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
I. OPPORTUNITIES AND VIETNAM BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND VIETNAM BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND VIETNAM BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND VIETNAM BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
SUPPLY SIDE
Other banks VIETINBANK
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
1414
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
BANKING SYSTEM PROGRESS
Other banks VIETINBANK
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
BANKING SYSTEM PROGRESS
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
I. OPPORTUNITIES AND BANKING SYSTEM PROGRESS
BANKING SYSTEM PROGRESS
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
II. RISKS IN BANKING BUSINESS AND REASONS
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
II. RISKS IN BANKING BUSINESS AND REASONS
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
II. RISKS IN BANKING BUSINESS AND REASONS
REASONS BEHIDE RISKS IN BANKING BUSINESS
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
II. RISKS IN BANKING BUSINESS AND REASONS
REASONS BEHIDE RISKS IN BANKING BUSINESS
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
II. RISKS IN BANKING BUSINESS AND REASONS
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
II. RISKS IN BANKING BUSINESS AND REASONS
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
II. RISKS IN BANKING BUSINESS AND REASONS
REASONS BEHIDE RISKS IN BANKING BUSINESS
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
III. SUSTAINABLE DEVELOPMENT ORIENTATION
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
III. SUSTAINABLE DEVELOPMENT ORIENTATION
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 !