Q2 2016 www.bmiresearch.com VIETNAM COMMERCIAL BANKING REPORT INCLUDES 5-YEAR FORECASTS TO 2020 Published by:BMI Research Vietnam Commercial Banking Report Q2 2016 INCLUDES 5-YEAR FORECASTS TO 2020 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: February 2016 ISSN: 1758-454X 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 © 2016 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 2016 CONTENTS BMI Industry View Table: Commercial Banking Sector Indicators Table: Commercial Banking Sector Key Ratios, July 2015 Table: Annual Growth Rate Projections 2015-2020 (%) Table: Ranking Out Of 75 Countries Reviewed In 2016 Table: Commercial Banking Sector Indicators, 2013-2020 SWOT Commercial Banking Political 10 Economic 11 Operational Risk 13 Industry Forecast 15 Industry Trend Analysis 15 Commercial Banking Risk/Reward Index 19 Asia Commercial Banking Risk/Reward Index 19 Table: Asia Commercial Banking Risk/Reward Index 20 Market Overview 21 Asia Commercial Banking Outlook 21 Table: Banks' Bond Portfolios, 2014 21 Table: Comparison Of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2016 21 Table: Comparison Of Total Assets & Client Loans & Client Deposits (USDbn) 22 Table: Comparison Of USD Per Capita Deposits, 2016 23 Economic Analysis 24 Table: Economic Activity (Vietnam 2010-2019) 27 Competitive Landscape 28 Market Structure 28 Protagonists 28 Table: Protagonists In Vietnam's Commercial Banking Sector 28 Definition Of The Commercial Banking Universe 28 List Of Banks 29 Table: Financial Institutions In Vietnam 29 Company Profile 31 Agribank 31 Table: Balance Sheet (VNDmn) 33 Table: Balance Sheet (USDmn) 33 Table: Key Ratios (%) 33 Bank for Foreign Trade of Vietnam (Vietcombank) 34 Table: Stock Market Indicator 36 © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2016 Table: Balance Sheet (VNDmn) 37 Table: Balance Sheet (USDmn) 37 Table: Key Ratios (%) 37 Eximbank 38 Table: Stock Market Indicators 40 Table: Balance Sheet (VNDmn) 40 Table: Balance Sheet (USDmn) 40 Table: Key Ratios (%) 41 Sacombank 42 Table: Stock Market Indicators 44 Table: Balance Sheet (VNDmn) 44 Table: Balance Sheet (USDmn) 44 Table: Key Ratios (%) 45 VietinBank 46 Table: Stock Market Indicators 48 Table: Balance Sheet (VNDmn) 48 Table: Balance Sheet (USDmn) 49 Table: Key Ratios (%) 49 Regional Overview 50 Asia Overview 50 Global Industry Overview 56 Global Commercial Banking Overview 56 Regional Outlooks 56 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 2016 BMI Industry View Table: Commercial Banking Sector Indicators Total assets Client loans Bond portfolio Other Liabilities and capital July 2014, VNDbn 4,768,792.0 3,582,140.0 763,184.0 423,468.0 July 2015, VNDbn 5,546,103.4 4,264,823.4 816,150.4 16.3% 19.1% July 2014, USDbn 224.6 July 2015, USDbn Date % change yo-y % change yo-y Client deposits Other 4,768,792.0 651,755.0 4,121,214.0 -4,177.0 465,129.5 5,546,103.4 676,583.8 4,740,553.1 128,966.5 6.9% 9.8% 16.3% 3.8% 168.7 35.9 19.9 224.6 30.7 194.1 -0.2 254.2 195.5 37.4 21.3 254.2 31.0 217.3 5.9 13.2% 15.9% 4.1% 6.9% 13.2% 1.0% Capital 15.0% -3187.5% 11.9% -3104.8% Source: BMI; Central banks; Regulators Table: Commercial Banking Sector Key Ratios, July 2015 Loan/deposit ratio Loan/asset ratio Loan/GDP ratio GDP Per Capita, USD Deposits per capita, USD 89.96% 76.90% 103.91% 2,037.5 2,335.8 Rising Falling Rising n.a n.a na = not available Source: BMI; Central banks; Regulators Table: Annual Growth Rate Projections 2015-2020 (%) Assets Loans Deposits Annual Growth Rate 10 CAGR 11 Ranking 21 27 45 Source: BMI; Central banks; Regulators © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2016 Table: Ranking Out Of 75 Countries Reviewed In 2016 Loan/deposit ratio Loan/asset ratio Loan/GDP ratio 13 17 Local currency asset growth Local currency loan growth Local currency deposit growth 19 22 33 Source: BMI; Central banks; Regulators Table: Commercial Banking Sector Indicators, 2013-2020 2013 Total assets, VNDbn Total assets, USDbn Client loans, VNDbn Client loans, USDbn Client deposits, VNDbn Client deposits, USDbn 2014 2015e 2016f 2017f 2018f 2019f 2020f 4,498,815.9 5,209,740.0 5,887,006.2 6,593,446.9 7,318,726.1 8,123,786.0 8,963,243.9 9,869,527.4 213.3 243.6 256.0 286.7 321.0 359.5 400.1 444.6 3,469,680.0 3,949,680.0 4,384,144.8 4,822,559.3 5,256,589.6 5,729,682.7 6,207,156.2 6,710,625.6 164.5 184.7 190.6 209.7 230.6 253.5 277.1 302.3 3,388,500.7 3,693,465.8 3,988,943.0 4,268,169.1 4,524,259.2 4,795,714.8 5,051,486.2 5,309,673.3 160.6 172.7 173.4 185.6 198.4 212.2 225.5 239.2 e/f = estimate/forecast Source: BMI; Central banks; Regulators © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2016 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 gradually 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 under-banked 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 2016 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 coming years The one-party 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 © Business Monitor International Ltd Page 10 Vietnam Commercial Banking Report Q2 2016 Only Mexico Will Outpace Its Previous Performance Latin America - Average Loan Growth, % chg Note: 2015 = BMI estimate, 2016-2020 = BMI forecasts; Source: Respective banking authorities, BMI Latin America: Asset and loan growth will remain sluggish across the majority of Latin American economies over the coming years Colombia and Mexico face a deceleration in these metrics and while Peru, Chile and Brazil are poised to see a modest rebound in loan growth in year-on-year terms, the pace of credit expansion will be considerably below that seen during the last decade Indeed, of the major Latin American economies, only Mexico will see an acceleration in average loan growth in the coming five years compared to the last decade The commodity bust will weigh on economic growth and elevated inflation will prompt further monetary tightening, raising the cost of capital A weak external environment will prompt a moderate deterioration in asset quality, though we see limited systemic risk given strong capital buffers in most banking sectors Brazil stands out as facing the most significant risk of asset quality deterioration © Business Monitor International Ltd Page 59 Vietnam Commercial Banking Report Q2 2016 Hungary And Slovenia Still At Risk Of Bad Loans Europe - Banking Sector Non-Performing Loan (NPL) Ratios, % Of Total Loan Book Note: Q1-Q315 Data Source: Respective central banks, IMF, BMI Emerging Europe: Central European (CE) banking sectors will benefit from accommodating macro backdrops in 2016 An accelerating private consumption-led economic growth story will include an uptick in credit demand and bank profits in Romania, the Czech Republic, and Slovakia The loan growth outlook remains solid in Poland, where we forecast a 10.5% expansion in credit in 2016, despite an increasingly uncertain political environment Slovenia and Hungary will miss out on the positive CE banks story In Hungary, the outlook remains relatively poor, in spite of the country's strong economic growth outlook, with high NPLs holding back loan growth The Slovenian banking sector's recovery will trail behind the macroeconomic recovery, due to ongoing asset quality issues which have yet to be fully resolved Poor macroeconomic backdrops will weigh on the outlook for the Turkish and Russian banking sectors in 2016 and 2017 © Business Monitor International Ltd Page 60 Vietnam Commercial Banking Report Q2 2016 GCC Slowdown In Early Stages GCC - Client Loans, % chg y-o-y Source: BMI, respective central banks Middle East and North Africa: The Gulf Cooperation Council (GCC)'s banking sector is facing the strongest headwinds since the global financial crisis as a combination of drawdowns in government deposits, reduction in capital expenditure projects, and the resultant tightening in liquidity take hold Overall, we forecast aggregate credit to expand by only 6.0% in 2016, which, while still significant, is well below the annualised 11.4% recorded between 2011 and 2015 The removal of sanctions on Iran presents perhaps the most exciting overseas opportunity for regional banks in years, although it will be primarily limited to the UAE, Oman and Qatar for political reasons © Business Monitor International Ltd Page 61 Vietnam Commercial Banking Report Q2 2016 The Downsides Of Cross-Border Activity In Africa Selected South Africa Banks: Assets By Country, 2013, % Of GDP Source: IMF Sub-Saharan Africa: A Chinese hard landing would result in bearish domestic fundamentals in South Africa and Nigeria, which would weigh on the profit margins and deposit growth of South African and Nigerian banks Nigerian banks are less sensitive to global conditions than South African banks, but we would expect them to be affected by the same developments, albeit to a lesser extent Just as South African banks are already coping with the risk of a sovereign downgrade to junk before any Chinese hard landing, the Nigerian banking sector is facing challenges on multiple fronts, having to contend not only with a slowing economy and a bleak outlook for the oil sector - the primary business for Nigerian banks - but also unorthodox central bank policies and interference The recent rise in the cross-border activity of South African and Nigerian banks within Sub-Saharan Africa implies increased systemic risks for the region © Business Monitor International Ltd Page 62 Vietnam Commercial Banking Report Q2 2016 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 2016 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 68,209 80,285 84,203 88,357 93,447 98,156 102,092 na 1.1 0.9 1.0 1.1 0.9 0.7 Population, total, male, '000 33,583 39,551 41,469 43,626 46,224 48,590 50,510 Population, total, female, '000 34,625 40,734 42,734 44,730 47,223 49,566 51,581 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) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 38,808 49,712 55,795 61,655 65,572 67,775 69,459 56.9 61.9 66.3 69.8 70.2 69.0 68.0 29,401 30,573 28,408 26,702 27,875 30,381 32,633 75.8 61.5 50.9 43.3 42.5 44.8 47.0 Page 64 Vietnam Commercial Banking Report Q2 2016 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,494 25,416 22,866 20,919 21,576 22,487 22,335 65.7 51.1 41.0 33.9 32.9 33.2 32.2 3,907 5,157 5,542 5,783 6,298 7,893 10,298 10.1 10.4 9.9 9.4 9.6 11.6 14.8 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 13,815.9 19,568.8 22,971.6 26,853.7 31,391.9 36,120.7 40,780.9 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.8 39.9 54,393.7 60,716.8 61,232.2 61,504.1 62,055.7 62,036.0 61,311.7 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.2 60.1 Life expectancy at birth, male, years 66.0 68.4 69.3 70.2 71.2 72.1 73.1 Life expectancy at birth, female, years 75.1 78.1 79.2 80.0 80.6 81.1 81.6 Life expectancy at birth, average, years 70.5 73.3 74.3 75.1 75.9 76.7 77.4 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 9,211 7,244 6,751 7,265 7,740 7,601 7,108 Population, 5-9 yrs, total, '000 8,512 9,119 7,130 6,648 7,221 7,698 7,562 Population, 10-14 yrs, total, '000 7,769 9,052 8,983 7,005 6,614 7,187 7,664 Population, 15-19 yrs, total, '000 7,277 8,401 8,941 8,877 6,972 6,583 7,156 Population, 20-24 yrs, total, '000 6,570 7,610 8,242 8,764 8,803 6,908 6,522 Population, 25-29 yrs, total, '000 5,938 7,019 7,408 8,022 8,664 8,705 6,823 Population, 30-34 yrs, total, '000 5,079 6,300 6,863 7,223 7,932 8,572 8,616 Population, 35-39 yrs, total, '000 3,842 5,746 6,190 6,718 7,146 7,850 8,488 Population, 40-44 yrs, total, '000 2,447 4,938 5,663 6,096 6,640 7,065 7,766 Population, 45-49 yrs, total, '000 2,003 3,710 4,880 5,592 6,004 6,543 6,968 © Business Monitor International Ltd Page 65 Vietnam Commercial Banking Report Q2 2016 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,956 2,331 3,658 4,801 5,467 5,875 6,410 Population, 55-59 yrs, total, '000 2,033 1,873 2,223 3,501 4,625 5,275 5,681 Population, 60-64 yrs, total, '000 1,658 1,779 1,723 2,055 3,314 4,392 5,023 Population, 65-69 yrs, total, '000 1,402 1,759 1,599 1,551 1,894 3,066 4,081 Population, 70-74 yrs, total, '000 1,021 1,313 1,520 1,390 1,369 1,682 2,739 Population, 75-79 yrs, total, '000 747 977 1,073 1,254 1,158 1,150 1,424 Population, 80-84 yrs, total, '000 426 593 726 809 957 893 895 Population, 85-89 yrs, total, '000 221 334 382 479 541 649 613 Population, 90-94 yrs, total, '000 70 131 176 208 265 305 370 Population, 95-99 yrs, total, '000 15 40 52 73 88 114 133 Population, 100+ yrs, total, '000 11 16 23 30 39 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 13.50 9.02 8.02 8.22 8.28 7.74 6.96 Population, 5-9 yrs, % total 12.48 11.36 8.47 7.52 7.73 7.84 7.41 Population, 10-14 yrs, % total 11.39 11.28 10.67 7.93 7.08 7.32 7.51 Population, 15-19 yrs, % total 10.67 10.46 10.62 10.05 7.46 6.71 7.01 Population, 20-24 yrs, % total 9.63 9.48 9.79 9.92 9.42 7.04 6.39 Population, 25-29 yrs, % total 8.71 8.74 8.80 9.08 9.27 8.87 6.68 Population, 30-34 yrs, % total 7.45 7.85 8.15 8.18 8.49 8.73 8.44 Population, 35-39 yrs, % total 5.63 7.16 7.35 7.60 7.65 8.00 8.31 Population, 40-44 yrs, % total 3.59 6.15 6.73 6.90 7.11 7.20 7.61 Population, 45-49 yrs, % total 2.94 4.62 5.80 6.33 6.43 6.67 6.83 Population, 50-54 yrs, % total 2.87 2.90 4.34 5.43 5.85 5.99 6.28 Population, 55-59 yrs, % total 2.98 2.33 2.64 3.96 4.95 5.37 5.57 Population, 60-64 yrs, % total 2.43 2.22 2.05 2.33 3.55 4.47 4.92 Population, 65-69 yrs, % total 2.06 2.19 1.90 1.76 2.03 3.12 4.00 Population, 70-74 yrs, % total 1.50 1.64 1.81 1.57 1.47 1.71 2.68 Population, 75-79 yrs, % total 1.10 1.22 1.27 1.42 1.24 1.17 1.40 Population, 80-84 yrs, % total 0.63 0.74 0.86 0.92 1.02 0.91 0.88 © Business Monitor International Ltd Page 66 Vietnam Commercial Banking Report Q2 2016 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.33 0.42 0.45 0.54 0.58 0.66 0.60 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.28 0.31 0.36 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.09 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 2016 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 2016 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 2016 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) provides 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 RRI system is divided into two distinct areas: Rewards: Evaluation of a 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 score 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 score is revised on a quarterly basis This ensures that the score 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 2016 In constructing these index scores, the following indicators have been used Almost all indicators are objectively based Table: Commercial Banking Risk/Reward Index Indicators Rationale Industry Rewards Estimated total assets, 2015 Indication of overall sector attractiveness Large markets are considered more attractive than small ones Estimated growth in total assets, 2015-2019 Indication of growth potential The greater the likely absolute growth in total assets, the higher the score Estimated growth in client loans, 2015-2019 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 2016 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 [...]... cooperation Definition Of The Commercial Banking Universe The Vietnamese banking association currently has 53 members, including 39 commercial banks, two joint venture banks, and 11 finance companies © Business Monitor International Ltd Page 28 Vietnam Commercial Banking Report Q2 2016 List Of Banks Table: Financial Institutions In Vietnam COMMERCIAL BANKS Vietnam Joint Stock Commercial Bank for Industry... Monitor International Ltd Page 27 Vietnam Commercial Banking Report Q2 2016 Competitive Landscape Market Structure Protagonists Table: Protagonists In Vietnam' s Commercial Banking Sector Central bank: State Bank of Vietnam (SBV) www.sbv.gov.vn/en/home The State Bank of Vietnam (SBV) is the successor to the Vietnam National Bank, which was established by the government of North Vietnam in 1951 From 1975 to... House Development Commercial Joint Stock Bank (HDBank) Military Commercial Joint-Stock Bank (MB) Vietnam International Commercial Joint-Stock Bank (VIB) Sai Gon Commercial Joint-Stock Bank (SCB) © Business Monitor International Ltd Page 29 Vietnam Commercial Banking Report Q2 2016 Financial Institutions In Vietnam - Continued Saigon Bank for Industry and Trade (Saigonbank) Sai Gon-Hanoi Commercial Joint-Stock... underscoring adequate capitalisation of Vietnam' s banking system © Business Monitor International Ltd Page 17 Vietnam Commercial Banking Report Q2 2016 Picking Up Again Vietnam - Domestic Credit Growth, % Source: BMI, SBV Kicking The Can Down The Road Despite all the positive developments in the banking sector, we believe that there are two underlying issues surrounding Vietnam' s bad debt problems that have... Vietnam Commercial Banking Report Q2 2016 SWOT Analysis - Continued • Vietnam' s reliance on imported oil poses risks in the form of energy and fuel shortages • Corruption and inefficiency in the legal system • Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider political and social unrest © Business Monitor International Ltd Page 14 Vietnam Commercial Banking Report Q2 2016 Industry... INSTITUTIONS Deposit Insurance of Vietnam (DIV) Vietnam Development Bank (VDB) Source: VNBA (February 2016) , BMI © Business Monitor International Ltd Page 30 Vietnam Commercial Banking Report Q2 2016 Company Profile Agribank SWOT Analysis Strengths Weaknesses Opportunities ■ Established as one of the largest state-owned commercial banks ■ Massive branch network, especially in rural Vietnam ■ Improved rating... the banking sector will largely depend on the quality and profitability of its customers In Vietnam' s case, these customers are largely state-owned enterprises (SOEs), and attempts to reform and privatise these conglomerates (to improve efficiency and profitability) have not been particularly successful © Business Monitor International Ltd Page 18 Vietnam Commercial Banking Report Q2 2016 Commercial Banking. .. stable outlook Company Address Vietcombank (Bank For Foreign Trade of Vietnam) 198 Tran Quang Khai Hanoi © Business Monitor International Ltd Page 35 Vietnam Commercial Banking Report Q2 2016 Vietnam Description of Business: Leading commercial bank specialising project finance, trade finance, treasury, financial market and international banking services Phone: +84 (4) 825 1322 Fax: +84 (4) 826 9067 Email:... Bank of Vietnam (Techcombank) Kien Long Commercial Joint-Stock Bank (Kienlongbank) Nam A Commercial Joint-Stock Bank (NamA Bank) Nam Viet Commercial Joint-Stock Bank (Navibank) Western Commercial Joint-Stock Bank (Western Bank) Mekong Development Join-Stock Commercial Bank (MDBank) Orient Commercial Joint-Stock Bank (OCB) Southern Commercial Joint-Stock Bank (Southern Bank) Hanoi Building Commercial. . .Vietnam Commercial Banking Report Q2 2016 Economic SWOT Analysis Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 6.5% annually between 2000 and 2014 ■ The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 17.2% in 2012 ■ Vietnam has been ... Monitor International Ltd Page 18 Vietnam Commercial Banking Report Q2 2016 Commercial Banking Risk/Reward Index Asia Commercial Banking Risk/Reward Index Commercial Banking Risk/Reward Index Methodology... Regulators © Business Monitor International Ltd Page Vietnam Commercial Banking Report Q2 2016 SWOT Commercial Banking Vietnam Commercial Banking SWOT Strengths ■ Untapped market with potential... Page 27 Vietnam Commercial Banking Report Q2 2016 Competitive Landscape Market Structure Protagonists Table: Protagonists In Vietnam' s Commercial Banking Sector Central bank: State Bank of Vietnam