VIETNAM BANKING SYSTEM IN INTEGRATION PROCESS ... · 1. Credit risk => Non-performing loan: in increasing trend => Huge provision for bad debt. 2. Liquidity risk =>Using short term

Pro., PhD. NGUYEN THI MUI

DIRECTOR

VietinBank Human Resource and Training School

VIETINBANK

INTERNATIONAL BANKING FORUM 2011

Brescia, 16 - 17 June 2011

VIETNAM BANKING SYSTEM IN INTEGRATION

PROCESS: OPPORTUNITIES, RISKS AND

SUSTAINABLE DEVELOPMENT ORIENTATION

22

VIETNAM BANKING SYSTEM IN INTEGRATION

PROCESS: OPPORTUNITIES, RISKS AND

SUSTAINABLE DEVELOPMENT ORIENTATION

Pro., PhD. NGUYEN THI MUI

DIRECTOR

VIETINBANK HUMAN RESOURCE DEVELOPMENT AND TRAINING SCHOOL

33

I• OPPORTUNITIES AND BANKING SYSTEM PROGRESS

II• RISKS AND REASONS

III• SUSTAINABLE DEVELOPMENT ORIENTATION

CONTENTS

44

I. OPPORTUNITIES AND VIETNAM BANKING SYSTEM PROGRESS

DEMAND SIDE

1. STRONG DEMAND FOR INVRESTMENT CAPITAL

2. STRONG DEMAND FOR PAYMENT SERVICES, INTERNATIONAL BANKING SERVICES

3. IMPROVEMENT IN PER CAPITA

INCOME AND QUICKLY

INCREASE IN PURCHASING

POWER

SUPPLY SIDE1. INSTITUTIONAL FRAME OF MARKET ORIENTNED DEVELOPMENT FOR BANKING BUSINESS

2. REFORMING RISK MANAGEMENT

3. STRENGTHENING FINANCIAL CAPABILITY, ENLARGING BANKING ACTIVITY SCOPE

4. RESTRUCTURING BANKING SYSTEM NETWORK

5. IT APPLICATION; HUMAN RESOURCES DEVELOPMENT

55

•Total social – investment:

un-precedented growth to

highest level in term of

percentage of GDP

(42.7%/GDP in 2010)

1

•Private investment capital: a

boom in recent years2

•FDI: More and more inflow

as soon as Vietnam became

member of WTO in 2007

3


DEMAND SIDE

1. Strong

demand for

investment

capital

Source : GSO, Vietnam

35,437,4

39 40,7 40,941,5

46,5

41,6

42,741,9

0

5

10

15

20

25

30

35

40

45

50

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

tota

l in

vestm

en

t cap

ital

(% G

DP

)

inv

estm

en

t str

uctu

re b

y s

ecto

rs

state sector non-state sector FDI total

66

• Export: increased 1.8 times

• Import: doubled

1

• Foreign currency

from international

tourists: increased

1.56 times

2

• Remittances:

increased 1. 62 times 3


DEMAND SIDE

2. Strong

demand for

external

payment,

exchange

trading,

remittances

XNK performance

Remittance and return from foreign tourists

Source: Economy 2010-2011, Vietnam economic times

0,0

50,0

100,0

0

50000

100000

Exp

, Im

p

perf

orm

an

ce (

% G

DP

)

Exp

, Im

p v

olu

me

(Mill. U

SD

)

Exp (Mill. USD) Imp. (Mill. USD)

Exp. (% GDP) Imp. (% GDP)

-1000

1000

3000

5000

7000

0

2000

4000

6000

8000

10000

2002 2003 2004 2005 2006 2007 2008 2009 2010

retu

rn f

rom

fo

reig

n

tou

rists

(M

ill. U

SD

)

rem

itta

nce (

Mill.

US

D)

return from foreign torists Total remittances

remittances via banking system

Period 2006-2010

77

• Population size

• Population structure1

• Per capita income:

increased 1.6 time

between 2006-2010,

reached to 1.160

USD in 2010

Population structure2

• Local purchasing

power : quickly

increase in scale,

shifting structure

from inferior goods

to services

3


DEMAND SIDE

3. Demand for

banking services

relating to a

relatively large

population size,

young population

structure, strong

local purchasing

power

accompanied

with considerable

improvement in

per capita

income

Source: GSO

Source: Economy 2010-2011, Vietnam economic times

11,8212,4016,09

13,7115,48

24,79

1,14

9,87

0,00

5,00

10,00

15,00

20,00

25,00

30,00

0

200

400

600

800

1000

1200

1400

2003 2004 2005 2006 2007 2008 2009 2010 Gro

wth

rate

of

per

cap

ita in

co

me -

%

per

cap

ita i

nco

me -

US

D

Per capita income - USD % growth

22,8 24,531,1

10,4

19,6

0

20

40

60

80

100

120

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1.600.000

1.800.000

1995 2000 2005 2006 2007 2008 2009 2010

Purchasing power -Bill VND

Purhasing power -Bill USD

Growth rate of PP in USD -%

88


SUPPLY SIDE

1. LEGAL

FRAME

=> Revised law of state bank; Revised law of financial institutions ( year 2010);

law of independent audit (year 2011)

=> Ordinate of foreign exchange management

=> Circular No. 13 and Circular No.19 revising the circular No. 13: provisions

on banking prudent criteria toward international standards/practices

=> Reorganizing and improving capability of banking inspection and

supervision: setting up a department of banking inspection and supervision

under the SBV

=> Legal frame for equitizing the state owned banks

99

I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS

SUPPLY SIDE

Other

banksVIETINBANK

2. RISKS

MANAGEMENT

Internal rating system ( Decree No. 493/NHNN)

Strategy on risks management

Building policy framework of risks management

Issued policies, documents on risks management;

Consolidated operating risks management

Established policy frame and principles of risks management: determined risk taste

Running risk management apparatus, assigning roles and responsibility of each department/office and of each individual in risks management

Application of IT into risks management: Fund transfer pricing, Internal rating system, MIS…

1010


SUPPLY SIDE

Other banks VIETINBANK

3. Strengthening

financial

capability

Owned capital increased 2,6 time

between 2006-2010.

In year 2010: Vietinbank’s charter

capital was more than 5 times of minimum

charter capital level provided by SBV

Number of banks with charter capital less

than 3000 Bill. VND (about 1.5 bill. USD): 11

Number of banks with charter capital from

3000 to 10 000 Bill. VND (about 1.5 – 4.9 bill.

USD): 24

Number of banks with charter capital more

than 10 000 Bill. VND (above 4.9 bill. USD): 07

3000

0 5000 10000 15000 20000

2006

2007

2008

2009

2010

Charter capital

Minimum Charter capital level in 2011 (about 1.5

bill. USD)Bank system structure by capital scale

less than 3000 Bill VND (1.5 bill USD)

from 3000 - 10000 Bill VND (1.5 - 4.9 Bill USD)

Above 10 000 Bill VND (above 4.9 Bill USSD)

1111


SUPPLY SIDE


4. Banking

system

network and

bank

organization

Year 2006 2007 2008 2009

Joint stock banks 35 36 36 37

Joint venture banks 5 5 5 6

Foreign bank branches27 35 37 37

100% foreign capital banks0 0 5 5

State owned banks * 5 5 5 5

Policy bank 1 1 1 1

Vietnam Development bank 1 1 1 1

Banking system network

Bank organization:

• departments/offices by customer groups;

• Inspection and exam. Office separated from operation

machine;

• Risks management office separated from business offices;

• Bank model reform toward a financial group

On 31/12/2010, Vietinbank network was the

second large in Vietnam, after Agribank

network, including:

•150 branches and transaction center

• More than 1000 transaction offices

• 06 subsidiaries

• 03 services – providing units

• Representative office in Frankfurt,

Germany; ( it is planned to be in 7/2011)

• Building agency relationship with hundred

banks around the world

• Signed 8 credit agreements frame with

Belgium, Germany, Korea, Swiss,…

*: including vietinbank and VCB

1212


INFO and TECH

=> Each bank: conducting online within bank – wide scope ;

=> Applying IT into payment system; developing e-banking services;

=> Applying Modules into capital resource management, investment portfolio management; customer management

HUMAN

=> Recruitment policy: openness, examination regime/process;

=> Job management: performance evaluation

=> Wages and remuneration and reward regime: link with position and work performance

SUPPLY SIDE

Other

banks VIETINBANK

5. Application

of IT; Human

resource

development

INFO and TECH

=> Overall system reorganization in line with the reform in IT:

Implementing 19 modules on IT for banking governance and operation

HUMAN

=> Formal recruitment process; human resource management in close relation with wages, remuneration and reward regimes

=> Job management process:

Job description;

Job performance evaluation

=> Human resource restructuring

1313

1. BUSINESS SCALE AND NON-PERFORMING LOAN

2. BANK SERVICES DEVELOPMENT AND FINANCIAL DEEPENING

3. BANKING BUSINESS EFFICIENCY


1414


BANKING SYSTEM PROGRESS


1. TOTAL

ASSETS

AND non-

performing

loan

Source: SBV and author’s calculation Source: Annual report and author’s calculation

16,54

25,93

50,83

0,00

10,00

20,00

30,00

40,00

50,00

60,00

0

100000

200000

300000

400000

2008 2009 2010

gro

wth

rate

of

tota

l assets

-%

tota

l assets

-M

ill

VN

D

Total assets % growth

0,00 2,00 4,00 6,00 8,00 10,00 12,00

2008

2009

2010

Market share - %18,40

25,04 25,00

0,00

5,00

10,00

15,00

20,00

25,00

30,00

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

2008 2009 2010

gro

wth

rate

of

tota

l assets

-%

tota

l assets

-b

ill.

VN

D

Total

State owned banks

Joint stoc banks

Joint -venture and 100% foreign capital bank

Growth rate of total assets of the system

1515



1. TOTAL

ASSETS

AND non-

performing

loan

non-

performing

loan

Source: Non-performing loan of total system – SBV

Vietinbank:Annual report

0 1 2 3 4

2008

2009

2010

no

n-p

erf

orm

ing

lo

an

/to

tal

ou

tsta

nd

ing

lo

an

-%

Vietinbank

Total system

1616



Other

banksVIETINBANK

2. Bank

services

Customer orientation

Diversification

Services development strategy for each specific period

Providing products/services for each targeted customer group

Services quality management with ISO

1717



FINANCIAL

DEEPENING

M2/GDP

Source: Asian Pacific key indicators, ADB, 2010

-

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

180,0

200,0

2005 2006 2007 2008 2009

Brunei Darussalam

Cambodia

Indonesia

Lao PDR

Malaysia

Phillippines

Singapore

Thailand

Viet Nam

China

1818



ROA ROE

3. BANKING

BUSINESS

EFFICIENCY

0 0,5 1 1,5 2

Joint - stock banks

Joint-venture and 100% foreign capital banks

Vietinbank

State owned banks

total

2010 2009 2008

Source: SBV and author’s calculation

0 5 10 15 20 25

Joint - stock banks

Joint-venture and 100% foreign capital banks

Vietinbank

State owned banks

total

2010 2009 2008

1919

II. RISKS IN BANKING BUSINESS AND REASONS

RISKS IN BANKING BUSINESS

1. CREDIT RISK

2. LIQUIDITY AND DURATION GAP RISK

3. INTEREST RATE RISK AND EXCHANGE RATE RISK

4. OPERATING RISK

5. OTHER RISKS

2020


RISKS IN BANKING BUSINESS

Symbols

of risks

1. RRTD

1. Credit risk

=> Non-performing loan: in increasing trend

=> Huge provision for bad debt.

2. Liquidity risk

=>Using short term mobilized resources for long-term lending

=> Very high inter-bank rate

=> Dramatic lending growth, giving pressure on liquidity

3. Interest rate and exchange rate risks

=> Large spread between borrowing and lending rates

=> borrowing at high interest rate associated with very short duration

=> Volatile exchange rate

4. Operating risk

=> Low compliance with procedures/process

=> Some bad activities: systematical risk

2121


REASONS BEHIDE RISKS IN BANKING BUSINESS

1. Reasons

from

economy’s

internality

CPI in Vietnam versus CPI in developed and developing countries group

1.1. The

economy

in

transition

period,

low

stability,

high CPI

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010

developed countries developing countries Viet nam

Source: World economic outlook, IMF, 2010

CPI in Vietnam: GSO, Vietnam

2222



1. Reasons

from

economy

internality

1.2.

Economy’s

Efficiency

is not high

ICOR during period 2000 - 2010

Banking services

coverage is

limited (8% -

10% population

have account at

banks)

Non-state sector:

relatively limited

access to banking

services

5,04

5,14

5,28

5,31

5,22

4,84

5,05

5,50

6,58

8,03

6,17

0,00 2,00 4,00 6,00 8,00 10,00

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Author’s calculation based on GSO

2323



1. Reason

from

economy

internality

1.3. External

sector:

mainly in

processing,

accompaning

with a large

trade deficit

during boom

times

GDP and export – import performance Import structure

-20

-10

0

10

20

30

40

50

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010a

nn

ual g

row

th r

ate

-%

GDP growth rate

Import growth rate

export growth rate

89,6 88,0 90,5 88,8 90,2

8,2 7,8 7,4 7,8 9,3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009

imp

ort

str

uctu

re b

y i

mp

ort

ing

go

als

Materials consumtion goods others

Source : GSO, Vietnam

2424


REASONS BEHIDE RISKS IN BANKING BUSSINESS

2. Reasons

from

banking

sector

internality

2.1.

Legal

frame

1

• Legal documents:

• Not comprehensive, not stable

• Lack a risk management strategy as a whole

• Changes in policies, regimes

2 • Transparence, inspection and supervision in financial sector is limited:

• Due to the shortages in info. infrastructure, accounting regime, assets/liabilities classification, not assuring information flow requirements of comprehensiveness, adequacy and in time

3 • Lack legal frame for some services provided with actual demand in the economy:

• Gold trading

• Derivatives

2525


REASONS BEHIDE RISKS IN BANKING BUSSINESS

2. Reasons

from

banking

sector

internality

2.2. Un-

balance

between

capital

market

and

monetary

market

0

1

2

3

4

5

6

7

8

Cre

dit

gro

wth

rate

/G

DP

gro

wth

rate

-(

tim

es)

Multiplier between credit growth rate and GDP growth rate

0 20 40 60 80 100 120

2005

2006

2007

2008

2009

2010

market capitalization of listed stocks (% GDO)

domestic credit provided by banks % GDP

Source: Asian Pacific key indicators, ADB, 2010

and author’s calculation Source: Economy 2010-2011, Vietnam

economic times

2626



2. Reasons

from

banking

sector

internality

2.3.

• Risk management apparatus is not suitable with international

practices/benchmarks.

2.4

• Lacking tools for measuring risks, monitoring risks and managing risks in systematical view; some risks have been not yet quantified (market risk), post – resolution rather than prevention and warning in advance

2.5• Infor and Tech. Infrastructure: variance among banks because of very

difference in financial capability

2.6 • Information: asymmetric information

2.7

• Competition: in such a way that does not pay enough attention on risk management.

2727

III. SUSTAINABLE DEVELOPMENT ORIENTATION

1. Regarding

to commercial

banks

• Speeding up the

equitization process

• Encourage merging,

strengthening joint –

stock banks

• Review roles and

functions of Vietnam

development bank

-I

• Implementing banking

governance in line with

international practices

(Assets/liability

management, liquidity

management…).

• Consolidating capability of

recognizing risks and

managing risks

• Improving information to

market participators.

• Enlarging cooperation in

grading up and updating

infrastructure in banking

system and IT.

• Building up criteria of

warning in advance.

• Increasing public access

to banking services in

parallel with

strengthening of

banking system

• Building up

infrastructure to

facilitate universal –

provision of banking

services (e-payment

system)

• Safe and reasonable

supervision of

providers of financial

services.

Increasing competition,

consolidation and

diversification via

restructuring and

merging

Improving efficiency of

banking business

Developing banking

services to serve all

potential customers in an

efficient way

2828


2. Regarding

to SBV

1• Improving legal framework to facilitate banking business

2

• Building prudent criteria for banking business, targeting on a sound banking system

3

•Consolidating inspection and supervision regime to ensure a safe and efficient bank system

- Reassigning roles of SBV to be a safeguard for the health of bank system

- Comprehensive approach, risk – based inspection and supervision

- Improving capability for banking inspection/supervision staff

- Cooperation among management authorities

- Cooperation and information sharing among SBV, DIV and commercial banks; consolidating CIC

- Setting up an open dialogue among policy makers and market –participators

- Stabilizing and strengthening position of VND, mitigating dollarization, controlling CPI, let interest rate and exchange rate to be determined with supply and demand relationship.

- Supervising monetary market in line with international practices

2929


3.

Regarding

to State

1

• Restructuring the economy, quickly reducing economy – sourced risks in banking business; reassigning role of state sector and non-state sector for social targets toward increasing role of market and minimizing state ownership, limiting administrative controls

2

• Restructuring financial market, especially stock market to be in compliance with the characters of the economy and requirements of a sound capital market

3• Setting up rating agencies.

4• Building up country – wide information system from local to central level.

3030

THANKS FOR YOUR ATTENTION !

Documents

VIETNAM BANKING SYSTEM IN INTEGRATION PROCESS ... · 1. Credit risk => Non-performing loan: in increasing trend => Huge provision for bad debt. 2. Liquidity risk =>Using short term