778 25,543 23,038 20,918 20,950 20,690 19,395 65.8 50.9 40.9 33.6 31.7 30.2 27.7 3,934 5,190 5,578 5,823 6,342 7,964 10,414 10.0 Youth population, total, '000 2000 10.3 9.9 9.3 9.6 11.6 14.9 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,957.7 19,715.6 23,174.6 27,064.2 31,383.5 35,771.3 40,027.3 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.9 40.1 54,952.2 61,172.3 61,773.2 61,983.2 62,003.1 61,285.7 59,783.9 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.1 59.9 Life expectancy at birth, male, years 66.1 69.0 69.9 70.7 71.7 72.7 73.7 Life expectancy at birth, female, years 75.1 78.5 79.6 80.2 80.7 81.2 81.7 Life expectancy at birth, average, years 70.6 73.8 74.8 75.5 76.2 77.0 77.8 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,314 7,127 6,897 7,228 7,012 6,574 5,922 Population, 5-9 yrs, total, '000 8,606 9,253 7,023 6,790 7,180 6,968 6,535 Population, 10-14 yrs, total, '000 7,856 9,162 9,117 6,898 6,757 7,147 6,936 Population, 15-19 yrs, total, '000 7,359 8,492 9,050 9,011 6,865 6,725 7,116 Population, 20-24 yrs, total, '000 6,644 7,672 8,332 8,873 8,936 6,802 6,664 Population, 25-29 yrs, total, '000 6,005 7,065 7,470 8,111 8,772 8,837 6,717 Population, 30-34 yrs, total, '000 5,138 6,351 6,909 7,285 8,021 8,680 8,747 Population, 35-39 yrs, total, '000 3,888 5,803 6,241 6,763 7,207 7,939 8,596 Population, 40-44 yrs, total, '000 2,462 4,994 5,719 6,147 6,684 7,127 7,856 Population, 45-49 yrs, total, '000 2,016 3,753 4,935 5,647 6,054 6,588 7,031 © Business Monitor International Ltd Page 65 Vietnam Commercial Banking Report Q2 2015 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,968 2,345 3,699 4,855 5,521 5,926 6,457 Population, 55-59 yrs, total, '000 2,045 1,885 2,237 3,541 4,677 5,330 5,733 Population, 60-64 yrs, total, '000 1,668 1,790 1,734 2,068 3,352 4,443 5,079 Population, 65-69 yrs, total, '000 1,411 1,770 1,609 1,562 1,906 3,104 4,134 Population, 70-74 yrs, total, '000 1,027 1,322 1,530 1,399 1,379 1,695 2,776 Population, 75-79 yrs, total, '000 752 984 1,080 1,263 1,166 1,159 1,437 Population, 80-84 yrs, total, '000 429 596 731 814 964 900 903 Population, 85-89 yrs, total, '000 223 336 385 482 545 653 617 Population, 90-94 yrs, total, '000 71 132 177 209 267 306 372 Population, 95-99 yrs, total, '000 15 40 52 74 89 115 133 Population, 100+ yrs, total, '000 11 16 23 30 38 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.52 8.81 8.12 8.12 7.51 6.77 5.93 Population, 5-9 yrs, % total 12.49 11.44 8.27 7.63 7.69 7.18 6.55 Population, 10-14 yrs, % total 11.40 11.33 10.73 7.75 7.24 7.36 6.95 Population, 15-19 yrs, % total 10.68 10.50 10.65 10.12 7.35 6.93 7.13 Population, 20-24 yrs, % total 9.64 9.49 9.81 9.97 9.57 7.01 6.68 Population, 25-29 yrs, % total 8.72 8.73 8.79 9.11 9.39 9.11 6.73 Population, 30-34 yrs, % total 7.46 7.85 8.13 8.18 8.59 8.94 8.76 Population, 35-39 yrs, % total 5.64 7.17 7.35 7.60 7.72 8.18 8.61 Population, 40-44 yrs, % total 3.57 6.17 6.73 6.90 7.16 7.34 7.87 Population, 45-49 yrs, % total 2.93 4.64 5.81 6.34 6.48 6.79 7.04 Population, 50-54 yrs, % total 2.86 2.90 4.36 5.45 5.91 6.11 6.47 Population, 55-59 yrs, % total 2.97 2.33 2.63 3.98 5.01 5.49 5.74 Population, 60-64 yrs, % total 2.42 2.21 2.04 2.32 3.59 4.58 5.09 Population, 65-69 yrs, % total 2.05 2.19 1.90 1.75 2.04 3.20 4.14 Population, 70-74 yrs, % total 1.49 1.63 1.80 1.57 1.48 1.75 2.78 Population, 75-79 yrs, % total 1.09 1.22 1.27 1.42 1.25 1.20 1.44 Population, 80-84 yrs, % total 0.62 0.74 0.86 0.92 1.03 0.93 0.91 © Business Monitor International Ltd Page 66 Vietnam Commercial Banking Report Q2 2015 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.32 0.42 0.45 0.54 0.58 0.67 0.62 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.29 0.32 0.37 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.10 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 67 Vietnam Commercial Banking Report Q2 2015 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions, which allow us to forecast a variable using more than the variable's own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting We mainly use OLS estimators, and in order to avoid relying on subjective views and encourage the use of objective views, we use a 'general-to-specific' method BMI mainly uses a linear model, but simple nonlinear models, such as the log-linear model, are used when necessary During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models, BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account; ■ Testing the directional movement and magnitude of coefficients; ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); and ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Ltd Page 68 Vietnam Commercial Banking Report Q2 2015 Human intervention plays a necessary and desirable role in all of our industry forecasting Experience, expertise and knowledge of industry data and trends ensure analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Sector-Specific Methodology BMI's Commercial Banking Report series is closely integrated with our analysis of country risk, macroeconomic trends and financial markets The reports draw heavily on our extensive economic dataset, which includes up to 550 indicators per country, as well as our in depth view of each local market We collate our commercial banking databank from official sources (including central banks and regulators) wherever possible, and only fall back on secondary sources where all attempts to secure primary data have failed Company data is sourced, in the first instance, from company reports, with central bank, regulator or trade association data only used as a backup ■ The reports focus on total assets, client loans and client deposits ■ Total assets are analogous to the combined balance sheet assets of all commercial banks in a particular country They not incorporate the balance sheet of the central bank of the country in question ■ Client loans are loans to non-bank clients They include loans to public sector and state-owned enterprises However, they generally not include loans to governments, government (or nongovernment) bonds held or loans to central banks ■ Client deposits are deposits from the non-bank public They generally include deposits from public sector and state-owned enterprises However, they only include government deposits if these are significant ■ We take into account capital items and bond portfolios The former include shareholders funds, and subordinated debt that may be counted as capital The latter includes government and non-government bonds In quantifying the collective balance sheets of a particular country, we assume that three equations hold true: ■ Total assets = total liabilities and capital; ■ Total assets = client loans + bond portfolio + other assets; ■ Total liabilities and capital = capital items + client deposits + other liabilities In terms of the equations, other assets and other liabilities are balancing items that ensure equations two and three can be reconciled with equation one In practice, other assets and other liabilities are analogous to inter-bank transactions In some cases, such transactions are generally with foreign banks In most countries for which we have compiled figures, building societies/thrifts are an insignificant part of the banking landscape, and we not include them in our figures The US is the main exception to this © Business Monitor International Ltd Page 69 Vietnam Commercial Banking Report Q2 2015 In some cases, total assets and client loans include significant amounts that are owned or that have been lent to customers in another country In some cases, client deposits include significant amounts that have been deposited by residents of another country Such cross-border business is particularly important in major financial centres such as Singapore and Hong Kong, the richer OECD countries and certain countries in Central and Eastern Europe Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development This is further broken down into two sub categories: ■ Industry Rewards This is an industry-specific category that takes into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors ■ Country Rewards This is a country-specific category, and the score factors in favourable political and economic conditions for the industry Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period This is further broken down into two sub categories: ■ Industry Risks This is an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market ■ Industry Risks This is a country-specific category in which political and economic instability, legislation and overall business environment are evaluated to provide an overall score We take a weighted average, combining industry and country risks, or industry and country rewards These two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall risk/reward index rating a weighted average of the total score Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts © Business Monitor International Ltd Page 70 Vietnam Commercial Banking Report Q2 2015 In constructing these ratings, the following indicators have been used Almost all indicators are objectively based Table: Commercial Banking Risk/Reward Index Indicators Industry Rewards Rationale Estimated total assets, 2014 Indication of overall sector attractiveness Large markets are considered more attractive than small ones Estimated growth in total assets, 2014-2018 Indication of growth potential The greater the likely absolute growth in total assets, the higher the score Estimated growth in client loans, 2014-2018 Indication of the scope for expansion in profits through intermediation Country Rewards GDP per capita A proxy for wealth High-income states receive better scores than low-income states Active population Those aged 16-64 in each state, as a % of total population A high proportion suggests that the market is comparatively more attractive Corporate tax A measure of the general fiscal drag on profits GDP volatility Standard deviation of growth over seven-year economic cycle A proxy for economic stability Risks Industry risks Regulatory framework and industry development Subjective evaluation of de facto/de jure regulations on overall development of the banking sector Regulatory framework and competitive environment Subjective evaluation of the impact of the regulatory environment on the competitive landscape Country Risks Short-term financial risk Rating from BMI's Country Risk Ratings (CRR), evaluating currency volatility Policy continuity Rating from CRR, evaluating the risk of a sharp change in the broad direction of government policy Legal framework Rating from CRR, to denote strength of legal institutions in each state Security of investment can be a key risk in some emerging markets Bureaucracy Rating from CRR to denote ease of conducting business in the state Source: BMI © Business Monitor International Ltd Page 71 Vietnam Commercial Banking Report Q2 2015 Weighting Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight Consequently, the following weights have been adopted: Table: Weighting Of Indicators Component Rewards Weighting, % 70, of which Industry Rewards 60 Country Rewards 40 Risks 30, of which Industry Risks 40 Country Risks 60 Source: BMI © Business Monitor International Ltd Page 72 Reproduced with permission of the copyright owner Further reproduction prohibited without permission ... Regulators © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2015 SWOT Commercial Banking Vietnam Commercial Banking SWOT Strengths ■ Untapped market with potential... Monitor International Ltd Page 19 Vietnam Commercial Banking Report Q2 2015 Industry Risk Reward Ratings Asia Commercial Banking Risk/Reward Index Commercial Banking Risk/Reward Index Methodology... Page 29 Vietnam Commercial Banking Report Q2 2015 Competitive Landscape Market Structure Protagonists Table: Protagonists In Vietnam'' s Commercial Banking Sector Central bank: State Bank of Vietnam