Professional Documents
Culture Documents
Chapter II
Current status of banking industry in Vietnam
2.1 Balance sheet compositions of Vietnamese Banks
A balance sheet (aka statement of condition, statement of financial position)
is a financial report that shows the value of a company's assets, liabilities, and
owner's equity at a specific period of time, usually at the end of an accounting
period, such as a quarter or a year. An asset is anything that can be sold for value.
Liability is an obligation that must eventually be paid, and, hence, it is a claim on
assets. The owner's equity in a bank is often referred to as bank capital, which is
what is left when all assets have been sold and all liabilities have been paid.
A bank uses liabilities to buy assets, which earns its income. By using
liabilities, such as deposits or borrowings, to finance assets, such as loans to
individuals or businesses, or to buy interest earning securities, the owners of the
bank can leverage their bank capital to earn much more than would otherwise be
possible using only the bank's capital.
Assets and liabilities are further distinguished as being either current or longterm. Current assets are assets expected to be sold or otherwise converted to cash
within 1 year; otherwise, the assets are long-term (aka noncurrent assets). Current
liabilities are expected to be paid within 1 year; otherwise, the liabilities are longterm (aka noncurrent liabilities)
Generally, working capital should be sufficient to meet current liabilities.
However, it should not be excessive, since capital in the form of long-term assets
usually has a higher return. The excess of the bank's long-term assets over its longterm liabilities is an indication of its solvency, its ability to continue as a going
concern.
Page |1
Charter Capital
Number of Banks
> VND 20 Trillion
4
VND 5 Trillion - VND 20 Trillion
16
VND 3.5 Trillion - VND 5 Trillion
9
< VND 3.5 Trillion
16
(Source: http://www.reuters.com/)
Key findings:
Loans are growing as a percentage of Total Banking Assets
Deposits from customers significantly increased in 2014
Interbank volume by the end of 2014 decreased in comparison to 2013
Group 2 banks are the most active in the interbank market
2.1.1 Banking asset
Chart 2.1.1.1. Vietnamese Banking sector assets in 2013 and 2014
(Source: Country Central Bank and data and published Annual Reports)
The three main components of banking sector assets as at 31 December 2014 were:
Loans and advances to customers 57%
Placements with and loans to other Fls 14%
Page |2
Page |3
As at 31 December 2014
* Refer table 2.1.1 for definition of Group 1, 2, 3 and 4
Total assets of Group 1 were nearly 50% of total assets of the 45 banks
included in the Appendix, Group 2 was above 35% and the balance was Group 3 and
4, together with 15%.
However, Group 2 banks are most active in the interbank lending market with
the portion of nearly 60% with the market share of Group 2 was 28%, less than half
of the market share of Group 1. This is understandable as banks of Group 1 have
been established for a long time and have large branch networks which help them
build successful customer relationships across the country.
Group 3 and 4 comprise 25 banks but account for only 13% of the total loans.
As at 31 December 2014
For investment securities, Group 1 and Group 2 had similar position with
market share of above 42%. It is therefore interesting to note that the asset mix of
Group 2 is heavily weighted towards invested assets, and less towards lending. This
investment in Government and Corporate bonds may be caused by some banks
accepting corporate bonds from some of its customers as an alternative to providing
additional loans. Additionally, low credit growth coupled with high deposit growth
has provided banks with additional liquidity which drove overnight interbank rates
to around 3%. Banks were looking for alternative investment opportunities and the
relative safety of Government bonds provided an attractive investment option. It is
interesting to note that Government bond yields were below the deposit rated offered
by Vietnamese banks for at least the last two years. Banks with excess liquidity
seemed content to pay high rates and re-invest in bonds until a pick-up in the
demand for credit.
Loan analysis
Key findings:
Corporate lending accounts for nearly half total loans
Nearly 25% of all lending is to the manufacturing and processing sector
Over 60% of all loans are less than one year tenor
Corporate lending accounted for nearly a half of the total loans outstanding.
Nearly 30% of loans outstanding are for retail customers and 16% are for
Page |5
As at 31 December 2014
Vietnamese banks' lending balance concentrates on manufacturing and
processing (24%) and trading and motor repairing (21%), then other industries
(19%), agriculture, forestry, and aquaculture & mining (12%) and construction
(10%).
Chart 2.1.1.5. Industry type - lending
As at 31 December 2014
In terms of tenor, more than 60% of loans outstanding are short term and this
portion increased 2% in comparison to 2013. The weaker economic conditions made
banks more conservative in giving long-term loans so that the long-term loans
decreased 4% from 26% of total loans in 2013 to 22% in 2014.
Page |6
As at 31 December 2014
Interbank activities
Key findings:
Increase in customer deposits means less reliance on Interbank funding
New SBV Circular has dampened demand for interbank loans and placements
Interbank rates are very low and not commensurate with risk
The Interbank market changed significantly in 2014. Volume of interbank
activity reduced significantly in 2012 as the increase in customer deposits allowed
banks to rely less on interbank financing to fund their balance sheet.
A further contributing factor to the decrease in interbank lending has been the
introduction of Circular 21/2012/TT-NHNN (Circular 21) which took effect from 1
September 2012. Circular 21 stipulates that credit institutions can only borrow on
the interbank market if they do not have interbank loans overdue for more than 10
days. Interbank lending may be considered a less stable future funding source
compared to longer term deposits and the below chart shows the effect on their
interbank activity before and after the effectiveness of Circular 21.
Chart 2.1.1.7. Jan - Nov 2014 Interbank
Page |7
(Source: SBV)
Additionally, lenders are now required to include a credit provision against
their interbank loans making it less attractive for banks to lend to other credit
institutions.
Different banks have different credit approval and internal ratings procedures.
Along with the uncertainty in economics conditions and future banks merger and
acquisition activities, banks are more cautions to lend to other banks, thus reducing
the entire system interbank activities. This can be seen in the below chart comparing
interbank activity from 2013 and 2014.
Chart 2.1.1.8. Interbank market
In July 2014 the overnight interest rate on Vietnam's interbank market for
VND dipped to 2.5% per annum. Interbank lending at significantly low rates does
not reflect inherent default risk and is driven by other factors. Excess liquidity
Page |8
Page |9
(Source: IMF)
Asset composition of Vietnamese banks
The below chart includes percentages of total assets for the three main asset
categories as at 31 December 2014 for the 45 Vietnamese banks included in our
analysis. While this chart does not pay attention to the size of the individual banks, it
shows there is significant diversity in the composition of Total Assets for different
Vietnamese banks. It also does not reflect asset quality.
Chart 2.1.1.10. Asset composition
As at 31 December 2014
It is interesting to note that loans make up less than 50% of total assets for
nearly half of the banks. Given that the two primary functions of commercial banks
are to make loans and accept deposits. Nearly 50% of banks had interbank assets
above 20% of total assets.
Chart 2.1.1.11. Loans and deposits from interbank market
P a g e | 10
From the chart of interbank market, we can see that the deposit line mostly
tracked the loan line. This means the banks borrowed and deposited to one another,
"grossing up" their Balance Sheet.
2.1.2 Banking liabilities
Liabilities are either the deposits of customers or money that banks borrow
from other sources to use to fund assets that earn revenue. Deposits are like debt in
that it is money that the banks owe to the customer but they differ from debt in that
the addition or withdrawal of money is at the discretion of the depositor rather than
dictated by contract.
Chart 2.1.2.1. Banking liabilities
On the liabilities side, one of the most significant changes for Vietnamese
banks during 2014 was the large increase in VND deposits. The VND liquidity issue
local banks experienced towards the end of 2013 was resolved due to the high VND
interest rates which were imposed to curb inflation that at the time was close to 20%.
Investors couldn't ignore VND deposit rates of up to 14% and switched out of USD
into VND and this resolved the short term liquidity issue. At the same time it helped
stabilize the VND/USD exchange rate as demand for doing significantly increased at
the expense of wavering demand for dollars. With USD rates at or below 2%, a
P a g e | 11
significant amount of the conversation to Dong resulted from idle savings kept
outside the banking sector.
As expected, liabilities from the interbank market also decreased from 19%
by end of 2013 to 15% by end of 2014.
The portion of valuable papers issued also decreased from 7% of total
liabilities to 5% which again reflected the difficulty of the economy and banking
industry as most of valuable papers issued are normally sold to other banks.
Table 2.1.2.1. Liability composition across Asia-Pacific
Australia
China
Singapore Thailand Vietnam
Total deposits
65%
83%
78%
85%
70%
Total Interbank
3%
9%
11%
6%
15%
Other liabilities
32%
8%
11%
9%
15%
100%
100%
100%
100%
100%
(Source: Country Central Bank and data and published Annual Reports)
Compared with other ASPAC countries, it seems that investors in Asia are
quite content to deposit money in banks as an investment choice. Australian banks
traditionally have had to borrow offshore to fund the shortfall between Deposits and
Loans, and also have large proportion of derivatives included in Other Liabilities.
Chart 2.1.2.2 Total Liabilities
As at 31 December 2014
Similar to Total Assets, Group 1 accounted for 50% of Total Liabilities,
Group 2 accounted for 36% and the rest belong to Group 3 and 4(9% and 5%
respectively). There are however, differences noted in the composition of Liabilities
within the different Groups.
Chart 2.1.2.3 Deposits
P a g e | 12
As at 31 December 2014
Chart 2.1.2.4 Valuable papers issued
As at 31 December 2014
Group 1 banks accounted for more than half of the Deposits for the 45 banks
included in the Appendix, whilst Group 2 banks contributed 33%. This perhaps
reflects the strength and banking of the Group 1 banks, as well as perceived issues
with some large Joint Stock Commercial banks.
Notwithstanding that interbank activity reduced significantly in 2014, Group
2 still accounted for more than half of the balances within the interbank deposit
market. So while the liquidity issue experienced in late 2013 and early 2014 was
resolved, Group 2 banks continue to rely on interbank to fund their lending books.
P a g e | 13
Interesting to note that Group 3 loans as a percentage of total loans was 8%, but that
the deposits as a percentage of total deposits was higher at 10%. This is an unusual
anomaly and can perhaps be explained by smaller banks offering rates of interest
than their competitions. This represents a significant difference for the Group 3
banks.
2.1.3 Charter capital
Group 1 contains the four state-owned banks and accounted for 38% of total
charter capital of the 45 banks in the Appendix. Group 2 with 16 members also
accounted for 38% of the total charter capital.
Chart 2.1.3.1. Total Charter capital
As at 31 December 2014
Circular No. 36/2014/TT-NHNN (Circular 36) issued in November 20, 2014
was implemented in February 2015. The new Circular is expected to have a
significant impact on credit institutions and branches of foreign banks, the stock
market, bond market and the real estate market. Circular 36 will replace and adjust
some regulations which include Decision 03/2008/QD-NHNN, Circular No.
15/2009/TT-NHNN, Circular No. 13/2010/TT-NHNN, Circular No. 19/2010/ TTNHNN and Circular No. 22/2011/ TT-NHNN. The most notable impact expected
with the implementation of this new circular should be a reduction in the crossownerships in the banking industry and total amount available for margin lending to
the stock market
P a g e | 14
The SBV requires for the first time, banks to report on actual value of charter
capital and real shareholder equity which will be calculated after provisions are
made and all income and expenses are recorded. In the event that charter capital falls
below VND 3 trillion, banks are required to find ways to raise the charter capital
back to the required capital or report it to the SBV within 30 days. If the charter
capital falls below 80% than the required capital, the scope of businesses will be
limited and a higher CAR will be levied. If the charter capital falls below 50% of the
required capital for six consecutive months, credit institutions will be obliged to
restructure their businesses or licenses will be withdrawn. As a result, the new
regulation to report on actual value of charter capital and provided capital for banks
will require credit institutions to raise additional shares to meet the required capital.
P a g e | 15
Appendix
Vietnam banks' assets, registered capital
The following table updates the assets and registered capital of banks
in Vietnam, based on their latest published reports.
NOTE: * Updated; unit: billions of dong
FULLY STATE-OWNED BANKS: 6
Agribank
#Vietnam Development Bank
#Vietnam Bank for Social Policies
Vietnam Construction Bank
(VNCB)
Co-operative Bank of Vietnam
State Bank of Vietnam (SBV)
NOTES: # policy lenders
MM/YR
12-14
12-12
12-14
12-11
12-14
ASSETS
762,869.0
291,700.9
*136,167.0
27,171.3
20,737.0
REG CAP
28,722
12,311
10,000
3,000
3,000
10,000
MM/YR
12-14
03-15
12-14
ASSETS
661,131.6
*660,000.0
*576,988.8
REG CAP
37,234
28,112
26,650
12-14
12-14
12-14
12-14
12-14
12-14
12-14
12-14
06-14
*242,222.0
200,489.2
189,802.6
179,609.8
175,915.0
169,363.2
163,241.4
*161,093.8
109,200.2
12,295
11,594
12,425
9,377
8,878
8,866
6,347
12,355
8,000
12-14
12-14
09-14
12-14
12-13
12-13
03-14
06-14
12-14
08-14
12-14
12-14
12-14
12-14
12-14
09-11
06-14
12-14
06-14
12-14
12-12
12-13
107,955.7
*100,801.7
83,652.7
*80,661.0
79,864.4
77,558.0
76,279.6
68,783.3
*67,465.0
53,980.0
*51,477.5
45,093.0
*39,094.9
*37,293.0
36,835.6
32,000.0
26,564.0
*25,779.4
23,998.6
*23,103.9
16,844.7
16,800.0
9,000
6,460
5,000
4,250
5,466
4,000
8,100
4,000
4,798
3,700
5,550
3,369
3,547
3,000
3,010
3,018
3,098
3,000
3,000
3,000
3,000
3,150
P a g e | 16
(Saigonbank)
(MD Bank)
09-14
12-14
15,560.0
*7,383.9
3,080
3,750
12-14
12-14
12-13
12-12
12-13
*84,293.4
*39,445.5
37,192.7
24,071.7
5,976.6
3,000
4,547
3,200
3,000
3,000
DATE
March 5
March 23
March 24
31,000
16,000
14,382
14,295
13,591
12,377
11,082
9,000
7,528
7,466
7,323
6,000
5,500
5,350
5,200
4,510
4,500
4,400
4,000
3,800
3,600
3,500
P a g e | 17
P a g e | 18