Vietnam commercial banking report q4 2010

11 Table: Vietnam Commercial Banking Business Environment Rating .... 11 Table: Asia Commercial Banking Business Environment Ratings .... 24 Table: Asia Commercial Banking Business Envir

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BANKING REPORT Q4 2010

INCLUDING 5-YEAR INDUSTRY FORECASTS TO 2014

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: September 2010

Business Monitor International

© 2010 Business Monitor International

All rights reserved

All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher

BANKING REPORT Q4 2010

INCLUDING 5-YEAR INDUSTRY FORECASTS TO 2014

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: September 2010

CONTENTS

Executive Summary 5

Table: Levels (VNDbn) 5

Table: Levels (US$bn) 5

Table: Levels At August 2009 5

Table: Annual Growth Rate Projections 2010-2014 (%) 5

Table: Ranking Out Of 59 Countries Reviewed In 2010 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 Ratings 11

Table: Vietnam Commercial Banking Business Environment Rating 11

Commercial Banking Business Environment Rating Methodology 11

Table: Asia Commercial Banking Business Environment Ratings 13

Global Commercial Banking Outlook 14

Asia Banking Sector Outlook 19

Table: Banks’ Bond Portfolios 24

Table: Asia Commercial Banking Business Environment Ratings 25

Table: Comparison Of Loan/Deposit, Loan/Asset & Loan/GDP Ratios 26

Table: Anticipated Developments In 2010 27

Table: Comparison Of Total Assets, Client Loans & Client Deposits, 2008-2009 (US$bn) 28

Table: Comparison Of Per Capita Deposits, 2010 (US$) 29

Table: Interbank Rates & Bond Yields 30

Vietnam Banking Sector Outlook 31

Economic Outlook 34

Table: Vietnam Economic Activity, 2007-2014 35

Competitive Landscape 36

Market Structure 36

Protagonists 36

Table: Protagonists In Vietnam’s Commercial Banking Sector 36

Definition Of The Commercial Banking Universe 36

List Of Banks 37

Table: Financial Institutions In Vietnam 37

Company Profiles 40

Table: Key Statistics For BIDV, 2004-2006 (VNDmn) 43

VietinBank 44

Table: Key Statistics For VietinBank, 2005-2008 (VNDmn) 45

Agribank 46

Table: Balance Sheet (VNDmn, unless stated) 47

Table: Balance Sheet (US$mn, unless stated) 47

Table: Key Ratios (%) 47

MHB Bank 48

Table: Key Statistics For MHB Bank, 2006-2008 (VNDmn) 49

Habubank 50

Table: Key Statistics For Habubank, 2004-2007 (VNDmn) 51

Eximbank 52

Table: Balance Sheet (VNDmn, unless stated) 53

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

Table: Key Ratios (%) 53

Sacombank 54

Table: Stock Market Indicators 55

Table: Balance Sheet (VNDmn, unless stated) 55

Table: Balance Sheet (US$mn, unless stated) 56

Table: Key Ratios (%) 56

Saigonbank 57

Table: Stock Market Indicators 57

Table: Balance Sheet (VNDmn, unless stated) 58

Table: Balance Sheet (US$mn, unless stated) 58

Table: Key Ratios (%) 58

SeABank 59

Table: Balance Sheet (VNDmn, unless stated) 59

Table: Balance Sheet (US$mn, unless stated) 60

Table: Key Ratios (%) 60

BMI Banking Sector Methodology 61

Commercial Bank Business Environment Rating 62

Table: Commercial Banking Business Environment Indicators And Rationale 63

Table: Weighting Of Indicators 64

Executive Summary

Table: Levels (VNDbn)

Date

Total Assets

Client Loans

Source: BMI, SBV, regulators

Table: Levels (US$bn)

Date

Total Assets

Client Loans

Source: BMI, SBV, regulators

Table: Levels At August 2009

GDP Per Capita,

US$

Deposits Per Capita, US$

106.98% 82.60% 107.32% 1,058 1,030 Rising Falling Rising

Source: BMI, SBV, regulators

Table: Annual Growth Rate Projections 2010-2014 (%)

Table: Ranking Out Of 59 Countries Reviewed In 2010

Source: BMI, SBV, regulators

Table: Projected Levels (VNDbn)

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

Table: Projected Levels (US$bn)

Total

Assets 88.04 99.96 130.56 148.39 173.62 211.81 269.38 345.59Client

Loans 66.66 76.62 100.07 113.73 133.07 162.34 206.47 264.88Client

Deposits 68.70 76.72 82.78 87.03 95.89 109.31 127.81 149.53

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

SWOT Analysis

Vietnam Commercial Banking SWOT

! Untapped potential

! The high savings rate of Vietnamese households

! Increasingly open to foreign banks since accession to the WTO in 2007

! The role of state-owned banks is steadily decreasing

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

! The financial accounts of many banks are still opaque

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

Opportunities ! The population is still under-banked

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

result in a shift of economic policy away from further liberalisation

Vietnam Political SWOT

reforms, although specific economic policies will undoubtedly be discussed at the 2011 National Congress The one-party system is generally conducive to short-term political stability

! Relations with the US are generally improving, 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 that 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

acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic 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 the past year 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 large environmental damage

Vietnam Economic SWOT

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

with GDP growth averaging 7.6% annually between 2000 and 2009

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

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

leaving the economy vulnerable as the global economy continues to suffer in

2010 The fiscal picture is clouded by considerable ‘off-the-books’ spending

! The heavily-managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing

to inflationary pressures

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 to rise from 29% of the population to more than 50% by the early 2040s

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

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 Its score in Transparency International’s 2009 Corruption Perceptions Index was just 2.7, placing it 22nd in the Asia-Pacific region

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 knowhow

! 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

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

Business Environment Outlook

Commercial Banking Business Environment Ratings

Table: Vietnam Commercial Banking Business Environment Rating

Total assets, 2009 US$130.6mn 6 Market Structure 63 Growth in total assets, 2009-2014 6

Growth in client loans, 2009-2014 7

GDP per capita, 2009 US$1,058 2 Country Structure 53

Financial infrastructure 5.6 6

Risks to Realisation of Returns

Regulatory framework and

development 4.5 5 Market Risk 40 Regulatory framework and competitive

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

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

Market Structure

Country Structure

Market Risks

Country

Bangladesh 43.3 45.0 30.0 42.0 42.0 52China 93.3 55.0 56.7 76.0 75.1 13Hong Kong 73.3 90.0 70.0 84.0 79.5 9India 83.3 55.0 53.3 56.0 66.9 24Indonesia 73.3 62.5 76.7 42.0 65.1 29Japan 30.0 75.0 63.3 80.0 55.6 38Malaysia 70.0 80.0 76.7 80.0 75.4 12Pakistan 33.3 47.5 56.7 40.0 41.3 55Philippines 50.0 60.0 56.7 50.0 53.6 43Singapore 66.7 90.0 96.7 88.0 80.6 7Sri Lanka 20.0 55.0 36.7 44.0 36.1 56South Korea 76.7 85.0 76.7 68.0 77.4 10Taiwan 70.0 70.0 83.3 74.0 72.3 17Thailand 56.7 65.0 80.0 68.0 63.8 31

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

Global Commercial Banking Outlook

Post-Crisis Era Begins To Take Shape

With a number of new regulations being implemented in the US, controversial stress test data released in the EU and emerging market banking sectors showing resilience, the post-crisis era is slowly taking shape The short-term risks abound and our global macroeconomic forecasts include significant

slowdowns in growth in the US and China in H210 and into 2011 This will temper banking sector asset expansion and, combined with tighter regulatory frameworks, we do not expect a return to the lending dynamism of the pre-crisis era The dynamics for national banking sectors vary, but generally we forecast weaker asset and loan growth in developed markets, in line with our macro view that deleveraging will continue to dominate the economic agenda in Western Europe and the US over the next few years In contrast, most emerging market banking sectors have withstood the global crisis and should continue to expand in the coming years

Debt Deleveraging Cycle Underway

US – Lending Growth, % change y-o-y

Source: Federal Reserve

US and Eurozone: We continue to anticipate sluggish loan and asset growth in the US and the

eurozone’s banking sectors, in line with our macroeconomic view that households are in for a prolonged period of deleveraging New financial regulations, in particular the signing of the Dodd-Frank financial regulation act by President Obama in July, reinforce our view that the pre-crisis lending boom will not return anytime soon, and help justify our headline forecasts for subdued asset and loan growth This would be the case even if households and businesses were prepared to borrow, but in our view private sector deleveraging is only in its early stages While we believe the chances of a new systematic banking

crisis in the US are low, we also doubt that financial institutions will return to the levels they reached crisis for the foreseeable future

pre-In Europe, the results of the much

anticipated EU banking sector

stress test came as little surprise,

with only seven of 91 examined

banks failing to meet the minimum

thresholds determined by the

Committee of European Banking

Supervisors (CEBS) In our view,

the main shortcomings of the test

is that it failed to measure liquidity

risks and exposures to a sovereign

default, which indicates that

uncertainty risks will continue to

force a premium on banks The test

reinforces our view that the

eurozone banking sector overall

remains relatively healthy and that a systemic crisis is not on the cards That said, this does not discount the macroeconomic challenges likely to face European banks through to 2012 Further asset contractions and impairments remain our core scenario

Latin America: While the exposure of European banks to the eurozone’s myriad woes has raised

concerns that the Latin America’s banking systems could face serious systemic risks over the medium term, we believe that Latin American banking sectors are generally well placed to withstand external shocks emanating from across the Atlantic While risks to Latin American and Caribbean banking sectors from Europe’s banking problems remain muted, the region is unlikely to be immune from a sustained period of weakness for foreign banks Despite the importance of local affiliates and deposits to many foreign banks operating in Latin America, a significant worsening of global financing conditions

prompted by a spike in European credit spreads would almost certainly weigh on lending growth in the region, particularly if Spanish banks suffer heavily from concerns about Spain’s debt obligations

Domestically owned banks would also suffer from tighter interbank lending, reducing the availability of credit across the sector

Stress Test Methodology Summary

EU – Banking Sector Stress Test Key Facts

Source: CEBS

Clear Separation

Latin America – Loan-to-Deposit Ratio, %

Source: BMI, countries’ central banks and regulators

Emerging Europe: We believe that the positive results from the EU’s stress test masks the risks faced by

the region’s banks The test focused on the predominant financial institutions in Western Europe, but we emphasise that their emerging European counterparts are still a major weak link in the chain With a significant degree of leverage and faced with an elevation in non-performing loans, Central and Eastern European banking sectors remain vulnerable to another potential constriction in global credit conditions Confronted with rising unemployment and weak corporate profitability, banks remain vulnerable to the elevation in non-performing loans and broader deterioration in asset quality We hold to our view that domestic demand across the region will be weak over the medium term as the private sector deleverages and unemployment is stubbornly slow to decrease, which will hinder demand for fresh credit

Turkey Leaping Forward

Emerging Europe – Bank Loans, % change y-o-y

Source: BMI, central banks

Asia: Asia region is mixed in terms of its outlook, as some banking sectors have solid enough

fundamentals to support asset and loan growth, while others are set to be restrained by deleveraging Based on a number of risk metrics, such as assets-to-equity, loan-to-deposit and assets-to-GDP ratios, Indonesia and the Philippines are in the best shape Their banking systems should facilitate acceleration in loan growth and profitability in 2010 While Asia’s economic and financial sector fundamentals are among the strongest in the world, the profit growth currently assumed by market valuations seems to be overly optimistic From an investor’s point of view, the Indonesian banking sector stands out as being very expensive in relation to book value, as does China’s, despite a large decline We also believe the markets are not giving enough weight to financial crisis risks in Australia and New Zealand, while South Korea is relatively attractive

Middle East And North

Africa: The regional

macroeconomic recovery has

failed to translate into a revival

in bank lending or asset growth

within the Gulf Cooperation

Council (GCC) so far in 2010,

and although we expect overall

positive year-on-year expansion,

this is more a reflection of a low

base than an improvement in

appetite for financial services

That said, the prospects for

Saudi and Qatari banks are more

encouraging than those for banks

in Kuwait, Dubai and Bahrain,

where there are greater stability

issues albeit with no major

systemic threats Outside the GCC, Iran’s banking sector is in particular danger, while Israeli lenders

remain at the whim of the global economic recovery - something BMI remains concerned about,

particularly as we go into H210 We expect to GCC banks to continue to look to Iraq, Syria, Egypt and Libya for untapped growth potential

Sub-Saharan Africa: The region’s major banking sectors have all come through the global financial

crisis and are continuing to rebound from the various difficulties they experienced in 2009 Broadly speaking, past practices stood the region’s banking sectors in good stead, allowing them to weather the storm Not only did banks have limited exposure to toxic US subprime mortgage assets, they also had relatively weak links with the global financial system and, with the notable exception of Nigerian banks, conservative lending habits dominated We expect a healthy rebound for all of Sub-Saharan Africa’s major banking sectors in 2010 driven by improving domestic fundamentals South Africa, Nigeria and Kenya are forecast to experience GDP growth several percentage points higher in 2010 than it was in

2009, which will boost incomes and in turn enable an increase in deposits and greater take-up of banking services

Bottoming, But No Overall Recovery

GCC – Average Commercial Banks Deposit &Asset

Growth (% change y-o-y)

Source: GCC central banks, BMI

Asia Banking Sector Outlook

Bullish Extremes In Banking Valuations

While Asia’s economic and financial sector fundamentals are among the strongest in the world, the profit growth assumed by market valuations seems overly optimistic The MSCI Indonesia Financial Index stands out as being very expensive in relation to book value, as does China’s despite a large decline We also believe the markets are not giving enough weight to the financial crisis risks in Australia and New Zealand, while South Korea appears to be relatively attractive

In our previous Asia banking sector report we outlined which banking sectors we believed were in the best shape based on a number of risk metrics such as assets-to-equity, loan-to-deposit and assets-to-GDP ratios This gave us a crude overview of which banking sectors in the region were likely to support growth in the coming year and which we expected to hold back growth through deleveraging We

concluded that Indonesia and the Philippines were in the best shape and that their banking systems would facilitate an acceleration in loan growth, and therefore profitability, in 2010 In this report, we look at the relative valuations of the region’s financial sectors from an investment perspective

Asia’s Strong Fundamentals Are Fully Priced In

The chart below shows Asia’s main financial industries’ price-to-book ratios, together with a number of eurozone countries, the US and the UK Looking at Asia as a whole, for which we have a much more bullish economic and financial sector outlook than for the eurozone, it appears that we are not the only ones On the whole, European financial sectors are trading at a discount price-to-book value, with the average for Europe being 0.90X, against 1.79X for Asia, suggesting sharply diverging profit outlooks Japan, the cheapest sector in the region, is the only country that is valued for systemic risks in our view, with South Korea, the next cheapest financial system based on price-to-book value, still trading at a premium value of 1.13X Moving from left to right, we can see that Indonesia appears to be the most expensive, trading at 4.03X book value, with India, China, Philippines and Malaysia in second, third, fourth and fifth positions respectively

From Bear To Bull

MSCI Financial Sector Equity Price-to-Book Ratios

Source: MSCI, BMI

Indonesia: Outlook Bright, But Not That Bright

The valuation spectrum throws up some interesting observations about where the market consensus is compared to our own view of the risks and opportunities associated with the region’s financial systems Indonesia is one of our most favoured countries over the medium term Its domestic demand-driven economy, commodities wealth, young population and stable banking system suggest that investors should

be paying a premium to benefit from the profit growth of Indonesian banks However, we take issue with the current valuation, given our view that risk aversion is likely to increase over the coming months, and

we believe the MSCI for Indonesia and the Jakarta Composite Index are highly overvalued

Increasingly Overstretched

MSCI Indonesia Financial Index & RSI

Source: MSCI, BMI

Were the index to head back towards the 1.80X level posted at the height of the global financial crisis then this would look attractive, but at 4.03X valuations appear to have strayed far out of line with the economic outlook, notwithstanding our projections for acceleration in asset growth over the coming years With a dividend yield of just 1.84% against deposit rates of 6.50%, investors are clearly banking on blockbuster profit growth and are showing little concern for dividends - usually a sign of a market top From a technical perspective, the index is posting new highs, but we are concerned that with the triple-negative divergence on the weekly Relative Strength Index (RSI) any short-term weakness could usher in

a painful correction While this is a low probability occurrence, a down week would provide a strong case for an ending diagonal formation, with 800 a potential downside target from the 1,092 level

China: Stands Out For The Wrong Reasons

With the exception of China, the top of the MSCI valuation list roughly matches BMI’s own views on the

prospects for the region’s financial sectors As well as Indonesia, we have bullish views on the Philippine, Malaysian and Indian banking sectors for the medium term What stands out to us, however, is China Despite our long-held, increasingly popular view that instability in the Chinese financial system is on the horizon, the MSCI China Financial Index is still trading at a lofty 2.27X book value, making it the third most expensive in the region, although valuations are nowhere near as rich as during the 2007 bubble, when the price-to-book ratio hit 5.45X However, given the malinvestment unleashed by the credit boom

of 2009 and 2010, we would not be surprised to see valuations trade back down towards 1.50X before the ensuing financial turbulence is behind us

Still Not Cheap Despite The Crash

MSCI China Financial Index Price-to-Book Ratio

Source: MSCI, BMI

India: Priced For Perfection

We note that China is not the only regional powerhouse that the market has bid up to scary valuations in recent months The MSCI India Financial index, which broke out to the upside, is trading at 2.79X book value While we believe crisis risks in the index are highly unlikely, and we are bullish about the growth outlook, we view current valuations as extreme With that in mind, our view of the BSE Sensex

outperforming the Shanghai Composite Index may be reaching a peak The ratio of the

Sensex-to-Shanghai Composite has moved from 5.4 to 7.2 in our favour since we put out this view at the start of

2010

Australia And New Zealand: Crisis Risks Underplayed

Another development we believe is worth noting is the relatively high valuations of Australia and New

the crisis risks in both countries are very real Trading at 1.54X and 1.25X respectively, we expect the bursting of housing bubbles to cause havoc for both countries’ banking sector profit outlooks, with damage limitation the name of the game over the coming years As such, we would not be surprised if these two indices traded below book value in the near future

South Korea: Looking Relatively Attractive

While by no means a bargain at these levels, the MSCI South Korea Financial Index is the cheapest in the region on a price-to-book basis, apart from outlier Japan, and trading at 1.13X is on a par with Spain While the South Korean banking sector has one of the highest loan-to-deposit ratios in the region, local financial institutions face nothing like the same risks facing their Spanish counterparts We expect a growth slowdown in 2011 and the potential for currency volatility but South Korean assets still look relatively cheap at these levels The government has taken steps to reduce banking sector leverage, including reducing loan-to-deposit ratios to 100% by 2013, and lowering derivative exposure to

prevent acutely won sell-offs These developments should support financial stability over the medium term

Table: Banks’ Bond Portfolios

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

Table: Asia Commercial Banking Business Environment Ratings

Limits of Potential Returns

Risks to Potential

Market Structure

Country Structure

Market Risks

Country

Bangladesh 43.3 45.0 30.0 42.0 42.0 52China 93.3 55.0 56.7 76.0 75.1 13Hong Kong 73.3 90.0 70.0 84.0 79.5 9India 83.3 55.0 53.3 56.0 66.9 24Indonesia 73.3 62.5 76.7 42.0 65.1 29Japan 30.0 75.0 63.3 80.0 55.6 38Malaysia 70.0 80.0 76.7 80.0 75.4 12Pakistan 33.3 47.5 56.7 40.0 41.3 55Philippines 50.0 60.0 56.7 50.0 53.6 43Singapore 66.7 90.0 96.7 88.0 80.6 7Sri Lanka 20.0 55.0 36.7 44.0 36.1 56South Korea 76.7 85.0 76.7 68.0 77.4 10Taiwan 70.0 70.0 83.3 74.0 72.3 17Thailand 56.7 65.0 80.0 68.0 63.8 31

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

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

Loan/Deposit Ratio, % Rank Trend

Loan/

Asset Ratio, % Rank Trend

Loan/

GDP Ratio, %

Ran

k Trend

Bangladesh 76.7 41 Falling 64.7 13 Falling 43.7 44 RisingChina 69.5 50 Rising 52.6 38 Rising 127.4 9 RisingHong Kong 51.5 57 Falling 30.8 57 Rising 200.7 3 RisingIndia 79.5 42 Falling 62.3 14 Rising 48.3 42 RisingIndonesia 72.9 44 Falling 58.9 27 Falling 25.6 53 FallingJapan 74.6 46 Falling 53.2 37 Falling 89.7 19 RisingMalaysia 75.6 45 Falling 57.0 29 Rising 114.4 11 RisingPakistan 75.1 47 Falling 49.7 43 Falling 24.8 55 FallingPhilippines 66.5 54 Falling 50.1 40 Rising 35.8 48 RisingSingapore 71.9 48 Falling 39.8 50 Falling 108.4 13 RisingSri Lanka 68.0 53 Falling 51.0 36 Falling 22.9 56 FallingSouth Korea 122.7 10 Falling 70.6 7 Rising 110.1 12 FallingTaiwan 75.1 43 Falling 59.8 24 Falling 154.7 7 RisingThailand 95.3 25 Falling 64.5 12 Falling 73.8 30 Falling

US 78.9 39 Falling 55.6 31 Falling 51.1 39 Falling

Source: Central banks, regulators, BMI

Table: Anticipated Developments In 2010

Loan/Deposit

Loan Growth, US$bn

Deposit Growth, US$bn

Residual, US$bn

Bangladesh 78.7 Rising 7.0 7.7 -0.6China 69.5 Falling 623.4 896.4 -273.0Hong Kong 54.1 Rising 21.1 -0.1 21.2India 78.2 Falling 55.3 85.2 -29.9Indonesia 76.7 Rising 38.8 40.0 -1.3Japan 75.7 Rising -304.7 -492.4 187.7Malaysia 76.3 Rising 30.4 37.1 -6.7Pakistan 74.4 Falling 0.8 1.0 -0.2Philippines 67.8 Rising 7.7 9.7 -2.0Singapore 72.5 Rising 16.5 20.2 -3.7Sri Lanka 68.0 Falling 1.7 2.5 -0.8South Korea 122.1 Falling 180.5 151.8 28.8Taiwan 77.7 Rising 55.4 44.8 10.6Thailand 95.8 Rising 15.7 15.4 0.3

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

Table: Comparison Of Total Assets, Client Loans & Client Deposits, 2008-2009 (US$bn)

Total Assets

Client Loans

Client Deposits

Total Assets

Client Loans

Client Deposits

Bangladesh 60.4 39.1 51.0 50.6 33.0 42.1China 11,853.4 6,234.0 8,964.5 9,389.7 4,684.6 7,003.0Hong Kong 1,370.6 422.8 820.4 1,384.1 423.8 781.9India 1,073.3 668.6 840.8 896.5 547.9 674.9Indonesia 259.8 153.0 209.9 203.1 120.5 161.6Japan 8,614.6 4,585.4 6,146.3 8,976.7 4,778.8 6,166.8Malaysia 398.3 227.0 300.1 368.9 207.3 270.0Pakistan 79.9 39.8 51.3 80.0 45.3 48.1Philippines 117.9 59.1 88.7 106.0 53.1 78.0Singapore 505.0 200.9 279.6 464.5 189.1 241.5Sri Lanka 19.5 10.0 14.6 17.3 10.2 12.5South Korea 1,450.9 1,023.7 834.3 1,407.9 920.9 693.6Taiwan 980.8 586.0 780.2 901.8 567.8 694.6Thailand 310.5 200.3 210.1 289.5 195.9 202.7

US 13,108.0 7,282.2 9,226.8 13,853.2 7,875.9 9,035.7

Source: Central banks, regulators, BMI

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 & Bond Yields

3-Month Interbank Rate % Current Account,

Vietnam Banking Sector Outlook

Weak Credit Growth To Depress Banking Sector Profits

We believe credit growth in Vietnam will miss the government’s target of 25.0% for 2010 as lending rates remain high at 13.0-14.0% as of July Intense competition for deposits between commercial banks will also depress profit margins, further weakening banks’ bottom lines in H210 However, we believe banks with greater exposure to the infrastructure sector and the consumer loans market will be in a better position to deal with the slowdown in H210 and 2011

Vietnam’s banking sector profits look set to be disappointing for full-year 2010 as credit growth is estimated to have already slowed to 10.5% year-on-year (y-o-y) in H110, compared to 17.0% in H109, according to the State Bank of Vietnam (SBV) The government is targeting credit growth of 25.0% in

2010 to support its real GDP growth target of 6.5% for the year However, despite the government’s pressure on commercial banks to lower lending rates to 12.0%, rates in July remained at 13.0-14.0%, according to local media reports Competition in the banking sector is also heating up as banks struggle to achieve their profit targets for the year

Inflationary Risks To Keep Lending Rates Elevated

With consumer price inflation (CPI) coming in at 8.2% y-o-y in July 2010, banks are having trouble attracting funds without offering depositors higher returns As such, deposit rates continue to remain elevated at 11.5% as commercial banks refrain from lowering their deposit rates due to intense

competition for depositor funds Banks have had to resort to offering gifts and bonus interest in order to attract funds This is putting them in a difficult situation in which slashing deposit rates risks driving depositors away, while keeping lending rates high discourages businesses from borrowing The central bank has also been pressuring commercial banks to lower their lending rates, which means that profit margins for the banking sector will continue to be squeezed