Vietnam commercial Banking report Q1 2012

Q1 2012 www.businessmonitor.com

r eport

Vietnam commercial Banking INCLUDES BMI'S FORECASTS

iSSn 1758-454X published by Business monitor international l td.

VIETNAM COMMERCIAL BANKING REPORT Q1 2012

INCLUDING 5-YEAR INDUSTRY FORECASTS TO 2016

Published by: Business Monitor International

Copy deadline: December 2011

Part of BMI’s Industry Report & Forecasts Series

© 2011 Business Monitor International.

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Vietnam Commercial Banking Report Q1 2012

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Vietnam Commercial Banking Report Q1 2012

Executive Summary ......................................................................................................................................... 5

Table: Levels (VNDbn) .......................................................................................................................................................................................... 5 Table: Levels (US$bn) ........................................................................................................................................................................................... 5 Table: Levels At March 2011 ................................................................................................................................................................................. 5 Table: Annual Growth Rate Projections 2011-2015 (%) ....................................................................................................................................... 6 Table: Ranking Out Of 59 Countries Reviewed In 2011 ........................................................................................................................................ 6 Table: Projected Levels (VNDbn) .......................................................................................................................................................................... 6 Table: Projected Levels (US$bn) ........................................................................................................................................................................... 6

SWOT Analysis ................................................................................................................................................. 7

Vietnam Commercial Banking SWOT .................................................................................................................................................................... 7 Vietnam Political SWOT ....................................................................................................................................................................................... 7 Vietnam Economic SWOT ..................................................................................................................................................................................... 8 Vietnam Business Environment SWOT.................................................................................................................................................................. 9

Business Environment Outlook .................................................................................................................... 10

Commercial Banking Business Environment Ratings ............................................................................................................................................... 10 Table: Vietnam’s Commercial Banking Business Environment Rating ................................................................................................................ 10 Commercial Banking Business Environment Rating Methodology ...................................................................................................................... 11 Table: Asia Commercial Banking Business Environment Ratings ....................................................................................................................... 12

Global Commercial Banking Outlook ........................................................................................................... 13

Asia Banking Sector Outlook ........................................................................................................................ 22

Table: Banks’ Bond Portfolios ............................................................................................................................................................................. 28 Table: Asia Commercial Banking Business Environment Ratings ....................................................................................................................... 29 Table: Comparison Of Loan/Deposit, Loan/Asset And Loan/GDP Ratios ........................................................................................................... 30 Table: Anticipated Developments In 2012 ........................................................................................................................................................... 31 Table: Comparison Of Total Assets, Client Loans And Client Deposits (US$bn) ................................................................................................ 32 Table: Comparison Of Per Capita Deposits, 2011f (US$) ................................................................................................................................... 33 Table: Interbank Rates And Bond Yields ............................................................................................................................................................. 34

Vietnam Banking Sector Outlook ................................................................................................................. 35

Economic Outlook .......................................................................................................................................... 39

Table: Vietnam Economic Activity, 2011-2016 .................................................................................................................................................... 41

Company Profiles ........................................................................................................................................... 42

Vietcombank ........................................................................................................................................................................................................ 42 Table: Key Statistics For Vietcombank, 2004-2008 (VNDmn) ............................................................................................................................. 43 BIDV .................................................................................................................................................................................................................... 44 Table: Key Statistics For BIDV, 2004-2006 (VNDmn) ........................................................................................................................................ 45 VietinBank ........................................................................................................................................................................................................... 46 Table: Key Statistics For VietinBank, 2005-2008 (VNDmn) ................................................................................................................................ 47 Agribank .............................................................................................................................................................................................................. 48 Table: Balance Sheet, 2004-2008 (VNDmn) ........................................................................................................................................................ 49 Table: Balance Sheet, 2004-2008 (US$mn) ......................................................................................................................................................... 49 Table: Key Ratios, 2004-2008 (%) ....................................................................................................................................................................... 49

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Vietnam Commercial Banking Report Q1 2012

MHB Bank ........................................................................................................................................................................................................... 50 Table: Key Statistics For MHB Bank, 2006-2008 (VNDmn) ................................................................................................................................ 51 Eximbank ............................................................................................................................................................................................................. 52 Table: Balance Sheet (VNDmn, unless stated), 2005-2008 .................................................................................................................................. 53 Table: Balance Sheet (US$mn, unless stated), 2005-2008 ................................................................................................................................... 53 Table: Key Ratios (%),2005-2008 ........................................................................................................................................................................ 53 Sacombank ........................................................................................................................................................................................................... 54 Table: Stock Market Indicators, 2005-2009 ......................................................................................................................................................... 55 Table: Balance Sheet (VNDmn, unless stated), 2005-2009 .................................................................................................................................. 55 Table: Balance Sheet (US$mn, unless stated), 2005-2009 ................................................................................................................................... 56 Table: Key Ratios (%),2005-2009 ........................................................................................................................................................................ 56 Saigonbank .......................................................................................................................................................................................................... 57 Table: Stock Market Indicators ............................................................................................................................................................................ 57 Table: Balance Sheet (VNDmn, unless stated) ..................................................................................................................................................... 58 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 58 Table: Key Ratios (%) .......................................................................................................................................................................................... 58 SeABank ............................................................................................................................................................................................................... 59 Table: Balance Sheet (VNDmn, unless stated) ..................................................................................................................................................... 60 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 60 Table: Key Ratios (%) .......................................................................................................................................................................................... 60

BMI Banking Sector Methodology ................................................................................................................ 61

Commercial Bank Business Environment Ratings ............................................................................................................................................... 62 Table: Commercial Banking Business Environment Indicators And Rationale.................................................................................................... 63 Table: Weighting Of Indicators ........................................................................................................................................................................... 64

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Vietnam Commercial Banking Report Q1 2012

Executive Summary

Table: Levels (VNDbn)

Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits Other Date

2,342,752.9 1,935,790.0 159,117.9 247,845.0 2,342,752.9 336,053.0 1,771,242.5 235,457.4 March 2010

3,092,978.4 2,584,860.0 225,505.0 282,613.4 3,092,978.4 479,064.0 2,220,589.1 393,325.3 March 2011

32% 34% 42% 14% 32% 43% 25% 67% Change, %

Source: BMI; Central banks; Regulators

Table: Levels (US$bn)

Bond Liabilities and Client Total assets Client loans portfolio Other capital Capital deposits Other Date

122.8 101.4 8.3 13.0 122.8 17.6 92.8 12.3 March 2010

148.0 123.7 10.7923 13.5 148.0 22.9 106.3 18.8 March 2011

21% 22% 29% 4% 21% 30% 15% 53% Change, %

Source: BMI; Central banks; Regulators

Table: Levels At March 2011

Loan/deposit ratio Loan/asset ratio Loan/GDP ratio GDP Per Capita, US$ Deposits per capita, US$

116.40% 83.57% 124.04% 1,068 1,206

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Rising Rising Falling

Source: BMI; Central banks; Regulators © Business Monitor International Ltd

Vietnam Commercial Banking Report Q1 2012

Table: Annual Growth Rate Projections 2011-2015 (%)

Assets Loans Deposits

20 Annual Growth Rate 20 14

21 CAGR 21 14

4 Ranking 2 13

Source: BMI; Central banks; Regulator

Table: Ranking Out Of 59 Countries Reviewed In 2011

Loan/deposit ratio Loan/asset ratio Loan/GDP ratio

1 8 10

Local currency asset growth Local currency loan growth Local currency deposit growth

2 2 9

Source: BMI; Central banks; Regulators

Table: Projected Levels (VNDbn)

2008

2009

2010

2011f

2012f

2013f

2014f

2015f

2016f

Total assets

1,747,335 2,286,351 2,953,153 3,720,973 4,614,007 5,536,808 6,644,170 7,973,004 9,567,605

Client loans

1,339,260 1,869,260 2,475,540 3,119,180 3,867,784 4,641,340 5,569,608 6,683,530 8,020,236

Client deposits 1,341,143 1,680,717 2,209,896 2,651,875 3,076,175 3,506,840 3,997,798 4,557,489 5,195,538

f = BMI forecast. Source: BMI; Central banks; Regulators

Table: Projected Levels (US$bn)

2008 2009 2010 2011f 2012f 2013f 2014f 2015f 2016f

Total assets 99.94 123.79 151.46 180.19 223.44 275.46 340.73 419.63 517.17

Client loans 76.60 101.21 126.96 151.05 187.30 230.91 285.62 351.76 433.53

Client deposits 76.71 91.00 113.34 128.42 148.97 174.47 205.02 239.87 280.84

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f = BMI forecast. Source: BMI; Central banks; Regulators

Vietnam Commercial Banking Report Q1 2012

SWOT Analysis

Vietnam Commercial Banking SWOT

(cid:131) Rapid growth. Strengths (cid:131) Untapped potential.

(cid:131) Domestic banks lack capital and technology to sustain high credit growth. Weaknesses (cid:131) The financial accounts of many banks are still opaque.

Income levels likely to rise strongly over the medium term.

(cid:131) Population still under-banked. Opportunities (cid:131)

potentially drive economic policy away from further liberalisation.

(cid:131) Macroeconomic instabilities threaten the credibility of the government and could Threats

Vietnam Political SWOT

reforms and we do not expect major shifts in policy direction over the next five years. The one-party system is generally conducive to short-term political stability.

(cid:131) The Communist Party of Vietnam remains committed to market-oriented Strengths

Washington sees Hanoi as a potential geopolitical ally in South East Asia.

(cid:131) Relations with the US have witnessed a marked improvement, and

legitimacy of the ruling Communist Party.

(cid:131) Corruption among government officials poses a major threat to the Weaknesses

leadership’s tight control over political dissent.

(cid:131) There is increasing (albeit still limited) public dissatisfaction with the

has acted to clamp down on graft among party officials.

(cid:131) The government recognises the threat corruption poses to its legitimacy, and Opportunities

government policies. This is opening up opportunities for more checks and balances within the one-party system.

(cid:131) Vietnam has allowed legislators to become more vocal in criticising

Threats

(cid:131) Macroeconomic instabilities in 2010 and 2011 are likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocratic rule.

political scene in the next few years, over the longer term, the one-party- state will probably be unsustainable.

(cid:131) Although strong domestic control will ensure little change to Vietnam’s

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(cid:131) 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.

Vietnam Commercial Banking Report Q1 2012

Vietnam Economic SWOT

years, with GDP growth averaging 7.2% annually between 2000 and 2010.

(cid:131) Vietnam has been one of the fastest-growing economies in Asia in recent Strengths

official poverty rate in the country falling from 58% in 1993 to 12.0% in 2009.

(cid:131) The economic boom has lifted many Vietnamese out of poverty, with the

deficits, leaving the economy vulnerable to global economic uncertainties in 2011. The fiscal deficit is dominated by substantial spending on social subsidies that could be difficult to withdraw.

(cid:131) Vietnam still suffers from substantial trade, current account and fiscal Weaknesses

improve quality of exports, and also keeps import costs high, contributing to inflationary pressures.

(cid:131) The heavily-managed and weak dong currency reduces incentives to

Opportunities

(cid:131) WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition.

(cid:131) The government will in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector.

(cid:131) Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population rising from 29% of the population to more than 50% by the early 2040s.

(cid:131)

Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam. If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis.

(cid:131) Threats

reforms on hold as they struggle to stabilise the economy.

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(cid:131) Prolonged macroeconomic instability could prompt the authorities to put

Vietnam Commercial Banking Report Q1 2012

Vietnam Business Environment SWOT

country attractive to foreign investors.

(cid:131) Vietnam has a large, skilled and low-cost workforce, that has made the Strengths

sea links - makes it a good base for foreign companies to export to the rest of Asia, and beyond.

(cid:131) Vietnam’s location - its proximity to China and South East Asia, and its good

inadequate to cope with the country’s economic growth and links with the outside world.

(cid:131) Vietnam’s infrastructure is still weak. Roads, railways and ports are Weaknesses

Transparency International’s 2010 Corruption Perceptions Index was 2.7, placing it in 22nd in the Asia-Pacific region.

(cid:131) Vietnam remains one of the world’s most corrupt countries. Its score in

Opportunities

(cid:131) Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech skills and know-how.

and the liberalisation of the banking sector. This should offer foreign investors new entry points.

(cid:131) Vietnam is pressing ahead with the privatisation of state-owned enterprises

protectionism, which will remain a concern.

(cid:131) Ongoing trade disputes with the US, and the general threat of American Threats

Labour unrest remains a lingering threat. A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period.

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(cid:131)

Vietnam Commercial Banking Report Q1 2012

Business Environment Outlook

Commercial Banking Business Environment Ratings

Table: Vietnam’s Commercial Banking Business Environment Rating

Limits of potential returns Data Score; out of 10 Ratings score; out of 100

Total assets; end 2010 US$151.5mn Market Structure 63 6

239,439.4 6 Growth in total assets; 2011- 2015

200,714.9 7 Growth in client loans; 2011- 2015

Per-capita GDP; 2011 US$1,353.7 2 Country Structure 53

Tax 2.9 3

GDP volatility 0.4 10

Financial infrastructure 5.6 6

Risks to realisation of returns

Regulatory framework and development 4.5 5 Market Risk 40

Regulatory framework and competitive landscape 5.0 5

Moody’s rating for local currency deposits 2.0 2

Long-term financial risk 4.8 5 Country Risk 46

Long-term external risk 3.3 3

Long-term policy continuity 7.0 7

Legal framework 3.7 4

Bureaucracy 3.9 4

Commercial banking business environment rating 54

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Source: BMI

Vietnam Commercial Banking Report Q1 2012

Commercial Banking Business Environment Rating Methodology

Since Q108, we have described numerically the banking business environment for each of the countries

surveyed by BMI. We do this through our Commercial Banking Business Environment Rating (CBBER),

a measure that ensures we capture the latest quantitative information available. It also ensures consistency

across all countries and between the inputs to the CBBER and the Insurance Business Environment

Rating, which is likewise now a feature of our insurance reports. Like the Business Environment Ratings

calculated by BMI for all the other industries on which it reports, the CBBER takes into account the

limits of potential returns and the risks to the realisation of those returns. It is weighted 70% to the former

and 30% to the latter.

The evaluation of the ‘Limits of potential returns’ includes market elements that are specific to the

banking industry of the country in question and elements that relate to that country in general. Within the

70% of the CBBER that takes into account the ‘Limits of potential returns’, the market elements have a

60% weighting and the country elements have a 40% weighting. The evaluation of the ‘Risks to

realisation of returns’ also includes banking elements and country elements (specifically, BMI’s

assessment of long-term country risk). However, within the 30% of the CBBER that take into account the

risks, these elements are weighted 40% and 60%, respectively.

Further details on how we calculate the CBBER are provided at the end of this report. In general, though,

three aspects need to be borne in mind in interpreting the CBBERs. The first is that the market elements

of the ‘Limits of potential returns’ are by far the most heavily weighted of the four elements. They

account for 60% of 70% (or 42%) of the overall CBBER. Second, if the market elements are significantly

higher than the country elements of the ‘Limits of potential returns’, it usually implies that the banking

sector is (very) large and/or developed relative to the general wealth, stability and financial infrastructure

in the country. Conversely, if the market elements are significantly lower than the country elements, it

usually means that the banking sector is small and/or underdeveloped relative to the general wealth,

stability and financial infrastructure in the country. Third, within the ‘Risks to the realisation of returns’

category, the market elements (ie: how regulations affect the development of the sector, how regulations

affect competition within it, and Moody’s Investor Services’ ratings for local currency deposits) can be

markedly different from BMI’s long-term risk rating.

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Vietnam Commercial Banking Report Q1 2012

Table: Asia Commercial Banking Business Environment Ratings

Limits of Potential Returns Risks to Potential Returns Overall

Rating Ranking Market Structure Country Structure Market Risks Country Risks

43.3 45.0 30.0 44.0 42.3 57 Bangladesh

93.3 52.5 56.7 76.0 74.4 11 China

73.3 92.5 70.0 84.0 80.2 5 Hong Kong

83.3 57.5 53.3 56.0 67.6 20 India

73.3 62.5 76.7 42.0 65.1 25 Indonesia

33.3 77.5 63.3 78.0 57.3 38 Japan

73.3 80.0 76.7 78.0 76.4 9 Malaysia

43.3 50.0 56.7 36.0 45.5 53 Pakistan

50.0 62.5 56.7 52.0 54.7 41 Philippines

70.0 95.0 96.7 84.0 82.7 4 Singapore

23.3 55.0 36.7 46.0 37.9 58 Sri Lanka

80.0 85.0 76.7 70.0 79.2 6 South Korea

76.7 72.5 83.3 74.0 75.8 10 Taiwan

60.0 65.0 80.0 68.0 65.2 23 Thailand

63.3 52.5 40.0 46.0 54.4 43 Vietnam

90.0 85.0 100.0 74.0 86.9 2 United States

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Scores out of 100, with 100 the highest. Source: BMI

Vietnam Commercial Banking Report Q1 2012

Global Commercial Banking Outlook

Europe On The Brink

The biggest risk to the global commercial banking sector remains the European crisis, with the worst-case

scenario of a euro bloc breakup looming large in the background, and the health of the global banking

sector hanging in the balance. Our core global economic view is that the world is not about to enter a

double-dip recession, but that weak ongoing growth leaves the global economy fragile, and thus

susceptible to a major shock. A disorderly eurozone breakup would have devastating consequences for

core eurozone banks, given their exposure to peripheral eurozone debt. Furthermore, with sovereign bond

spreads soaring, commercial banks exposed to European debt are seeing their balance sheets erode, with

the effect compounded by a weak economy hurting lending conditions. The market is discounting a

negative outcome for bank asset value, with European and US bank shares trading well below book value.

We stress that our core scenario for the eurozone is one of ‘muddle through’ rather than ‘meltdown’.

Furthermore, the exact path of events in the eurozone is difficult to predict, with potential outcomes

including a full breakup of the monetary union, to austerity-induced recession, to European Central Bank

support for the banking sector. However, it is worth looking at the potential contagion risks from a

European financial crisis. Looking at the commercial banking universe covered by BMI, direct exposure

to the weakest links in the eurozone is fairly limited, and is (unsurprisingly) most prevalent in European

states. We are also acutely aware of the potential for contagion from a European financial crisis into

emerging markets. However, looking at the data, emerging market exposure is mainly concentrated in

Emerging Europe, as one would expect given the significant degree of banking sector integration across

the continent over the past two decades. Furthermore, emerging markets tend to be exposed to the

European banking sector on the liabilities side, far more than on the assets side (in other words, they are

in danger of having European banks pulling lending from their economies). The following chart shows

European banks’ lending as a percentage of the destination country’s GDP. Unsurprisingly, major

financial centres figure prominently (eg Hong Kong, Singapore and the UK), as do emerging European

economies.

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Vietnam Commercial Banking Report Q1 2012

If European Banks Pull Out, How Bad Would It Be?

European Cross-Border Bank Lending To Country As % of Country’s GDP (Excluding Eurozone)

The accompanying chart draws upon Bank for International Settlements (BIS) data, and shows cross-

border bank lending to the ‘PIIGS’ (Portugal, Ireland, Italy, Greece and Spain) as a percentage of

commercial banking sectors’ total foreign lending exposure. Here, core eurozone banking sectors

including Germany and France’s, and major developed markets such as the UK, are heavily exposed.

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Source: BMI, Bank for International Settlements

Vietnam Commercial Banking Report Q1 2012

Emerging Markets Fairly Well-Insulated From Direct Exposure

Lending To PIIGS As % of Total Foreign Lending Exposure

Looking solely at our commercial banking universe, lending exposure to the PIIGS as a percentage of

national commercial banking systems’ assets shows that Austria, Germany and France are the most

heavily exposed to a peripheral eurozone crisis. These exposures are relatively small, as they do not

include sovereign bond holdings, but they show fairly clearly that a) the core eurozone states are the most

exposed, and b) emerging markets are not heavily exposed, at least not directly. As the Lehman Brothers

crisis taught us, however, the collapse of a major financial institution can have wide-reaching and

unpredictable effects.

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Source: BMI, Bank for International Settlements

Vietnam Commercial Banking Report Q1 2012

Core Eurozone Most Exposed To Periphery

Exposure To PIIGS As % of Banking Sector Assets

Source: BMI, Bank for International Settlements

EM: Regional Outlooks

On a region-by-region basis, the risks to emerging commercial banking sectors come largely from abroad,

with economic growth in Europe, the US and China all set to slow, and the eurozone crisis rumbling on.

Emerging Asia: The regional outlook for Asian banks has deteriorated significantly in recent months, as

the yet unresolved European fiscal debt crisis as well as sluggish US growth threatens economic growth

within Asia. Moreover, there is also the significant threat of a reduction of European lending to Asian

banks, both in terms of trade financing and longer-term business loans – that may threaten to destabilise

the balance sheets of lenders within the Asian region. In addition, we believe Asian banks will also have

to contend with an abrupt slowdown in Chinese economic growth, led by a steep contraction in domestic

money supply growth that should constrain lending activity and hence, overall activity within China.

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Vietnam Commercial Banking Report Q1 2012

Some Biting Off More Than They Can Chew

Asia – Loan-To-Deposit Ratio, %

Source: BMI

Latin America: Massive capital inflows since late 2009, particularly into the more dynamic South

American economies, has increased the risk of tighter liquidity exposing weaknesses in banks’ balance

sheets, concerns which were reinforced following the wealth of headlines about dubious lending practices

in Brazil and Chile, the region’s two most developed banking sectors. Yet despite the selloff in equities,

to date no country has suffered a major threat to its banking sector from external headwinds, and in our

view, any systemic risks that do emerge will be home grown, prompted by excessively loose monetary

conditions and/or too much state intervention in local credit markets. The countries’ we believe are most

exposed to this risk are Argentina and Venezuela, with the others set to suffer no more than a cyclical

slowdown in credit growth and subdued profitability as regulators enforce stricter provisions for bad

credit. The one possible exception is Brazil, where the authorities’ desire to maintain strong economic

growth may yet harm financial stability, although our core scenario remains for a period of consolidation

followed by a more sustainable growth trajectory.

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Vietnam Commercial Banking Report Q1 2012

Few Have Grown As Aggressively As Brazil

Change In Commercial Banks’ Assets % GDP Between 2004-2010, pp

Source: BMI, central banks, banking supervisory bodies

Emerging Europe: We maintain our broadly constructive view on Central and Eastern European banking

sectors due to lower levels of leverage as compared to Western European banks and more sound

macroeconomic backdrops that will help promote growth and we expect the broad-based recovery to

continue at a relatively slow pace in most markets. However, we caution that risks to this outlook are

mounting in light of the ongoing eurozone debt crisis and signs that the global slowdown may be more

sustained than we had previously expected. Indeed, we expect this continued moderation of economic

expansion combined with more cautious lending practices to weigh on banks’ profitability going forward.

We also believe that given the less supportive external environment, banking sectors with a more

domestic focused funding structure are better placed to weather the slowdown (we view the Czech

Republic and Poland most positively).

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Vietnam Commercial Banking Report Q1 2012

Generally Slow Recovery In Europe With Few Outliers

Central and Eastern Europe – Loan Growth, % chg y-o-y

Source: central banks

Sub-Saharan Africa: The outlook is mixed for the three major Sub-Saharan African markets covered by

BMI – the South African, Nigerian and Kenyan banking sectors. We see Nigeria as having the strongest

growth potential over the short term, while South Africa should see slow but stable expansion, and Kenya

will likely struggle amid various macroeconomic challenges.

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Vietnam Commercial Banking Report Q1 2012

A Mixed Bag

Kenya, Nigeria & South Africa – Banking Sector Asset Growth, % y-o-y

Source: Central banks, BMI

Middle East & North Africa: The outlook for banking sectors across the region continues to diverge,

with elevated exposure to Europe and lingering political risks likely to see the performance of financial

institutions in North African oil importers lag far behind their hydrocarbon-rich peers in the Gulf. Given

ample liquidity across the region, the main obstacle to a more pronounced ramp up in lending activity

points to elevated risk aversion on the part of many financial institutions. This would seem to suggest that

once fears surrounding the strength of the global economy begin to subside, many banks will be in a solid

position to aggressively ramp up lending, reversing the multi-year trend of single-digit credit expansion

that has prevailed since the burst credit bubble of 2009.

Page 20

Vietnam Commercial Banking Report Q1 2012

Qatar Leading The Way

GCC – Loan Growth, % yoy

Page 21

Source: BMI/central banks

Vietnam Commercial Banking Report Q1 2012

Asia Banking Sector Outlook

Uneven Banking Risk Exposure Across Region

BMI View: Amid the recent slump in global consumer and investor confidence due to economic

instability in the EU and the US, the banking sectors of certain Asian countries are relatively more

exposed than others. With the recent creep-up in the share of mortgage loans as a percentage of total

loans amid a weakening housing sector, we regard Australian banks as the single most vulnerable group

within the region. By contrast, economies such as Singapore and Hong Kong should remain financially

more stable despite facing similar price instability in their respective real estate markets.

The regional outlook for Asian banks have deteriorated significantly in recent months, as the yet

unresolved European fiscal debt crisis as well as sluggish US growth threatens economic growth within

Asia. Moreover, there is also the significant threat of a reduction of European lending to Asian banks,

because such debt makes up about 25% of total foreign lending - both in terms of trade financing and

longer-term business loans - that may threaten to destabilise the balance sheets of lenders within the

Asian region.

In addition, we believe Asian banks will also have to contend with an abrupt slowdown in Chinese

economic growth, led by a steep contraction in domestic money supply growth that should constrain

lending activity and hence, overall activity within China. With the tightening of liquidity, anecdotal

reports of small-to-medium sized enterprises - which have had to resort to raising funds from the shadow

banking system that charges exorbitant interest rates - going bankrupt in cities such as Wenzhou are

beginning to surface.

From a macroeconomic perspective, the slide in real GDP growth in Q311 to 9.1% year-on-year from

9.5% in the preceding quarter, provides support to our view that the country is in its nascent stages of a

prolonged slowdown (see our online service, October 17 2011, ‘No Cure For The Credit Hangover’).

This does not bode well for key trading partners, which are already facing the prospect of lower external

demand from key EU and US buyers. With these factors in mind, we believe banking sectors across the

region will face heightened risks to asset and loan growth, forcing overall industry expansion to slow or

even turn negative.

Page 22

Vietnam Commercial Banking Report Q1 2012

Overreliance On Mortgage Loans

Asia – Mortgage Loans By Country, % of total loans

Sources: RBA, RBNZ, HKMA

Prospect Of Property Slowdown Compounds Fears

Apart from external concerns, we also highlight that certain Asian lenders will be heavily exposed to a

domestic slump in property prices, where economies such as Australia, and Hong Kong having among the

highest exposures, with mortgage loans making up 58.8% and 50.3% of total loans respectively (China is

similarly exposed to a real estate slump as well, although indirectly, through soaring construction loans).

Ominously, growth in property prices in both places have fallen significantly over the past few quarters,

suggesting substantial downward pressure on loan growth for these economies in 2012, turning negative

in countries including Australia and Hong Kong.

Page 23

Vietnam Commercial Banking Report Q1 2012

Smaller Proportion

Asia – Mortgage Loans By Country, % of total loans

Other key countries with rapidly cooling property prices include Taiwan and Singapore as their respective

administrations have put in place measures to stem a runaway bubble from forming. In Taiwan, the

Kuomintang-led government introduced a property tax on non-self-use properties in June, with the levy

ranging between 10% and 15% depending on the assets’ holding period. In Singapore, National

Development Minister Khaw Boon Wan has accelerated the release of residential land supply, as well as

the number of built-to-order public housing units, in order to meet rising demand. These interim

measures, while detrimental to the banks’ loan books in the short term, should help prevent a sharp

downward shock to the financial industry over the longer term due to a more orderly unwinding of the

property bubble.

Page 24

Sources: BNM, MAS, BOK

Vietnam Commercial Banking Report Q1 2012

Some Biting Off More Than They Can Chew

Asia – Loan-To-Deposit Ratio, %

Source: BMI

Keeping A Close Eye On Leverage

Overall, we believe countries with a higher degree of leverage will be more vulnerable in the face of the

current global slowdown. We believe risks will be the highest in the heavily leveraged economies,

particularly Australia, South Korea, and Vietnam, with the loan-to-deposit ratios averaging 115.7%. By

contrast, Hong Kong, Singapore and Taiwan remain far less exposed than their regional counterparts,

with the ratio coming in at a mean of only 71.7%. As a result, we see far limited downside for the latter

group of banks compared with the former.

Page 25

Vietnam Commercial Banking Report Q1 2012

Going Down Under

Asia – Growth Rate Of Housing Price Index, % chg y-o-y

In particular, we single out Australia as the single most vulnerable financial sector within the Asian

region. The country is exposed both externally to China (see ‘If China Sneezes, Australia Catches

Pneumonia’, September 19 2011) due to its mining sector’s reliance on Chinese buyers as well as

internally on a property slump (see ‘Banks’ Profitability Going Down’, August 8 2011). We believe the

negative impact of a sell-down in Australian home prices will have an outsized impact on firms such as

the Commonwealth Bank of Australia and Westpac Banking Corporation, as personal and

commercial loan growth remain in the red.

Page 26

Sources: RP Data Rismark, RADD

Vietnam Commercial Banking Report Q1 2012

Looking For A Bounce

MSCI Singapore Financials Index (RHS) v ASX200 Financials Index (LHS)

Source: BMI

Singapore Over Australia: Seeing Value In Relative Stability

With this in mind, we see relative fundamental value in a ‘bullish Singapore, bearish Australian banks’

view. Singapore banking stocks suffered a major beating over the past two months amid the rise in global

uncertainty relative to their Australian counterparts. This forced the ratio of MSCI Singapore Financials

index to the ASX200 Financials index to break below support in September. Given Singaporean banks’

relative advantage, a strong bounce could potentially push the ratio back to the previous upward trendline

resistance at around 0.0575.

Page 27

Vietnam Commercial Banking Report Q1 2012

Table: Banks’ Bond Portfolios

Bond Portfolio, US$bn Bond as % total assets Year-on-year growth %

16.6 23.0 8.2 Bangladesh

1,569.7 10.8 11.8 China

338.4 21.4 11.6 Hong Kong

309.0 27.6 18.7 India

14.8 4.6 -1.1 Indonesia

3,008.4 29.9 14.8 Japan

67.9 14.0 15.7 Malaysia

21.8 28.4 26.7 Pakistan

37.0 26.4 9.2 Philippines

73.5 12.0 -1.1 Singapore

2.2 12.8 18.2 Sri Lanka

265.8 17.4 14.0 South Korea

191.7 16.8 40.2 Taiwan

60.5 15.5 7.6 Thailand

10.5 6.9 28.4 Vietnam

523.7 4.4 18.9 United States

Page 28

Source: Central banks, regulators, BMI

Vietnam Commercial Banking Report Q1 2012

Table: Asia Commercial Banking Business Environment Ratings

Limits of Potential Returns Risks to Potential Returns Overall

Rating Ranking Market Structure Country Structure Market Risks Country Risks

43.3 45.0 30.0 44.0 42.3 57 Bangladesh

93.3 52.5 56.7 76.0 74.4 11 China

73.3 92.5 70.0 84.0 80.2 5 Hong Kong

83.3 57.5 53.3 56.0 67.6 20 India

73.3 62.5 76.7 42.0 65.1 25 Indonesia

33.3 77.5 63.3 78.0 57.3 38 Japan

73.3 80.0 76.7 78.0 76.4 9 Malaysia

43.3 50.0 56.7 36.0 45.5 53 Pakistan

50.0 62.5 56.7 52.0 54.7 41 Philippines

70.0 95.0 96.7 84.0 82.7 4 Singapore

23.3 55.0 36.7 46.0 37.9 58 Sri Lanka

80.0 85.0 76.7 70.0 79.2 6 South Korea

76.7 72.5 83.3 74.0 75.8 10 Taiwan

60.0 65.0 80.0 68.0 65.2 23 Thailand

63.3 52.5 40.0 46.0 54.4 43 Vietnam

90.0 85.0 100.0 74.0 86.9 2 United States

Page 29

Scores out of 100, with 100 the highest. Source: BMI

Vietnam Commercial Banking Report Q1 2012

Table: Comparison Of Loan/Deposit, Loan/Asset And Loan/GDP Ratios

Loan/Deposit Loan/Asset Loan/GDP ratio % Rank Trend ratio % Rank Trend ratio % Rank Trend

96.3 29 Falling 67.7 12 Falling 52.7 39 Rising Bangladesh

68.3 55 Falling 52.1 41 Falling 118.0 14 Falling China

65.1 57 Rising 36.7 57 Rising 260.1 2 Rising Hong Kong

73.5 53 Rising 64.6 21 Falling 41.9 49 Rising India

79.5 44 Rising 61.6 24 Rising 29.5 53 Rising Indonesia

72.3 54 Rising 51.4 45 Rising 89.3 22 Rising Japan

80.3 47 Rising 60.8 28 Rising 117.6 13 Rising Malaysia

76.4 51 Falling 58.8 34 Falling 24.7 57 Falling Pakistan

64.9 58 Rising 47.6 47 Rising 32.3 52 Rising Philippines

91.3 36 Rising 48.4 46 Rising 123.2 12 Rising Singapore

80.5 46 Rising 60.5 25 Rising 28.4 54 Rising Sri Lanka

113.6 15 Falling 70.6 7 Falling 101.3 18 Falling South Korea

74.2 50 Falling 60.2 30 Falling 145.8 6 Falling Taiwan

98.6 27 Falling 63.3 22 Falling 71.6 31 Falling Thailand

117.6 8 Rising 83.8 1 Falling 126.0 10 Falling Vietnam

109.5 20 Falling 73.9 4 Falling 61.7 34 Falling United States

Page 30

Source: Central banks, regulators, BMI

Vietnam Commercial Banking Report Q1 2012

Table: Anticipated Developments In 2012

Loan/Deposit Ratio, % Loan Growth, US$bn Deposit Growth, US$bn Residual, US$bn Trend

Falling 96.3 7.2 7.5 -0.3 Bangladesh

Falling 68.3 592.5 867.0 -274.4 China

Falling 65.1 19.7 30.2 -10.5 Hong Kong

Falling 69.8 148.5 272.4 -123.9 India

Rising 81.5 61.1 67.4 -6.4 Indonesia

Falling 69.3 -875.3 -933.0 57.6 Japan

Falling 79.9 46.5 60.1 -13.6 Malaysia

Falling 73.1 3.5 8.4 -4.8 Pakistan

Falling 64.9 6.0 9.2 -3.2 Philippines

Falling 90.0 32.3 41.1 -8.8 Singapore

Rising 81.2 3.8 4.5 -0.7 Sri Lanka

Falling 111.5 128.5 134.1 -5.6 South Korea

Rising 75.2 53.7 57.7 -4.0 Taiwan

Falling 97.2 16.5 20.7 -4.3 Thailand

Rising 125.7 36.3 20.5 15.7 Vietnam

Falling 107.9 372.6 467.9 -95.3 United States

Page 31

Incorporates estimated economic data and projected banking data. Source: Central banks, regulators, BMI

Vietnam Commercial Banking Report Q1 2012

Table: Comparison Of Total Assets, Client Loans And Client Deposits (US$bn)

2011f 2010

Total Assets Client Loans Client Deposits Total Assets Client Loans Client Deposits

82.0 55.6 57.7 72.2 48.9 50.8 Bangladesh

16,239.8 8,464.7 12,385.4 14,554.4 7,586.2 11,100.0 China

1,770.7 649.7 997.5 1,581.2 560.2 882.8 Hong Kong

1,288.5 832.4 1,133.0 1,121.0 724.1 1,002.6 India

386.7 238.1 299.6 321.5 196.3 260.0 Indonesia

10,789.2 5,550.1 7,676.1 10,050.2 5,154.7 7,150.4 Japan

549.4 333.9 416.0 484.0 285.1 359.8 Malaysia

82.5 48.5 62.4 76.8 46.0 56.7 Pakistan

156.9 74.7 115.0 140.0 64.5 103.0 Philippines

699.7 338.4 370.8 610.6 252.1 338.9 Singapore

27.9 16.9 21.0 23.1 13.1 17.6 Sri Lanka

1,587.3 1,120.6 986.1 1,525.5 1,082.2 915.0 South Korea

1,187.1 714.4 963.1 1,141.5 686.9 908.6 Taiwan

412.1 261.1 264.7 390.8 247.5 245.0 Thailand

180.2 151.0 128.4 151.5 127.0 113.3 Vietnam

United States 12,599.8 9,314.1 8,507.3 11,864.2 9,240.2 7,950.7

Page 32

f = BMI forecast. Source: Central banks, regulators, BMI

Vietnam Commercial Banking Report Q1 2012

Table: Comparison Of Per Capita Deposits, 2011f (US$)

GDP Per Capita Client Deposits, per capita Rich 20% Client Deposits, per capita Poor 80% Client Deposits, per capita

660 333 1,383 86 Bangladesh

5,259 6,282 36,764 2,298 China

34,890 91,225 560,196 35,012 Hong Kong

1,657 670 3,650 228 India

3,363 983 4,945 309 Indonesia

49,153 43,875 242,728 15,171 Japan

9,514 11,571 57,661 3,604 Malaysia

1,130 274 1,412 88 Pakistan

2,379 787 4,849 303 Philippines

52,110 65,221 285,889 17,868 Singapore

2,786 803 3,991 249 Sri Lanka

22,869 23,157 81,511 5,094 South Korea

21,852 30,662 165,355 10,335 Taiwan

5,270 3,810 15,452 966 Thailand

1,354 1,701 5,785 362 Vietnam

48,198 29,750 108,690 6,793 United States

Page 33

f = BMI forecast. Source: Central banks, regulators, BMI

Vietnam Commercial Banking Report Q1 2012

Table: Interbank Rates And Bond Yields

3-Month Interbank Rate, %

H110 Current Account % of GDP, 2011f Budget balance % of GDP, 2011f

0.9 -4.3 na Bangladesh

3.5 0.9 1.71 China

5.8 -1.5 0.50 Hong Kong

-2.0 -8.8 7.00 India

0.7 -1.8 7.00 Indonesia

1.8 -10.8 0.24 Japan

8.6 -6.0 2.70 Malaysia

0.2 -6.6 12.10 Pakistan

2.6 -3.2 4.70 Philippines

20.8 0.7 0.56 Singapore

-7.6 -7.0 9.58 Sri Lanka

1.6 1.3 4.44 South Korea

8.3 -3.5 0.48 Taiwan

4.5 -3.0 1.41 Thailand

-4.7 -3.0 10.25 Vietnam

-3.4 -9.6 0.35 United States

Page 34

f = BMI forecast. Incorporates actual financial markets data, estimated economic data and projected banking data. Source: Central banks, regulators, BMI

Vietnam Commercial Banking Report Q1 2012

Vietnam Banking Sector Outlook

SBV To Ease Rules To Allow Greater Foreign Participation

BMI View: Rising debt-servicing costs are leading to a rise in non-performing loans as small businesses

struggle to remain profitable in an uncertain economic environment. We are optimistic about the

government’s efforts to consolidate small commercial banks, and we believe that foreign ownership rules

could be eased further to allow greater foreign participation in the banking sector. Although our long-

term outlook on Vietnamese banks remains positive, economic uncertainties in the near term suggests

that banking stocks should continue to underperform the broader equity index over the coming months.

The State Bank of Vietnam (SBV)’s decision to implement another 100 basis points worth of rate hikes to

bring its policy rate from 14.00% to 15.00% on October 10 should translate into higher debt servicing

costs for businesses over the coming weeks. We see increasing risks that profit margins for small and

medium-sized enterprises (could be squeezed as production costs remain elevated on the back of double-

digit inflation, while rising debt servicing costs put further pressure on profits. Small businesses that are

operating on thin profit margins, and poor liquidity in particular, could struggle to cope with higher

interest rates and risk defaulting on their debt payments. The Vietnamese government has warned that

non-performing loans (NPL) could rise significantly if economic conditions deteriorate over the coming

months, a threat that could in turn undermine the stability of the banking system. As the accompanying

chart shows, NPLs across the four largest listed commercial banks in Vietnam remain low historically.

However, we believe that NPLs across smaller commercial banks could be much higher.

Page 35

Vietnam Commercial Banking Report Q1 2012

Putting More Pressure On Businesses

Lending Rate And SBV Policy Rate, %

Source: SBV, BMI

Consolidation In The Banking Sector

In what we see as a move to recapitalise Vietnamese commercial banks to strengthen their balance sheets

and reduce the risk of a banking crisis, the SBV is reviewing plans to consolidate small ailing banks

through mergers and acquisitions. Given that Vietnamese banks remain undercapitalised in comparison

with regional banks, the move has attracted positive responses from rating agencies and investors. From

our standpoint, the government’s decision to consolidate small commercial banks will be beneficial for

the banking industry’s development. Firstly, this will provide economies of scale for these banks to

compete more effectively against their larger counterparts and foreign banks. Secondly, we believe that

consolidation of the banking sector will serve as an effective way of eliminating uncompetitive banks

through an orderly process, compared with elimination through a slow and disruptive process of allowing

banks to exit the industry over time.

Page 36

Vietnam Commercial Banking Report Q1 2012

No Warning Signs... Yet

NPLs Of Selected Commercial Banks, %

Source: SBV, BMI

Greater Foreign Participation By Easing Foreign Ownership Rules

Back in February, we mentioned that increased foreign participation in the banking sector could benefit

the industry through the transfer of skills and knowledge on international accounting and management

practices (see our online service, February 15 2011, ‘Foreign Competition Forcing Banks To Catch Up’).

We believe that the SBV may ease foreign ownership rules to allow foreign banks to take a larger share in

local commercial banks, a move that would speed up the sector’s development, in our view. According to

a report published by Fitch Ratings, deals that are currently in consideration include the International

Finance Corporation’s proposed 10% stake in Vietnam Joint Stock Commercial Bank for Industry and

Trade (another 15% stake reportedly being considered by Bank of Nova Scotia), and a 15% stake in Joint

Stock Commercial Bank for Foreign Trade of Vietnam by Mizuho Corporate Bank. Other commercial

banks are also considering plans to raise more capital through issuing equity.

We believe that easing foreign ownership rules further should attract more foreign investors and pave the

way for more deals over the coming quarters. A lack of economies of scale due to a small market share

mean that small commercial banks will face significant difficulties in attracting foreign investors. Thus,

we see the Vietnamese government’s decision to consolidate small commercial banks as a positive move

that will support efforts to speed up the development of the banking sector. This is a crucial element that

will help local banks stay competitive as Vietnam continues to open up its banking sector to foreign

competition over the coming years.

Page 37

Vietnam Commercial Banking Report Q1 2012

Still Lagging Behind The Rest

VSI Financial Index, Ho Chi Minh Index (VNI) And Ratio

Source: Bloomberg, BMI

Banking Stocks Set To Underperform

Despite our positive long-term view on Vietnamese banks, we warn that economic uncertainties in the

near term continue to present significant downside risks to the sector’s performance over the coming

months. Risks of rising NPLs among smaller commercial banks could potentially have a ripple effect on

the broader banking sector. Thus, we believe that banking stocks will continue to underperform the

broader Ho Chi Minh Index over the coming months (see chart). On the other hand, cheap valuations also

suggest that banking stocks could outperform by a significant margin when economic conditions in

Vietnam start to improve, and we would view any meaningful weakness as a good long-term opportunity

for investors.

Page 38

Vietnam Commercial Banking Report Q1 2012

Economic Outlook

External Headwinds Prompt Downward Growth Revision

BMI View: We expect Vietnam’s real GDP growth for 2011 and 2012 to be much weaker than we

previously anticipated due to escalating economic headwinds in the US, eurozone and China. We are

increasingly concerned that the slowdown in manufacturing sector growth, which indicates weak demand

for Vietnamese exports, will be sustained over the coming quarters, presenting significant downside risks

to growth. Consequently, we have downgraded our real GDP growth forecast from 6.3% to 6.0% for

2011, and we expect growth to remain subdued at 6.5% in 2012.

Vietnam’s real GDP growth figure came in at 6.1% year-on-year (y-o-y) in Q311, in line with our view

that monetary tightening by the State Bank of Vietnam (SBV) and a reduction in public spending would

continue to be a drag on growth over the coming quarters. Meanwhile, downside risks to our outlook on

external demand - a sputtering economic recovery in the US, sovereign debt concerns in the eurozone and

a potential hard landing in China - have escalated significantly in recent months. Consequently, we have

downgraded our real GDP growth forecast from 6.3% to 6.0% for 2011 to reflect a deteriorating

economic environment that we expect to persist over the coming months. Looking into 2012, we believe

Vietnam’s real GDP growth will remain subdued by historical standards at 6.5% as weak economic

momentum spills over into H112.

Manufacturing Sector Activity Points To Cooling External Demand

Looking at growth rates across the three broad classifications of economic activity in Vietnam (see chart),

we note that there is a notable slowdown in industry and construction growth from 7.3% y-o-y in Q211 to

6.8% in Q311. This is largely due to a slowdown in the manufacturing sector. According to figures

published by the General Statistics Office (GSO), the manufacturing sector grew at a much slower pace of

7.1% y-o-y in Q311, compared with 9.1% in the previous quarter. To put into perspective the critical role

that the manufacturing sector plays in driving the economy, we highlight that the sector alone accounts

for around 22% of GDP, and manufactured goods make up slightly more than 50% of total exports. Given

that a large proportion of the sector’s output is exported, a slowdown in manufacturing activity suggests

that producers are anticipating weaker demand for Vietnamese exports over the coming months. We are

increasingly concerned that a sustained slowdown in the manufacturing sector over the coming quarters

would present significant downside risks to our outlook on external demand and, in turn, undermine the

government’s efforts to tackle a stubborn trade deficit.

Tight Labour Market To Support Private Consumption Growth

Despite growing risks of a sustained slowdown in the manufacturing sector, our view that private

consumption growth will remain resilient continues to holds. The manufacturing sector currently absorbs

around 14% of the labour force. In contrast, the agricultural sector remains the major source of

Page 39

Vietnam Commercial Banking Report Q1 2012

employment, absorbing an estimated 40% of the labour force. Given that the agricultural sector is

relatively more resilient during periods of an economic slowdown, particularly one that is mainly driven

by external demand, we believe that the unemployment rate will remain stable at historical lows of 2.5-

3.0% over the coming quarters. This, in turn, supports our view that resilient private consumption growth

will help to cushion a slowdown in net exports (we are forecasting private consumption growth to come

in at 6.5% and 5.8% in 2011 and 2012 respectively).

Investments Likely To Remain Depressed

Lending rates, which surged to around 25.0-27.0% in Q211 as a result of the SBV’s monetary tightening

since the beginning of the year, have fallen to around 17.0-19.0% in October. We believe that this is due

to a combination of a decline in demand for credit as well as easing inflationary pressures, which is

leading to a contraction in the spread between lending rates and the SBV’s current policy rate of 15.00%.

Although lending rates have fallen significantly, we are sceptical that this will provide a boost to gross

fixed capital formation (GFCF) growth. Firstly, current lending rates are at a historical highs, and credit

growth in the first nine months of the year remained low at 9.5%, below the government’s target of 17%.

Secondly, we believe that deteriorating global economic headwinds should have a negative impact on

investor sentiment, which should, in turn, depress foreign direct investment inflows over the coming

quarters. These negative factors should offset any positive effects that lower lending rates would have on

GFCF growth. Accordingly, we expect GFCF growth to slow from 7.0% in 2010 to 5.0% and 5.3% in

2011 and 2012 respectively.

Monetary Normalisation Could Come Sooner

On a more positive note, there is growing evidence that inflation has peaked (consumer price inflation

slowed to 22.4% in September from 23.0% in August). Thus, should inflation continue to ease over the

coming months, we believe that the SBV could embark on monetary normalisation much sooner than we

have previously anticipated. Falling commodity prices suggest that downside risks to economic growth

could become a greater concern for policymakers. Thus, we see upside risks to our outlook on real GDP

growth in 2012 (albeit this is not our core view) that the SBV would ease monetary policy in early-2012,

providing a boost to economic growth.

Page 40

Vietnam Commercial Banking Report Q1 2012

Table: Vietnam Economic Activity, 2011-2016

2011f 2012f 2013f 2014f 2015f 2016f

Nominal GDP, VNDbn 2 2,512,057.4 3,038,152.9 3,459,309.7 3,892,844.8 4,360,657.2 4,885,479.5

Nominal GDP, US$bn 2 121.9 149.1 174.7 202.2 232.6 267.7

Real GDP growth, % change y-o-y 2 6.0 6.5 6.9 7.3 7.3 7.4

GDP per capita, US$ 2 1,354 1,662 1,927 2,209 2,516 2,869

Population, mn 3 88.8 89.7 90.7 91.6 92.4 93.3

Industrial production index, % y-o-y, ave 1,4 14.0 15.0 16.0 16.0 16.0 15.0

5.0 5.0 5.0 5.0 5.0 5.0 Unemployment, % of labour force, eop 4

Page 41

f = BMI forecast. 1 At 1994 prices. Source: 2 Asian Development Bank/GSO, 3 World Bank/UN/BMI, 4 GSO

Vietnam Commercial Banking Report Q1 2012

Company Profiles

Vietcombank

Strengths (cid:131) One of the largest and longest established banks in Vietnam.

(cid:131) Clear competence in external trade.

Weaknesses (cid:131) Possible exposure to the effects of the early bursting of the asset price bubble.

Lack of an international strategic partner. (cid:131)

Opportunities (cid:131) A beneficiary of the further development of Vietnam’s banking sector from its low base.

(cid:131) Potential for listing in the medium to long term.

Threats (cid:131) More exposed than most major Vietnamese banks to the downturn in global trade.

Established in 1963 as a state-owned commercial bank, Vietcombank has paid-up capital of Company Overview VND3,955bn. It is the oldest commercial bank for external affairs in Vietnam and was the first

bank in the country to have a centralised capital management structure. It describes itself as an

‘interbank forex payment centre for over 100 domestic banks and foreign banks’ branches

operating in Vietnam’, and was the first commercial bank in the country to deal in foreign

currencies.

Vietcombank has expanded from its original role as North Vietnam’s foreign trade bank to

become one of the country’s largest universal banks. It is also an investor in a number of other

financial institutions, including Vietnam Export Import CJSB, Saigon Industrial and Commercial

CJSB, Gia Dinh CJSB, Military CJSB, International Commercial CJSB, Oriental CJSB,

Chohungvina Bank, Petroleum Insurance Company and Golden Insurance Company.

Vietcombank is a generally successful institution, achieving consistent profitability and good core performance. For FY09 profits came to VND4.46trn, which exceeded predictions by 31% and was to a large extent driven by the success of the Vietnamese economy as a whole. Vietcombank’s

loan portfolio grew by 25.9% year-on-year (y-o-y) in 2009, indicating a strong demand for credit in the region’s second fastest growing economy. This growth was in line with the national credit

growth target of 25%, but below overall national credit growth of 40%.

Despite the potential for overheating in the Vietnamese economy, the bank reported surprisingly

low levels of bad debts, with the NPL ratio at 2.54%. It expected this trend to be maintained,

predicting that the bad debts would fluctuate around 2.4-2.9% in 2010.

However, despite the bank’s track record of exceeding targets, the central bank turned down

Vietcombank’s application to increase its charter capital. This decision, which prevents

Vietcombank from expanding further, is understood to have been because the bank failed to find

an international strategic partner.

Website:

(cid:131) www.vietcombank.com.vn/en

Page 42

Company Data

Vietnam Commercial Banking Report Q1 2012

(cid:131) State-owned commercial bank, public listed company

Status:

Table: Key Statistics For Vietcombank, 2004-2008 (VNDmn)

2004 2005 2006 2007 2008

Total Assets 121,430,900 136,720,600 166,952,000 197,363,405 191,151,945

Loans & Mortgages 50,830,650 61,043,980 67,742,520 97,631,494 109,762,527

Total Deposits 85,339,460 109,637,200 119,778,900 141,589,093 127,015,694

Total Shareholders’ Equity 8,051,755 8,622,770 11,202,340 13,612,099 14,690,895

Page 43

Source: Vietcombank

Vietnam Commercial Banking Report Q1 2012

BIDV

Strengths (cid:131) One of the largest and longest established banks in Vietnam.

(cid:131) Regarded as an attractive partner by foreign banks and multilateral development banks.

Weaknesses (cid:131) Possible exposure to the effects of the bursting of the asset price bubble.

(cid:131) Corruption scandal in 2010.

Opportunities Joint ventures. (cid:131)

(cid:131) Potential listing in the future.

Threats (cid:131) Significant exposure to the downturn in global trade.

Loan portfolio growth caps. (cid:131)

Company Overview Originally established as the Bank for Construction of Vietnam in 1957, the Bank for Investment and Development of Vietnam (BIDV) took its current name in 1990. It was the first of the four

large state-owned commercial banks to be corporatised.

Until 1994, BIDV operated mainly as a state-directed development bank. However, it now

operates as a universal commercial bank providing currency, credit, banking and non-banking

services. It also acts as an agency funding projects with sources from domestic and international

financial institutions.

BIDV has aimed to diversify its loan portfolio, which focuses on five areas: traditional lending,

including syndicated loans, trade finance and guarantees; leasing; underwriting bond issues and

taking direct equity investments in companies; acting as a paying agent for overseas development agencies; and performing wholesale banking functions for the World Bank’s rural finance projects.

Joint ventures and affiliates of BIDV include: VID Public Bank (in conjunction with Public Bank of

Malaysia), Lao-Viet Bank (with Banque pour le Commerce Exterieur du Lao) and BIDV-QBE

Insurance (with Australian non-life insurer QBE).

In 2010, BIDV Insurance Company made an initial public offering (IPO). This was part of a

process by the company to prepare for the eventual acquisition of BIDV itself, as well as the firm’s search for an international partner. The insurance arm has shown impressive performance in

recent years, including 50% growth in FY09.

BIDV has also performed well, which can be largely attributed to the success of the Vietnamese

economy as a whole, particularly the industries associated with trade; one of the bank’s key areas of activity. The growth of BIDV and other banks’ loan portfolios was capped at 25% in FY10. This

government policy will put pressure on banks to rein in their growth.

Credit rationing by the government and interest rate controls arguably paved the way for the

corruption uncovered at BIDV. Deputy director, Doan Tien Dung, was arrested in early 2010 for

Page 44

alleged corruption.

Vietnam Commercial Banking Report Q1 2012

Website: Company Data

(cid:131) www.bidv.com.vn/English

Status:

(cid:131) State-owned universal commercial bank

Table: Key Statistics For BIDV, 2004-2006 (VNDmn)

2004 2005 2006

Total Assets 99,660 117,976 158,219

Loans & Mortgages 67,244 79,383 93,453

Total Deposits 67,262 85,747 113,724

Total Shareholders’ Equity 3,062 3,150 4,502

Page 45

Source: BIDV 2006 annual report

Vietnam Commercial Banking Report Q1 2012

VietinBank

Strengths (cid:131) One of the four largest state-owned commercial banks in Vietnam.

(cid:131) Clearly a partner of choice for international institutions.

(cid:131) Capable of sustaining growth in spite of the financial crisis.

Weaknesses (cid:131) Possible exposure to the effects of the bursting of the asset price bubble.

Opportunities (cid:131) VietinBank has a 20% market share in Vietnam in terms of total assets, and is too large to be ignored.

(cid:131) Possible listing in the long term.

Threats (cid:131) Possible exposure to downturn in global trade.

(cid:131) Predicted growth limited by state credit limits.

The Bank for Industry and Trade (VietinBank) was established in 1988 when it was separated Company Overview from the State Bank of Vietnam. It became a state-owned corporation in 1993. As one of the four

largest state-owned commercial banks in the country, VietinBank’s total assets account for more

than 20% of the market share of the whole Vietnamese banking system. VietinBank’s capital

resources have continued to increase over the years and have been rising substantially since

1996, with annual average growth of 20%.

VietinBank has developed a retail and administration network across the country. The bank’s

network operates in 56 provinces and cities, with a focus on large cities such as Hanoi (12

branches; two transaction centres), Ho Chi Minh City (17 branches; one transaction centre),

industrial zones, trading and economic parks, and densely populated areas. VietinBank is an

investor in other institutions such as Saigonbank, Indovina Bank, Vietnam International Leasing

Company and the VietinBank-Asia Insurance Company.

VietinBank intends to sell 20% of the bank to foreign institutions, to develop international strategic partnerships and provide extra funds for the bank. Its proposed partners are the Bank of Nova

Scotia and the International Finance Corporation, each acquiring a 10% stake in VietinBank. This

is expected to provide the bank with the foreign technical support necessary to continue its

impressive recent performance.

VietinBank’s FY09 gross profit of VND3trn was expected to grow by a third to VND4trn in FY10.

Its VND218trn loan portfolio is expected to grow by 30%. This is at odds with state credit policy.

The government has limited credit growth in Vietnam to 25%. Any serious attempt to enforce this will limit growth by the banks, affecting profitability and general growth. Similarly, any increase in

the non-performing loan (NPL) ratio will affect profitability; however, for VietinBank this is 0.6%, which is below average for the Vietnamese financial sector.

Website: www.vietinbank.vn

Page 46

Company Data

Vietnam Commercial Banking Report Q1 2012

(cid:131) State-owned commercial bank

Status:

Table: Key Statistics For VietinBank, 2005-2008 (VNDmn)

2005 2006 2007 2008

Total Assets 115,766,000 135,363,000 166,113,000 193,590,357

Loans & Mortgages 74,449,340 80,091,150 100,482,200 118,601,677

Total Deposits 84,387,020 99,683,410 112,692,800 121,634,466

Total Shareholders’ Equity 4,999,839 5,607,022 10,646,530 12,336,159

Page 47

Source: VietinBank 2008 annual report

Vietnam Commercial Banking Report Q1 2012

Agribank

Strengths (cid:131) Established as one of the largest state-owned commercial banks.

(cid:131) Massive branch network, especially in rural Vietnam.

Weaknesses (cid:131) Possible effects of the bursting of the asset price bubble.

Opportunities The size of Agribank’s branch network means that it is an attractive partner for any other (cid:131) financial institutions looking to cross-sell products to the mass market in Vietnam.

(cid:131) Possible listing in the long term.

Threats (cid:131) Perceived exposure to the downturn in global trade.

(cid:131) Credit rationing by the state will limit growth.

Established in 1988, the Vietnam Bank for Agriculture and Rural Development (Agribank) is a Company Overview leading commercial bank and plays a decisive role in capital investment in developing the

agricultural and rural economy, as well as other fields of the Vietnamese economy. Agribank has

over 35,000 staff and about 2,300 branches and transaction offices nationwide.

Agribank, in common with much of the Vietnamese banking sector, has achieved excellent

performance in the past few years. The gross profit for Agribank in FY09 stood at VND505bn, which exceeded the growth forecast by 56%. This performance is largely a reflection of Vietnam’s strong overall economic performance. Business grew at about 25% year-on-year (y-o-y), with

assets increasing in FY09 by 23.8% y-o-y and deposits by 27.59%. This deposit growth is a

promising indicator, as it allows for the possibility of increased lending without putting stress on

the capitalisation of the bank.

However, this will be frustrated by the limitation imposed on Agribank from the government, which restricted the bank’s loan portfolio’s growth to 20% over FY10. This will be a significant limit on

loan growth, which increased by 27% in FY09. It was expected that overall growth would trend

towards the lower end of the 30-50% FY10 growth that was estimated.

Agribank has completed a long-term financing agreement with the state oil company

Petrovietnam to provide financing at lower interest rates for the company to develop Vietnamese

oil resources. This could help Agribank establish more long-term relationships with major

businesses.

Website: Company Data

(cid:131) www.agribank.com.vn

Status:

(cid:131) State-owned commercial bank

Page 48

Contact: Tel: (+84-4) 8313694/7723248

Vietnam Commercial Banking Report Q1 2012

Table: Balance Sheet, 2004-2008 (VNDmn)

2004 2005 2006 2007 2008

Total Assets 161,757,200 192,319,500 238,495,000 321,444,100 400,485,200

Loans & Mortgages 129,204,00 151,655,200 181,253,000 246,188,300 na

Total Deposits 92,212,210 120,162,400 160,396,500 233,638,800 299,954,000

Total Shareholders’ Equity 483,619 781,031 2,565,545 10,627,680 17,798,090

na = not available. Source: Agribank, Bloomberg

Table: Balance Sheet, 2004-2008 (US$mn)

2004 2005 2006 2007 2008

Total Assets 10,255.32 12,081.89 14,853.95 20,068.94 22,907.12

Loans & Mortgages 8,191.47 9,527.28 11,288.80 15,370.44 16,526.96

Total Deposits 5,846.21 7,548.84 9,989.82 14,586.93 17,156.90

Total Shareholders’ Equity 30.66 49.07 159.79 663.53 1,018.02

Source: Agribank, Bloomberg

Table: Key Ratios, 2004-2008 (%)

2004 2005 2006 2007 2008

Return on Assets 0.16 0.51 1.61 0.59

Return on Equities 45.88 66.17 69.38 15.14

Equity/Asset Ratio 0.30 0.41 1.08 3.25 4.40

Page 49

Source: Agribank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

MHB Bank

Strengths (cid:131) MHB continued to sustain rapid growth despite the financial crisis.

Focused on particular areas (such as SMEs). (cid:131)

Weaknesses Lack of scale. MHB is the seventh largest bank in Vietnam but a small institution by (cid:131) international standards.

(cid:131) Rapid growth threatens to increase exposure to bad debts.

(cid:131) Vulnerability to a lack of liquidity within the banking system. MHB has been funding some of its growth through borrowing from other banks.

Opportunities (cid:131) MHB can continue to focus on rolling out a new core banking system, modernising the bank’s technology and working procedures.

(cid:131) Potential listing in future.

Threats (cid:131) Vulnerability to the direct or indirect impact from the downturn in global trade.

Company Overview Mekong Housing Bank (MHB Bank) was established in 1997. It is the seventh largest bank in Vietnam in terms of total assets and branch network. It has 180 branches and sub-branches in 33 provinces and about 2,600 staff.

MHB’s core business includes the granting of loans to SMEs, individuals and households,

especially asset-secured loans for construction companies to develop infrastructure for residential areas, particularly in the Mekong Delta. The bank is expanding its network as the government

aims to promote home ownership and development in other areas of the country.

The bank is no longer fully state-owned, after it made its first initial public offering (IPO) to

increase private involvement and provide access to new funding. The model has been successful, and in recent years the bank has been profitable, although much of this can be attributed to the

overall success of the Vietnamese economy.

The government has become increasingly concerned with the growth of the credit supply in

Vietnam and is trying to avoid the overheating of the economy at large. The government’s

determination to stop this happening resulted in a policy to limit credit supply growth to 25%. This

risks putting a cap on MHB and other banks’ growth, limiting the expansion of its loan portfolio

and slowing profitability.

Website: Company Data

(cid:131) www.mhb.com.vn/en

Status:

Page 50

(cid:131) State-owned commercial bank

Vietnam Commercial Banking Report Q1 2012

Table: Key Statistics For MHB Bank, 2006-2008 (VNDmn)

2006 2007 2008

Total Assets 18,734,297 27,110,786 35,162,410

Loans & Mortgages 9,976,585 13,756,662 15,947,869

Total Deposits 5,005,864 9,945,923 12,028,555

Total Shareholders’ Equity na 1,065,755 1,119,843

Page 51

na = not available. Source: MHB Bank 2008 annual report

Vietnam Commercial Banking Report Q1 2012

Eximbank

Strengths (cid:131) Valued by the major international banks that deal with it.

(cid:131) Emerged from the global financial crisis in a strong position.

(cid:131) By not recycling the rapid growth of deposits into new loans, the bank has reduced its loan-to-deposit ratio to less than 100% and is less dependent on borrowing from other

financial institutions.

It appears to be reducing its vulnerability to a lack of liquidity within the banking system; (cid:131) loans to other banks account for less than a quarter of its total assets. Funding from

other banks accounts for about 3% of the total.

Weaknesses Lack of scale. Eximbank is a fairly large bank in Vietnam but a small institution by (cid:131) international standards.

(cid:131) Potential for problems in the wake of the bursting of the asset price bubble.

Opportunities (cid:131) Potential for continuing growth from a low base.

Threats (cid:131) Vulnerability to direct or indirect impact from the downturn in global trade.

(cid:131) Profit growth is particularly threatened by government loan policy.

Vietnam Export-Import Bank (Eximbank), established in 1989, is one of the country’s largest Company Overview commercial joint stock banks in terms of owners’ equity. It has a nationwide network of 64

branches and its head office is in Ho Chi Minh City.

The Vietnamese financial sector has experienced strong growth in recent years, and still

Eximbank has performed far above trend for the sector, posting growth in gross profits in FY09 of

60.6% year-on-year (y-o-y) to reach VND1.14trn. This increased profitability was accompanied by an 80.8% y-o-y growth in Eximbank’s loan portfolio to a total value of VND38.38trn. Overall loan

portfolio growth for the whole sector was 27.7% and overall assets were up by 37% to VND66trn.

The bank’s growth is threatened by government concerns over credit supply. The government

limited credit supply growth to 25% in FY10. This risks putting the brakes on banks’ growth, which for Eximbank is largely fuelled by an expansion in its loan portfolio. However, the application of

such rules to Eximbank is likely to be less severe given its role in the export sector, which the

government is keen to promote and protect as much as possible from restrictive measures aimed

at preventing the economy from overheating.

Website:

(cid:131) www.eximbank.com.vn/en

Company Data

(cid:131) Commercial joint-stock bank

Page 52

Status:

Vietnam Commercial Banking Report Q1 2012

Table: Balance Sheet (VNDmn, unless stated), 2005-2008

2005 2006 2007 2008

Total Assets 11,369,230.0 18,323,770.0 33,710,420.0 48,624,110.0

Loans & Mortgages 6,427,689.0 10,161,270.0 18,378,610.0 21,232,200.0

Total Deposits 8,352,111.0 13,141,180.0 22,906,120.0 31,254,020.0

Total Shareholder Equity 835,539.0 1,946,667.0 6,294,943.0 12,844,080.0

Earnings Per Share, VND 2,379.00 1,052.00

Source: Eximbank, Bloomberg

Table: Balance Sheet (US$mn, unless stated), 2005-2008

2005 2006 2007 2008

Total Assets 714.3 1,141.2 2,104.7 2,781.2

Loans & Mortgages 403.8 632.9 1,147.5 1,214.4

Total Deposits 524.7 818.5 1,430.2 1,787.7

Total Shareholder Equity 52.5 121.2 393.0 734.7

Earnings Per Share, US$ 0.15 0.06

Source: Eximbank, Bloomberg

Table: Key Ratios (%),2005-2008

2005 2007 2008 2006

Return on Assets 1.7 1.8 1.7

Return on Equities 18.6 11.2 7.4

Loan/Deposit Ratio 80.6 67.9

Loan/Asset Ratio 54.7 43.7

Equity/Asset Ratio 18.7 7.3 10.6 26.4

Page 53

Source: Eximbank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

Sacombank

Strengths (cid:131) Strategic partnerships with Australia and New Zealand Banking Group and the International Finance Corporation, plus recognition and various awards from the

government and trade press.

(cid:131) Emerged from the global financial crisis in a strong position.

(cid:131) By not recycling the rapid growth of deposits into new loans, the bank has reduced its loan-to-deposit ratio to less than 100%.

The bank also appears to be reducing its vulnerability to a lack of liquidity within the (cid:131) banking system.

Weaknesses Lack of scale. Sacombank is a fairly large bank in Vietnam but a small institution by (cid:131) international standards.

(cid:131) Potential direct and indirect problems from the bursting of the asset price bubble.

Opportunities (cid:131) Potential for continuing growth from a low base.

Leverage of strong position in the SME lending sector. (cid:131)

(cid:131) Expansion into southern China and countries in the Association of Southeast Asian Nations.

Threats (cid:131) Vulnerability to direct or indirect impact from the downturn in global trade.

(cid:131) Vulnerable to government credit caps.

Saigon Thuong Tin CJSB (Sacombank) was incorporated in early 1992. It has been listed on the Company Overview Ho Chi Minh City Stock Exchange since July 2006. Its foreign strategic partners and shareholders include the Australia and New Zealand Banking Group (10% shareholder), the IFC (5.25%) and

Dragon Financial Holdings (8.73%). Foreign shareholders collectively own 30% of the bank. Its

network includes 247 branches and transaction offices in 44 cities. It also has a representative

office in Nanning, southern China, and a branch in Laos.

In 2008, the bank was restructured as a financial holding company. Its subsidiaries include

Sacombank Asset Management Company, Sacombank Remittance Express Company,

Sacombank Leasing Company, Sacombank Securities Company, and Sacombank Jewelry

Company. Associated companies include Viet Fund Management JSC, Saigon Thuong Tin

Investment JSC, Tan Dinh Import and Export JSC, Toan Thin Phat Architecture Investment

Construction Company, and Saigon Thuong Tin Real Estate JSC.

More than 50% of Sacombank’s loans are to small- and medium-sized enterprises (SMEs), which

the bank has targeted as its market. It intends to help SMEs undertake initial public

offerings (IPOs). These services have been combined with attempts by Sacombank to diversify

income sources away from the credit business. To a certain extent this has been successful, with

funds from these sources accounting for 25.5% of overall income.

Sacombank has, in common with much of the Vietnamese financial sector, performed strongly in

Page 54

recent years. This can largely be attributed to the success of the Vietnamese economy as a

Vietnam Commercial Banking Report Q1 2012

whole. Sacombank posted FY09 gross profits of VND1.9trn, exceeding the predicted figure by

19%. This trend is expected to continue as the Vietnamese economy continues to grow rapidly.

However, the success of Sacombank does partly depend on the outcome of increasing

government concern over the supply of credit. The government limited the growth of credit to 25% in FY10. While this would still allow for substantial growth across the Vietnamese financial sector,

it would place a limit on growth for Sacombank and other institutions. Sacombank will be under a

certain amount of pressure, given its focus on SMEs.

Website: Company Data

(cid:131) www.sacombank.com.vn

Status:

(cid:131) Commercial joint stock bank

Table: Stock Market Indicators, 2005-2009

2005 2006 2007 2008 2009 Dec 2 2010

Market Capitalisation, VND 15,043,772.00 29,139,732.00 9,413,129.00 16,147,851.00 13,768,845.52

Market Capitalisation, US$ 936.96 1,819.30 538.42 873.85 706.17

Share Price, VND 20,404.72 37,657.61 12,165.42 19,921.63 15,000.00

Share Price, US$ 1.27 2.35 0.70 1.08 0.77

Share Price, % change (eop) 84.91 -70.39 54.93

Change, year-to-date -14.67

Shares Outstanding (mn) 485.18 737.27 773.81 746.14 810.57

Source: Sacombank, Bloomberg

Table: Balance Sheet (VNDmn, unless stated), 2005-2009

2005 2006 2007 2008 2009

Total Assets 14,454,340 24,776,180 64,572,880 68,438,570 104,019,100

Loans & Mortgages 8,379,335 14,312,890 35,200,580 34,757,120 59,141,490

Total Deposits 10,467,160 17,511,580 44,231,940 46,128,820 60,516,270

Total Shareholders’ Equity 1,887,680 2,870,346 7,349,659 7,758,624 10,776,900

Earnings per share (VND) 624.77 758.09 1,846.09 1,235.72 4,459.64

Page 55

Source: Sacombank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

Table: Balance Sheet (US$mn, unless stated), 2005-2009

2006 2007 2008 2009 2005

1,543.11 4,031.52 3,914.58 5,629.05 908.05 Total Assets

891.44 2,197.70 1,988.05 3,200.47 526.41 Loans & Mortgages

1090.66 2,761.56 2,638.50 3,274.87 657.57 Total Deposits

178.77 458.87 443.78 583.20 118.59 Total Shareholders’ Equity

0.05 0.11 0.08 0.25 0.04 Earnings per share (US$)

Source: Sacombank, Bloomberg

Table: Key Ratios (%),2005-2009

2006 2007 2008 2009 2005

2.40 3.13 1.44 1.94 Return on Assets

19.76 27.36 12.64 18.25 Return on Equities

82.12 79.98 75.89 98.58 80.49 Loan/Deposit Ratio

58.10 54.79 51.15 57.35 58.29 Loan/Asset Ratio

11.59 11.38 11.34 10.14 13.06 Equity/Asset Ratio

Page 56

Source: Sacombank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

Saigonbank

Strengths (cid:131) Record of strong growth over the medium term.

Weaknesses Lack of scale. Saigonbank is a medium-sized bank in Vietnam but a small institution by (cid:131) international standards.

(cid:131) Saigonbank’s loan-to-deposit ratio has been relatively high compared to other banks.

Opportunities (cid:131) Potential for continuing growth from a low base.

Threats (cid:131) Vulnerability to impact, direct or indirect, from the downturn in global trade.

Saigonbank for Industry and Trade (Saigonbank) was one of the first commercial joint stock Company Overview banks in Vietnam, established in 1987 with initial chartered capital of VND650mn and an

operation duration of 50 years. Saigonbank increased its chartered capital from VND650mn to

VND1.02bn in 20 years as part of a growth-orientated policy.

Saigonbank, like much of the Vietnamese financial sector, has shown strong performance over

recent years. Most of this success can be attributed to the general success of the economy.

Saigonbank has posted strong profits, with profitability increasing year-on-year in FY09. It was

expected that gross profits in FY10 would reach VND900bn. However, this rapid growth will be

hindered by the government’s concerns over credit supply growth. The government limited this to

25% to prevent broader economic difficulties. Such a policy will cap the potential profitability of

Saigonbank in FY10.

Unlike many Vietnamese banks, Saigonbank does not have a foreign strategic partner for its

operations. This has led it to develop a different kind of modernisation programme, identifying its

own priorities. A major priority has been the development of internet banking services, as

highlighted by the decision to use SunGuard’s Ambit Online Banking to offer new online services

to customers. Saigonbank hopes moves like these will ensure it is not left behind by foreign-

Website:

(cid:131) www.saigonbank.com.vn

(cid:131) Commercial joint stock bank

Status:

Table: Stock Market Indicators

2004 2005 2006 2008 9M09 2007

Shares Outstanding (mn) 102.0

Page 57

Source: Saigonbank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

Table: Balance Sheet (VNDmn, unless stated)

2004 2005 2006 2007 2008

Total Assets 4,290,929 6,240,308 10,184,650 11,205,360 11,875,920

Loans & Mortgages 3,527,109 4,811,056 7,300,613 7,844,450 9,600,247

Total Deposits 2,830,064 3,947,700 6,466,654 7,164,714 8,481,534

Total Shareholders’ Equity 609,434 931,562 1,431,610 1,469,766 1,934,750

Earnings per share (VND) 2,432.00 1,581.00 1,572.00

Source: Saigonbank, Bloomberg

Table: Balance Sheet (US$mn, unless stated)

2004 2005 2006 2007 2008

Total Assets 269.56 388.66 635.86 640.93 642.67

Loans & Mortgages 221.58 299.64 455.80 448.69 519.52

Total Deposits 177.79 245.87 403.74 409.81 458.98

Total Shareholders’ Equity 38.29 58.02 89.38 84.07 104.70

Earnings per share (US$) 0.15 0.10 0.09

Source: Saigonbank, Bloomberg

Table: Key Ratios (%)

2004 2005 2006 2007 2008

Return on Assets 2.14 2.26 2.08 1.51 1.82

Return on Equities 14.74 15.47 14.43 11.12 12.34

Loan/Deposit Ratio 112.32

Loan/Asset Ratio 71.32

Equity/Asset Ratio 14.06 14.20 14.93 13.12 16.29

Page 58

Source: Saigonbank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

SeABank

Strengths (cid:131) Record of strong growth over the medium term.

(cid:131) Partnership with Societe Generale.

Weaknesses Lack of scale. SeABank is a medium-sized bank in Vietnam but a small institution by (cid:131) international standards.

(cid:131) SeABank’s loan-to-deposit ratio has been relatively high compared with other banks.

Opportunities (cid:131) Potential for continuing growth from a low base.

Threats (cid:131) Vulnerability to direct or indirect impact from the downturn in global trade.

South East Asia Commercial Joint Stock Bank (SeABank) was established in 1994. It aims to Company Overview become one of the leading joint stock banks in Vietnam and has a programme to modernise and achieve a sustainable competitive edge. After expansion in 2009, the bank has 126 branches and offices, most less than two years old. This programme is largely possible due to its strategic

partnership with Societe Generale, which owns 20% of the firm.

The bank’s targets for 2010 included: minimum total assets of US$3.125bn, minimum total capital

of US$500mn, at least 200 facilities open, 1mn customers, and 2,000 employees. The speed of expansion can be seen in the performance of SeABank in FY09. Overall loan portfolio growth was 122% year-on-year (y-o-y), reaching VND24.02trn. Total assets grew by 136% y-o-y to

VND30.8trn.

The likelihood of further rapid growth was increased by the decision to increase the charter capital of SeABank by 36% to a total of VND4trn. However, the bank’s rapid expansion has not been

completely free of problems. SeABank was one of the few Vietnamese financial institutions to fall

short of its FY09 gross profit target, with profits growing by 8% y-o-y to VND479bn.

Company Data

Website

(cid:131) www.seabank.com.vn

(cid:131) Commercial joint stock bank, subsidiary of Societe Generale

Page 59

Status

Vietnam Commercial Banking Report Q1 2012

Table: Balance Sheet (VNDmn, unless stated)

2004 2005 2006 2007 2008

Total Assets 2,283,813 6,124,938 10,200,420 26,241,090 22,473,980

Loans & Mortgages 530,767 1,347,680 3,353,999 10,994,810 7,506,934

Total Deposits 499,021 2,312,406 3,511,683 10,744,180 8,587,008

Total Shareholders’ Equity 161,473 291,776 1,055,536 3,366,458 4,177,114

Earnings per share (VND) 2,098.00 1,058.00

Source: SeABank, Bloomberg

Table: Balance Sheet (US$mn, unless stated)

2004 2005 2006 2007 2008

Total Assets 144.79 384.78 635.30 1,638.33 1,285.48

Loans & Mortgages 33.65 84.66 208.89 686.45 429.38

Total Deposits 31.64 145.27 218.71 670.80 491.16

Total Shareholders’ Equity 10.24 18.33 65.74 210.18 238.92

Earnings per share (US$) 0.13 0.06

Source: SeABank, Bloomberg

Table: Key Ratios (%)

2004 2005 2006 2007 2008

Return on Assets 0.95 1.21 1.64 1.32

Return on Equities 17.70 14.63 13.52 8.51

Equity/Asset Ratio 7.07 4.76 10.35 12.83 18.59

Page 60

Source: SeABank, Bloomberg

Vietnam Commercial Banking Report Q1 2012

BMI Banking Sector Methodology

BMI’s Commercial Banking Forecast Report series is closely integrated with our analysis of country risk,

macroeconomic trends and financial markets. As such, the reports draw heavily on our extensive

economic data set, 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. All of the risk ratings and

forecasts within this report are a result of BMI’s own proprietary research and do not in any

circumstances include consensus or third party numbers.

How Our Data Set Is Structured

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 do 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 do not include loans to governments, government (or non-

government) 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:

(cid:131) Total assets = total liabilities and capital.

(cid:131) Total assets = client loans + bond portfolio + other assets.

(cid:131) Total liabilities and capital = capital items + client deposits + other liabilities.

Page 61

Vietnam Commercial Banking Report Q1 2012

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 do not include them in our figures. The US is the main exception to this.

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.

Commercial Bank Business Environment Ratings

In producing our Commercial Banking Business Environment Rating, our approach has been threefold.

First, we have explicitly aimed to assess the market attractiveness and risks to the predictable realisation

of profits in each state, thereby capturing the operational dangers facing companies operating in this

industry globally. Second, we have, where possible, identified objective indicators that serve as proxies

for issues/trends within the industry to ensure consistent evaluate across states. Finally, we have used

BMI’s proprietary Country Risk Ratings in a nuanced manner to ensure that the ratings accurately capture

broader issues that are relevant to the industry and which may either limit market attractiveness or imperil

future returns. Overall, the ratings system, which integrates with all the other industry Business

Environment Ratings covered by BMI, offers an industry-leading insight into the prospects/risks for

companies across the globe.

Conceptually, the ratings system divides into two distinct areas:

(cid:131) Limits of Potential Returns: Evaluation of industry’s size and growth potential in each state,

and also broader industry/state characteristics that may inhibit its development.

(cid:131) Risks to Realisation of Returns: 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.

In constructing these ratings, the following indicators have been used. Almost all indicators are

objectively based.

Page 62

Vietnam Commercial Banking Report Q1 2012

Table: Commercial Banking Business Environment Indicators And Rationale

Limits of Potential Returns Rationale

Banking market structure

Estimated total assets, 2010 Indication of overall sector attractiveness. Large markets are considered more attractive than small ones

Estimated growth in total assets, 2011-2016 Indication of growth potential. The greater the likely absolute growth in total assets, the higher the score

Estimated growth in client loans, 2011-2016 Indication of the scope for expansion in profits through intermediation

Country structure

A proxy for wealth. High-income states receive better scores than low-income states GDP per capita

Those aged 16-64 in each state, as a % of total population. A high proportion suggests that the market is comparatively more attractive Active population

A measure of the general fiscal drag on profits Corporate tax

Standard deviation of growth over seven-year economic cycle. A proxy for economic stability GDP volatility

Risks to Realisation of Returns

Banking market 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

BMI’s Country Risk Ratings (CRR)

Rating from CRR, evaluating currency volatility Short-term financial risk

Rating from CRR, evaluating the risk of a sharp change in the broad direction of government policy Policy continuity

Rating from CRR, to denote strength of legal institutions in each state. Security of investment can be a key risk in some emerging markets Legal framework

Rating from CRR to denote ease of conducting business in the state Bureaucracy

Page 63

Source: BMI

Vietnam Commercial Banking Report Q1 2012

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 Weighting, %

Limits of Potential Returns, of which: 70, of which

– Banking market structure 60

– Country Structure 40

Risks to Realisation of Returns, of which: 30, of which

– Banking market risks 40

– Country Risk 60

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Source: BMI

Vietnam commercial Banking report Q1 2012