Vietnam commercial banking report q3 2012

12 Table: Asia Commercial Banking Business Environment Ratings .... © Business Monitor International Ltd Page 7 SWOT Analysis Vietnam Commercial Banking SWOT Strengths Rapid growth.

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commercial Banking report

Vietnam

INCLUDES BMI'S FORECASTS

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BANKING REPORT Q3 2012

INCLUDES 5-YEAR FORECASTS TO 2016

Part of BMI’s Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: July 2012

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CONTENTS

Executive Summary 5

Table: Levels (VNDbn) 5

Table: Levels (US$bn) 5

Table: Levels At October 2011 5

Table: Annual Growth Rate Projections 2012-2016 (%) 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 8

Vietnam Economic SWOT 9

Vietnam Business Environment SWOT 10

Business Environment Outlook 11

Commercial Banking Business Environment Rating 11

Table: Commercial Banking Business Environment Ratings 11

Commercial Banking Business Environment Rating Methodology 12

Table: Asia Commercial Banking Business Environment Ratings 13

Global Commercial Banking Outlook 14

Asia Outlooks 22

Trade Finance Growth Set To Slow 22

Asia Banking Sector Forecast Overview 26

Table: Banks' Bond Portfolios 2011 26

Table: Asia Commercial Banking Business Environment Ratings 27

Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios 28

Table: Anticipated Developments in 2012 29

Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn) 30

Table: Comparison of US$ Per Capita Deposits (2011) 31

Table: Interbank Rates and Bond Yields 32

Vietnam Specific Banking Sector Outlook 33

Assessing The Risks Behind Vietinbank's Debt Issue 33

Economic Outlook 37

Table: Vietnam – Economic Activity, 2011-2016 39

Competitive Landscape 40

Market Structure 40

Protagonists 40

Table: Protagonists In Vietnam's Commercial Banking Sector 40

Definition Of The Commercial Banking Universe 40

List Of Banks 41

Table: Financial Institutions In Vietnam 41

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Bank for Foreign Trade of Vietnam (Vietcombank) 44

Table: Vietnam Stock Market Indicators 45

Table: Vietnam Balance Sheet (US$mn) 45

Table: Vietnam Key Ratios (%) 45

VietinBank 46

Table: Key Statistics For VietinBank, 2005-2008 (VNDmn) 47

Agribank 48

Table: Vietnam Balance Sheet (LCYmn) 49

Asia Commercial Bank 50

Eximbank 53

Table: Balance Sheet (VNDmn, unless stated) 54

Table: Balance Sheet (US$mn, unless stated) 54

Table: Key Ratios (%) 54

Vietnam Technological and Commercial Joint-stock Bank (Techcombank) 55

Viet A Joint Stock Commercial Bank (Vietabank) 57

Housing Development Commercial Joint Stock Bank (HDBank) 60

Sacombank 61

Table: Stock Market Indicators 62

Table: Balance Sheet (VNDmn, unless stated) 62

Table: Balance Sheet (US$mn, unless stated) 63

Table: Key Ratios (%) 63

BMI Banking Sector Methodology 64

Commercial Bank Business Environment Rating 66

Table: Commercial Banking Business Environment Indicators And Rationale 67

Table: Weighting Of Indicators 68

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Executive Summary

Table: Levels (VNDbn)

Date Total assets

Client loans

Bond portfolio Other

Liabilities and capital Capital

Client deposits Other

October 2010 2,771,909.8 2,314,760.0 210,505.1 246,644.7 2,771,909.8 384,514.0 2,106,934.6 280,461.2October 2011 3,264,325.0 2,717,010.0 256,893.0 290,422.0 3,264,325.0 533,828.0 2,412,745.0 317,752.0Change, % 18% 17% 22% 18% 18% 39% 15% 13%

Source: BMI; Central banks; Regulators

Table: Levels (US$bn)

Date

Total assets

Client loans

Bond portfolio Other

Liabilities and capital Capital

Client deposits Other

October 2010 142.2 118.7 10.8 12.6 142.2 19.7 108.1 14.4October 2011 155.4 129.4 12.2301 13.8 155.4 25.4 114.9 15.1Change, % 9% 9% 13% 9% 9% 29% 6% 5%

Table: Levels At October 2011

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

112.61% 83.23% 113.06% 1,072 1,296Rising Falling Falling

Table: Annual Growth Rate Projections 2012-2016 (%)

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Table: Ranking Out Of 59 Countries Reviewed In 2011

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

Local currency asset

growth Local currency loan growth Local currency deposit growth

Table: Projected Levels (VNDbn)

Total assets 2,286,320.58 2,953,153.46 3,632,378.76 4,467,825.87 5,406,069.30 6,487,283.16 7,654,994.13 8,879,793.19 Client loans 1,869,260.00 2,475,540.00 3,020,158.80 3,684,593.74 4,458,358.42 5,350,030.10 6,313,035.52 7,323,121.21 Client deposits 1,680,716.80 2,209,896.20 2,651,875.44 3,076,175.51 3,506,840.08 3,962,729.29 4,438,256.81 4,926,465.06

e/f = estimate/forecast Source: BMI; Central banks; Regulators

Table: Projected Levels (US$bn)

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

Total assets 99.94 123.73 151.46 172.68 212.40 259.91 315.45 376.54 441.78Client loans 76.60 101.16 126.96 143.58 175.16 214.34 260.15 310.53 364.33Client deposits 76.71 90.95 113.34 126.07 146.24 168.60 192.69 218.31 245.10

e/f = estimate/forecast Source: BMI; Central banks; Regulators

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SWOT Analysis

Vietnam Commercial Banking SWOT

Strengths Rapid growth

Untapped potential

High savings rate of Vietnamese

Weaknesses Domestic banks lack capital and technology to sustain high credit growth

The financial accounts of many banks are still opaque

Opportunities The population is still underbanked

Income levels likely to rise strongly over the medium term

Threats Macroeconomic instability threatens the credibility of the government and could

potentially move economic policy away from further liberalisation

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Vietnam Political SWOT

Strengths The Communist Party of Vietnam remains committed to market-oriented reforms and

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

Relations with the US have witnessed a marked improvement, and Washington sees Hanoi as a potential geopolitical ally in South East Asia

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

ruling Communist Party

There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent

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

acted to clamp down on graft among party officials

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

Threats Macroeconomic instabilities in 2012 are likely to weigh on public acceptance of the

one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocratic rule

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-state will probably be unsustainable

Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism

of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause wide-scale environmental damage

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Vietnam Economic SWOT

Strengths Vietnam has been one of the fastest-growing economies in Asia in recent years, with

GDP growth averaging 7.1% annually between 2000 and 2011

The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 14.0% in 2010

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

the economy vulnerable to global economic uncertainties in 2012 The fiscal deficit is dominated by substantial spending on social subsidies that could be difficult to withdraw

The heavily-managed and weak currency reduces incentives to improve quality of exports, and also keeps import costs high, contributing to inflationary pressures

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

while making Vietnamese enterprises stronger through increased competition

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

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

Threats Inflation and deficit concerns have caused some investors to re-assess their hitherto

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

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

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Vietnam Business Environment SWOT

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

attractive to foreign investors

Vietnam's location – its proximity to China and South East Asia, and its good sea links – makes it a good base for foreign companies to export to the rest of Asia, and beyond

Weaknesses 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

Vietnam remains one of the world's most corrupt countries According to Transparency International's 2011 Corruption Perceptions Index, Vietnam ranks 112 out of 183 countries

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

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

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 Ongoing trade disputes with the US, and the general threat of American protectionism,

which will remain a concern

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

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Business Environment Outlook

Commercial Banking Business Environment Rating

Table: Commercial Banking Business Environment Ratings

Limits of potential returns

Data Score; out of 10 Ratings score; out of 100

Total assets; end 2012, US$bn 172.7 6 Market Structure 70Growth in total assets; 2012-2016, US$bn 229.4 7

Growth in client loans; 2012-2016, US$bn 189.2 8

Per-capita GDP; 2012, US$ 1,509.0 3 Country Structure 55

Financial infrastructure 5.6 6

Risks to realisation of returns

Regulatory framework and development 2.0 2 Market Risk 37Regulatory framework and competitive landscape 5.0 5

Moody's rating for local currency deposits 3.5 4

Long-term financial risk 4.6 5 Country Risk 46Long-term external risk 3.3 3

Long-term policy continuity 7.0 7

Commercial banking business environment rating 57

Source: BMI, National Sources

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Commercial Banking Business Environment Rating Methodology

Since Q108, we have described numerically the banking business environment for each of the countries surveyed by BMI We do this through our Commercial Banking Business Environment Rating (CBBER),

a measure that ensures we capture the latest quantitative information available It also ensures consistency across all countries and between the inputs to the CBBER and the Insurance Business Environment Rating, which is likewise now a feature of our insurance reports Like the Business Environment Ratings calculated by BMI for all the other industries on which it reports, the CBBER takes into account the limits

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

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

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

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

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

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

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

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

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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

Bangladesh 50.0 45.0 43.3 44.0 46.7 52China 93.3 55.0 63.3 74.0 75.5 13Hong Kong 76.7 92.5 73.3 84.0 82.0 6India 83.3 57.5 60.0 56.0 68.4 28Indonesia 76.7 65.0 80.0 52.0 69.4 26Japan 33.3 77.5 66.7 80.0 58.1 37Malaysia 73.3 80.0 83.3 80.0 77.6 10Pakistan 40.0 50.0 53.3 42.0 44.8 55Philippines 50.0 62.5 60.0 58.0 56.1 44Singapore 53.3 95.0 96.7 90.0 76.8 11Sri Lanka 20.0 55.0 33.3 46.0 36.1 58South Korea 80.0 82.5 83.3 76.0 80.4 8Taiwan 76.7 72.5 86.7 76.0 76.6 12Thailand 63.3 65.0 86.7 74.0 68.5 27

United States 90.0 85.0 100.0 80.0 88.0 2

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

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Global Commercial Banking Outlook

Global Credit Divergence

Despite major risks emanating from the European debt crisis (which we looked at closely in the Q1 2012 report in the article 'Europe On The Brink'), our overall global banking outlook remains relatively benign

Of 62 banking sectors forecast by BMI, we are forecasting lending expansion in 52 in 2012, with the nine

non-growing or contracting sectors dominated by developed states/eurozone members (Australia, Austria, Spain, Greece, Italy, Japan, and Slovenia), with Latvia (an EU member borderline developed state by global banking standards) and Iran the only EM representatives This is a microcosm of our global view

as a whole, which is that banking sectors in most developed states will continue to struggle amid

government austerity and household deleveraging, whereas by and large, emerging market banking sectors will continue to expand

Using comparable data from the IMF (which we use for our global credit aggregate series) going up to the end of 2011, two trends stand out Firstly, emerging market banking sectors are catching up rapidly to the world's two biggest banking sectors, the US and the eurozone, in terms of lending growth Since the global financial crisis began in 2007, it is clear that the US and eurozone combined have lagged the rest

of the world in credit creation In fact, while several emerging market economies continue to set new domestic records for credit outstanding, the US plus the eurozone have gone basically nowhere for three years, as the accompanying chart shows In fact, credit in the US plus eurozone has fallen from an

estimated 54% of all global credit to around 46%, a downward trend which we see continuing in the years ahead

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US And Eurozone Back In The Minority For Global Credit

Global Credit Aggregates (US$bn)

Source: IMF, BMI

Secondly, between the US and eurozone, we are more optimistic that the US is past the worst There are significant risks that despite ECB intervention, credit growth in the eurozone is likely to continue to deteriorate Of course, there is a great deal of differentiation between credit aggregates in different euro area members, with troubled countries such as Ireland, Greece and Spain experiencing major credit contractions, while France and Germany among others are still posting fairly strong numbers But on the whole, eurozone credit growth is negative and heading lower Here is a chart of year-on-year consumer credit growth in the US and eurozone While this should be taken with the caveat that US consumer lending includes government-subsidised student loans, the US appears to have turned the corner in overall consumer credit, whereas we expect further stagnation in the eurozone

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US Consumer Lending Turning The Corner?

US v Eurozone Consumer Credit (% chg y-o-y)

Source: Eurostat, Federal Reserve, BMI

While US mortgage lending continues to be a sore point in the US economy as deleveraging continues, it appears that the contraction has steadied at around -2% y-o-y This should head higher in a few years' time In contrast, eurozone mortgage lending has been healthy by comparison, but is beginning to slow rapidly (down from 5.0% y-o-y in early 2011 to 2.0% in Q411)

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Both Could Be Negative Soon

US v Eurozone Mortgage Credit Outstanding (% chg y-o-y)

Finally, looking at corporate debt growth as well, the US has the advantage Interestingly, the data

indicate that European corporates are looking increasingly to debt instrument issuance as opposed to bank lending for financing, which plays up the contrast between healthy corporate balance sheets and weak banks

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US Corporates Have The Edge

US v Eurozone Corporate Credit (% chg y-o-y)

Our overarching view is that further weakness is ahead for European banks, while US financial

institutions are in better shape going forward Overall global credit growth will continue to be driven by non-eurozone and US institutions, however, led by emerging markets That view comes with the caveat that within EM, selectivity is key, and a further downturn in either the US or European banking systems would reverberate globally

Emerging Markets Regional Overviews

Emerging Asia: In 2012 we expect weaker earnings, hampered by foreign funding constraints, slower credit growth, and higher non-performing loans One corollary of the surge in credit growth seen in 2010 and 2011, and the inevitable slowdown in 2012, will be a resurgence in non-performing loans (NPLs) Our core view is for a sharp slowdown in real GDP growth across the board this year, lead by a hard landing in China and a slowdown in trade growth driven by a recession in the eurozone These factors alone are likely to lead to an uptick in NPLs However, when we combine this with the impact of

weakening housing markets across the region and tighter availability of credit, the impact on NPLs is likely to be exacerbated We look for the likes of China, Hong Kong, and Australia to see a surge in bad debts in 2012

Emerging Europe: We maintain our wary view towards Central and Eastern European (CEE) banking sectors on the back of continued macroeconomic and financial headwinds emanating from the eurozone sovereign debt crisis We also hold to our preference for the Czech Republic and Poland's banking sectors

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on the grounds of stability and growth potential, respectively, while reaffirming our negative outlook for the Hungarian and Ukrainian banking We also caution that Southeastern European banking sectors are showing some worrying risk indicators

Things Could Get Much Worse

Hungary – Non-Performing Loan Data

Source: BMI, Magyar Nemzeti Bank

Latin America: We believe asset and loan growth will remain strong in 2012, driven by stable

fundamentals and the use of monetary stimulus in those markets where credit cycles are slowing In addition, we do not view the prevalence of European banks operating in the Latin American region as a risk to regional banking sector stability Indeed, those sectors which have greater foreign participation tend to be the most attractive from a growth perspective, with any serious threats to sector stability coming mainly from domestic factors

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Some Sectors Have Plenty Of Room To Catch Up

Latin America – Client Loans Per Capita, US$

Source: BMI, SBIF, BCB, SFC, CNBV

Sub-Saharan Africa: The outlook for the South African, Nigerian, Kenyan and Ghanaian banking

sectors is mixed We see Nigeria and Ghana as having the strongest growth potential over the coming year, while South Africa should see slow but stable expansion, and Kenya will likely struggle amid various macroeconomic challenges

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Multi-Year Deleveraging For Some

MENA – Loan-to-GDP, %

Source: BMI, central banks

Middle East And North Africa: Financial institutions in Qatar and Oman are likely to outperform over

the coming quarters, with growth in the latter supported in large part through the long awaited

introduction of Islamic banking to the country In contrast, risks to underlying stability remain

pronounced in Iran and Egypt, with banks in the former effectively frozen out of the international

financial system as a result of Western sanctions

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Asia Outlooks

Trade Finance Growth Set To Slow

BMI View: FX denominated loans have flourished across Asia over the past year as regional banks have

taken up the slack amid eurozone retrenchment and still-strong corporate demand While this has been a major boost to profits throughout the industry, the failure of FX deposits to keep up with loans has left a worryingly large loan-to-deposit overhang As such, funding costs are likely to rise, which will weigh on margins, and there are growing risks in the event of a deterioration in US financial conditions That said, regional central banks are as flush as ever with US dollars, and swap lines are in place, meaning that a collapse in trade financing is unlikely

In our Q112 Asia Banking Sector report, we highlighted three risks to the outlook for Asian banks Foreign funding constraints, slowing credit growth, and rising non-performing loans (NPLs) continue to cloud the outlook for Asian banking sector profits in 2012, and the performance of equities So far, we have started to see signs of a slowdown in credit growth on the whole However, one area that continues

to show robust growth is trade financing With European banks retrenching en masse amid sovereign concerns within the eurozone, Asian banks have stepped in to fill the void left in the trade finance market

as corporates have looked to take advantage of low US dollar interest rates versus local currency rates As

a result, FX loans have proliferated over the past year, resulting in strong profit growth, but also a

growing asset-liability mismatch

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Booming Growth Figures

Asia – FX Loan Growth Across Asia In 2011

Source: BMI, Regional Central Banks

Asia Eating Into Europe's Dominance

The trade finance market, estimated to be worth as much as US$10trn a year globally, and supporting in excess of 80% of global trade, has traditionally been dominated by European banks, which up until recently held a dominant market share With European banks deleveraging and trying to improve their capital adequacy ratios amid sovereign default concerns, Asian banks have been keen to pick up the slack, given the relatively low risk nature of the industry and the strong growth in intra-Asian trade seen over recent years

According to Dealogic, three of the region's top five providers of trade finance by market share in Q112

were Asian This compares with only one of the top five a year ago Not only has strong trade growth over recent years driven a trade finance boom, but they have been positively reinforcing each other One

of the reasons global trade flows have held up relatively well despite the ongoing eurozone crisis is the robustness of trade financing in Asia In the 2008-09 global financial crisis, banking sector instability caused a major pullback from the industry, generating a vicious cycle of deteriorating economic

conditions and banking sector stress The willingness of Asian banks to step in to fill the void has been a major supportive factor for regional trade and economic growth While exports to the euozone have softened in recent months, there has been no material deterioration in intra-Asian trade

Dealogic data shows that Japanese banks have made a particularly strong leap into the sector, with

Mitsubishi UFJ Financial Group now ranking first in the region by market share with 16.6% of the

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more than doubled its market share to 9.6% Singaporean banks are also expanding rapidly in this area,

with DBS reporting that trade finance accounted for half of its loan growth last year

Worryingly High Loan-to-Deposit Mismatch

As we mentioned in our previous banking sector report, however, this lending boom has meant that Asian banks are now sitting on very high FX loans to deposit ratios For the region as a whole we estimate the total FX loans-to-deposit ratio is in excess of 100% as a result of double-digit FX loan growth in 2011 This makes short-term funding, mainly in US dollars, crucial to keeping these loan levels elevated, and

here the risks are noteworthy These concerns were recently highlighted by Moody's, which cautioned

about the growing asset-liability mismatch In our view, we could see funding costs rise for Asian banks given the growing dollar demand, particularly if we begin to see signs of credit stress develop in the US banking sector Indeed, with Asian banks using swap agreements with their US counterparts to fund lending, a rise in swap spreads represents a major risk This is likely to weigh on margins and also lead to

a slowdown in FX lending over the coming months Furthermore, while we are bullish towards Asian FX

in the near term, we continue to see weakness across the region in H212, which would raise the local currency value of borrowings, making it more difficult to meet loan repayments

Large FX Loan Overhang

Asia – Loan-to-Deposit Ratios And FX Loan Growth

Source: BMI

On the whole, Asian external balance sheets are in good health, with most countries in the region holding more international reserves then prior to the global financial crisis As such, US dollars would be readily available from central banks in the event that dollar funding dries up The potential for a re-opening of the

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swap lines between Asian central banks and the US Federal Reserve, which were established in the depths

of the financial crisis, also means that a large-scale freeze in lending is unlikely, notwithstanding the potential for funding channels to become tighter as 2012 progresses

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Asia Banking Sector Forecast Overview

Table: Banks' Bond Portfolios 2011

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

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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

Bangladesh 50.0 45.0 43.3 44.0 46.7 52China 93.3 55.0 63.3 74.0 75.5 13Hong Kong 76.7 92.5 73.3 84.0 82.0 6India 83.3 57.5 60.0 56.0 68.4 28Indonesia 76.7 65.0 80.0 52.0 69.4 26Japan 33.3 77.5 66.7 80.0 58.1 37Malaysia 73.3 80.0 83.3 80.0 77.6 10Pakistan 40.0 50.0 53.3 42.0 44.8 55Philippines 50.0 62.5 60.0 58.0 56.1 44Singapore 53.3 95.0 96.7 90.0 76.8 11Sri Lanka 20.0 55.0 33.3 46.0 36.1 58South Korea 80.0 82.5 83.3 76.0 80.4 8Taiwan 76.7 72.5 86.7 76.0 76.6 12Thailand 63.3 65.0 86.7 74.0 68.5 27

United States 90.0 85.0 100.0 80.0 88.0 2

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

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Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios

Loan deposit ratio % Rank Trend

Loan/

Asset ratio % Rank Trend

Loan/

GDP ratio % Rank Trend

Bangladesh 95.3 33 Falling 67.2 11 Falling 51.6 41 RisingChina 68.3 55 Falling 52.1 41 Falling 118.1 13 FallingHong Kong 66.9 57 Rising 37.0 58 Rising 263.9 2 RisingIndia 75.7 49 Rising 58.6 37 Rising 46.4 46 RisingIndonesia 80.0 44 Rising 60.1 31 Falling 29.7 53 RisingJapan 70.6 52 Falling 49.8 46 Falling 90.4 21 RisingMalaysia 78.8 47 Falling 58.1 36 Falling 120.4 10 RisingPakistan 68.6 60 Falling 50.4 50 Falling 22.2 57 FallingPhilippines 67.3 53 Rising 49.7 42 Rising 33.3 52 RisingSingapore 91.4 38 Rising 49.0 47 Rising 125.5 11 RisingSri Lanka 80.7 48 Rising 61.1 26 Rising 29.1 54 RisingSouth Korea 113.6 18 Falling 70.6 9 Falling 99.0 16 FallingTaiwan 74.2 50 Falling 60.2 29 Falling 152.2 6 RisingThailand 108.9 22 Rising 66.0 16 Rising 81.2 26 Rising

Vietnam 113.9 10 Rising 83.1 1 Falling 121.4 9 Falling

United States 111.1 20 Falling 75.1 4 Falling 62.9 33 Falling

Source: Central banks, regulators, BMI

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Table: Anticipated Developments in 2012

Loan/Deposit Ratio, % Trend

Loan Growth, US$bn

Deposit Growth, US$bn

Residual, US$bn

Bangladesh 95.6 Rising 10.2 10.5 -0.3China 68.3 Falling 461.4 675.0 -213.7Hong Kong 66.9 Falling 19.2 28.7 -9.5India 75.7 Falling 193.9 256.2 -62.3Indonesia 82.0 Rising 54.4 58.7 -4.3Japan 69.6 Falling 167.7 357.6 -189.8Malaysia 78.4 Falling 27.8 37.3 -9.5Pakistan 60.9 Falling -1.4 6.8 -8.2Philippines 69.2 Rising 4.2 3.1 1.1Singapore 90.2 Falling 29.4 37.6 -8.2Sri Lanka 78.4 Falling 0.4 1.1 -0.7South Korea 111.5 Falling 39.1 53.3 -14.2

Thailand 108.4 Falling 2.3 3.3 -1.0

United States 108.5 Falling 569.1 725.6 -156.6

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

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Table: Comparison of Total Assets & Client Loans & Client Deposits (US$bn)

Total Assets

Client Loans

Client Deposits

Total Assets

Client Loans

Client Deposits

Bangladesh 73.8 49.6 52.0 72.2 48.9 50.8China 16,477.9 8,588.8 12,567.0 14,592.6 7,606.2 11,129.1Hong Kong 1,769.2 654.1 977.4 1,581.2 543.9 882.8India 1,267.6 742.3 980.7 1,275.6 725.8 1,005.0Indonesia 404.7 243.2 304.1 322.1 196.7 260.5Japan 11,067.4 5,506.2 7,800.1 10,039.1 5,149.0 7,142.4Malaysia 541.2 314.2 398.8 485.7 286.1 361.0Pakistan 87.1 43.9 61.4 76.8 46.0 56.7Philippines 149.4 74.2 110.3 140.7 64.8 103.5Singapore 662.4 324.3 354.7 609.0 251.5 338.0Sri Lanka 27.4 16.7 20.7 23.1 13.1 17.6South Korea 1,532.5 1,081.9 952.1 1,527.1 1,083.3 915.9Taiwan 1,147.6 690.6 931.1 1,147.1 690.3 913.1Thailand 411.5 271.4 249.3 391.1 247.8 245.3

United States 12,622.7 9,484.3 8,537.0 11,884.0 9,256.1 7,971.5

Source: Central banks, regulators, BMI

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Table: Comparison of US$ Per Capita Deposits (2011)

GDP Per Capita

Client Deposits, per capita

Rich 20% Client Deposits, per capita

Poor 80% Client Deposits, per capita

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Table: Interbank Rates and Bond Yields

3 Month Interbank Rate % Current Account % of

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Vietnam Specific Banking Sector Outlook

Assessing The Risks Behind Vietinbank's Debt Issue

BMI View: We believe that Vietinbank's successful debt issue could pave the way for more issuances by

other Vietnamese commercial banks over the coming years Our assessment suggests that a relatively high degree of leverage, which could amplify the risk of default, explains the 329 basis points premium on the bank's bonds over sovereign bonds However, we believe that concerns over a future default by CTG are largely unjustified, presenting an attractive opportunity for investors

The Vietnam Commercial Bank for Industry and Trade (CTG), also known as Vietinbank, has

successfully issued US$250mn worth of US dollar-denominated debt in the international market, with an annual coupon rate of 8.25% maturing in 2017 Judging from the positive response by foreign investors in taking up the first international debt issue by a Vietnamese financial institution, we believe that this could pave the way for more issuances by other Vietnamese commercial banks over the coming years

Most Profitable In The Group

Vietnam – Net Interest Margins, %

Source: BMI, Bloomberg

Improving Macroeconomic Fundamentals

Given that recent economic data coming from Vietnam is beginning to reflect our core view of a turning point in the country's macroeconomic fundamentals, we believe that the Vietnamese debt market will become increasingly attractive to foreign investors Despite our bullish outlook on the economy, which suggests that CTG's bonds presents a compelling opportunity for investors, we still believe that it is

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conviction that the State Bank of Vietnam (SBV) will introduce another 200 basis points (bps) worth of rate cuts by the end of the year, although this has largely been priced into bond yields, should generally be positive for fixed-income assets

From a bondholder's perspective, the risk of a potential default is the sole reason associated with the 329 basis points (bps) premium that CTG's newly issued bonds is currently yielding over its most comparable Vietnamese government US dollar bond (at the time of writing, CTG's bonds were yielding 8.69%, compared to 5.40% on sovereign bonds) Indeed, the mismanagement of state-owned enterprise (SOE)

Vietnam Shipbuilding Industry Group, which almost brought the company to the brink of bankruptcy

in 2010, has severely undermined investors' confidence Not surprisingly, rating agency Moody's

Investors Service has assigned a B1 long-term rating on CTG's debt, categorising the issue as 'speculative'

and 'subject to high credit risk' while Standard and Poor's has assigned a B+ rating, implying 'significant

speculative characteristics'

Quality Of Loans A Priority

Vietnam – Non-Performing Loans To Total Assets, %

Source: BMI, Bloomberg

Fears Of A Potential Default Overdone

Although we do acknowledge that the risk of default by Vietnamese commercial banks is certainly greater

in comparison to other emerging market commercial banks in South East Asia, we believe that concerns over a future default by CTG may have been overpriced by the bond market, presenting attractive

opportunities for investors with a greater risk appetite There are several reasons why we see concerns of

a future default by CTG as largely unjustified Firstly, the Vietnamese government is financially capable

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