Bank Valuation, Case of BIDV for IPO

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RESEARCH DISSERTATION

“ BANK VALUATION CASE OF BIDV FOR IPO”

Acknowledgement

First and foremost, I would like to express my most heartfelt gratitude to my tutor, Dr Nguyen Dinh Tho for his invaluable guidance and constructive suggestions throughout the course of the research

I would like to take this opportunity to express my special thanks to all professors at the CFVG-Hanoi for their teaching invaluable knowledge and their support during my study

My sincere thanks are also addressed to investors, Manager of Investment Division, Board of Directors at BIDV-Hathanh Branch as well as Board of Directors at BIDV Head office for their in-depth interviews assistances for this research study

Finally, many thanks are also due to my best friends and my classmates at CFVG for their warm friendship and kind support for a very memorable stay within the CFVG community All of them encouraged me for my study and greatly contributed to my continuous development

Student,

Doan Viet Hoang

Abstract

Being an emerging economy, Vietnamese’s enterprises are becoming to play more and more important role in economy, especially the state owned-enterprises (SOEs) , be aware this issue, Vietnam government has carried out the reform and rearrange of state owned- enterprises, where equitization and IPO play a very importance role The success of equitization and IPO bid will make the reformation and rearrangement become successful and it’s the initial factor

to establish and enhance the financial market as well as stock exchange market in Vietnam

But, in Vietnam’s stock market, almost investors have an inadequate understanding of the stock market and lack of professional knowledge as well as necessary information related to the market Most of them just follow short-run investments as speculators or “gamblers” Therefore, stock valuation is a controversial issue with various schools, various viewpoints and models There are lots of distortions in stock valuation, especially valuation of a bank for IPO in emerging markets like in the Vietnam’ market Even so, it is the first step towards a

“rational” investing decision-making in long term Furthermore, stock valuation is also one of premises of stable development of any stock market

Having recognized all of these aspects, this research study is conducted as an explorative study of the applicability of relatively appropriate models of stock valuation as well as bank valuation for investors who would like to invest in banking sector through IPO bid under current conditions in Vietnam By realizing real situations of the IPO process, obstacles regarding bank valuation that perform IPO and estimated intrinsic value of the BIDV’s stock

as a case study will be presented Through study thesis we will understand and be suggested some suitable models on bank valuation and adjustments for the application of bank valuation

as well as stock valuation models in the specific conditions for the IPO Recommendations with respect to the improvement of reliability of information disclosure also are carried out so

as to serve for bank valuation and stock valuation activities in the Vietnam in years to come

Table of contents

ABSTRACT 3

TABLE OF CONTENTS 4

LIST OF TABLES AND FIGURES 7

LIST OF ABBREVIATIONS 8

CHAPTER I INTRODUCTION 1.1 RATIONALE 9

1.1.1 General background 9

1.1.2 Justification 9

1.2 PROBLEM STATEMENT 10

1.3 RESEARCH OBJECTIVES 11

1.4 KEY ASSUMPTIONS AND SCOPE OF THE STUDY 11

1.5 RESEARCH METHODOLOGY 12

1.5.1 Framework building 12

1.5.2 Data collection 12

1.6 ARRANGEMENT OF THE RESEARCH 13

CHAPTER II LITERATURE REVIEW ON BANK VALUATION FOR IPO 2.1 EQUITIZATION AND INITIAL PUBLIC OFFERING 14

2.1.1 Equitization 14

2.1.2 Initial Public Offering - IPO 14

2.2 SECURITY MARKET AND COMMON STOCK 15

2.2.1 Security market 15

2.2.2 Common stock 15

2.3 REASONS FOR STOCK VALUATION – VALUE VS PRICE 15

2.3.1 Reasons for stock valuation 15

2.3.2 Value vs price 17

2.3.3 Stock valuation process 18

2.4 STOCK VALUATION MODELS 18

2.4.1 Balance Sheet approach 19

2.4.2 Price ratios approach 19

2.4.3 Discounted Cash Flow approach 20

2.5 STOCK VALUATION MODELS AND BANK VALUATION MODELS 28

2.5.1 Characteristics of a Bank 28

2.5.2 General Frame work for Bank valuation 30

2.5.3 Equity versus firm for a bank 30

2.5.4 Bank valuation models 30

2.6 INFORMATION FOR STOCK VALUATION 32

2.6.1 Sources of information 32

2.6.2 Role of information disclosure in stock market 33

2.7 STOCK VALUATION IN EMERGING MARKETS 34

CHAPTER III BANK VALUATION – A CASE OF BIDV FOR IPO 3.1 DESCRIPTION OF BIDV 36

3.1.1 Bank profile 36

3.1.2 The establishment, development and business orientation 36

3.1.3 Equitization and IPO projection 37

3.1.4 BIDV’s common stock 37

3.2 FUNDAMENTAL ANALYSIS OF BIDV 38

3.2.1 Macroeconomic analysis 38

3.2.2 Industry analysis 39

3.2.3 Business analysis 40

3.2.4 Bank forecast 42

3.3 ESTIMATING VALUE OF BIDV’S COMMON STOCK 42

3.3.1 Balance sheet approach 42

3.3.2 Relative multiples approach 43

3.3.3 Discounted Cash Flow approach 45

3.4 FINDINGS FROM BIDV COMMON STOCK VALUATION 51

3.4.1 Application of Book value approach 51

3.4.2 Application of relative multiples approach 51

3.4.3 Application of Dividend Discount Model 52

3.4.4 Application of Excess return Model 52

3.4.5 Beta of BIDV stock 52

CHAPTER IV CONCLUSIONS AND RECOMMENDATIONS 4.1 SUMMARY OF FINDINGS AND CONCLUSIONS 54

4.2 RECOMMENDATIONS 56

4.2.1 General recommendations 56

4.2.2 Recommendations for application of stock valuation for IPO 57

4.2.3 Needs for further study 61

APPENDIX Page

L IST OF T ABLES AND F IGURES

Finger 3.3: Number of commercial bank and chartered capital allocated 39 List of Tables

Table 3.7: The discounted value of dividend from 2011-2015 and terminal value - 48 Table 3.8: Discounted excess return from 2008-2011 and Equity invested 49

Table 3.9: Discounted excess return from 2011-2015 and terminal value- ERD - 50

List of abbreviations

ABBREVIATIONS MEANING

CHAPTER I INTRODUCTION 1.1 RATIONALE

1.1.1 General background

Since 1986, Vietnam has embarked in a comprehensive renovation to transfer its economy from a commanded to a market-oriented one Thank to that, Vietnam has achieved an encouraging economic development The average GDP increased at the rate of about 7.5 % in the period from 1991 to 2007, especially GDP growth rate reached 8.44% in 2007 (compared

market and high domestic inflation rate, Vietnamese’ government has decreased the target GDP growth to about 7.0%, but this rate is also one of the highest GDP growth rate in Asia religion

Furthermore, since 1990s Vietnam has performed the equitization of State -Owned Enterprises process, it’s the initial step to establish stock market Until now, Vietnam has equitized more than 3,916 of SOEs In Vietnam equitization plays very important role for the development of Vietnam stock exchange, it supplies the commodities for market and contributes to regulate the market One of the factors that make equitization to become successful is to take IPO, but the fair price for IPO of a stock on the view of investors, authorities or an equitized enterprises

is a serious problem

Thank to success in equitization of SOEs, official securities markets were set up, Ho Chi Minh city stock exchange centre in 2000 and Hanoi Stock Exchange centre in 2005 This has huge contribution to the development of Vietnam financial market

1.1.2 Justification

Through primary observation, It could be mentioned some shortcomings as follows:

1 Most of State-owned enterprises (SOEs) now are often over valuated compare with under valuated in some previous years when do equitization The investors who buy stock according

to IPO process will not have many prove to determine fair value

2 Official market scale is also small, only about 300 firms listed out of about more than 50 thousand firms

3 Most of investors appear to be a group of individuals like “speculators” but lack of professional skills So, it is very difficult to observe the relationships between supply and

1

Source: Government General Statistic Office

demand, between prices and the intrinsic values of stocks, especially price for IPO These seem to be a matter in question

4 There are numerous obstacles in so doings in Vietnam On the one hand, accounting system in Vietnam enterprises has not yet conformed to the general conventions On the other hand, Vietnamese enterprises have a tendency to avoid information disclosure to public Therefore, useful information regarding financial health of IPO and the listed companies provided is still very limited

5 Legal system for stock market is not competed, that is one of the current shortcoming of Vietnam stock exchange

Currently, there many individual and organization have studied the research on stock valuation, but there is not many research on Bank valuation, fair price for IPO Although those issues are not emerging ones in other stock markets, stock valuation and the application of related appropriate models in emerging markets such as Vietnam has been still one of critical and controversial issues

Therefore, having realized the above-mentioned issues, the following research topic has been

formulated: “Bank valuation – A case study of BIDV for IPO”

1.2 PROBLEM STATEMENT

Since 1990s Vietnam has performed the equitization of State - owned Enterprises process, most of enterprises have bid on stock exchange as IPO program, currently, the price for IPO are usually evaluated by assets method and subjective ideas

The official stock market is an emerging market with a small size and less than eight-years of history Therefore, in terms of stock analysis, it seems to be not really suitable to apply technical analysis to consider stock price for buy-or-sell decisions Nevertheless, with respect

to the purpose of estimating stock’s values and identifying mispriced securities for the purpose

of value-based investment, the following issues could be raised as management questions to not only investors and brokers but also managers of IPO enterprises and other related regulatory agencies as well:

1 Why do prices of securities IPO have reflected to some extent the real health of their related enterprises?

2 With current situations of Vietnam stock exchange in terms of legal framework, security analysts’ competences, information, etc would it be possible to apply available stock valuation models to analyze and evaluate effectively values of IPO stock?

3 With respect to imperfect accounting systems and information conditions in Vietnam, what are obstacles in doing analysis and how to adjust the application of valuation models as well as

to improve the information disclosure system to support investors and investment brokers in stock valuation task?

4 What is differences of firm valuation and a bank valuation, what are the difficulties in bank valuation ? especially bank valuation for IPO ?

2 To evaluate the value of bank, BIDV stock as a case study by applying available models in order to identify some relatively appropriate models for stock valuation and obstacles concerned;

3 To draw out some recommendations with regard to the development of the stock market in Vietnam in general and the improvement of information disclosure system as well as the stock valuation activity in years to come

These objectives have guided by the following research questions:

1 Have current stock prices reflected to some extent the financial health and growth prospect

of the related stock companies? What is the nature of the investors’ investment making process during the past time?

decision-2 What is the most suitable approach for determining price for IPO and what are obstacles in

so doings ?

3 What is the “intrinsic value” of BIDV’s common stock?

4 In order to estimate stock’s value by applying some available models, what are necessary adjustments to improve stock valuation task for IPO ?

1.4 KEY ASSUMPTIONS AND SCOPE OF THE STUDY

As a matter of course, stock valuation is one of the controversial and very difficult issues in the investment work, especially in emerging markets like Vietnam one Therefore, this research study will be carried out under some assumptions and scope of study as follows:

1 The study is focused mainly on stock valuation related to corporate finance and mispriced issues as well as obstacles in long term

2 Objects of the study in estimation of a bank when it is equitized and perform the bid as public offering, or bank traded on stock exchange

3 Only considering fundamental analysis and other concerned factors influenced on bank valuation of BIDV stock as a case study

4 Conclusions and recommendations associate essentially with enterprises that going to perform IPO or traded on Vietnam stock exchange, its investors, brokers and related competent regulatory agencies

Although research is conducted with enterprises performed IPO, in essence, this is a case study Therefore, at the most, findings are used for the main purpose of reference for IPO valuation

1.5 RESEARCH METHODOLOGY

1.5.1 Framework building

This research is an exploration study regarding fundamental analysis, aiming at the applicability of available models for bank valuation in case of bank for IPO and conducting an estimate the intrinsic value of BIDV’s stock as a common stock Hence, the main research methodology is deductive and logical reasoning derived from reviews of relevant literature, from focus group discussions and comparative analysis

Therefore, the research study begins with a review of literature that is relevant to the equitization and IPO in general and bank valuation in particular Then, based on actual observations in the IPO process as well as of listed joint-stock companies, a focus group discussion is conducted for preliminary assessments and some results of stock valuation at several SCos will be collected Moreover, the intrinsic value of the selected stock is estimated

by applying available models From these results, some relatively appropriate models for bank valuation are recommended and obstacles are identified Finally, in-depth interviews are conducted to check and adjust findings and draw out conclusions as well as recommendations

1.5.2 Data collection

Secondary data

̇ Relevant data regarding the equitization and IPO process are collected from the Ministry

of Finance, State Securities Commission (SSC) and Securities Companies as well

̇ Relevant data related to IPO, equitization and financial statement of BIDV are collected through their prospectuses and financial statements

̇ Some results of stock valuation are also collected from some SCos and Economic research organizations

̇ Secondary data for fundamental analysis are also taken from Internet websites, libraries, newspapers, other financial magazines, former research studies related to stock market,

Figure 1.1: Research framework

Secondary data (listed bank an trading performance, financial information)

non-Reviews of related literatures

(Bank valuation)

- Analysing features of the

Equitization and IPO process

- Identifying obstacles for stock

-Analysing Values vs Prices

-Identifying critical issues and

adjustments

Fives face-to-face in-depth interviews for checking findings

Conclusions and recommendations

Research objectives

1.6 ARRANGEMENT OF THE RESEARCH

The research consists of four chapters Introduction will be presented on Chapter I, Chapter II reviews main valuation approaches are generally used in capital markets, especially for Bank valuation for IPO Chapter III carries out fundamental analysis and valuation for BIDV’s common stock in the year 2008 Finally, Chapter IV provides general findings and conclusions from the research as well as suggests some recommendations for the improvement of bank

valuation activities for IPO bid

CHAPTER II LITERATURE REVIEW ON BANK VALUATION FOR IPO

2.1 EQUITIZATION AND INITIAL PUBLIC OFFERING

2.1.1 Equitization

Equitization is the incidence or process of transferring ownership of business from the public sector (government) to the private sector (business) In a broader sense, Equitization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement Equitization in Vietnam is the main way to carry out the reformation and rearrange state owned enterprises

2.1.2 Initial Public Offering - IPO

Initial Public Offering - IPO, also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded

In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market

IPOs can be a risky investment For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value

In Vietnam, IPO is the initial condition for equitization process, in order to make the company become publicity, and it is also the condition to make commodity for secondary market of stocks IPO helps to construct the primary stocks market

Joint stock companies Traded on OTC market

Listed on official market (VSE

or HaSTC)

Equitization IPO SOEs

SOEs reformation Traded on stock exchange

Figure 2.1: SOEs reformation in Vietnam

2.2 SECURITY MARKET AND COMMON STOCK

A security market has two closely interrelated parts: primary market and secondary market

Primary market is a new issue market where corporation sell securities for the first time to the public Whereas secondary market or trading market is a market where the securities, after

they have been initially issued, may be bought and sold among investors The secondary market can be divided into two different kinds of market as Stock exchange and Over-the-counter market (OTC)

2.2.2 Common stock

Common stocks, also known as equity securities, or equities, represent ownership shares in a corporation The common stockholder has the right to receive a certificate to evidence share ownership, to receive dividends, to vote at the stockholders’ meetings

The two most important characteristics of common stock as an investment are its residual claim and its limited liability features

2.3 REASONS FOR STOCK VALUATION – VALUE VS PRICE

2.3.1 Reasons for stock valuation

Stock valuation is a process of forming estimates of a security’s value (which are also called intrinsic-value estimates, present value estimates, or economic value estimates) for the

purpose of making decisions to buy or sell a security by investors It can be considered that a security’s value determined its price The basis of these decisions of investors is based on the buy-sell decision rules as follows:

The buy rule: If a security’s price is below its value, it is underpriced and should be bought

and held in order to reap capital gains in the future

The sell rule: If the security’s actual market price is above the security’s intrinsic value

estimated at the same time, then sell the security to avoid losses when its price falls down to the level of its value

The don’t trade rule: If the market price equals its economic value, then the price is in

equilibrium and is not expected to change That is, the asset is correctly priced and there is no profit to be made from buying or selling it

Valuation is the first step toward a “rational” investing By determining the worth of shares based on the fundamentals, the investors can make informed decisions about what stocks to buy or sell Without fundamental value, one is just set adrift in a sea of random short-term price movements and intuitive feelings

Stock valuation presents intrinsic value estimated from valuation models based on discounted expected cash flow returns, appraised asset value, and other facets of company value as a going concern and a resource converter

Investment in privately owned companies with common stocks traded in publicly regulated markets could be analysed in various ways Two major approaches depend on a basic premise about market rationality and efficiency in processing information related to pricing

The technical analysis or charting approach either assumes stock prices equal true values at

all times or assumes stock prices do not equal true values at all times but that future short-term

prices can be forecasted without regard to value It is based on patterns discerned in data

generated by the market Technical analysis is used in an attempt to prophesy the timing of turns between bull markets and bear markets A radically different approach to making

decisions to buy, hold and sell common stocks is fundamental analysis It is the examination

of a company’s accounting statements and other financial and economic information to assess the economic value of a company’s stock This approach takes as given that stock prices do not always equal true value because the stock market is observed to be irrational and thus inefficient Stock selection is based primarily on external accounting data reported by the evaluated company and its competitors The emphasis is on value or growth, a significant difference Whereas value investing is a method of appraisal that focuses on measures of intrinsic value, growth investing is a method of anticipation that focuses on forecasts of earnings growth for the sake of growth

2.3.2 Value vs price

Karl Marx 2 interaction model: In order to explain how prices would fluctuate in a market

where price-value comparisons were continuously being made, Karl Marx suggested that prices could be viewed as a series of constrained random fluctuations around their true intrinsic value

Expanding the model of Karl Marx, we have the random-walk theory, a security’s market

price should fluctuate randomly around its intrinsic value because: (1) the new information arrives at random intervals throughout every day, (2) this new information causes security analysts to re-estimate the values of the securities affected by the new information, and (3) market trading based on the buy-sell rules causes security prices to fluctuate randomly as they pursue constantly changing intrinsic value In a more idealistic model, the prices of securities

in a random-walk market might fluctuate in continuous equilibrium if investors were continuously informed and were in uniform agreement about the securities’ intrinsic values

Price

Value

Finger 2.2: The Value and Price

According to Paul Samuelson, Nobel Prize-winning economist, a security with perfectly

efficient prices would be in “ continuous equilibrium” However, this equilibrium will not be

static through time Every time a new piece of news is released, the security’s intrinsic value will change and the security’s market price will adjust toward the new value It is the speed of this price adjustment process that gauges the efficiency of a price A perfectly efficient security’s price is in a “continuous equilibrium” such that intrinsic value of the security vibrates randomly and the market price equals the fluctuating intrinsic value at every instant in time If any disequilibrium (of even a temporary nature) exists, then the security’s price is less than perfectly efficient

Indeed, actual market prices are not perfectly efficient because different security analysts typically assign different value estimates to any given security Actual market prices can pursue only a consensus estimate of any given security’s intrinsic value, since security analysts’ value estimate difference If most security analysts’ value estimates happen to be

2

A Socialistic economist and Philosophist

similar at any point in time, then the consensus value estimate may vary only within a small range If security’s price fluctuated far below its value, it could be seen that it is inefficient price movement occurred, as a result of insufficient interest from investors who would continuously estimate the security’s value, compare value and price and make buy-sell decisions rapidly

2.3.3 Stock valuation process

Information sources

Annual reports

Prediction of financial performance Quality and depth of management Sound strategic plan and planning system Market dominance

Strategic credibility

Systematic view of the company

Long-term financial performance

EPS, ROE

Environment prospects of the relevant industry

Stock value

Assessment media

Performance presentations, meetings and interviews Evidence of sound strategic planning and ability to meet stated objectives.

Figure 2.3: Stock valuation process1

2.4 STOCK VALUATION MODELS

A multitude of models exist to value stocks These models range from relatively simplistic rules of thumb to complex models, which extrapolate a stock value from multiple years of earnings estimates Complex valuation models typically include the following components: book value; future earnings; dividend; risk-free rate of return; risk of stock and time

There are three main approaches for stock valuation The first one is to focus on the firm’s book value, either as it appears on the balance sheet or adjusted to reflect the current

1

Source: Chugh and Meador, 1984

replacement cost of assets or the liquidation value Another one is to focus on multiple earnings and other based on the present value of expected future cash flows (dividend, cash flows to equity)

2.4.1 Balance Sheet approach

The book value of the stock represents the current value of the stock based on company’s accounting records The Balance Sheet approach values a stock of that company primarily based on that value This is typically the most conservative estimate of the stock value However, unless the assets have been frequently re-valued to reflect the effects of inflation, and depreciation is based on the current rather than historic value of assets, a company's balance sheet is unlikely to provide an up-to-date guide to the current value of the company

2.4.2 Price ratios approach

Price-earnings ratios, price-cash flow ratios, and price-sales ratios are commonly used to calculate estimates of expected future stock values However, each price ratio method yields a different expected stock price Since each method uses different information, each makes a different prediction

Price-earnings growth (PEG) Value: PEG based valuation is a simplistic valuation technique

which takes advantage of a rule of thumb This rule states that the P/E ratio of a fairly valued stock should be equal to the growth rate of the stock Overpriced stocks have higher P/E's and under-priced stocks have lower P/E's than their respective growth rates 'PEG' is the ratio of P/E compared to growth rate:

PEG = (P/E)/(%earnings growth) and PEG Value = Current Price / PEG

It should be noted that the % earnings growth could be expressed as a single year or multiple year's worth of growth In addition, this valuation technique cannot be applied to stocks with negative growth rates

Forward P/E Value: The forward P/E valuation is another simplistic technique which is also

based upon a rule of thumb The rule of thumb here is that stocks typically trade at a constant P/E and therefore the 'future' value of a stock can be calculated by comparing the current P/E with the future P/E (as predicated using analysts' estimated earnings for this year) Hence, the forward P/E value is calculated as follows:

Price * (Current P/E) / (Future P/E)

As the PEG model, this valuation technique can not be applied to stocks with negative current

or future earnings

̇ Price-earnings ratio (P/E): The most popular price ratio is a company’s price-earnings

ratio A P/E ratio is calculated as the ratio of a firm’s stock price divided by its earnings per share (EPS) Based on price-earnings ratio,

Expected price = Historical P/E ratio * Projected EPS

= Historical P/E ratio * Current EPS * (1+Historical EPS growth rate)

̇ Price-cash flow (P/CF) ratio is measured as a company’s stock price divided by its cash

flow Most analysts agree that cash flow can provide more information than net income about a company’s financial performance When a company’s earnings per share are not significantly larger than its cash flow per share (CFPS), this is a signal, at least potentially,

of good-quality earnings The term “quality” means that the accounting earnings mostly reflect actual cash flow, not just accounting numbers When earnings are bigger than cash flow, this may be a signal of poor quality earnings The procedure is as follows:

Expected price = Historical P/CF ratio * Projected CFPS

= Historical P/CF ratio*Current CFPS*(1+Historical CF growth rate)

̇ Price-sales ratio (P/S): A price-sales ratio is calculated as the price of a company’s stock

divided by its annual sales revenue per share This ratio focuses on a company’s ability to generate sales growth A high P/S ratio suggests high sales growth, while a low P/S ratio suggests low sales growth An expected price based on sales per share is calculated as:

Expected price = Historical P/S ratio * Projected P/S

= Historical P/S ratio * Current SPS*(1+Historical sales growth rate)

̇ Price-book ratio (P/B): also is called the market-book ratio A price-book ratio is

measured as the market value of a company’s outstanding common stock divided by its book value of equity

Price-book ratios are appealing because book values represent, in principle, historical cost The stock price is an indicator of current value, so a price-book ratio simply measures what the equity is worth today relative to what it cost A ratio is bigger than 1.0 indicates that the firm has been successful in creating value for its stockholders A ratio is smaller than 1.0 indicates that the company is actually worth less than it costs This interpretation of price-book ratio seems simple enough, but the truth is that because of varied and changing accounting standards, book values are difficult to interpret For this and other reasons, price-book ratios may not have as much information value as they once did

2.4.3 Discounted Cash Flow approach

The theoretical foundation of Discounted Cash Flow valuation is the basic concept of value-of-money in finance Briefly speaking, "a dollar today is worth more than a dollar

time-tomorrow", because the dollar today can be invested to start earning immediately In addition, there are other factors that also support the argument for the principle:

- Presumption that individuals prefer present consumption to future consumption

- Monetary inflation

- Uncertainty/risk associated with the cash flow in the future

For equity investors, the value of a stock is the value of cash flow to equity discounted at the appropriate rate of return that reflects the riskiness of the cash flows Among various ways to estimate the value of cash flow to equity, two most frequently used models will be presented, namely, the Dividend Discount Model (DDM) and Free Cash Flow to Equity Model (FCFE)

̇ Dividend Discount Model (DDM)

General Dividend valuation model

When investing in a company's stock, investors generally expect to get two types of cash flows, namely, dividends during the holding period and the expected price at the end of the holding period A method of estimating the value of a share of stock is the present value of all expected future dividend payments, where the dividends are adjusted for risk and the time of money In other words, these expected future dividends are discounted at an interest rate commensurate with the risk of the stock The dividend discount model incorporates the CAPM model to estimate the discount rate and dividends as future cash flows

= +

t

t t

k

DPS V

1 0

)1(

There are several versions of growth models for the valuation of common stock The general dividend valuation model can be simplified if a firm’s dividend payments over time are expected to follow one of several fairly straightforward patterns, including constant growth,

zero growth and above-normal growth

Constant Growth Dividend Valuation model

The most popular Constant growth dividend model, also known as the Gordon Growth Model (GGM) is simplified by assuming that dividends will grow at a constant perpetual growth rate forever This version of the DDM asserts that, if dividends are expected to grow at a constant rate forever, and the growth rate is strictly less than the discount rate Then the intrinsic value

of the stock is determined by the formulae:

g k

In using the constant perpetual growth model, it is necessary to come up with an estimate of g, the growth rate in dividends, which is examined by:

- Using the company’s historical average growth rate

- Using an industry median or average growth rate

- Using the sustainable growth rate involves using a firm’s earnings to estimate g

A firm’s sustainable growth rate is equal to its return on equity (ROE) times its retention ratio:

Sustainable growth rate g = ROE x Retention ratio

Where:

- Payout ratio is the proportion of earnings paid out as dividends;

- Retention ratio is the proportion of earnings retained for reinvestment; and

- Return on equity (ROE) is commonly computed using an accounting-based performance measure and is calculated as a firm’s net income divided by stockholder’s equity

Zero Growth Dividend Valuation Model

If a firm’s future dividend payments per share are expected to remain constant forever, then the value of stock can be simplified as follows:

k

D

V0 =

Two-stage dividend growth model

In deed, the general two - stages growth model includes an initial period of extraordinary growth and followed by stable growth forever It is usually used when companies’ growth eventually converges to an industry average, after they experienced temporary periods of unusually high or low growth The value of stock is the aggregate of present value of dividends during the extraordinary growth period and of the terminal price

t

t t

k

g k DPS k

g DPS P

)1()

1(

)1

+

=

2

g k DPS n

The two-stage dividend growth model offers several improvements It is more realistic, since

it accounts for low, high, or zero growth in the first stage, followed by constant long-term growth in the second stage, and it is usable when a first-stage growth rate is greater than a discount rate However, the two-stage model is also sensitive to the choice of discount rate and growth rates, and it is not useful for companies that do not pay dividends

Three-stage Dividend Discount Model

The three-stage dividend discount model combines the features of the two-stage model and the H-model It allows for an initial period of high growth, a transitional period where growth declines and a final stable growth phase It is the most general of the models because it does not impose any restrictions on the payout ratio

This model assumes an initial period of stable high growth, a second period of declining

growth and a third period of stable low growth that lasts forever

Low payout ratio

Figure 2.3: Graph on the expected growth over the three stages

The value of the stock is then the present value of expected dividends during the high growth and the transitional periods and of the terminal price at the start of the final stable growth phase

Po =

n n

e

n n t

t a

a

r g

k

g EP

k

DPS g

EP

)1(

*)(

*)1(

*S)

1(k)

(1

*)1(

++

++

∏+

∑

∑

Where: EPSt : Earnings per share in year t

∏n : Payout ratio in stable growth phase

growth (st)

This model removes many of the constraints imposed by other versions of the dividend discount model In return, however, it requires a much larger number of inputs -year-specific payout ratios, growth rates and betas For firms where there is substantial noise in the estimation process, the errors in these inputs can overwhelm any benefits that accrue from the additional flexibility in the model

In sum, the key point in the DDM Valuation is the estimate of terminal price This leads to the Gordon growth model (GGM) The GGM can be used to determine the terminal price Both the dividend discount model and the Gordon growth model are powerful valuation tools, but they have different limitations: DDM needs the terminal value of the stock; GGM is only suitable for mature firms with stable and not too high dividend growth The two-stage model is

a more powerful one that combines DDM and GGM together

Each model from the three above dividend discount models has advantages and disadvantages Certainly, the main advantage of the constant perpetual growth model is that it is simple to compute However, it has several disadvantages:

- It is more complicated for the company that has negative earning;

- It is not usable when a growth rate is greater than a discount rate;

- It is sensitive to the choice of growth rate and discount rate;

- Discount rates and growth rate may be difficult to estimate accurately; and

- Constant perpetual growth is often an unrealistic assumption It is applied only to companies with stable earnings and dividend growth

Specifically, stable growth rate is a growth rate that a company can sustain forever in earnings,

dividends and cash flows There are two important points related to the stable growth rate

First, as this growth rate in dividends is expected to last forever, the company's other measures

of performance could be expected to grow at the same rate Second, a firm cannot grow in the long term at a rate significantly greater than the growth rate in the economy in which it operates In practice, the stable growth rate cannot be larger than the nominal (or real) growth rate of the economy, if the valuation is done in nominal (or real) terms Besides, although the stable growth rate is limited upside by the growth rate of the general economy, there are no logical or mathematical limits on the downside

This version of the DDM is simplistic in its assumption of a constant value of g There are more sophisticated multistage versions of the model for more complex environments

Variables of Dividend Discounted Model

The length of the high growth period

It is the first key variable in the model If a company is growing at a rate close to the stable

growth rate right now, no extraordinary growth is anticipated and it can be assumed that the

firm is in stable growth already If a company is growing at a rate higher than the stable

growth rate due to a single protected product or service, the extraordinary growth can be

expected to last as long as the protection is maintained Generally, two assumptions could be

made:

Assumption 1: The greater the current growth rate in earnings of a company relative to the

stable growth rate, the longer the high-growth period

Assumption 2: The larger the size of the company - both in absolute terms and relative to the

industry, the shorter the high-growth period is

Rate of return of stock, or discount rate

It reflects the riskiness of future cash flows The discount rate can be estimated, using a

measure of risk and the corresponding equity risk premium models such as Capital Market

Pricing Model (CAPM) and Arbitrage Pricing Model (APM) Generally, the rate of return of a

stock could be expressed as follows:

Required Rate of Return = Risk-free Rate + Risk Premium

Equity risk premium is defined as the reward that investors require to accept the uncertain

outcomes associated with owning equity securities It is measured as the extra return that

shareholders expect to achieve over risk-free assets on average Most of equity risk premium

models use historical data and assume that some periods of the past provides the best

indication of what the future will hold

Specifically, according to the CAPM:

k = Rf + β i (Rm – Rf)

In CAPM, we assume that securities are traded in a hypothetical “perfect” capital market in

which:

- There are no transaction costs or taxes

- All relevant information regarding securities is freely available to all investors

simultaneously

- All investors can borrow or lend any amount in the relevant range without affecting the interest rate, and there is no risk of bankruptcy

- There is a given uniform investment period for all investors

- Investors are risk averse and reach their decisions using the mean variance rule

market A stock's Beta can be obtained by:

- Calculating the coefficient of the regression line between the weekly returns of the s stock and those of the stock market during the past 52 weeks, past 2 years or even longer

- Using the company's fundamentals

- Using the average Beta of comparable companies

The expected return on a risky asset thus depends on:

- Pure time value of money

- Reward for bearing systematic risk

- Amount of systematic risk

Different stocks may have different Betas depending on the ways they obtain them This is one

of the reasons that the sensitivity tests are more important than a single absolute number in the stock valuation Furthermore, the Betas may change over time Running the sensitivity tests can capture such changes

Cost of capital is an opportunity cost, depends on where the money goes, nor where it comes from For now, capital structure (debt/equity mix) is fixed

Earnings growth

There are three approaches to estimate earnings growth: historical growth, analyst projections, and fundamental of the firm

In the historical growth approach, the company's growth rate in earnings per share in the past

is used to estimate its future growth In so doing, it is assumed that companies that have had rapid earnings growth in the past will continue this trend in the future In the analyst projections approach, capital market specialists use already available corporate research, which provides estimates on earnings growth of the company in question The fundamental of the firm approach relates the expected growth to the fundamentals of the company Particularly, the expected growth rate is formed as a function of the retained earnings that are reinvested back into the firm and the returns earned on the projects taken with that money

The last variable of the dividend discount model is terminal price, which is the share price at

the end of the high-growth period

Terminal Value of Stock =

n

n

g k

DPS

−

+1

Where DPSn+1 is the expected dividends in the first year after the high-growth period, k the

̇ Free Cash Flow to Equity Model

An alternative to the Dividend Discount Model is the Free Cash flow to Equity Model (FCFE model) This model estimates the value of equity as the present value of the expected free cash flows to equity over time, rather than dividends In general, free cash flow is the cash a firm

has after meeting the needs of sustaining its development at a certain growth rate

Briefly, the FCFE is the residual cash flow left over after meeting principal payments and providing for capital expenditure in order to maintain existing assets and create new assets for future growth Proponents of the FCFE method emphasize that FCFE is “…dividends that could be paid to shareholders This is usually not the same as actual dividends in a given year

FCFE is expressed as follows:

FCFE = Net Income + Depreciation – Capital Expenditure + New Debt Issues

– Change in Working Capital – Principal Payments

t t

t

k

g k FCFE k

g FCFE P

)1()

1(

)1

FCFE n

It could use three growth stages to evaluate the value of a firm’s equity

Similar to the DDM, there are four main input variables needed for the FCFE model, namely, the length of the high-growth period, the free cash flow to equity in each year during the high-growth period, the rate of return required by equity investors, and the terminal price at the end

of the high-growth period Among the four input variables, the length of the high-growth period and the required rate of return are estimated as in the DDM However, the estimation of the other two variables is a little bit different

1

Copeland, Tom, Tim Koller and Jack Murrin, 1994, Valuation: Measuring and Managing the value of

companies, John Wiley (New York), pp 481

In order to estimate FCFE during the high-growth period, it is first necessary to project the expected growth in earnings This is done similar to the DDM Once the earnings are estimated, the net capital expenditure, working capital needs and debt-financing requirements have to be specified to derive the FCFE As the growth rate changes, the capital expenditure and working capital needs should adjust correspondingly The terminal price in the FCFE model is also determined by the stable growth rate and the required rate of return, but the FCFE is used as cash flow rather than the dividends Furthermore, if the valuation is based on discounting cash flows to equity, cost of equity is employed whereas discounting cash flows to firm, cost of capital is the relevant discount rate

All the above terms used to calculate FCFE are available directly or can be derived from balance sheet, income statements and cash flow statements in company' annual reports Using FCFE as the future cash flows, it could be applied the above mentioned DDM, Gordon growth model and two-stage or three-stage valuation model in the same way as we do using dividends

as future cash flows The FCFE model could be considered as alternative to the Dividend Discount Model rather than superior They will provide the same result when dividends are equal to the FCFE, or when FCFE is greater than dividends, but the excess cash (FCFE – Dividends) is invested in projects with net present value of zero Generally, dividends paid are different from the FCFE for a number of reasons such as the desire for stability, future investment needs, tax factors or signaling prerogatives

However, in many cases, the values derived from the two models are different To determine which model is more appropriate, it is necessary to consider the openness of the market for corporate control If there is high probability that the company can be taken over or the management changed, the value from the FCFE model would be more appropriate In contrast,

if the corporate control is more difficult to change, the value derived from the Dividend Discount Model is suggested to apply

2.5 STOCK VALUATION MODELS AND BANK VALUATION MODELS

2.5.1 Characteristics of a Bank

Banks, as well as insurance companies and other financial service firms pose particular challenges for an analyst attempting to value them for two reasons The first is the nature of their businesses makes it difficult to define both debt and reinvestment, making the estimation

of cash flows much more difficult The other is that they tend to be heavily regulated and the effects of regulatory requirements on value have to be considered

In bank valuation, we begin by considering what makes financial service firms unique and ways of dealing with the differences We then look at how best we can adapt discounted cash flow models to value financial service firms and look at three alternatives - a traditional dividend discount model, a cash flow to equity discount model and an excess return model With each, we look at a variety of examples from the financial services are We move on to

look at how relative valuation works with financial service firms and what multiples may work best with these firms

There are two main problems in performing valuating a bank as follows:

̇ Financial statement

Banks as a financial service firms have much in common with non-financial service firms They attempt to be as profitable as they can, have to worry about competition and want to grow rapidly over time If they are publicly traded, they are judged by the total return they make for their stockholders, just as other firms are Studying on bank, we focus on those aspects of financial service firms that make them different from other firms and consider the implications for valuation

When we talk about capital for non-financial service firms, we tend to talk about both debt and equity When we value the firm, we value the value of the assets owned by the firm, rather than just the value of its equity

With a bank, debt seems to take on a different connotation Rather than view debt as a source

of capital, most financial service firms seem to view it as a raw material In other words, debt

is to a bank what inventory is to a non-financial service firm, something to be molded into other financial products which can then be sold at a higher price and yield a profit Consequently, capital at bank seems to be more narrowly defined as including only equity capital This definition of capital is reinforced by the regulatory authorities who evaluate the equity capital ratios of banks

̇ Reinvestment at Financial Service Firms

We had to note that a bank is often constrained by regulation in both where they invest their funds and how much they invest If, we define reinvestment as necessary for future growth, there are other problems associated with measuring reinvestment with financial service firms

As cited on above session, we consider two items in reinvestment and net capital expenditures and working capital Unfortunately, measuring either of these items at a financial service firm can be problematic

Consider net capital expenditures first Unlike manufacturing firms that invest in plant, equipment and other fixed assets, financial service firms invest primarily in intangible assets such as brand name and human capital Consequently, their investments for future growth often are categorized as operating expenses in accounting statements Not surprisingly, the statement of cash flows to a bank show little or no capital expenditures and correspondingly low depreciation With working capital, we run into a different problem If we define working capital as the different between current assets and current liabilities, a large proportion of a bank is balance sheet would fall into one or the other of these categories Changes in this number can be both large and volatile and may have no relationship to reinvestment for future growth

As a result of this difficulty in measuring reinvestment, we run into two practical problems in valuing these firms The first is that we cannot estimate cash flows without estimating reinvestment In other words, if we cannot identify net capital expenditures and changes in working capital, we cannot identify cash flows either The second is that estimating expected future growth becomes more difficult, if the reinvestment rate cannot be measured

2.5.2 General Frame work for Bank valuation

Given the unique role of debt at financial service firms, the regulatory restrictions that they operate under and the difficulty of identifying reinvestment at these firms, how can we value these firms? Therefore, we use some broad rules that can allow us to deal with these issues

First: it makes far more sense to value equity directly at financial service firms, rather than the entire firm

Second: we either need a measure of cash flow that does not require us to estimate reinvestment needs or we need to redefine reinvestment to make it more meaningful for a financial service firm

2.5.3 Equity versus firm for a bank

What’s difference between value a firm and value equity of firm ? We value firms by discounting expected after tax cash flows prior to debt payments at the weighted average cost

of capital We value equity by discounting cash flows to equity investors at the cost of equity Estimating cash flows prior to debt payments or a weighted average cost of capital is problematic when debt and debt payments cannot be easily identified, which, as we argued earlier, is the case with a bank Equity can be valued directly, however, by discounting cash flows of the dividend and the excess return at the cost of equity Consequently, we would argue for the latter approach for commercial banks We would extend this argument to multiples as well Equity multiples such as price to earnings or price to book ratios are a much better fit for a commercial bank than value multiples such as value to EBITDA

2.5.4 Bank valuation models

̇ Balance sheet approach

The book value of the stock represents the current value of the stock based on company’s accounting records The Balance Sheet approach values a stock of that company primarily based on that value This is typically the most conservative estimate of the stock value However, unless the assets have been frequently re-valued to reflect the effects of inflation, and depreciation is based on the current rather than historic value of assets, a company's balance sheet is unlikely to provide an up-to-date guide to the current value of the company

̇ Price ratios approach

Firm value multiples such as Value to EBITDA or Value to EBIT can not be easily adapted to value bank, because neither value nor operating income can be easily estimated for banks therefore, the multiples that we will work with to analyze bank are equity multiples The three most widely used equity multiples are price earnings ratios, price to book value ratios and price to sales ratios

Since sales or revenues are not really measurable for bank, so price to sales ratios can not be estimated or used for these firms We will use of price earnings and price to book value ratios for valuing bank

̇ Dividend Discount Model (DDM)

In the basic dividend discount model, the value of a stock is the present value of the expected dividends on that stock Assuming that equity in of the bank has an infinite life

= +

t

t t

k

DPS V

1 0

)1

(the details are presented on Section 2.4.3, this chapter )

̇ Excess Return Model

The third approach to valuing a bank as well as financial service firms is to use an excess return model In such a model, the value of a firm can be written as the sum of capital invested currently in the firm and the present value of dollar excess returns that the firm expects to make in the future We can be applied to models to valuing equity in a bank as follows: Given the difficulty associated with defining total capital in a financial service firm, it makes far more sense to focus on just equity when using an excess return model to value a financial service firm The value of equity in a firm can be written as the sum of the equity invested in a firm is current investments and the expected excess returns to equity investors from these and future investments

Value of Equity = Equity Capital invested currently

+ Present Value of Expected Excess Returns to Equity investors

The most interesting aspect of this model is its focus on excess returns A firm that invests its equity and earns just the fair-market rate of return on these investments should see the market value of its equity converge on the equity capital currently invested in it A firm that earns a below-market return on its equity investments will see its equity market value dip below the equity capital currently invested The other point that has to be emphasized is that this model considers expected future investments as well Thus, it is up to the analyst using the model to

forecast not only where the financial service firm will direct its future investments but also the returns it will make on those investments

There are two measurement needed to value equity in the excess return model The first is a measure of equity capital currently invested in the firm The second and more difficult input is the expected excess returns to equity investors in future periods

The equity capital invested currently in a firm is usually measured as the book value of equity

in the firm While the book value of equity is an accounting measure and is affected by accounting decisions, it should be a much more reliable measure of equity invested in a financial service firm than in a manufacturing firm for two reasons The first is that the assets

of a financial service firm are often financial assets that are marked up to market; the assets of manufacturing firms are real assets and deviations between book and market value are usually much larger The second is that depreciation, which can be a big factor in determining book value for manufacturing firms, is often negligible at financial service firms However this, the book value of equity can be affected by stock buybacks and extraordinary or one-time charges The book value of equity for financial service firms that have one or both may understate the equity capital invested in the firm The excess returns, defined in equity terms, can be stated in terms of the return on equity and the cost of equity

Excess Equity return = (Return on equity - Cost of equity) * Equity capital invested

Here again, we are assuming that the return on equity is a good measure of the economic return earned on equity investments When analyzing a financial service firm, we can obtain the return on equity from the current and past periods, but the return on equity that is required

is the expected future return This requires an analysis of the firm is strengths and weaknesses

as well as the competition faced by the firm

2.6 INFORMATION FOR STOCK VALUATION

Securities markets are large institutions where many independent buyers and sellers meet It is easy for newcomers to enter the market and for others to leave it The existing securities regulations control price manipulation and require that security issuers disclose much information about themselves for the investing public Other additional aspects of the market mechanism are worthy of consideration for efficient market such as dissemination of information - news is generated in a random fashion The news is not delayed or controlled in any systematic manner; it is widely dispersed and available to the public at virtually no cost

2.6.1 Sources of information

̇ Financial information

(a) Annual report and accounts

(b) Interim accounting statements

(c) Official filings

(d) Prospectuses

(e) Aggregate financial data

(f) Share price performance

(g) Index price performance

(h) Financial analysts’ forecasts

(i) Management forecasts

̇ Non – Financial information

(a) Production and consumption statistics

(b) Official industry statistics

̇ Non-quantified information

(a) Audit reports and chair’s and directors’ statements

(b) Environmental and employees reports

(c) Management comment and news announcements

(d) Analysts’ comment and recommendations

(e) Financial and trade press comment

(f) Credit assessments

(g) Independent valuations

(h) Personal contacts

(i) Previous dealings

2.6.2 Role of information disclosure in stock market

Information disclosure is one of the most basic principles of stock exchange All information concerning to listed organizations as well as to operation of the market must be disclosed publicly, timely and accurately Therefore, level of information disclosure depends on market efficiency In terms of role of information disclosure in stock markets, there are three kinds of disclosure:

̇ Periodically information disclosure: Annually, semi-annually or quarterly, listed

organizations must submit financial statements to SEC (annual financial statements must

be audited)

̇ Urgent information disclosure: When any event that influences the operation of listed

organizations occurred, listed organizations must disclose that event in public right away

̇ Request-based information disclosure: In a necessary situation to protect rights of

investors, SEC and SSC have a right to request listed organizations to disclose the concerned information

Benefits of information disclosure are expressed on three facets: From the investors’ viewpoint, the more sufficiency, obviousness, promptness that information be provided, the more accuracy investors can estimate the stock’s value that help them to make a relevant decisions without missing advantageous investing opportunities From the viewpoint of listed enterprises, information disclosure is one of conditions to publicize all of operations of these enterprises From the side of managerial regulatory agency, market control based on information disclosure is one of effective administrative measures in order to restrain and invalidate negative actions such as insider trading Furthermore, information disclosure creates

an objective view towards markets and is a basis to assess correctly the market’s operation

2.7 STOCK VALUATION IN EMERGING MARKETS

In recent years, many emerging countries have initiated organized stock exchanges or highly active over-the-counter stock markets Investments in emerging markets have proven attractive to a number of institutional investors Because many emerging market economies at various times have undergone rapid growth and because their stock markets are not highly developed and therefore are less efficient, there is considerable opportunity for relatively high returns from emerging market investments As a result from the globalization and mobilization

of sources of capitals, valuation is gaining importance in emerging markets Yet valuation is much more difficult in these environments because buyers and sellers face greater risks and obstacles than they do in developed markets “…Procedures for estimating a company’s future cash flows discounted at a rate that reflects risk are the same everywhere But in emerging

CAPM to calculate the discount rate is flawed A high discount rate should be used to represent additional risk in those markets such an expropriation risk, exchange risk and vagueness in the legal system Using the world CAPM is not appropriate According to Erb, Harvey and Viskanta, credit rating of the country is a good indicator of risk It is possible that more rapidly growing and developing economies should have a higher premium for their stock markets to reflect the higher risk (volatility) associated with the returns from their predominantly growing companies

SUMMARY

Stock market is an advanced and complicated type of capital market In a stock market, it could be observed that stock valuation is a very necessary but also very difficult task There

2

Mimi James and Timothy M Koller – The McKinsey Quarterly, 2000 Number 4: Asia revalued, pp 78-85

are various different viewpoints and different models related to stock valuation Among models in common stock valuation presented above, each has its own power and limitations Generally, discounted cash flow valuation is the most preferred method as it reflects the economic value of a company, taking account of its past performance and future growth potentials In other words, this approach can incorporate the company’s strategies into valuation Furthermore, it seems to be suitable for countries with unreliable accounting However, this model reveals difficulties in estimating future cash flows as well as measuring concerned risks It is also highly sensitive to changes in inputs

The price ratio approach is an easy way to value a stock if there are "comparable" corporate stocks traded in this market Nevertheless, if the market is misvaluing such comparable companies, that misevaluation will be transformed into the valuation of the company in question In addition, the use of multiples is unreliable or cannot be applied if earnings of companies in comparison are nearly zero or negative

Finally, the balance sheet approach is relatively simple as it is based primarily on book values and financial account figures However, this method usually ignores the inflation effect and future potentials of the company, and therefore its valuation results tend to undervalue the

1

Franks et al 1985, p 359

CHAPTER III BANK VALUATION – A CASE OF BIDV FOR IPO

3.1 DESCRIPTION OF BIDV

3.1.1 Bank profile

Bank for Investment and Development of Vietnam (BIDV) was established under Decision

No 177/TTg dated 26th April, 1957 by the Prime Minister, Fifty one years of development have witnessed a profound transformation of BIDV BIDV is the first to be established among four largest State-owned Commercial Banks in Vietnam and it is a special State-owned

enterprise organized as a State General Corporation

Vietnam

Main targets of BIDV is to become the leading financial group in Vietnam with four main activities: Commercial banking, Securities, Insurance and investment, now BIDV is completing perform equitization and take part IPO bid in first quarter of 2009

Slogan of BIDV is “sharing opportunities, share successes” meaning that oriented to customers, the success of customers are successes of BIDV

BIDV’s organization structure

BIDV has four mains units, they are Subsidiary companies, Commercial bank, Administration units and Joint venture unit (more details in Appendix B– Table 3.1)

3.1.2 The establishment, development and business orientation