Vietnam commercial banking report q3 2015

Industry ForecastEconomic Analysis BMI View: While the Vietnamese banking sector remains burdened by bad debts and the still-strong presence of state enterprises, sustained rapid economi

Q3 2015 www.bmiresearch.com

VIETNAM

COMMERCIAL BANKING REPORT

INCLUDES 5-YEAR FORECASTS TO 2019

INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: May 2015

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DISCLAIMER

BMI Industry View 7

Table: Commercial Banking Sector Indicators 7

Table: Commercial Banking Sector Key Ratios, October 2013 7

Table: Annual Growth Rate Projections 2014-2019 (%) 7

Table: Ranking Out Of 73 Countries Reviewed In 2015 8

Table: Commercial Banking Sector Indicators, 2012-2019 8

SWOT 9

Commercial Banking 9

Political 10

Economic 11

Operational Risk 13

Industry Forecast 15

Economic Analysis 15

Industry Risk Reward Ratings 18

Asia Commercial Banking Risk/Reward Index 18

Table: Asia Commercial Banking Risk/Reward Index 19

Market Overview 20

Asia Commercial Banking Outlook 20

Table: Banks' Bond Portfolios, 2013 20

Table: Comparison Of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2015 20

Table: Comparison of Total Assets & Client Loans & Client Deposits (USDbn) 21

Table: Comparison Of USD Per Capita Deposits, 2015 22

Economic Analysis 23

Table: Economic Activity (Vietnam 2010-2019) 26

Competitive Landscape 27

Market Structure 27

Protagonists 27

Table: Protagonists In Vietnam's Commercial Banking Sector 27

Definition Of The Commercial Banking Universe 27

List Of Banks 28

Table: Financial Institutions In Vietnam 28

Company Profile 30

Agribank 30

Table: Balance Sheet (VNDmn) 32

Table: Balance Sheet (USDmn) 32

Table: Key Ratios (%) 32

Bank for Foreign Trade of Vietnam (Vietcombank) 33

Table: Stock Market Indicator 35

Table: Balance Sheet (VNDmn) 35

Table: Balance Sheet (USDmn) 36

Table: Key Ratios (%) 36

Eximbank 37

Table: Stock Market Indicators 39

Table: Balance Sheet (VNDmn) 39

Table: Balance Sheet (USDmn) 39

Table: Key Ratios (%) 40

Sacombank 41

Table: Stock Market Indicators 43

Table: Balance Sheet (VNDmn) 43

Table: Balance Sheet (USDmn) 43

Table: Key Ratios (%) 44

VietinBank 45

Table: Stock Market Indicators 47

Table: Balance Sheet (VNDmn) 47

Table: Balance Sheet (USDmn) 48

Table: Key Ratios (%) 48

Regional Overview 49

Asia Overview 49

Global Industry Overview 52

Global Commercial Banking Outlook 52

US And Eurozone Banking Outlook 52

Emerging Market Regional Outlooks 53

Demographic Forecast 57

Table: Population Headline Indicators (Vietnam 1990-2025) 58

Table: Key Population Ratios (Vietnam 1990-2025) 58

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 59

Table: Population By Age Group (Vietnam 1990-2025) 59

Table: Population By Age Group % (Vietnam 1990-2025) 60

Methodology 62

Industry Forecast Methodology 62

Sector-Specific Methodology 63

Risk/Reward Ratings Methodology 64

Table: Commercial Banking Risk/Reward Rating Indicators 65

Table: Weighting Of Indicators 66

BMI Industry View

Table: Commercial Banking Sector Indicators

Date assets Total Client loans portfolio Bond Other and capital Liabilities Capital deposits Client Other

October 2012, VNDbn 3,688,076 2,938,250 355,697 394,129 3,688,076 583,666 2,861,204 243,206 October 2013, VNDbn 4,257,985 3,309,020 502,944 446,021 4,257,985 636,710 3,580,465 40,810

% change y-o-y 15.5% 12.6% 41.4% 13.2% 15.5% 9.1% 25.1% -83.2% October 2012, USDbn 176.9 140.9 17.1 18.9 176.9 28.0 137.2 11.7 October 2013, USDbn 201.8 156.8 23.8 21.1 201.8 30.2 169.7 1.9

% change y-o-y 14.1% 11.3% 39.7% 11.8% 14.1% 7.8% 23.7% -83.4%

Source: BMI; Central banks; Regulators

Table: Commercial Banking Sector Key Ratios, October 2013

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

92.42% 77.71% 93.8% 2,007.2 1,853.9

na = not available Source: BMI; Central banks; Regulators

Table: Annual Growth Rate Projections 2014-2019 (%)

Source: BMI; Central banks; Regulators

Table: Ranking Out Of 73 Countries Reviewed In 2015

Local currency asset growth Local currency loan growth Local currency deposit growth

Source: BMI; Central banks; Regulators

Table: Commercial Banking Sector Indicators, 2012-2019

Total assets, VNDbn 3,917,557 4,466,015 5,091,257 5,753,121 6,443,495 7,152,280 7,939,030 8,759,397 Total assets, USDbn 188.0 211.7 238.0 267.0 301.8 338.2 379.0 422.1 Client loans, VNDbn 3,077,700 3,447,024 3,860,667 4,285,340 4,713,874 5,138,123 5,600,554 6,067,267 Client loans, USDbn 147.7 163.4 180.5 198.9 220.8 242.9 267.3 292.4 Client deposits, VNDbn 3,080,455 3,388,501 3,693,466 3,988,943 4,268,169 4,524,259 4,795,715 5,051,486 Client deposits, USDbn 147.8 160.6 172.7 185.1 199.9 213.9 228.9 243.4

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

Commercial Banking

Vietnam Commercial Banking SWOT

Strengths ■ Untapped market with potential for increased participation of foreign banks

■ Large population with a high savings rate and potential for income growth

■ The Vietnamese government aims to speed up the process of privatising state-ownedbanks, which will help modernise the industry

■ State-owned banks will gradually play a lesser role going forward, and the risksassociated with state-directed lending will decrease over time

Weaknesses ■ Domestic banks continue to lag behind their foreign peers in terms of financial

strength and the technological curve

■ Accounting standards lag behind international standards and the lack of transparencyentails significant risks for foreign investors

■ Small banks have an overwhelming exposure to real estate and individual loans,resulting in highly skewed and risky loan portfolios

Opportunities ■ The country remains one of the most under-banked in the region, with significant

potential for adopting cash-free payment systems and new mobile bankingtechnologies

■ Rising income levels and deepening capital markets could give rise to opportunities inmore sophisticated financial products and growth for the local asset managementindustry

Threats ■ Track record of macroeconomic instability threatens the credibility of the government

and could potentially drive economic policy away from further liberalisation

■ The high level of government debt risks triggering a fiscal crisis, underminingconfidence in the banking sector

SWOT Analysis

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 party system is generally conducive to short-term political stability

one-■ Relations with the US have witnessed a marked improvement, and Washington seesHanoi 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 tightcontrol 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 governmentpolicies This is opening up opportunities for more checks and balances within theone-party system

Threats ■ 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 beunsustainable

■ Relations with China have deteriorated over recent years due to Beijing's moreassertive 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

SWOT Analysis

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

GDP growth averaging 6.6% annually between 2000 and 2013

■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 17.2% in 2012

■ Vietnam has been strengthening its trade and aid ties in a bid to increase exports anddiversify its export sector

Weaknesses ■ Vietnam still suffers from fiscal deficits, leaving the economy vulnerable to global

economic uncertainties The fiscal deficit is dominated by substantial spending onsocial subsidies that could be difficult to withdraw

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

Opportunities ■ WTO membership and the upcoming ASEAN economic integration in 2015 should

give Vietnam greater access to both foreign markets and capital, while makingVietnamese enterprises stronger through increased foreign competition

■ The government has continued to move forward with market reforms, includingprivatisation of state-owned enterprises, addressing the high level of bad loans in thebanking sector as well as liberalising the banking sector

■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 32% of the population in 2013 to more than 50% by theearly 2040s

Threats ■ Although inflation has subsided in 2014, complacency by the State Bank of Vietnam

on this front could result in a decline in investment

■ The potential for an escalation of political tensions with China over sovereign claims

to parts of the South China Sea could have a negative impact on the economy

SWOT Analysis - Continued

■ Market reforms could progress at a much slower pace as the government remainscautious about ceding ownership to foreign investors

Operational Risk

SWOT Analysis

Strengths ■ Vietnam has a high number of university graduates with skilled degrees and a high

literacy rate for its income level

• In addition to a number of regional and international flight options, Vietnam has anextensive inland waterway system

■ Strong contract enforcement capabilities increase security

• Vietnam's rate of violent crime is generally low, and foreigners are unlikely to betargeted

Weaknesses ■ High labour costs increase overall operating costs, and difficulty in hiring foreigners

creates shortages of skilled labour

• Underdeveloped rail capacity overburdens the road network

• One of the worst tax administration systems in Asia

• The police force is under-equipped and under-resourced in many areas

Opportunities ■ Fairly high expenditures in secondary education by regional standards will help close

gaps in access to education

• Vietnam is easily accessible from the main shipping routes, and growth in the number

of port facilities will provide adequate capacity

• Declining trade barriers are making it easier to enter the market

• Increased foreign participation in the banking sector will increase the availability offunds for loans

Threats ■ Unequal access to secondary education will result in a lower-quality workforce in

poorer regions

• Vietnam's reliance on imported oil poses risks in the form of energy and fuelshortages

SWOT Analysis - Continued

• Corruption and inefficiency in the legal system

• Anti-Chinese violence, as seen in May 2014, could be a harbinger of wider politicaland social unrest

Industry Forecast

Economic Analysis

BMI View: While the Vietnamese banking sector remains burdened by bad debts and the still-strong

presence of state enterprises, sustained rapid economic growth momentum and ongoing banking reform efforts by the government should gradually strengthen the local banks The retail banking segment will be a key growth engine over the coming years owing to the relatively under-banked nature of the country.

Vietnam's banking sector remains relatively underdeveloped and immature in the region State-ownedcommercial banks remain dominant, accounting for around 45% of the entire sector The sector's asset-to-GDP ratio, at an estimated 129.3% in 2014, also underperforms the regional average Meanwhile,

Vietnamese banks remain burdened by high levels of bad debt, owing to a combination of excessively rapidcredit expansion during the last decade, the lack of proper credit risk assessment, as well as the weakframework for loan reporting and classification While government estimates place the country's non-

performing loan ratio at around 4%, rating agency Moody's projects the metric to be at 15.0% However, it

is not all doom and gloom for the sector, as continued strong economic growth momentum and the ongoingbanking reforms by the government should eventually lead to a strengthening of Vietnamese banks over thecoming years Accordingly, we forecast the sector's growth in terms of its asset-to-GDP ratio to average11.5% annually over the period from 2015 to 2019

Room For Expansion

Asia (Excluding Hong Kong) - Asset-To-GDP Ratio, %

Source: National Sources, BMI

Strong Economic Growth Informs Healthy Loan Expansion Outlook

Robust economic growth in Vietnam on the back of rising foreign direct investment inflows and continuedstrong export sector growth will bode well for loan expansion in the country In a harbinger of continuedreal GDP growth momentum over the coming quarters, realised foreign registered capital inflows rose 5.0%year-on-year (y-o-y) to USD4.2bn in the first four months of 2015 On the export front, Vietnamese

outbound shipments (which account for about 80% of nominal GDP) rose by 8.2% y-o-y over the sameperiod despite headwinds from regional economic weakness, particularly in China Consequently, wemaintain our forecast for real GDP growth to accelerate to 6.4% in 2015 from 6.0% in the previous year.Meanwhile, we project loan growth of 11.0% in 2015, in line with our positive economic outlook for theVietnamese economy Sustained credit expansion will in turn bolster banks' earnings growth

Retail Banking A Key Growth Segment

We believe a key growth area that Vietnamese banks can tap into over the coming years is in the retailbanking segment Indeed, Vietnam remains one of the most under-banked countries in the region despite

recent rapid economic growth According to the World Bank, the country's banking penetration rate stood atjust 21.4% in 2011, among the lowest in the region In combination with the rising affluence of the

Vietnamese people, with GDP per capita set to rise to USD3,644 by 2020 from USD2,007 in 2014

according to our forecast, there is therefore huge room for growth in the retail banking segment

SOE Reform A Positive Step…

Ongoing state-owned enterprise (SOE) reform undertaken by the government is also a positive developmenttowards creating a free market economy and relieving the banking sector from bad debt burdens Indeed,SOEs reportedly accounted for about 60% of the country's total loan portfolio and more than half of thenation's bad debts Privatising these state-owned enterprises should help lead to improved operationalefficiencies, shoring up profits and reducing their borrowing needs

…But Will Be A Gradual Process

While ongoing reforms will bode well for the banking sector, this will be a very gradual process Webelieve the government has been far too ambitious with its aim to privatise about 280 state firms (largelyconglomerates) in 2015 Indeed, the government reportedly only privatised less than 10% of its target inQ115 Moreover, only minority stakes of state-owned companies were sold, reflecting reluctance by thegovernment to cede control to foreign investors It is therefore hardly surprising that these share sales overrecent quarters have largely failed to attract foreign investor interest

Industry Risk Reward Ratings

Asia Commercial Banking Risk/Reward Index

Commercial Banking Risk/Reward Index Methodology

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

analysed by BMI We do this through our Commercial Banking Industry Risk/Reward Index (RRI), a

measure that ensures we capture the latest quantitative information available It also ensures consistency

across all countries Like all of BMI's RRIs, its takes into account the Rewards on offer within the banking

sector in a given country, but also the Risks to investors being able to realise those opportunities Theoverall index is weighted 70% towards Rewards and 30% towards Risks

Within the Rewards category, we look at factors that are specific to the banking industry (accounting for60% of the score within this category), and elements that relate to that country in general (accounting for40% of the weighting) These include, but are not limited to, total assets, asset and loan growth, GDP andtaxation Likewise on the Risks side, we look at industry-specific Risks (weighted 40% of the Risks total)and country-specific Risks (weighted 60%) These include, but are not limited to, the regulatory frameworkand environment, the competitive environment, financial risk, legal risk and policy continuity

In general three aspects need to be borne in mind when interpreting the RRIs The first is that the IndustryRewards element is the most heavily weighted of the four elements, accounting for 42% (60% of 70%) ofthe overall Index Second, if the Industry Rewards score is significantly higher than the Country Rewardsscore, within the Rewards category, 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, ifthe industry score is significantly lower, 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 category, the industry-specific elements (i.e how regulations affect the development of thesector, 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 Country Risk Index for a given market.

Table: Asia Commercial Banking Risk/Reward Index

Limits of Potential Returns Risks to Potential Returns Overall Market Structure Country Structure Market Risks Country Risks Index Ranking

Thailand 66.7 65.0 86.7 70.0 69.2 22

New Zealand 43.3 87.5 86.7 82.0 67.9 29 United States 93.3 85.0 100.0 82.0 89.8 2

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

Market Overview

Asia Commercial Banking Outlook

Table: Banks' Bond Portfolios, 2013

Bond Portfolio, USDbn Bond as % total assets Year-on-year growth %

Source: Central banks, regulators, BMI **Only 2011 data available * Only 2012 data available.

Table: Comparison Of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2015

Loan/Deposit

ratio % Rank Trend Loan/Asset ratio % Rank Trend Loan/GDP ratio % Rank Trend

Bangladesh 85.8 48 Rising 63.9 22 Falling 45.3 51 Rising China 87.0 52 Rising 51.7 49 Rising 146.8 9 Rising Hong Kong 72.7 63 Rising 38.7 66 Rising 317.9 1 Rising India 76.9 58 Falling 67.6 12 Falling 59.0 44 Rising Indonesia 77.5 45 Falling 64.1 16 Falling 34.2 58 Falling Japan 67.3 65 Falling 47.6 54 Falling 90.5 20 Falling

Comparison Of Loan/Deposit & Loan/Asset & Loan/GDP Ratios, 2015 - Continued

Loan/Deposit

ratio % Rank Trend Loan/Asset ratio % Rank Trend Loan/GDP ratio % Rank Trend

Malaysia 72.7 61 Falling 60.1 31 Falling 116.8 13 Falling Pakistan 61.0 68 Rising 44.1 60 Falling 21.5 66 Rising Philippines 70.6 67 Rising 53.2 48 Rising 40.9 54 Rising Singapore 104.9 14 Falling 58.2 39 Falling 158.0 6 Rising Sri Lanka 81.0 55 Rising 58.9 37 Falling 33.5 62 Rising South Korea 126.1 4 Falling 74.3 6 Rising 97.8 17 Rising Taiwan 81.1 56 Rising 63.2 28 Rising 162.0 7 Rising Thailand 98.2 27 Falling 67.0 14 Rising 93.3 19 Rising Vietnam 107.4 19 Rising 74.5 4 Falling 100.2 16 Rising New Zealand 192.5 1 Rising 89.5 1 Rising 157.7 8 Falling United States 104.8 20 Rising 73.1 7 Rising 64.5 37 Rising

Source: Central banks, regulators, BMI

Table: Comparison of Total Assets & Client Loans & Client Deposits (USDbn)

Total Assets Client Loans Client Deposits Total Assets Client Loans Client Deposits

Bangladesh 137.5 87.9 102.4 117.8 75.3 89.5 China 30,895.9 15,973.3 18,364.4 28,482.3 14,213.3 17,400.0 Hong Kong 2,538.6 983.4 1,352.3 2,377.2 938.4 1,266.3 India 1,876.5 1,268.9 1,651.1 1,589.2 1,074.6 1,374.9 Indonesia 461.7 296.1 381.9 455.9 297.7 352.0 Japan 8,079.4 3,844.9 5,714.4 7,880.6 3,787.8 5,519.1 Malaysia 606.5 364.6 501.6 602.5 362.1 475.9 Pakistan 126.4 55.7 90.9 110.6 48.8 81.4 Philippines 238.1 126.5 179.3 218.3 109.5 165.1 Singapore 774.3 450.5 429.6 800.0 458.7 415.2 Sri Lanka 45.2 26.6 32.8 39.2 23.1 28.9 South Korea 1,846.1 1,371.3 1,087.2 1,781.3 1,310.5 1,034.1 Taiwan 1,367.6 864.9 1,066.7 1,308.5 805.1 1,020.6 Thailand 540.6 362.1 368.7 516.3 344.2 350.4 Vietnam 267.0 198.9 185.1 238.0 180.5 172.7

Comparison of Total Assets & Client Loans & Client Deposits (USDbn) - Continued

New Zealand 302.7 271.0 140.8 330.5 293.0 153.7 United States 16,025.1 11,715.1 11,174.9 15,047.1 10,897.8 10,542.4

Source: Central banks, regulators, BMI

Table: Comparison Of USD Per Capita Deposits, 2015

GDP Per Capita Client Deposits, per capita Deposits, per capita Rich 20% Client Deposits, per capita Poor 80% Client

Source: Central banks, regulators, BMI

Economic Analysis

BMI View: We expect continued strong foreign direct investment, healthy export growth and ongoing

efforts by the government to improve macroeconomic fundamentals to keep the Vietnamese economy growing strongly in 2015 Consequently, we forecast Vietnam's real GDP growth to accelerate to 6.4% in

2015, from 6.0% in 2014.

In line with our bullish economic outlook for Vietnam, the country's real GDP growth accelerated to animpressive 7.0% in Q414 from the revised 6.1% in the previous quarter This in turn brought real GDPexpansion for the year to 6.0%, surpassing the Bloomberg consensus estimate of 5.7% and marking

Vietnam as one of the brightest growth spots in Asia We expect Vietnam's robust economic growth

momentum in 2014 to be carried over into 2015, largely on the back of greater foreign direct investment(FDI) inflows, continued healthy export growth as well as continual efforts by the Vietnamese government

to improve macroeconomic fundamentals As such, we forecast the Vietnamese economy to continuegrowing at a strong pace of 6.4% in real terms in 2015

Strong Economic Expansion On The Cards

Vietnam - Real GDP Growth, %

Source: BMI, GSO

FDI And Exports To Continue Driving Growth

From an expenditure approach, the strong showing in 2014 owes largely to high foreign investor interesttowards the country and the robust performance in the export sector Latest data published by the GeneralStatistics Office showed that total foreign registered capital rose 9.6% to USD15.6bn in 2014, with themanufacturing sector receiving the bulk of it (71.6%) While there is the potential for volatility in emergingand frontier markets as the US looks to tighten its monetary policy over the coming quarters, we

nevertheless expect a continuation of strong FDI inflows to Vietnam This is corroborated by our view thatVietnam can continue to attract foreign investors, particularly manufacturing firms, as it offers themattractively low wages, strong demographics that will ensure a continual supply of workers as well asgenerous tax incentives

Meanwhile, exports grew by 13.6% to approximately USD150.0bn over the course of 2014 Given thecountry's export orientation to the US, which received about 19% of total Vietnamese outbound shipments

in 2014, a recovering US economy will bode well for the export sector going forward

Manufacturing And Services Sectors To Remain Strong

From a production perspective, broad-based growth was witnessed in 2014 Notably, the manufacturingsector rose by 8.5%, while construction grew by 7.1% The service industry also posted robust growth of6.0% Over the coming quarters, we expect the Vietnamese economy to continue riding on strong

manufacturing performances The Purchasing Managers' Index, a leading measure of manufacturingperformance, points to higher production activity Indeed, the index came in at 52.7 in December 2014,marking the 16th consecutive month of expansion In addition, continued FDI inflows to the sector will alsohelp to keep factories running at high capacity utilisation

In addition to the manufacturing sector, we are also optimistic about the prospects of Vietnam's real estateand construction sectors The easing of foreign property ownership rules, which will take effect in July

2015, should act as a catalyst to attract more foreign demand for domestic properties (see 'Easing Of

Foreign Property Ownership Rules A Positive Step Forward', December 2, 2014) Since the construction

sector is strongly correlated with the property market, we expect the former to continue putting in a strongperformance over the coming quarters as well That said, we note that business environment weakness couldweigh on foreign participation in realty investment in the near term

Improving Macroeconomic Fundamentals Bode Well For Growth

Ongoing efforts by the Vietnamese government to strengthen macroeconomic fundamentals and to forgefinancial stability following several economic missteps should also bode well for the economy The

economy has witnessed a rapid decline in inflation, which is further aided by the slump in global oil prices

in H214 Consumer price inflation came in at a modest 1.8% year-on-year (y-o-y) in December 2014, downfrom 2.6% y-o-y in the previous month and marking a long way down from its peak of 23.0% recorded inAugust 2011 We expect price pressures to remain subdued over the coming months, owing in part to lowercommodity prices As such, we forecast average inflation to come in at 2.1% in 2015, down from our initialestimate of 5.3% The government has also sought to address the high level of bad debt in the banking

system via the Vietnam Asset Management Company (VAMC) The VAMC, established in July 2013,

will purchase toxic assets from local banks and sell them thereafter in a bid to allow these institutions toundergo much needed restructuring

Price Pressures To Remain Subdued

Vietnam - Headline Inflation, % chg y-o-y

Source: BMI, GSO

Key Challenges

While we see positive developments in the economy, there are nevertheless some downside risks to our

2015 real GDP growth forecast Chiefly, we note that the ongoing maritime dispute with China oversovereign claims to the South China Sea could lead to an economic backlash by China Likewise, thecountry's fiscal woes and banking frailties are also key risks to the economy

Table: Economic Activity (Vietnam 2010-2019)

2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f

Nominal GDP, USDbn 112.9 134.6 155.5 170.4 185.8 199.3 220.6 248.4 280.0 314.9 Real GDP growth, % y-o-y 6.4 6.2 5.2 5.4 6.0 6.4 6.6 6.4 6.4 6.3 GDP per capita, USD 1,267 1,496 1,712 1,859 2,007 2,133 2,341 2,616 2,925 3,266 Population, mn 89.0 89.9 90.8 91.7 92.5 93.4 94.2 95.0 95.7 96.4 Industrial production, % y-o-y, ave 14.1 10.9 7.0 5.9 7.7 8.4 8.6 8.6 8.5 8.5 Unemployment, % of labour force, eop 4.3 3.6 3.2 3.6 3.5 3.4 3.5 3.5 3.5 3.5

e/f = BMI estimate/forecast Source: National Sources/BMI

Competitive Landscape

Market Structure

Protagonists

Table: Protagonists In Vietnam's Commercial Banking Sector

Central bank: State Bank of Vietnam (SBV)

www.sbv.gov.vn/en/home

The State Bank of Vietnam (SBV) is the successor to the Vietnam National Bank, which was established by the

government of North Vietnam in 1951 From 1975 to May 1990, the SBV was the banking system of Vietnam The

government then established the 'two-tier' system that is still in place The financial liberalisation at the beginning of the 1990s lead to the establishment of four large state-owned commercial banks: Agribank, the Joint Stock Commercial Bank for Investment and Development of Vietnam, Incombank and Vietcombank This period also included the

establishment of commercial joint-stock banks, joint-venture banks, branches or representative offices of foreign banks, credit cooperatives, people's credit funds and finance companies.

The SBV implements the state management of currency trading, credit, payment, foreign exchange and banking; is the only bank authorised to issues bank notes; and acts as the bank to the banks and the state The central bank organises the management of monetary policy and ensuring a stable currency value is its main objective.

Principal banking regulator: State Bank of Vietnam (SBV)

www.sbv.gov.vn/en/home

Among its other functions, the SBV is the regulator of the banking system.

Banking trade association: Vietnam Bankers Association (VNBA)

www.vnbaorg.vn/en/

The Vietnam Bankers Association (VNBA) was founded in 1994 and became a part of the ASEAN Bankers Association

the following year, after Vietnam's accession to association The functions of the VNBA are: to act as a link between the banks and the authorities, including dissemination of 'the policies, mechanisms and laws on banking operations' to its members; protecting the interests of the members; training and research; and expansion of international cooperation.

Definition Of The Commercial Banking Universe

Within Vietnam, VNBA currently has 54 members, including 39 commercial banks, two joint venturebanks, 11 finance companies and two other financial institutions

List Of Banks

Table: Financial Institutions In Vietnam

COMMERCIAL BANKS

Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank)

Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank)

Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)

Vietnam Bank for Agriculture and Rural Development (Agribank)

Mekong Housing Bank (MHB)

JOINT STOCK BANKS

Asia Commercial Bank (ACB)

An Binh Commercial Joint-Stock Bank (ABBank)

Bao Viet Joint Stock Commercial Bank (BAOVIET Bank)

North Asia Commercial Joint-Stock Bank (BacA Bank)

Vietnam Prosperity Bank (VPBank)

Global Petro Commercial Joint-Stock Bank (GP Bank)

Great Asia Commercial Joint-Stock Bank (Dai A Bank)

Great Trust Bank (TrustBank)

Ocean Commercial Joint-Stock Bank (Ocean Bank)

DongA Commercial Joint-Stock Bank (DongA Bank)

South East Asia Bank (SeABank)

Viet Capital Commercial Joint-Stock Bank (Viet Capital Bank)

Maritime Commercial Joint-Stock Bank (Maritime Bank)

Technical and Commercial Joint-Stock Bank of Vietnam (Techcombank)

Kien Long Commercial Joint-Stock Bank (Kienlongbank)

Nam A Commercial Joint-Stock Bank (NamA Bank)

Nam Viet Commercial Joint-Stock Bank (Navibank)

Western Commercial Joint-Stock Bank (Western Bank)

Mekong Development Join-Stock Commercial Bank (MDBank)

Orient Commercial Joint-Stock Bank (OCB)

Southern Commercial Joint-Stock Bank (Southern Bank)

Hanoi Building Commercial Joint-Stock Bank (Habubank)

Ho Chi Minh City House Development Commercial Joint Stock Bank (HDBank)

Military Commercial Joint-Stock Bank (MB)

Vietnam International Commercial Joint-Stock Bank (VIB)

Sai Gon Commercial Joint-Stock Bank (SCB)

Financial Institutions In Vietnam - Continued

Saigon Bank for Industry and Trade (Saigonbank)

Sai Gon-Hanoi Commercial Joint-Stock Bank (SHB)

Sai Gon Thuong Tin Bank (Sacombank)

Vietnam-Asia Commercial Joint-Stock Bank (VietABank)

Petrolimex Commercial Joint-Stock Bank (PG Bank)

Vietnam Export-Import Commercial Joint-Stock Bank (Eximbank)

Tienphong Joint - Stock Commercial Bank (TienphongBank)

JOINT VENTURE BANKS

Vietnam-Russia Joint Venture Bank (VRB)

Viet-Thai Joint Venture Bank (Vinasiam Bank)

FINANCE COMPANY

Post and Telecommunication Finance Company (PTF)

Rubber Finance Company (RFC)

Vietnam Shipbuilding Finance Company (Vinashin Finance)

Textile Finance Company (TFC)

Handico Finance Joint-Stock Company (HAFIC)

Vietnam National Coal, Mineral Finance Company Limited (CMF)

Song Da Finance Joint-Stock Company ( SDFC)

PetroVietnam Finance Joint-Stock Corporation (PVFC)

Cement Finance Company (CFC)

Vinaconex - Viettel Finance Company (VVF)

Vietnam Chemical Finance Joint Stock Company (VCFC)

OTHER FINANCIAL INSTITUTIONS

Deposit Insurance of Vietnam (DIV)

Vietnam Development Bank (VDB)

Source: VNBA (February 2015), BMI

Company Profile

Agribank

SWOT Analysis

Strengths ■ Established as one of the largest state-owned commercial banks

■ Massive branch network, especially in rural Vietnam

■ Improved rating from Fitch in November 2014

■ Strong relationships with overseas lenders

■ State support

Weaknesses ■ Possible effects of the bursting of the asset price bubble

■ Series of scandals affects the bank's reputation

Opportunities ■ Attractive partner for any other financial institutions looking to cross-sell products to

the mass market in Vietnam

■ Expanded footprint into Cambodia

■ Posted a rise in net profit after tax and operating profit in 2012

■ Undergoing restructuring programme with the Vietnamese government

■ Government-backed IPO planned

■ Lending activity up by 8.2% in 2012

Threats ■ Perceived exposure to the downturn in global trade

■ Credit rationing by state will limit growth

■ Vietnam now permits international investors to acquire larger stakes in lenders in thecountry

Company Overview Established in 1988, the Vietnam Bank for Agriculture and Rural Development (Agribank)

is a leading commercial bank and plays a decisive role in capital investment in

developing the agricultural and rural economy, as well as other fields of the Vietnameseeconomy In 2011, the bank became a limited company, 100% owned by the state In

2014, Agribank was the only bank to feature in the top 10 largest enterprises inVietnam

As of December 2013, the bank's operating network in Vietnam consists of 2,300branches and transaction offices nationwide, staffed by a personnel team of 40,000.Agribank also maintains foreign partners, and has 1,026 correspondent banks in

92 countries and territories around the world The bank has eight domestic subsidiaries,specialising in business activities such as leasing, trading and tourism, securities, andbank insurance It is extended its reach to Cambodia in 2010 by opening its firstoverseas branch in the kingdom

Agribank has completed a long-term financing agreement with the state oil companyPetrovietnam to provide financing at lower interest rates for the company to developVietnamese oil resources This could help Agribank establish more long-termrelationships with major businesses As part of a revised strategy agreed in 2012,Agribank will remain state-owned but play a more prominent social policy role insupport of the country's rural and agricultural communities Central bank governorNguyen Van Binh stipulated that between 75% and 80% of Agribank's annual lendingshould go to Vietnamese farmers in support of the country's key export crops: coffeeand rice

The bank has been plagued by a series of high-profile embezzlement scandals in recentyears In the latest case, a former Agribank chairman was arrested in September 2014over an alleged USD4.4mn scam In January 2013, Vietnamese federal police said theyhad arrested former general director of the state-owned Agribank, Pham Thanh Tan, for'irresponsibility causing serious consequences.' In another case, three senior

employees at Agribank's leasing arm were sentenced to death, and another four givenlife in prison for embezzlement and corruption

In 2014, Agribank began to implement a restructuring plan in order to eliminate badpractices, which have led to high levels of bad debt

Corporate

Highlights

As of the end of 2012 (latest available data) the bank's total loan portfolio wasVND480trn, increasing by 8.2% year-on-year; loans to agriculture and rural sectorincreased by more than 13% and accounted for almost 70% of the total loan portfolio.Total assets climbed to 617.9trn at end-2013, up 10% from VND560.0trn a year earlier

As of the end of 2012, the bank's net profit after tax was at VND2,479,398mn, up fromVND2,279,872mn in 2011 During the same time period, operating profit climbed fromVND3,308,670mn at the end of 2011 to VND3,378,927mn by December 31 2012

The NPL ratio stood at 5.8% at end-2012, down slightly from 6.1% a year earlier

In November 2014, Fitch raised Agribank's long-term IDR to 'B+', from 'B', following animprovement in Vietnam's sovereign rating.

Company Data ■ Website: www.agribank.com.vn

■ Status: State-Owned Commercial Bank

Table: Balance Sheet (VNDmn)

Total Assets 400,485,183 480,937,045 534,987,152 Loans & Mortgages 288,940,827 361,739,747 420,419,729 Total Deposits 299,954,030 331,893,865 382,579,192 Total Shareholders' Equity 17,798,086 19,860,526 28,696,171

Source: Vietnam Bank for Agriculture and Rural Development (Agribank), Bloomberg, BMI Note: Data from 2008-2009 sourced from Bloomberg.

Table: Balance Sheet (USDmn)

Loans & Mortgages 16,527 19,576 21,562

Total Shareholders' Equity 1,018 1,075 1,472

Source: Vietnam Bank for Agriculture and Rural Development (Agribank), Bloomberg

Table: Key Ratios (%)

na = not available Source: Vietnam Bank for Agriculture and Rural Development (Agribank), Bloomberg

Bank for Foreign Trade of Vietnam (Vietcombank)

SWOT Analysis

Strengths ■ Largest correspondent network among Vietnamese banks

■ Clear competence in external trade

■ Strong market position and continuing to grow

■ Adequate capital ratios

■ Rise in total loans in 2014

Weaknesses ■ Market capitalisation of the bank decreased during 2013 full-year

■ Lack of transparency

Opportunities ■ Stronger expansion to outpace growth at smaller, non-state rivals

■ 15% stake acquisition by Japan's Mizuho Corporate Bank improved capital position

in 2012

■ Possible merger with Saigonbank in 2015

■ Profit growth ahead of target in 2014

■ Falling NPL ration in 2014

Threats ■ Tighter monetary policy to tame economic growth

■ Vietnam will now permit international investors to acquire larger stakes in lenders inthe country

■ Fall in CAR in 2013

Company Overview Established in 1963 as a state-owned commercial bank, Vietcombank is the oldest

commercial bank for external affairs in Vietnam and was the first bank in the country tohave a centralised capital management structure It describes itself as an 'interbankforex payment centre for over 100 domestic banks and foreign banks' branches