Tiểu luận Quản trị kinh doanh: Managing And Using The Capital In Saigon Hanoi Comerci Al-Jointstock Bank

- Loss current year + Excess translation of overseas branches - Excess of translation of financial statements of overseas branches + Funds paid up capital - Decrease in value of investme

VNU- UNIVERSITY OF ECONOMICS AND BUSINESS

FACULTY OF BUSINESS AND ADMINISTRATION

MANAGING AND USING THE CAPITAL IN SAIGON HANOI

COMERCIAL-JOINTSTOCK BANK

Supervisor's name: Dr Hung Nguyen The

Student’s name: Ly Dinh Thi Huong

Student ID: 10050064

Intake: QH2010-E

Program: International standard

Hanoi — May, 2014

learning is not just based on theory.

Though the Internship time lasts only one month, thanks to the help of the employee

at Saigon Hanoi commercial jointstock bank, I have learned a large of practical

experience, espeacially in bank field Based on experiences and self-study knowledge,

] have finished the internship report well

I would like to thank the Dean of the Faculty who has created highly valuable

opportunity for us The experience that we go through will be helpful after wegraduate Especially, | express heartfelt thanks to Dr Nguyen The Hung — who hasguided and helped me complete this report

Student

DINH THI HUONG LY

Table of Contents

LIST TABLES eee eR iii

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ABSTRACT ccceccsssosscsnnsecenrentencsensennsnacensenessossenenscenenesencsenenssscsenssarseessessasesenens V

CHAPTER 1: LITERATURE REVIEW Q1 1 nh nho 2

| 1 Concepts of bank Capital STHGEUTE soueaeueabagioioiaoitilglogöii053EGG09-003880G 33332 an 2

Components of Bank’s capital c1 2211221112112 112 1 21112 1 2 111g ng re 2

Ll) Ore Capital WHIGH ICG eS SzssstoEsodtoiutSeddidoisdiibjoceRBneuasgg 2

1.1.2, Supplementary Capital sescsvsszccosessesveeswsmaaasvewssovavsecsswwesriseavsaeasvervenewen 5

1.1.3 Additional Supplementary CapifalL . -cccc series 9

| 2 Capital management in Banking System sscsvesoscacsessenmesesioncnimerincnes 10

DA c0 a6 “dLÕA-Ö53Ă 1]

L222, RISK0THAHBGIIIGTIELiosncvsillii1160602614/S00300846358SEE4ISRSEERGSIEEEGDVSSGĐSSRSQGSVSVE8DSRViUSgi 17

D0000 32)09010000/3000 20 1n e.- 19

CHAPTER:2: METHODOLOGY ta gu gác n2 020011000040 G1661540104089060868l060089382g044 22

2.1 Research context:“Saigon Hanoi commercial - joistock Bank`" 22

2.1.1 Summary of the process of formation and development of the Sai Gon

Commercial Bank - Hanoi, Hanoi Branch -:+s-s+s+s+sccss+sexrvessexsres 22

Sak: TƯ NWWHEDNIEEHĐỦEsnotorounulootoloobsolSÐSSGISESGGEPGGGHNSSEG-G0N80 00306880006 29

2.2.1 Defination of Quantitative research method, -<<<xc<5 29

2.2.2 Steps in Quantitative method - -.c scc s22 1 12x srrrxrrsrrsrrrxee 29

CHAPTER.3: RESEARCH RESULTS AND ANALYSIS sssssciucscccsvssssnsvssescuveessaves 3l

3.1 Managing and using capital in SHB bank-Hanoi branch 3 |

SvLl, Capital TaIsin® activities sxcwnnenmememarcmean aera 3l

3.1.2 Credit Operations cocsccczcv666660266656266066664006661561364440254083013601449800161165386ã301644E46 506 343.1.3 Foreign currency trading Operation cc ccececeeeseesseeteeeaeeseeeseeeseeeenee 37

3.1.4 Bankinp Opera ONS scx sasceesssnaresecsanereeenns eae aeRO RRS 38

52 ‘Dreasary Fundiand Cash op eratinns icnissccsmassnescmcxexexomannontnesnonuanssnesen 39

3.1.6 Debt management and risk management acfIVI{I€S ‹‹-s5+s-+2 40

3.2, ResHHs: GỀ operations ÏH-TECGHẾ!VEHẨNGuuuccnnnoogggg 200 522 024109600006303000036506 400 4]

3.2.1 Encouraging achivement of SHB Hanoi branch -+<+-s+++ 4]

3.2.2 Assessing the credit quality in SHB Hanoi branch 42

SOLUTION TO IMPROVE THE QUALITY OF USING CAPITAL IN SHB 49

4.1 Development Orientation of the Hanoi branch SHB in the next years 49

LIST OF TABLES

Table 1-1 The various ratio types, formula, classification and significance 12

Table 3.1 status of raising capital and the capital structure of shb hanoi branch 32

Table 3.2 Status of credit operations inSHB-Hanoi Branch, 2010-2013 35

Table 3.3 Status of foreign currency trading in SHB Hanoi Branch 2010-2013 37

Table 3.4 Performance results SHB business in Hanoi from 2010 to 2013 4]

Table 3.5 Proporation of outstanding loans have security aSS€fS 42

Table 3.6 Proportion of overdue debt over total debt - -:s:s:s+>++s+>: 44 LIST OF FIGURES Figure 2-1 SHB Organization Structure - Hanoi Branch -.+c<cccsccc<es 24 Figure 3-1 Raising capital in SHB Hanoi branch eee eececceeseeceeeeneeeteeneeeeeeees 33 Figure 3-2 Outstanding loans of SHB Hanoi in the period 2010-2013 36

Figure 3-3 Proporation of outstanding loans have security assets (percentage) 43 Figure 3-4 Comparation total rasing fund and total debt .c<cccccxeses 48

LIST OF ABBREVIATIONS

Abbreviation Description

Ltd Limited company

SME Small and medium enterprise

SHB Saigon Hanoi commercial - joistock Bank VND Vietnam dong

After the East Asian crisis, there has been a renewed interest in both academic

and policy circles about the role that bank weaknesses play in contributing to

systemic banking crisis In this situation, the role of management in bank is veryimportant, especially management capital To access the quality of managing and

using capital in Saigon-Hanoi Joint stock commerce bank, my thesis has collected financial data in a Branch of this bank (Hanoi branch) from 2010 to 2013 and

processing analysis Through accessing six main activities of Saigon-Hanoi jointstock commerce bank, the reality of managing and using capital was analyzedclearly The last chapter, | would like to give some recommend that I think shouldhelp to improve managing capital task in Hanoi branch of SHB in order to usingefficiently capital and get higher business profit

In recent years, Vietnam's financial markets is witnessing a rapid development

of the commercial banks There is a commercial banks increasecontinuously in

capital, credit debt, network expansion activities Banks effort to improve the

operations to be able to stand certainly in the urgent needs of economic andsocial life of our country and the fierce competition of domestic market and international market Stemming from the urgent requirements, Commercial banks have to build a

search and raise capital strategy and, simultaneously, to properly manage capital to

continue to strengthen and expand market share, enhance competitiveness and potential of the bank source In addition, the effective use of funds would help

banks to develop sustainable and avoid wasting funds raised

In the framework of the project " Managing and using the capital in Saigon Hanoi commercial - joistock Bank”, | would like to solve four chapters The first

chapter presents theories of bank capital and mananging capital in the banking

system in general terms The second chapter consider to introduce research context

and analysis method and the third chapter is based on the actual situation analyzed

through six main activities of Saigon-Hanoi Joint stock commerce bank Those are:

Capital raising activities, credit operations, foreign currency trading operations,

banking operations, treasury fund and cash operations and debt management and

risk management activities And the last chapter which provide solutions for capital

formation and capital management for SHB Hanoi branch effectively

During the writing process, I certainly would not avoid these shortcomings, |

look forward to the comments of teachers and your helps will make my project

more complete

CHAPTER 1: LITERATURE REVIEW

1.1 Concepts of bank capital structure

Bank capital serves as an important cushion against unexpected losses Itcreates a strong incentive to manage a bank in a prudent manner, because the bankowners’ equity is at risk in the event of a failure Thus, bank capital plays a critical

role in the safety and soundness of individual banks and the banking system.

Bank capital is often defined in tiers or categories that include: shareholders’

equity, retained earnings, reserves, hybrid capital instruments, and subordinated

term debt Capital ratios are commonly measured as a percent of bank assets or weighted bank assets

risk-Components of Bank’s capital

Components of the Bank’s capital consists of

@ Core capital (tier 1)

e Supplementary capital (tier 2)

e Additional supplementary capital (Tier 3)

e Reduced by investments and goodwill

Component of core capital (tier 1 capital), supplementary capital (tier 2 capital)and additional supplementary capital (tier capital 3) described below

hed d Core Capital which includes:

a Paid-in capital, consisting of:

(+) Authorized

(-) That have not paid up capital

b Additional reserve capital, comprising

(+) Paid-in

(-) Discount

(+) General reserve

(+) Backup destination

(+)Year profit last year (after tax)

(-) Loss years ago (including the effect of the recognition factor

Deferred tax assets and other)

(+) Current year profit after tax (50%) — (including tax accounting adjustment

factors, the impact of the recognition of deferred tax assets and lack of formation of PPAP and others).

(-) Loss current year

(+) Excess translation of overseas branches

(-) Excess of translation of financial statements of overseas branches

(+) Funds paid up capital

(-) Decrease in value of investments in the portfolio available for sale

(-) Goodwill

We also could understand as:

Tier | Capital is calculated as follows:

(+) Permanent shareholders` equity

(+) Disclosed reserves (including retained earnings)

Less: Goodwill

Permanent shareholders’ equity (Satutory Capital)

This is the capital amounts stated in the operating charters commercial banks.[he Satutory capital of each bank is formed due to the nature of bank ownership,that mean the funds can provideby the government or raise from individuals insociety

If it were the state commercial banks, equity would be provided by state budget

at the inception

If it were the Joint stock commercial banks, equity would be contributed by theshareholders in the form of shares issued (Common stock and perpetual preferred

shares)

If it were the Joint Venture Bank, equity would be the contribution of the bank's

stake In joint venture

If as the foreign bank branches operating in Vietnam, equity would be provided

by a foreign parent bank.

Not included in this indicator is the amount of capital committed owners but notsufficient, contributing enough

Satutory Capital more or less depend on the financial capacity of the owner and the different of intention, scale and scope of each bank Each bank's saturory capital must be at least equal to the minimum capital amount prescribed by law, is the

capital under government regulations in each period for each type of bank Duringoperation, the bank may increase its charter capital but to publicize the new charter

capital Stock specific banks may issue additional shares, state-owned banks may

apply for additional capital budget to expand the scale of operations, cope with

form of headquarters, offices, warehouses, vehicles, equipment, or margin reserves

at the central bank or invest in any business

The Reserve Funds:

Additional reserves fund: is extracted from the annual net profits of commercial

banks in a certain percentage depending on your bank laws aimed at strengthening

the initial equity

Financial reserve fund: to cover risk in the normal course of business in order to

secure the bank's charter fund

Professional development Fund: is established for research, training anddeployment of new services

Financial reserve fund and professional development fund is appropriated fromthe profit after tax The appropriation and use of these funds comply with the

provisions of law in each period

Undistributed profits

For commercial banks, net profit after tax and offseting the special costs,usually divided into two parts: one part would be shared to shareholders on thewalue of the shares and another be an additional section on capital owners under thename "accumulated profits" This section essentially owned by the shareholders, but

are capitalized to expand the scale of equity Undistributed profits of joint-stock

credit institutions must be passed in Meeting of Shareholders

For state-owned banks, after-tax profits after deducting losses (previous year)

and the special costs additional equity in accordance with State regulations

Share Capital Surplus

During operation, the bank's share price could be greater than face value When

banks issue new shares, the difference between the market price and par value is

recorded under the name of capital surplus

* Limit of the determination of Tier 1 equity capital: Equity Tier | to subtractthe value of goodwill

Goodwill

Good will is the difference between amount (greater than) of the purchase of

financial assets and the accounting book value of financial assets Financial assets

are fully reflected on the balance sheet of credit institutions

Tier | capital is used as a basis for determining the limit of buying shares,

investment in fix assets of credit institutions

„1.2 Supplementary Capital

Supplementary Capital (100% of Core Capital — Tier 1) that includes:

a Revaluation reserves (revaluation of fixed assets)

b General reserve PPAP (miscellaneous liabilities and off balance sheet)

c Loan capital

d Subordinated loans (maximum 50% of Core Capital — Tier 1)

ce Increasing the share price in the portfolio available for sale (45%)

Tier 2 capital is also calculated as follows:

(+) General Provisions/ General loan-loss reserves

(+) Revaluation Reserves

(+) Hybrid (debt/equity) capital instruments

(+) Subordinated term debt

(+) Undisclosed reserves

Less: Investments in unconsolidated financial subsidiaries

Less: Investments in the capital of other financial institutions

The added value of fix assets and increased value of investment securities

(including investment securities, equity) are revalued in accordance with the laws

It is set to the re-evaluate fund

The market value of assets may change over time due therefore reassessment of cap tal assets is not stable, so the part of added value of assets will only be included

in lier 2 capital of the banks Specifically, only taking 50% of the increased value

of fix assets and 40% of the added value of investment securities revalued in

accordance with law

General Provision

Sales of banks is always associated with risk Therefore, banks are setting up of

reserves to cover losses General provision is the money seted aside to provision for

losses not identified in the loan classification and provisioning and in the specific

case of financial difficulties of the bank when the quality of debt declining Thesetine up and using the general provision is made under the provisions of law.Urder current regulations, the amount of general provision is included in Tier 2

ca»ital up to 1.25% of total risk assets

If the bank's actual loss is less than the deduction, the equity will increase and

reverse Some banks do not include this fund in equity but in debts due to the origin

ofthe funds is deducted from gross income as an expense and if necessary will bespent to offset losses.

Prefer shares, the convertible bonds, debt instruments and certain other should

be accepted by the State Bank

This is essentially long-term debt capital which be contributed by outside

investors So bank managers only calculate these toolsin Tier 2 capital when it

satisfy the conditions stipulated by the State Bank on the term about the guarantee

of the issuing bank, the interest rate adjustment, the principal and interest payments.Specifically:

Convertible bonds or prefer shares issused by credit institution satisfies the

following conditions:

Initial Term, the remaining period before the conversion into common stock of

at least 5 years

Not be secured by the assets of credit institutions

Credit institutions shall not be redeemed at the request of the owner or acquired

on the secondary market, or credit institution is acquired only after being approved

by the State Bank in writing

Credit institutions are stopped paying interest and accumulated interests

transferred to the following year if the interest payment will result in a loss ofbusiness

In case of liquidation of credit institutions, who owns convertible bonds are

paid only after the organization has paid credit to all unsecured creditors and otherunsecured.

The interest rate adjustment shall be made only after 5 years from the issue date

and are adjusted during the term once before conversion into common stock

The other debt instruments satisfy the following conditions:

As debts where creditors are subordinate to other creditors: in all cases,

creditors are paid only after the organization has paid to all unsecured and secured

creditors

There 15 an initial term minimum of 10 years

Not secured by the assets of credit institutions.

Credit institutions are stopped paying interest and accumulated intereststransferred to the following year if the interest payment will result in a loss of

business.

Creditors only credit institutions early repayment after being approved by the

State Bank in writing.

The interest rate adjustment shall be made only after 5 years from the date of

signing of the contract and is adjusted once during the term of the loan

The increase in this type of capital has many advantages for bank managers donot like change control, restrict dividend reduction

* However, when determining the total equity capital adequacy ratio to

calculate the minimum, banks must deduct from tier 1 capital and tier 2 capitalcertain items as follows:

The entire diminished value of fixed assets

The entire diminished value of investment securities (including investmentsecurities, equity)

Total capital of banks to invest in other banks in the form of capitalcontribution, purchase share and the total investments in the form of capital

contribution and share purchase in order to seize control of the business activities in

insurance sector securities

An excess of the equity capital of banks with capital contributions, purchase of

shares (excess of 15% of the equity capital of banks with capital contributions,

purchase of shares in a business of credit institutions, investment funds, projects andthe investment in excess of 40% of the equity capital of banks with total capital

contributions, purchase of shares in the business of credit institutions, investmentfunds, investment projects, except share exceeded 15% were excluded from own

capital above)

Business losses (including accumulated losses)

To) Additional Supplementary Capital

Additional Supplementary Capital (Capital Tier 3)

Additional Supplementary Capital (Capital Tier 3) is a Short Term Subordinated

Loan, which is used in calculating the market risk exposure, which meet certain

criteria as capital component.

A Additional components Supplementary Capital (Tier 3 capital) can only beused in calculating the capital adequacy of market risk exposure, if it fulfills the

following constraints:

1) Number of Additional Supplementary Capital (Tier 3 capital) does not exceed250% of the Core Capital (Tier 1 capital) allocated for market risk that comes fromexcess Core Capital (Tier | capital) that has been used to calculate credit risk andwill allocated for market risk Thus, at least 28.5% of the market risk must be

calculated from Core Capital (Tier | capital) are not used to calculate credit risk

exposure arising from the calculation of risk weighted assets

2) The number of Supplementary Capital (Vier 2 capital) and Additional

Supplementary Capital (Tier capital 3) a maximum of 100% of Core Capital (Tier 1

capital)

B.Complementary capital is not used for the calculation of credit risk to qualify

as Supplementary Capital (unused but eligible Tier 2) can be added for additionalSupplementary Capital (Tier 3) that they meet the requirements referred to in item a

above.

C Part of the general reserve Elimination of Productive Assets in excess of

1.25% of RWA can not be added to Additional Supplementary Capital (Tier 3)

D Subordinated Loan as set forth in applicable regulations and exceeding 50%(fifty percent) of core capital (Tier 1) can be used as a component of AdditionalSupplementary Capital (Tier 3) to remain in compliance with the requirementsreferred to in item 1

E Short-term subordinated loans that can be considered as Additional

Supplementary Capital (Tier 3) as referred to in item 2 is a loan that must at least

meet the following criteria:

1) not secured by bank accounts and are fully paid.

2) has a term of at least 2 (two) years

3) can not be paid prior to the scheduled date stipulated in the loan agreement

except with the consent of Regulatory

4) there is a clause binding (lock-in clause) which states that nothing can be done

principal or interest payments, including payment on the due date, if payment is

intended to cause the Bank’s capital adequacy does not comply with applicable

regulations

5) there is clearly a loan agreement, including repayment schedule

6) obtain prior approval from the Regulatory.

F Short-term subordinated loan referred to in point h is not necessary

amortized

G According to the above points a, component Additional supplementary

capital (tier 3) may only be used for the calculation of capital adequacy to market

risk In connection with the definition of Capital Bank in terms — other terms shoulduse the capital as described in item | above for example in the calculation of theLLL, Limits Number of Investments and PDN

1.2 Capital management in banking system

The objective of capital management is to optimise the Bank capital structuregiven the adopted risk profile

Bank's capital-management objective as well as its risk appetite is based on its

ability to reach a solvency ratio sufficient for the Bank to continue its lending

activities during a period of difficult business conditions The available capital must

be such that regulatory and internal capital requirements are met during such a

period, and it must be possible to weather heavy unexpected losses

Ratio Analysis involves measuring the proportional relationship between two

single amounts These may be selected from one financial statement, such as thestatement of income, or from two statements such as the statements of income andfinancial position The amounts may represent the balances of two different

accounts, the balance of one account and a classification total, such as total assets,

or two classification totals

In evaluating the significance of ratios, consideration must be given to the

purposes for which the ratios are to be used Investors, creditors and managers

encounter different kinds of problems and decisions Therefore, different ratios are

often meaningful to each group of users within the specific decisions that are to be

made

The following five categories of financial analysis ratios are the most

commonly used:

Liquidity Ratios

These indicate the ability of the company to meet its short-term financial

obligations when they fall due.

12

Ratios

These indicate the efficiency of the company in utilizing its assets.

Capital — Market Ratios

These indicate a company’s ability to win the confidence of the stock market

The following table illustrates the various ratio types, formula, classificationand significance

Table 1-1 The various ratio types, formula, classification and significance

Ratio | Formula Classification

earnings per

=

Preferred Dividends) +Number of Common

Shares Outstanding

(Net Income— `

Preferred dividends) =(The average number of

common sharesoutstanding + Average

Market Ratio

EE =

Market Ratio

Capital-Significance

Tends to have an

effect on the market

price per share, asreflected in the price-

number of common convertible securities

shares issued on the into common shares

assumed conversion ofconvertible securities)

measure of investor

— ——

Ratio Formula Classification -_ Significance

Ni confidence

An index showing

Dividend Dividends per share

Capital-whether a company pays

Payout Ratio + earnings per share Market Ratio

Dividend

out most of its earnings

in dividends or reinveststhe earnings internally

Shows the dividendreturn being provided by

Vield Ratio Dividends per share Capital- a share, which can be

+ Market Price per share | Market Ratio | compared to the return

being provided by other |

tax rate)| + Average employed by

total assets management

SS _ —— 4

When compared to

z sive

Khver DEN the return on total

Return Preferred Dividends) +

- oo assets, measures the

on Common Average common Profitabili er |

; - = ; extent to which financial

Sharcholders shareholders’ equity ty Ratio w

"¬ leverage is being

Equity - ;

employed for or against

common shareholders

Book ; ; each common share if

shareholders’ equity +

Capital-Value Per ; ; all assets were sold at

number of common Market Ratio ;

Share ; their balance sheet

require near-term

repayment

—— Current Ms SỐ a

Ratio | Current Assets + Liquidity Test of short term

Current Liabilities Ratio debt- paying ability

- ; — (Cash + Marketable | Test of short-term

Accounts Average accounts : ‘,

a Turnover company’s accounts

Receivable >ceivab số

recnivable balance Ratio receivable have been

turned into cash during

the year

Average Inventory company’s inventory

balance has been sold during the

year.

Average 365 days + Turnover Measure of the Sales Period Inventory turnover Ratio average number of days (turnover in taken to sell the

days) inventory one time

Total Liabilities + Leverage- | amount of assets being

Debt to Shareholders Equity Capital- provided by creditors

Equity Ratio Structure for each dollar of assets

Ratio being provided by the

shareholders.

+ —

Net Profitabili Measure of the

Net Income ~ Sales ; ¬

ty Ratio company’s profitability.Profit Margin

Ratios used by banks when determining credit worthiness

When a Small Business applies for credit with a bank, the bank will look at theFcllowing items:

Working Capital — should be in line with the operating credit being requested

Current Ratio — a minimum of 1:1

Debt to Equity — no higher than 2:1

Debt Service Coverage — minimum of 125% coverage, calculated as Earningsbefore: Interest, Taxes, Depreciation and Amortization + debt payments to be made

Accounts Receivable — Consistent Turnover, with no negative trends and

generally no more than 10% of receivables greater than 90 days, or in any onereceivable making up more than 10% of the total amount of receivables

Inventory — Consistent turnover, with no negative trends Inventory is

something that the banks are reluctant to finance and do not take inventory valuesinto great consideration when offering financing or credit facilities

One of the most important pieces of applying for credit in a small business is the personal position of the principal owner of the business If the owner ts in good

credit standing, relatively secure and has a good past credit history, this may be

enough for the bank to offer credit facilities If the principle of the business 1s not

in good standing, they will take a closer look at the financial statements, ratios, andpositioning of the business

Although this is a generalization of the requirements of lending institutions,

using these recommendations as guidelines can dramatically improve your clientrelations by adding value to your services.

generic types: systematic or market risk, credit risk, counterparty risk, liquidity risk,

operational risk.and legal risks

1.2.2.1 Systematic risk

Systematic risk is the risk of asset value change associated with systematic

factors It is sometimesreferred to as market risk, which is in fact a somewhatimprecise term By its nature, this risk can be hedged, but cannot be diversifiedcompletely away In fact, systematic risk can be thought of as undiversifiable risk

All investors assume this type of risk, whenever assets owned or claims issued

can change in value as a result of broad economic factors As such, systematic risk

comes in many different forms For the banking sector, however, two are of

greatest concern, namely variations in the general level of interest rates and the

relative value of currencies

1.2.2.2 Credit risk

Credit risk arises from non-performance by a borrower It may arise from either

an inability or an unwillingness to perform in the pre-committed contracted manner.This can affect the lender holding the loan contract, as well as other lenders to the

creditor Therefore, the financial condition of the borrower as well as the currentvalue of any underlying collateral is of considerable interest to its bank

1.2.2.3 Counterparty risk

Counterparty risk comes from non-performance of a trading partner The

non-pe'formance may arise from a counterparty's refusal to perform due to an adverse

prce movement caused by systematic factors, or from some other political or legal

co1straint that was not anticipated by the principals Diversification is the major tool for controlling nonsystematic counterparty risk Counterparty risk is like credit

risx, but it is generally viewed as a more transient financial risk associated with

trading than standard creditor default risk In addition, a counterparty's failure to settle a tradecan arise from other factors beyond a credit problem.

1.2.2.4 Liquidity risk

Liquidity risk can best be described as the risk of a funding crisis While some

would include the need to plan for growth and unexpected expansion of credit, the

risx here is seen more correctly as the potential for a funding crisis Such a situation

would inevitably be associated with an unexpected event, such as a large charge off,

loss of confidence, or a crisis of national proportion such as a currency crisis.

In any case, risk management here centers on liquidity facilities and portfolio

structure Recognizingliquidity risk leads the bank to recognize liquidity itself as an

usset, and portfolio design in the face of illiquidity concerns as a challenge

1.2.2.5 Operational risk

Operational risk is associated with the problems of accurately processing.

settling, and taking or making delivery on trades in exchange for cash It also arises

in record keeping, processing system failures and compliance with various

regulations As such, individual operating problems are small probability events for

well-run organizations but they expose a firm to outcomes that may be quite costly

1.2.2.6 Legal risks

Legal risks are endemic in financial contracting and are separate from the legalrunifications of credit, counterparty, and operational risks New statutes, tax

legislation, court opinions and regulations can put formerly well-established

transactions into contention even when all parties have previously performedalequately and are fully able to perform in the future For example, environmental

regulations have radically affected real estate values for older properties and

imposed serious risks to lending institutions in this area

A second type of legal risk arises from the activities of an institution'smanagement or employees Fraud, violations of regulations or laws, and other

actions can lead to catastrophic loss, as recent examples in the thrift industry have

demonstrated

1.2.3 Minimum capital requirement

Determination of the minimum capital requirement expresses the regulatory

capital requirements and rests on the risk types credit, market and operational risk

The safety ratios in operations of credit institutions shall comply with theprovisions of the State Bank No.457/2005/QD-NHNN Decision, decided on19/1/2007 and 03/2007/QD-NHNN This is mandatory norms applicable to banks inVietnam To manage effectively the capital, banks must constantly monitor and

adjust the rate which is prescribed by law

The minimum rate of capital adequacy

Capital adequacy ratios are a measure of the amount of a bank's capital

expressed as a percentage of its risk weighted credit exposures

An international standard which recommends minimum capital adequacy ratioshas been developed to ensure banks can absorb a reasonable level of losses beforebecoming insolvent

Applying minimum capital adequacy ratios serves to protect depositors and

promote the stability and efficiency of the financial system

Two types of capital are measured - tier one capital which can absorb losses

without a bank being required to cease trading, e.g ordinary share capital, and tier

two capital which can absorb losses in the event of a winding-up and so provides a

lesser degree of protection to depositors, e.g subordinated debt

Measuring credit exposures requires adjustments to be made to the amount ofassets shown on a bank's balance sheet The loans a bank has made are weighted, in

a broad brush manner, according to their degree of riskiness, e.g loans to

Governments are given a 0 percent weighting whereas loans to individuals are weighted at 100 percent.

Off-balance sheet contracts, such as guarantees and foreign exchange contracts,

also carry credit risks These exposures are converted to credit equivalent amounts

which are also weighted in the same way as on-balance sheet credit exposures balance sheet and off- balance sheet credit exposures are added to get total riskweighted credit exposures

On-The minimum capital adequacy ratios that apply are:

tier one capital to total risk weighted credit exposures to be not less than 4

percent:

total capital (tier one plus tier two less certain deductions) to total risk weightedcredit exposures to be not less than 8 percent

Total equity capital

Capital adequacy ratio =

Total assets (including off-balance sheet commitments)

be adjusted according to the level of risk

We have:

Total asset include risk = — (Rsssisk assets on the balance sheet x risk ratio)

+( risk asset off balacesheet x risk ratio)Definition of "Tier | Leverage Ratio

The relationship between a banking organization's core capital and total assets.The Federal Reserve develops capital adequacy guidelines for bank holding

companies The Tier | leverage ratio is calculated by dividing Tier | capital ratio bythe firm's average total consolidated assets The Tier 1 leverage ratio is anevaluative tool used to help determine the capital adequacy and to place constraints

on the degree to which a banking firm can leverage its capital base

Strong bank holding companies, rated composite | under the BOPEC (Bank

subsidiaries Other subsidiaries, Parent, Earnings, Capital) rating system of bank

holding companies, must have a Tier | leverage ratio of 3% For all other banks, theminimum ratio is 4% Any banking organizations that have supervisory, financial,

operational or managerial difficulties are expected to maintain capital ratios above

the minimum levels In addition, bank firms that are expecting or going through

significant growth are expected to maintain ratios well above the minimum levels as

a hedge against risk

2.1.1.1.About Sai Gon — Ha Noi Joint Stock Bank

* Legal Name : Saigon Hanoi Commercial Joint Stock Bank

* International name: Saigon Hanoi Commercial Joint Stock Bank

* Trade name : SHB

* Business License No 1800278630 is issued on 17/05/2011

* Capital of 8,865,795,470,000 VND, divided into 886 579 547 shares with a

par value of 10,000 VND / share ( Ten thousand VND per share)

* Scope of business : currency trading , forex trading , forex gold trading,

international payments and other business activities as prescribed by the State Bankand approved by the Board of Directors : currency broker services , corporatefinance advisory , consulting purchase , consolidation , merger , merger andinvestment advisory

* Head Office: No 77 Tran Hung Dao Street , Hoan Kiem District , Hanoi

* Tel: (84-4) -3942 3388

Fax : ( 84-4 ) -3941 0943

* Email : shbank(@shb.com.vn

*Website:http://www.shb.com.vn

Sai Gon — Ha Noi Joint-stock commercial Banks (SHB), formerly known as

Nhon AI Rural Bank, is established in accordance with license dated 13/11/19930041/NH/GP by the Viet Nam State Bank Governor and was officially put into

operation on 12/12/1993 The Bank was established in the context of its economy is

moving from a centrally planned economic to a market economic for the

management of the State and in accordance with the policy of the Government This

was a period of innovation and implementing ordinances banks, cooperatives and financial companies

2.1.1.2 Brief of the formation and development of the Sai Gon — Ha Noi stock commercial Banks, Hanoi Branch

Joint-Hanoi branch established on 02/06/2006 and operated on 10/10/2006 based on

Number 1098/QD-NHNN Decision of Governor State Bank of Vietnam; with the consent of the Board of SHB Bank On 03/06/2011, Hanoi branch operations

officially moved from address 86 Ba Trieu, Hang Bai, Hoan Kiem, Hanoi to the

new location at 49 Ngo Quyen, Hang Bai, Hoan Kiem, Hanoi Over 7 years of operation, until 05/30/2013 SHB Hanoi branch has nearly 20 outlets across the

Hanoi area with thousands of loyal customers

Launched later than the others branches and other banks, this is not favorable

conditions for the SHB Hanoi branch Therefore, the last 3 years of development

SHB Hanoi branch has proven its capability In 2006 ( 3 months from established )

capitalized modestly 322 billion, but in 2007 was 1450 billion, in 2008 was 1898

billion and in 2009 reached 2630 billion,an annual deposit growth 30 % /

year.Along with the capital raising activities of the branch including loan services to

meet the needs of different markets , including business loans : short -term loans ,medium-term and long -term with many different kind as to financing, commercial

credit loan procurement of fixed assets , loan branch mainly consumer loans and

investing in securities

Included in the investment plan to develop a network of systems compliant with retail bank safe, modern, the opening of the new headquarters of the Hanoi branch

has significance, marking a new development SHB The building is located at 49

Ngo Quyen Street , Ha Noi City center , at the intersection of Ngo Quyen street and Tran Hung Dao Street, opposite the headquarters of the Ministry of Science and

Technology These are two busy main roads and cities , linking residential areas

with the political center of Hanoi city , today there are many banks located in this area This set of advantages and challenges for the branch With a beautiful

location , attracting customers , promote the image is somewhat more favorable but Hanoi branch also confronted with competition from other strong banks

Currently, SHB Hanoi branch provides financial services such as providing

credit products, domestic and international payments, foreign currency trading,

taking deposits, credit services like consumer lending, project finance, fund

management and implementation services investment trusts Launched in phases economy facing tremendous opportunities when Vietnam joined the WTO but also

have a lot of difficulties as the global economic crisis, public debt However, with

proper guidance, management closely, the consensus of the entire branch staff, SHB

Hanoi has gradually have sustainable development It is also the development of

SHB

Apparatus structure of SHB, Hanoi Branch

Under the direction of the Board of Directors, 31/ 06/ 2013 branch operationswith one headquarter and 17 transactions, with a total of 271 officers and staff, have