banking system in vietnam
TRANSCRIPT
Banking System in Vietnam
Member:Nguyen Viet NhanNguyen Thi Thu HuyenNguyen Thi Tuong VanNguyen Thi Thuy
Contents Vietnam Economics Overview Introduction banking system in Vietnam
Structure Regulations
Vietnam Banking Sector Banking asset Banking deposit Banking loan Credit market Capital market Financial market The rule of Government in driving economics SBV and its monetary policy
Opportunities and threats Risks Recommendations for banking system in the future
Vietnam Economics Overview
Annual GDP Income and Consumer Price index Inflation rate Interest rate FDI Import, export and Exchange Rate
Vietnam Economics Overview
Vietnam Economics Overview
Annual GDP
Vietnam Economics Overview
Vietnam Economics Overview Income and Consumer Price index
Gross National Income (Bill dongs)
0
200000
400000
600000
800000
1000000
1200000
1990 1995 2000 2001 2002 2003 2004 2005 2006
GNI (Bill dongs)
Vietnam Economics Overview Inflation rate
High rate due to:- Government of Vietnam
aim to control inflation rate which impact to its economy growth rate by appreciation the local currency
Unsuccessful, lead to higher inflation, especially in food and housing maintenance
- Negative real interest rate vs. inflation
Vietnam Inflation (%)
4.0% 3.2%
7.7% 8.3%7.5%
14.2%
19.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2002 2003 2004 2005 2006 2007 2008p
Vietnam Economics Overview
Interest rate Sharp rise in VNIBOR
in late 2006 reflected a slowdown in a local liquidity growth (including increased borrowing in domestic market and end of the year tax payments)
SBV set the ceiling interest rate – not over 12% for now
(VNIBOR: Viet Nam Interbank Offered Rates – Lai suat lien ngan hang VN)
Vietnam Economics Overview FDI Major goal of Vietnam's FDI policy
is to attract capital, advanced technology, and management skills in order to effectively explore the country's potential, increase savings, improve people's living standard and realize the cause of modernization and industrialization
By 2010, the government aims to achieve the increase investment relative to GDP to 40%, of which domestic capital accounting for 65% and external for 35%
Foreign Direct Investment (FDI)
0
5,000
10,000
15,000
20,000
2000 2001 2002 2003 2004 2005 2006 2007
Year
Mill
ion
US
D
0
500
1,000
1,500
2,000
Nu
mb
er
of
Pro
ject
s
Registered Capital Implemented Capital Number of Projects
Share of FDI by Economic Setor
Construction, 36%
Manufacturing & Trade, 34.7%
Others, 12.6%
Electricity, gas, and water, 10.5%
Transportation and Communications, 3.2%
Agriculture, 1.6%
Public Administration, 1.3%
Finance & Banking, 0.1%
Vietnam Economics Overview
Import, export and Exchange Rate Despite reduction of import tariff, strong FDI, Vietnam still face with trade deficit due to increase in
domestic consumption, higher import prices The decision of the State Bank of Vietnam to tighten monetary policy (raised the base rate to 8.75
percent from 8.25 percent, refinancing rate to 7.5 percent from 6.5 percent, and discount rate to 6 percent from 4.5 percent. ) Given the rise in inflation, widening of the trade deficit and increasing interest rate
Exchange Rate
14,504
15,06815,279
15,57915,745 15,858
15,99416,114 16,105
13,500
14,000
14,500
15,000
15,500
16,000
16,500
2000 2001 2002 2003 2004 2005 2006 2007 Apr 2008
Year
Dong
/ USD
Vietnam Economics Overview
Overall overview of economics in terms of sectors
Equitisation Schedule
Introduction Vietnam Banking System The State Bank of Vietnam
Being a Government agency and the Central Bank of the Socialist Republic of Vietnam; performing state management on monetary issues and banking activities; being the money issuer, the bank for credit institutions and doing banking services for the Government, the SBV works to aim at stabilizing the currency value, contributing to ensure the safety of the banking and financial system; promoting socio-economic development.
The SBV consists: SBV headquarter (based in Hanoi) SBV branch offices in provinces and cities Representative offices overseas
Introduction Vietnam Banking System Commercial bank system in Vietnam consists:
5 State-owned Commercial Banks (SOCBs) Bank for Foreign Trade of Vietnam (VIETCOMBANK) Industrial and Commercial Bank of Vietnam (ICB) Bank for Investment and Development of Vietnam (BIDV) Vietnam Bank for Agriculture and Rural Development (VBARD) Mekong Housing Bank (MHB)
34 joint-stock commercial banks Eximbank – ACB – Sacombank – VPbank - SBIT
4 joint-venture banks, Indovinabank – VID public bank – Vina Siam bank
35 branch offices of foreign banks and representative offices 6 Financial companies 10 Finance-leasing Companies Foreign Banks
HSBC - ANZ
Introduction Vietnam Banking System Market share
5 SOCBs: Vietcombank – Incombank – BIDV – Agribank – MH Bank
Introduction Vietnam Banking System Legal status
Vietnamese banks, branches of foreign banks, financial institutions as well as credit funds are operating under the Vietnamese law and are equally treated by the law.
Commercial banks have the right to control over their own financial matters, bear responsibilities for their own business results.
Deposits by the public are insured.. % Foreign shareholding
Total < 30% of chartered capital for SOCBs Total < 30% of chartered capital JSBs Not more than 50% of chartered capital for JVBs
Capital adequacy ratio 8% the same as international standard (Basel)
Credit Risk Compliance (CAMEL, BASEL): Required according to the regulation No 457/2005/QD-NHNN dated 19/04/2005 on prudential ratios on operation of credit institution
Treasury: All are subject to the same regulation Circular 03/2008/QD-NHNN dated 11/04/2008 on treasury services offered by credit institution. Under this regulation, banks which are subject to some conditions and permitted by SBV could
conduct treasury activities
Vietnam Banking Sector The 2007
Deposits at banks: grow 55% - over VND442.5 trillion Outstanding loans up 51% to almost VND347 trillion.
Joint-stock banks A market share of 46.3% in deposits and 46.8% in lending
terms, The State-owned lenders
Shares of 35.3% in deposits and 30.8% in lending terms
The central Bank expects for 2008 Deposit at banks grows 35-37% Outstanding loans grows 32-34% Profits grows 35-40%
Vietnam Banking Sector Financial activities grew 17.9% YoY in 2007, up from 16.8% in 2006 due to increasing
industry penetration, introduction of new technology (ATM cards) and continued banking sector reforms.
The banking sector’s contribution to GDP was 1.8% in 2007, unchanged from 2006. The number of existing bank accounts represents less than 10% of the population (c. 8m) The number of bank cards issued increased strongly with a CAGR of 268% over the 1996-
2006 period. This occurs despite the fact that domestic credit has more than tripled since 2000,
reaching approximately USD63bn at Y/E 2007. As part of its WTO commitments, Vietnam’s banking sector is gradually opening up to
foreign banks. In 2012, foreign banks with minimum assets of USD20bn will be able to set up a bank in Vietnam and operate under the same regulatory requirements as domestically owned banks. The SBV has recently approved in principal the establishment of two 100% foreign-owned banks, HSBC and Standard Chartered Bank.
Vietnam Banking Sector - Assets Banking asset
Domestic banks must have a registered capital of 1 trillion dong to be qualified to sell shares to foreign banks. Vietnam caps foreign ownership of a domestic bank at 30% with a 15% limit for a strategic investor.
A foreign bank can own 10% and a non-bank investor that is not a strategic investor can own 5%. In exceptional cases, the government could allow a foreign strategic investor to own 20% of a Vietnamese bank .
10% of Vietnam's 85 million people have bank accounts There are 4,000 bank branches, half of them belonging to Agribank, Vietnam's largest enterprise.
The central bank has given initial approval for nine banks to start operations. Oil and Gas Bank Lien Viet Bank Bao Viet Bank FPT Bank Energy Bank Asia Foreign Trade Bank Vietnam Star Bank Dong Duong Thuong Tin Bank Bao Tin Bank
Lien Viet Bank, or the United Vietnamese Bank, which has aregistered capital of 3.3 trillion dong and has Agribank, Vietnam's largest bank, as one of its co-founders, had said it would start operations in late April.
Vietnam Bank Asset
22.227.3
3237.1
05
10
15202530
3540
2003 2004 2005 2006
Vietnam Banking Sector - Deposit
Deposit is increasing Racing interest rate among banks to attractive capital
Vietnam Bank Deposit
12.7 14.517.3 19
22.226.1
30.4
35.7
41.8
0
5
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007 2008 2009
Bill
ion
US
$
Vietnam Banking Sector - LoansLoans for real estates and securities:
SVB warnings to stop loans for real estates and securities Weak liquidity of mortageable stocks in security market
Consequences: Loans for import activities and commodity demand are prioritized Loans for consumption is continued to apply in big-scale banks
Outstanding loans continues in decline Deflation purpose of SVB Effective investment will be focused by debtors due to high
interest rate and too difficult for any long-term loans. No signal of recovery in real estates and security market in 2008 End April 2008 outstanding loans increasing by 14.73% vs end year
2007 while targeted level is 35-37% for full year 2008. April 2008 outstanding loans increasing only 1,66% vs March.
Vietnam Banking Sector – Credit Market
In the first quarter of 2008 Banks' mobilized capital: VND518.5tril Total outstanding loans: VND460tril
the loaned sums accounted for 88% of mobilized capital, a very high proportion.
Vietnam Banking Sector – Capital Market The banking & financial services sector contributed 12% (USD2.0bn) to total market
capitalization on the HOSE as at end-Feb 08, the same percentage as at end-January 2007 (USD1.8bn)
There are 2 exchanges Ho Chi Minh City Security Trading Center (HOSTC) began operations in 2000
30 list firms in 2005 – 110 in early 2007 The value: US$4bn by the end 2005 – US$13.4bn at the end of 2006 – close to
US$17.6bn as of April 2007 An over-the-counter exchange in Hanoi (HSTC) started in 2005
77 firms by the end of 2006 Total exchange value: US$677m
In value and daily turnover Foreign participation: 25%
Ownership Foreigner: 49% Banks: 30%
Vietnam Banking Sector Joint Stock Banks
ACB and Sacombank are very strong in service offering For most banks, interest income accounts for more than 50% of
total income Increases in non-interest income are caused by expansion of non
lending activities
Deposit VS Loan of JSB Key Players (2007)
3.01
1.98 2.13
1.05 1.15
0.59
1.201.43
1.84
3.89
0
1
2
3
4
ACB Sacombank VIB Eximbank Habubank
Bill
ion
US
Dol
lar
Deposit Loan
Vietnam Banking Sector
Foreign Banks with their market share HSBC acquired 15% share in Techcombank ANZ acquired 10% share of Sacombank is 10% Standard Chartered acquired 15% share of ACB
Foreign Bank in Vietnam
3,906 3,750
106
12,500
9,063
5,344
150
13,438
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Deposits Loan Income Assets
Mil
lio
n U
S$
2006 2007
The rule of Government in driving economics Supporting the stock market
Government asked SBV to boost foreign exchange purchases, including indirect foreign investment inflows; ensure sufficient dong liquidity by offering a rediscount rate at 9%; and to request banks to hold back on the sales of collateralized stocks and repurchase agreements
the government narrowed the intraday share trading band to +/-1.0% from +/-5%, effective 27 March, which left the market virtually illiquid
Attracting more foreign capital Raised the foreign investor limit on
nonlisted companies to 40% from 30% have pushed the VND into overvalued territory – nominal appreciation combined with rapid inflation is pushing the real exchange rate higher while the trade balance deteriorates alarmingly
The rule of SBV in driving economics
Monetary tightening leads to liquidity crunch The SBV increased the reserve requirement by 100bps to 11% and raised the discount, refinancing and
base lending rates by 150bps, 100bps and 50bps, respectively, to 6%, 7.5%, and 8.75% interbank overnight rates rose as high as 40% at the height of the liquidity crisis
The SBV announced its decision to require banks to buy VND20.3bn worth of treasury bills by 17 March By approving for establishing of 21 joint stock banks help the SBV control credit growth and curb
inflation, particularly without a proper regulatory system in place Controlling the inflation
SBV widened the FX trading band to +/-1.0% from +/- 0.75% to fight inflation widen the trading band to try to reduce the need for the SBV’s intervention in the FX market, thereby easing the burden of sterilization.
Higher interest rate: On May 18th 2008, SBV remove the deposit rate cap of 12% which allow commercial banks to lift deposit and lending rate up to 18% (150% of prime rate) this help to reduce the gap between nominal interest rate and inflation rate, attract more deposit and ease the liquidity pressure.
Credit control: strict monitoring on credit quality, tighten loans for stock trading, property investment and consumer finance
Exchange rate: maintain a downward crawl against the USD, slow down the depreciation pace
Vietnam Banking Sector - Opportunities High potential market: increasing demand on banking
service and capital (10mil. Bank account, 5 mil. ATM cards)
Very interested market for credit cards (while almost people have habits of using cash
Barrier is gradually removed for equitization and
privatization process.
(1) Economic risk Inflation increasing Interest rate rise Economic overheating threatening
sustained economic growth over the medium term (Credit growth has risen to about 50 percent, contributing to a rise in inflation, which exceeded 14 percent in January 2008)
Vietnam Banking Sector - Threats
Weakness of Banking system: Poor performance for Vietnamese banks- Low competitiveness- Weak finance resources- Small scale- Low quality and efficiency- Low professional management skills- Low technology Poor risk management- Problem of bad loans- Poor credit appraisal skill of staff and loan
monitor system
Vietnam Banking Sector - Threats
(2) Financial risk Current account deficit: Sharp
widening of the trade deficit (external current account deficit is about 10 percent of GDP in 2007 and that its financing shifted toward capital flows other than foreign direct investment and aid flows)
Vietnam Banking Sector - Threats
(2) Financial risk Liquidity risk: - Current policy regime from SBV: credit limit of 30%
Cash shortage- Impact from real estate market
Vietnam Banking Sector - Threats
Threats from joining WTO
- High credit risk, small scale in asset and equity, less competitiveness, weak management Bankruptcy
- Challenging from maintaining market share and expand internationally
- Inadequate and inefficient law system
-Growing competitive pressure in domestic market for banking
Vietnam Banking Sector - Threats
Recommendations Completing legal framework for banking (include law on state bank and credit
institution to be in line with the socio-economic development, strategy for banking system development, develop and effectively operate the money market)
Building a safe and efficient banking system in Vietnam- Financial restructuring: more chartered capital required for commercial banks- Banking supervision and inspection restructuring: Expansion plan, technology modernization, competitiveness improving Following international standards in risk management, asset and liability
management, capital management, modern credit system and credit manual based on international standard
A reduction in the government’s growth target would add credibility to the central bank’s anti-inflation policy by explicitly noting that the trade-off between growth and inflation
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