Vietnam commercial banking report q2 2011

Business Environment Outlook Commercial Banking Business Environment Ratings Table: Vietnam’s Commercial Banking Business Environment Rating Limits of Potential Returns Data Score, out

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BANKING REPORT Q2 2011

INCLUDING INDUSTRY FORECASTS TO 2015

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: March 2011

CONTENTS

Executive Summary 5

Table: Levels (VNDbn) 5

Table: Levels (US$bn) 5

Table: Levels At August 2010 5

Table: Annual Growth Rate Projections 2011-2015 (%) 5

Table: Ranking Out Of 59 Countries Reviewed In 2011 6

Table: Projected Levels (VNDbn) 6

Table: Projected Levels (US$bn) 6

SWOT Analysis 7

Vietnam Commercial Banking SWOT 7

Vietnam Political SWOT 7

Vietnam Economic SWOT 8

Vietnam Business Environment SWOT 8

Business Environment Outlook 9

Commercial Banking Business Environment Ratings 9

Table: Vietnam’s Commercial Banking Business Environment Rating 9

Commercial Banking Business Environment Rating Methodology 9

Table: Asia Commercial Banking Business Environment Ratings 11

Global Commercial Banking Outlook 12

Regional Outlooks 12

Mergers And Acquisitions Outlook For Banks 16

Asia Banking Sector Outlook 18

Table: Banks’ Bond Portfolios, 2009 21

Tables: Asia Commercial Banking Business Environment Ratings 22

Tables: Comparison Of Loan/Deposit, Loan/Asset And Loan/GDP Ratios 23

Table: Anticipated Developments In 2011 24

Table: Comparison Of Total Assets, Client Loans And Client Deposits, 2009-2010 (US$bn) 25

Table: Comparison Of Per Capita Deposits, 2010 (US$) 26

Table: Interbank Rates And Bond Yields, 2010-2011 27

Vietnam Banking Sector Outlook 28

Economic Outlook 30

Table: Vietnam Economic Activity, 2008-2015 32

Company Profiles 33

Vietcombank 33

Table: Key Statistics For Vietcombank, 2004-2008 (VNDmn) 34

BIDV 35

Table: Key Statistics For BIDV, 2004-2006 (VNDmn) 36

VietinBank 37

Table: Key Statistics For VietinBank, 2005-2008 (VNDmn) 38

Agribank 39

Table: Balance Sheet (VNDmn, unless stated) 40

Table: Balance Sheet (US$mn, unless stated) 40

Table: Key Ratios (%) 40

MHB Bank 41

Table: Key Statistics For MHB Bank, 2006-2008 (VNDmn) 42

Habubank 43

Table: Key Statistics For Habubank, 2004-2007 (VNDmn) 44

Eximbank 45

Table: Balance Sheet (VNDmn, unless stated) 46

Table: Balance Sheet (US$mn, unless stated) 46

Table: Key Ratios (%) 46

Sacombank 47

Table: Stock Market Indicators 48

Table: Balance Sheet (VNDmn, unless stated) 48

Table: Balance Sheet (US$mn, unless stated) 49

Table: Key Ratios (%) 49

Saigonbank 50

Table: Stock Market Indicators 50

Table: Balance Sheet (VNDmn, unless stated) 51

Table: Balance Sheet (US$mn, unless stated) 51

Table: Key Ratios (%) 51

SeABank 52

Table: Balance Sheet (VNDmn, unless stated) 53

Table: Balance Sheet (US$mn, unless stated) 53

Table: Key Ratios (%) 53

BMI Banking Sector Methodology 54

Commercial Bank Business Environment Rating 55

Table: Commercial Banking Business Environment Indicators And Rationale 56

Table: Weighting Of Indicators 57

Executive Summary

Table: Levels (VNDbn)

Date Total assets Client loans

Bond portfolio Other

Liabilities &

capital Capital

Client deposits Other

August 2009 2,065,761.6 1,706,340.0 173,358.3 186,063.3 2,065,761.6 286,547.0 1,594,992.6 184,222.0August 2010 2,624,434.1 2,191,880.0 203,131.1 229,423.0 2,624,434.1 360,566.0 2,038,758.6 225,109.5

Source: BMI, SBV

Table: Levels (US$bn)

Date Total assets Client loans

Bond portfolio Other

Liabilities

& capital Capital

Client deposits Other

Source: BMI, SBV

Table: Levels At August 2010

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

GDP per capita,

US$

Deposits per capita, US$

Source: BMI, SBV

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

Assets Loans Deposits

Source: BMI

Table: Ranking Out Of 59 Countries Reviewed In 2011

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

e/f = BMI estimate/forecast Source: BMI, SBV

Table: Projected Levels (US$bn)

2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Total assets 88.05 99.94 130.56 148.40 173.62 208.34 256.42 315.80 389.20Client loans 66.66 76.60 100.07 113.75 133.07 159.68 196.53 242.05 298.30Client deposits 68.70 76.71 82.78 87.04 95.89 109.31 127.81 149.53 176.61

e/f = BMI estimate/forecast Source: BMI, SBV

SWOT Analysis

Vietnam Commercial Banking SWOT

Strengths ƒ Rapid growth and untapped potential

ƒ High savings rate of Vietnamese consumers

ƒ Increasingly open to foreign banks since WTO accession in 2007

ƒ The role of state-owned banks is steadily decreasing

Weaknesses ƒ Vietnamese banks lack the capital and technology to sustain high credit growth

ƒ The financial accounts of many banks are still opaque

ƒ High exposure to real estate and stock market loans among smaller banks

Opportunities ƒ The population is under-banked

ƒ Income levels are likely to rise strongly over the medium term

Threats ƒ Macroeconomic instabilities threaten the credibility of the government and could

potentially drive economic policy away from further liberalisation

Vietnam Political SWOT

Strengths ƒ The Communist Party government appears committed to market-oriented reform The

one-party system is generally conducive to short-term political stability

ƒ Relations with the US are generally improving, and Washington regards Hanoi as a potential geopolitical ally in South East Asia

Weaknesses ƒ Corruption among officials poses a major threat to the legitimacy of the party

ƒ There is increasing, albeit still limited, public dissatisfaction with the leadership’s tight control over political dissent

Opportunities ƒ The government recognises the threat that corruption poses to its legitimacy and has

acted to clamp down on graft among party officials

ƒ Vietnam has allowed legislators to become more vocal in criticising government policies This is opening up opportunities for more checks and balances in the one-party system

Threats ƒ The slowdown in growth in recent years is likely to weigh on public acceptance of the

one-party system Demonstrations against economic conditions could develop into a full-on challenge to undemocratic rule

ƒ Although strong domestic control will ensure little change to Vietnam’s political scene

in the next few years, over the longer term the one-party system will probably be unsustainable

ƒ Relations with China have deteriorated in recent years due to Beijing’s more assertive stance over disputed islands in the South China Sea and criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could

potentially cause widespread environmental damage

Vietnam Economic SWOT

Strengths ƒ Vietnam was one of the fastest growing economies in Asia in the 2000s, with GDP

growth averaging 7.6% annually between 2000 and 2007

ƒ The economic boom lifted many Vietnamese people out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004

Weaknesses ƒ Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving

the economy vulnerable The fiscal picture is clouded by considerable ‘off the books’ spending

ƒ The heavily managed and weak Vietnamese dong reduces incentives to improve the quality of exports and it also keeps import costs high, contributing to inflationary pressures

Opportunities ƒ WTO membership has given Vietnam access to foreign markets and capital and

makes Vietnamese enterprises stronger through increased competition

ƒ The government will move forward with market reforms, including privatisation of state-owned enterprises and liberalising the banking sector

ƒ Urbanisation will continue to be a long-term growth driver The UN forecasts the urban population to rise from 29% of the total to more than 50% by the early 2040s

Threats ƒ Inflation and deficit concerns have led some investors to reassess their hitherto

upbeat view of Vietnam If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis

ƒ Prolonged macroeconomic instability could prompt the authorities to put reforms on hold as they struggle to stabilise the economy

Vietnam Business Environment SWOT

Strengths ƒ Vietnam has a large, skilled and low-cost workforce that has made the country

attractive to foreign investors

ƒ Vietnam’s proximity to China and South East Asia, plus its good sea links, make it a good base for foreign companies to export to the rest of Asia and beyond

Weaknesses ƒ Vietnam’s infrastructure is still weak Roads, railways and ports are inadequate to

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

ƒ Vietnam remains one of the world’s most corrupt countries Its score in Transparency International’s 2010 Corruption Perceptions Index was 2.7, placing it in 22nd place in the Asia Pacific region and 116th (out of 178) overall

Opportunities ƒ Vietnam is increasingly attracting investment from key Asian economies such as

Japan, South Korea and Taiwan This offers the possibility of the transfer of high-tech skills and knowhow

ƒ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector This should offer foreign investors new entry points

Threats ƒ Trade disputes with the US and the general threat of American protectionism will

remain concerns

Business Environment Outlook

Commercial Banking Business Environment Ratings

Table: Vietnam’s Commercial Banking Business Environment Rating

Limits of Potential Returns Data

Score, out of

10

Ratings score, out of

100

Risks to Realisation of Returns

Regulatory framework and development 4.5 5 Market Risk 40 Regulatory framework and competitive landscape 5.0 5

Moody’s rating for local currency deposits 2.0 2

Commercial Banking Business Environment Rating Methodology

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

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

a measure that ensures we capture the latest quantitative information available It also ensures consistency across all countries and between the inputs to the CBBER and the Insurance Business Environment Rating, which is likewise now a feature of our insurance reports Like the Business Environment Ratings

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

limits of potential returns and the risks to the realisation of those returns It is weighted 70% to the former and 30% to the latter

The evaluation of the Limits of Potential Returns includes market elements that are specific to the

banking industry of the country in question and elements that relate to that country in general Within the 70% of the CBBER that takes into account the Limits of Potential Returns, the market elements have a 60% weighting and the country elements have a 40% weighting The evaluation of the Risks to

Realisation of Returns also includes banking elements and country elements (specifically, BMI’s

assessment of long-term country risk) However, within the 30% of the CBBER that takes into account the risks, these elements are weighted 40% and 60% respectively

Further details on how we calculate the CBBER are provided at the end of this report In general, though, three aspects need to be borne in mind in interpreting the CBBERs The first is that the market elements

of the Limits of Potential Returns are by far the most heavily weighted of the four elements They account for 60% of 70% (or 42%) of the overall CBBER Second, if the market elements are significantly higher than the country elements of the Limits of Potential Returns, it usually implies that the banking sector is (very) large and/or developed relative to the general wealth, stability and financial infrastructure in the country Conversely, if the market elements are significantly lower than the country elements, it usually means that the banking sector is small and/or underdeveloped relative to the general wealth, stability and financial infrastructure in the country Third, within the Risks to Realisation of Returns category, the market elements (ie: how regulations affect the development of the sector, how regulations affect

competition within it, and Moody’s Investors Service’s ratings for local currency deposits) can be markedly different from BMI’s long-term risk rating

Table: Asia Commercial Banking Business Environment Ratings

Limits of Potential Returns

Risks to Potential Returns Overall Market

Structure

Country Structure

Market Risks

Country Risks Rating Ranking

Global Commercial Banking Outlook

In line with our core view, the financial sector’s recovery has been slow across most of the world, with asset and loan growth in the US and Western Europe still lagging the generally robust expansion in emerging markets Still, with the global economy picking up momentum, commercial banking sectors around the world are increasingly on solid ground After looking at how the recovery is proceeding across regions, we examine the potential for mergers and acquisitions within the global commercial banking sector in 2011

Regional Outlooks

Developed states: With the US economy improving, the signs for renewed asset and loan growth in the

US commercial banking sector are increasingly positive, and we see upside risks to our forecasts in 2011 and 2012 Continued falls in delinquency rates should continue to fuel the appetite to lend, though real estate financing will probably remain subdued for some quarters yet With unemployment remaining high, the household deleveraging process still has some room to run

The Worst May Be Over

US – Delinquency Rates By Type Of Loan, %

Source: US Federal Reserve

Meanwhile, confidence in the eurozone banking sector has continued to improve, with conditions in the interbank and corporate lending markets showing further stabilisation since the height of the sovereign financial crisis in mid-2010 There are headwinds, however The fragility of Spain’s savings banks, or Cajas, continues to drive market concern over the broader health of the banking sector The onset of

have abated following Ireland’s EU bailout in late November, the European Central Bank (ECB) remains cautious over the dependence of troubled banks on its special liquidity facility, and may seek a

normalisation of policy sooner rather than later

Subdued Growth Ahead

Europe – Banking Sector Asset Growth, %

Source: BMI, central banks

Latin America: Rampant loan growth in 2010, combined with massive foreign capital inflows, has

increased the risk of a rapid deterioration in loan quality for Latin America’s commercial banking sector, which would both hurt investor confidence and have negative implications for regional growth

Nevertheless, we see three mitigating factors which make us believe the region’s banks will avoid such a crisis the implication being the sector will continue to act as a source of stability and growth over the coming years First, credit growth is strongest in economies where the growth outlook is strongest Second, fiscal buffers are adequate to prevent a rapid loss of investor confidence in the sector Third, banks themselves have sufficient capital and profit margins to weather a spike in non-performing loans (NPLs), with each of the major players exceeding the 7.0% total capital coverage requirement recently set out in the Basel III Accords

Brazil Stands Out

Latin America – Commercial Banking Sector Loan-to-Deposit Ratios

Source: BMI, BCB, SBIF, SBS, SFC

Asia: After a strong year in 2010, Asia’s banking sector remains sound going into 2011 On balance, we

prefer markets with strong domestic consumer demand (leading to higher credit growth and with less downside risks from external factors), low loan-to-deposit ratios (allowing comfortable expansion of credit without adding stress to the financial system) and less exposure to risks posed by surging capital inflows We have identified India and Indonesia to be in relatively sanguine positions with strong growth potential going into 2011 Amongst the markets we do not like, we flag up Australia and Vietnam which potentially face systemic risks

Emerging Europe: We are cautiously optimistic on the broad outlook for the banking sector in Emerging

Europe, which stands to benefit from a cyclical pickup in economic growth across the region Robust economic growth in countries such as Poland and Russia will lead to more favourable operating

conditions for Emerging European banks, spurring credit demand and improving existing credit quality Even banks present in those countries that face more challenging environments, such as Romania and Hungary, should see improved performance as a more favourable economic backdrop provides a boon

Lending To Pick Up In Poland & Russia

Emerging Europe – Banking Sector Credit By Country, % change y-o-y

Source: BMI, central banks

Middle East And Africa: Sub-Saharan Africa (SSA)’s major banking sectors are all continuing their

recoveries, albeit with varying degrees of success Recent data for the the Kenyan and South African banking sectors are encouraging However, the picture is less rosy for the Nigerian banking sector, which continues to tread between crisis and recovery Looking ahead, we expect the recovery to continue for all

of SSA’s major banking sectors throughout 2011 In the Middle East, we remain concerned about the prospects for the domestic banking sector in the United Arab Emirates over the coming quarters, as ongoing loan loss provisioning and weak demand for new credit weighs heavily on asset expansion and profitability in 2011 In Saudi Arabia, credit growth remains subdued

Nigeria Still Concerning

Africa – Total Asset Growth, % change y-o-y

Source: SARB, CBN, CBK

Mergers And Acquisitions Outlook For Banks

With the global financial market and economic recovery picking up in earnest, our Corporate Financing Week team has been looking into the prospects for consolidation and expansion within the commercial banking sector in 2011 We see interesting trends in emerging markets as the internationalisation of retail and investment banking continues

Western banks need more capital: Spain’s caja savings banks are desperately in need of fresh capital to

avoid state ownership, while even Britain’s part-nationalised banks are likely to need more funds as new regulations are put into place The UK’s Independent Commission on Banking has signalled that it will not recommend that the industry splits up into consumer and investment banks, but it remains likely that its Chairman, former Bank of England economist and Oxford University professor, John Vickers will favour the ring-fencing of the investment and consumer banking units This will likely raise capital requirements for banks and increase their fundraising costs, as the likelihood of a government bailout on favourable terms for investment banking units would be slim When taken together with the existing need for new capital, we expect to see many more individual units, both domestic and international, up for sale

Barclays, which escaped the worst ravages of the credit crunch, is looking to sell its commercial

mortgage unit Barclays Capital Mortgage Servicing Limited

European relistings may be some way off: Although the US government has been relatively quick off the mark in selling off the stakes it acquired during the credit crunch, including holdings in Citigroup and automaker GM, European governments have lagged behind We are not expecting a major acceleration in

the process in either the UK or continental Europe, with one of the few indicative dates being the Dutch

finance ministry’s preference to exit the financial sector over the next five years, with ABN AMRO’s

listing likely to be no earlier than 2013 A similar timescale is likely to play out in the UK

Most exciting M&A activity likely to be in emerging markets: Although no emerging market deal is

going to match the blockbuster nature of developed market relistings, many of the most exciting deals are going to involve EM companies in one way or another We are still seeing developed-market companies

prowling EMs to add assets to their portfolios in higher growth markets – Standard Chartered has bought the Singapore operations of auto and personal loan specialist GE Money – and expect further

deals as the more solvent western institutions attempt to ‘buy’ their way out of slow growth at home This trend is going to play out at the same time as EM institutions are becoming more acquisitive themselves

Russia’s market leader Sberbank is on the acquisition trail both at home and abroad, with plans to enter investment banking through the purchase of Troika Dialog, and has signalled that it is looking at targets

elsewhere in emerging Europe This is partially about finding new growth sectors, but also about buying

expertise, a path a number of Chinese banks are going to tread over the coming years Industrial and Commercial Bank of China (ICBC) has become the country’s first bank to buy a stake in a US retail

bank following its purchase of 80% of Bank of East Asia’s US unit The deal will gives ICBC 10

branches in California and three in New York

EM markets will slowly liberalise: The financial crisis and subsequent heavy intervention of Western

governments in their financial markets has slowed down the pace of liberalisation in emerging markets

We expect to see a gradual opening up of local banking sectors, as governments slowly divest their remaining financial holdings Some of these moves are going to be out of necessity, such as Russia’s plans to raise US$32bn through the divestiture of state holdings including stakes in Sberbank and smaller

rival VTB, but we believe the emerging world is on course to open up further

Asia Banking Sector Outlook

Strong Outlook, But Watch Out For Bubble Risks

Banks in the Asia Pacific region are generally well-positioned in 2011, and we believe that loan growth potential is highest in Indonesia and India On the downside, surging capital inflows have led to a sharp spike in asset prices We believe that a disorderly unwinding of assets (especially property) poses the largest risk to banks in the region

After a strong year in 2010, Asia’s banking sector remains sound On balance, we prefer markets with strong domestic consumer demand (leading to higher credit growth and with less downside risks from external factors), low loan-to-deposit ratios (LDRs, to allow comfortable expansion of credit without adding stress to the financial system) and less exposure to risks posed by surging capital inflows We have identified India and Indonesia to be in a relatively sanguine position with strong growth potential Amongst the markets we do not like, we flag up Australia and Vietnam to potentially face systemic risks

Bullish On Domestic Demand Plays

Asia Pacific – Real GDP Growth Forecasts For 2011, %

Source: BMI

Identifying Growth Potential

In order to assess credit growth potential, we have to examine the economies that we are more bullish on over the medium term Unsurprisingly, India, China and Indonesia lead the pack in our forecast for real GDP growth, projected to reach 8.1%, 7.5% (with upside risks) and 5.9% respectively in 2011 For India and Indonesia, we like the consumer story over the longer term and also believe that investment growth

are more downbeat on its investment outlook even as we expect consumer spending to be relatively robust Indeed, there are clear signs that the Chinese authorities may be targeting a lower loan growth rate for 2011 as they battle with inflationary pressures As such, we believe that investment loans (especially

in the property sector) may be held back in the coming quarters Accordingly, we are expecting loan growth in China to underperform, reaching just 8.0%, compared to India (18.0%) and Indonesia (20.0%)

Within the region, Australia and Japan stand out as two economies with weak growth potential in 2011, at 2.4% and 0.7% respectively In Australia’s case, we believe that the economy will be hit by a correction

in real estate prices Regarding Japan, recent indicators all point to an economic slowdown (possibly even

a technical recession) in the coming quarters Indeed, the most recent Tankan Survey report indicated increased pessimism in Japanese firms and this trend has been reflected in the average monthly year-on-year (y-o-y) contraction of 2.2% in the loan growth rate from April to October Accordingly, we are projecting loan growth to remain flat in Japan and to register a contraction of 1.3% in Australia in 2011

Striking A Good Balance

Asia Pacific – Loan-to-deposit Ratio and Loan Growth Projection For 2011

Source: Respective Central Banks, BMI

Low Leverage In Financial System

Since the Asian Financial Crisis in 1997/98, banks in the region have generally been prudent and avoided stacking on excessive leverage Indeed, by our calculation, the average LDR for the Asia-Pacific region is around 84%, a very low figure compared to their European (110%), Middle Eastern (94%) and Latin American counterparts (91%) Accordingly, this implies that banks in the Asia-Pacific region will have more leeway to embark on more aggressive lending Notably, the two domestic-demand plays that we favour in 2011 (India and Indonesia) both have LDRs below 80%

Meanwhile, we are growing increasingly worried about Vietnam’s very high LDR and caution that asset deterioration may pose a serious systemic problem According to our estimates, Vietnam’s LDR may reach 130% (a very high level even for developed states) in December 2010, compared to a more

reasonable level of 100% in 2008 We believe that the mind-boggling levels of loan growth seen in 2009 (38%) and 2010 (estimated to be around 20%) cannot be sustained, especially if banks continue to have problems attracting deposits In the event of a liquidity shortage or insolvency triggered by economic stress, a financial crisis would be a plausible scenario

Vulnerable To Property Price Correction

Asia Pacific – Banking Exposure To Property, % of total loans

Source: BMI, central banks

Surging Asset Prices A Key Risk

A prolonged period of easy monetary conditions in the developed world since the height of the global financial crisis in Q109 has led to a wall of funds flowing from the US and the eurozone into Asia While these fund flows have not proven to be destabilising for the Asian financial markets yet, some worrying symptoms have emerged These include surging asset prices and rising consumer price inflation Should foreign investors embark on a disorderly unwind of positions in Asia, stress resulting from foreign exchange fluctuations and declining property prices would be placed on the balance sheets of Asian banks In the current situation we believe that currency volatility is less of an issue, whereas a crash in property prices is a key concern Indeed, for Indonesia, Thailand and South Korea (the three economies whose currencies were worst hit in 1997/98), the authorities have already stepped up capital controls to prevent excessive speculation Coupled with the rapid reserve buildup over the last few months (total foreign reserves for the three countries are up by 51.7% since January 2009 to reach US$551.2bn in November 2010), we believe that there is considerable cushion to prevent any currency rout in the event

Property prices will prove trickier to handle A collapse in real estate prices will impact on the banks’ loan portfolio and overall profitability will consequently be hit amid a rise in non-performing loans Anecdotal evidence and official data in several Asian economies including China, Singapore, Hong Kong and South Korea suggest that prices are close to or have already pushed past their pre-crisis peak

Although we note that authorities in these three regions have already taken accretive steps towards stemming property price increases, it will prove difficult to strike a balance in fear that anti-speculative measures may be too harsh

By our estimates, banking sector exposure to property is very high in economies such as Australia, Singapore and Hong Kong In our view, Australian banks, which have over 60% of their loan portfolio related to the property sector, are the most vulnerable to a sudden correction in either its currency or the property market

Table: Banks’ Bond Portfolios, 2009

Bond Portfolio, US$bn Bonds, % total assets Year-on-Year Growth, %

Tables: Asia Commercial Banking Business Environment Ratings

Limits of Potential Returns Risks to Potential Returns Overall Market

Structure

Country Structure

Market Risks

Country Risks Rating Ranking

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

Loan/

Deposit Ratio,

% Rank Trend

Loan/

Asset Ratio,

% Rank Trend

Loan/

GDP Ratio,

% Rank Trend

Philippines 67.2 53 Falling 49.1 42 Falling 32.2 50 Falling

South Korea 122.1 13 Falling 69.5 6 Rising 111.3 13 Falling

Vietnam 130.7 5 Rising 76.6 2 Falling 113.5 10 Rising

Source: Central banks, regulators, BMI

Table: Anticipated Developments In 2011

Loan/Deposit Ratio, % Trend

Loan Growth, US$bn

Deposit Growth, US$bn

Residual, US$bn

Table: Comparison Of Total Assets, Client Loans And Client Deposits, 2009-2010 (US$bn)

Total Assets

Client Loans

Client Deposits

Total Assets

Client Loans

Client Deposits

Table: Comparison Of Per Capita Deposits, 2010 (US$)

GDP Per Capita

Client Deposits Per Capita

Rich 20% Client Deposits Per Capita

Poor 80% Client Deposits Per Capita

Table: Interbank Rates And Bond Yields, 2010-2011

3-Month Interbank Rate, % Current Account, % of

Vietnam Banking Sector Outlook

Foreign Competition Forcing Banks To Catch Up

The Vietnamese government has implemented extensive reforms in recent years to raise the

competitiveness of domestic banks However, they continue to lag behind their foreign counterparts in terms of technology, corporate governance, transparency and product sophistication As domestic banks try to close the technological gap, increased foreign participation could benefit the industry through the

transfer of skills and knowledge on international accounting and management practices

Following the country’s accession to the WTO in 2007, the Vietnamese banking and financial services industry has received extensive reform that was intended to prepare banks to compete effectively with

foreign competitors from 2011 (see our online service, November 11 2010, ‘Foreign Banks Poised To

Heat Up Competition In 2011’) However, despite government efforts to boost the competitiveness of

domestic banks by raising capital requirements, tightening regulations and promoting improvements in service standards, domestic banks continue to lag behind their foreign counterparts in other areas We note the gaps in technology, corporate governance, transparency and product sophistication as key

challenges that Vietnamese banks will need to address over the coming years Should domestic banks fail

to catch up in these areas we would not be surprised to see foreign banks taking a dominating share in Vietnam’s banking and financial services industry within the next decade

Entering A New Phase Of Growth?

Finance, Banking And Insurance Sector Growth, 2000-2012

e/f = BMI estimate/forecast Source: General Statistics Office, BMI