Bloomberg Event

Hanoi, Vietnam

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Vietnamese Banks: Boom,
MATERIALWITHOUT PRIOR
Bust and The Road Ahead

CONSENT OF AUTHORAmbreesh Srivastava, Senior Director

Head of Financial Institutions - South & South East Asia

24 September 2013
Fitchs GDP Growth Forecasts for Asia-Pacific

2010 2011 2012 2013F 2014F 2015F 2010 2011 2012 2013F 2014F 2015F
World 4.0 2.7 2.5 2.9 3.7 3.7 South Korea 6.3 3.7 2.0 2.6 3.4 3.7

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USA 3.0 1.8 2.2 1.9 2.8 3.0 Malaysia 7.2 5.1 5.6 4.5 5.0 5.0
Euro area 1.8 1.5 -0.6 -0.6 0.9 1.3 Mongolia 6.4 17.3 12.3 13.0 11.5 10.8
Japan 4.7 -0.6 2.0 1.8 1.5 1.2 New Zealand 1.7 1.4 2.5 2.3 2.7 2.9

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BRICs 8.4 6.7 5.5 5.6 6.0 5.8 Philippines 7.6 3.9 6.6 6.5 5.5 5.5
Australia 2.5 2.1 3.6 2.5 2.8 2.8 Singapore 14.8 5.2 1.3 2.3 3.7 3.7
China 10.4 9.3 7.8 7.5 7.5 7.0 Sri Lanka 8.0 8.2 6.4 6.6 7.0 7.0

MATERIALWITHOUT PRIOR
Hong Kong 6.8 4.9 1.5 3.0 3.8 4.0 Taiwan 10.8 4.1 1.3 2.7 3.5 3.6
India 9.3 6.2 5.0 5.7 4.8 5.6 Thailand 7.8 0.1 6.4 3.3 3.5 4.5
Indonesia 6.2 6.5 6.2 5.7 5.3 5.5 Vietnam 6.8 6.0 5.0 5.2 5.5 5.7

CONSENT OF AUTHOR
Vietnams annual GDP growth was around 8% over 2003-2007

Source: Fitch

www.fitchratings.com 2
ASEAN Banks: Except in Vietnam, Profitability Supported by
Resilient Economies, Despite Fragile Global Conditions

Return on Average Assets

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(%) 2007 2008 2009 2010 2011 2012E 2013F
3.0

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2.5

2.0

MATERIALWITHOUT PRIOR
1.5

CONSENT OF AUTHOR
1.0

0.5

0.0
Indonesia Malaysia Philippines Singapore Thailand Vietnam
Source: Fitch, banks, central banks

www.fitchratings.com 3
However, Rapid Credit Growth in Recent Years a
Growing Concern in Some Asian Markets
40
Mongolia

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2010-2012 average nominal credit growth (%)

35

30 Sri Lanka
Indonesia

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25 HK
China
20
Vietnam India
Thailand
15

MATERIALWITHOUT PRIOR
S'pore
Phils
M'sia
10 Australia
Korea
5

CONSENT OF AUTHOR
NZ
0 Taiwan
-1 1 Japan 3 5 7 9 11
-5
2010-2012 average real GDP growth (%)

Note: Credit data relating to China does not include that of the informal sector
Source: Fitch, central banks; Bubble size indicates credit/GDP at end-2012; Bubble colour indicates latest Fitchs MPI (Green = 1; Yellow = 2; Red = 3)

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4
Inflated Asset Prices Compound Risks Further in
Some Countries Creating Bubble-Like Symptoms
80 HK

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70
2010-2012 property price growth (%)

60
Indonesia
50

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30
S'pore
Thailand

M'sia
China
India

MATERIALWITHOUT PRIOR
20
NZ Taiwan Phils
10 Korea
0

CONSENT OF AUTHOR
-10 0 10 20 30 40 50 60
-10 Japan
Australia
-20
2010-2012 GDP per capita growth (%)

Source: Fitch; Bubble size indicates 2012 GDP per capita; Bubble colour indicates latest Fitchs MPI (Green = 1; Yellow = 2; Red = 3)

www.fitchratings.com
5
Fitchs Macro Prudential Indicator Trend for APAC

Jul Feb Sep Mar Sep Apr Oct Apr Nov Jun Nov Jun Dec Aug Jan Sep
05 06 06 07 07 08 08 09 09 10 10 11 11 12 13 13

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India 1 1 2 2 2 2 2 2 2 2 1 1 1 1 1 1
Indonesia 1 1 1 1 1 1 1 1 1 2 2 2 3 3 3 3
Malaysia 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Philippines 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

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Singapore 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2
Thailand 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Vietnam 1 2 2 2 2 2 2 2 2 3 3 3 2 2 2 1

MATERIALWITHOUT PRIOR
China 1 1 1 1 1 1 1 1 1 3 3 3 3 3 3 3
Hong Kong 1 1 1 1 1 1 1 1 1 1 3 3 3 3 3 3
Japan 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

CONSENT OF AUTHOR
Korea 1 1 1 1 3 3 3 3 3 2 2 2 1 1 1 1
Sri Lanka 1 1 1 1 1 1 1 1 1 3 3 3 3
Taiwan 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Australia 2 2 2 3 3 3 3 3 3 2 2 2 2 2 1 1
New Zealand 1 2 2 2 2 2 3 3 3 3 2 2 2 1 1 1

Source: Fitch

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6
Credit to GDP Ratio in South Asia Still Below Levels Prior to
1997/98 Asian Financial Crisis, but Vietnam is a Big Outlier

Credit/GDP ratio

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1996-1998 peak Trough to 2005 2012
(%)
250

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200

150

MATERIALWITHOUT PRIOR
100

50

CONSENT OF AUTHOR
0

Taiwan
Malaysia

Sri Lanka
China

Thailand
Australia

Mongolia

New Zealand

Vietnam
India

Japan

Philippines
Hong Kong

Singapore
Indonesia

Korea

Note: Credit data relating to China does not include that of the informal sector
Source: Fitch, central banks

www.fitchratings.com 7
Fitchs Bank Systemic Risk Matrix Selected Countries
Macro-prudential indicator
Banking system 1 2 3
indicator

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aaa

aa Canada Australia, Singapore

Germany, New Zealand,

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a France, Netherlands, UK Hong Kong
Switzerland, US

Malaysia, South Korea, Belgium, Brazil, Italy,

bbb Turkey

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Taiwan, Thailand, UAE Japan, Luxembourg

Hungary, India,
bb Spain China, Indonesia
Philippines, Russia

CONSENT OF AUTHOR
Egypt, Kazakhstan,
b Belarus, Portugal Sri Lanka
Latvia, Ukraine, Vietnam
ccc Ireland

cc Azerbaijan Cyprus

f Greece

Source: Fitch

www.fitchratings.com 8
ASEAN Banks: Asset Quality Likely to Deteriorate from a Low
Base but Unlikely to be Crippling for Bank Performance, Except in
Vietnam
Gross Non-Performing Asset Ratio

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(%) 2007 2008 2009 2010 2011 2012E 2013F
16

14

12
10
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MATERIALWITHOUT PRIOR
8
6

4
2
CONSENT OF AUTHOR
0
Indonesia Malaysia Philippines Singapore Thailand Vietnam
Source: Fitch, banks, central banks

www.fitchratings.com 9
Most South Asian Banks Earnings Capable of Coping with
Higher Credit Costs, albeit Buffers Vary Across Countries

Reported Credit Costs Trend and Tolerance

(% of loans) 2007 2008 2009 2010 2011 2012E 2013F PPOP

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7

5
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Wide

MATERIALWITHOUT PRIOR
4

Wide
Satisfactory

Thin
3 Wide

Satisfactory
Satisfactory

Satisfactory
CONSENT OF AUTHOR
2

0
Indonesia India Malaysia Philippines Singapore Sri Lanka Thailand Vietnam
Note: Some forms of regulatory forbearance in India, Sri Lanka and Vietnam might have influenced the level of reported credit costs
Source: Fitch, banks, central banks; PPOP = Average pre-provision profit over 2007-2013F, as a percentage of loans

www.fitchratings.com 10
ASEAN Banks: Except Vietnam, Core Capital Provides Good Loss
Absorption Buffer and Basel III is not an Onerous Issue

Core Tier 1 CAR

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(%) 2007 2008 2009 2010 2011 2012E 2013F
18
16
14
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MATERIALWITHOUT PRIOR
10
8

CONSENT OF AUTHOR
6
4
2
0
Indonesia Malaysia Philippines Singapore Thailand Vietnam
Source: Fitch, banks, central banks

www.fitchratings.com 11
Vietnams High Growth Buoyed Economic Indicators;
but Consequences of Excessive Lending Emerge
Vietnams Credit Indicators Vietnams Social Indicators

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Real GDP growth
Nominal loan growth (RHS) Poverty rate
(%) Credit/GDP (RHS) (%) (%) GDP/capita (RHS) (USD)
10 150 20 2,000

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8 120 16 1,600

MATERIALWITHOUT PRIOR
6 90 12 1,200

4 60 8 800

CONSENT OF AUTHOR
2 30 4 400

0 0 0 0
2003 2006 2009 2012 2003 2006 2009 2012

Source: Fitch Source: Fitch, General Statistics Office of Vietnam

www.fitchratings.com
12
Vietnamese Banks True Asset Quality Significantly
Weaker Than Reported; Poor Transparency Remains
Vietnam: Asset Quality Indicators Vietnam: Reported Loan Mix
At end-June 2013 2009-2012 average

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(% of Reported NPLs
Reported SMLs SOE Individuals Corporates
loans) (%)
16 100

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12
80

60

MATERIALWITHOUT PRIOR
8
40
4

CONSENT OF AUTHOR
20

0 0
Vi in

Vi tin
ri*

ri
m

m
m

M
m
B

B
BV

Ag
AC

AC
et

D
co

co
XI

XI
co

co
Ag

e
BI

BI
Vi

Vi
VE

VE
Sa

Sa
et

et
* Agris SMLs at end-2011 and NPLs at end-2012
Source: Fitch, banks VAS accounts Source: Fitch, banks VAS accounts

www.fitchratings.com
13
Vietnam: Asset Quality Deteriorating; Earnings Cushion
Falling
Reported Asset Quality Trends Earnings Buffers and Credit Costs

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(% of Net new NPLs NPL written off (% of Pre-provision profit
loans) Credit costs loans) Reported credit costs
5 5

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4 4

MATERIALWITHOUT PRIOR
3 3

2 2

CONSENT OF AUTHOR
1

0
1

0
2009 2010 2011 2012e H113e 2009 2010 2011 2012e H113e

Source: Fitch, banks VAS accounts Source: Fitch, banks VAS accounts

www.fitchratings.com
14
 Vietnamese Banks Capitalisation Low and at Risk of
Further Impairment if True NPLs Taken into Account
Capitalisation Indicators
Reported core Tier 1 CAR Reported Common Equity/Assets ratio

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(%) Recapitalisation bill/end-2013 GDP
20

15
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MATERIALWITHOUT PRIOR
10

0CONSENT OF AUTHOR
-5 2009 2010 2011 2012e H113e 10% NPL 15% NPL 20 % NPL 30 % NPL
ratio ratio ratio ratio
Source: Fitch, banks (SBV) (Fitch)
Recapitalisation assumptions: Recap target = 12% core Tier 1 CAR; NPL recovery rate = 20%; seven major banks extrapolated to represent entire banking system

www.fitchratings.com 15
 Tight Funding and Liquidity Indicators; Adverse Events
Can Undermine Depositors Confidence
Reported Loans/Deposits Ratio

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(%) 2008 2009 2010 2011 2012 H113
160

140

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120

100

MATERIALWITHOUT PRIOR
80
60

CONSENT OF AUTHOR
40

20
0
Agribank BIDV Vietin Vietcom ACB Sacom VEXIM
Source: Fitch, banks

www.fitchratings.com 16
Publicly-Rated Vietnamese Banks by Fitch

LT FC IDR / Viability Support Support

Banks Outlook Rating Rating Floor

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Agribank B / Stable ccc 4 B
Vietinbank B / Stable b- 4 B

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ACB B / Negative b 5 NF
Sacombank B / Stable b 5 NF

MATERIALWITHOUT PRIOR
CONSENT OF AUTHOR
Note: Private ratings and credit assessments by Fitch are not included
Source: Fitch

www.fitchratings.com 17
Key Rating Drivers for Major Vietnamese Banks

Challenging Economic Backdrop and Slow Reforms

Vietnamese banks ratings amongst the lowest in Asia

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Difficult operating conditions, other long-standing structural issues, and the recovery of the banking sector likely to
be gradual
Downward rating risk could stem from a severe weakening in operating conditions and loss of depositors confidence

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Upward rating action could arise on improvements in operating climate, possibly sustained by government reforms

Sovereign Developments
Sovereign ratings affirmed with Stable Outlook in January 2013

MATERIALWITHOUT PRIOR
Negative sovereign rating action would likely hurt major banks ratings
Upward sovereign rating action would likely benefit major state-owned banks, as long as their systemic importance
to the domestic economy remains intact

CONSENT OF AUTHOR
External Foreign Support
Foreign ownership limit is 20% for single entities
A higher limit that facilitates extraordinary institutional support would likely benefit banks ratings

www.fitchratings.com 18
Vietnam Banks: The Road Ahead

Stable macroeconomic environment is a pre-requisite for a healthy banking sector and the objective
of the policymakers should be to provide a conducive economic backdrop for banks

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Structural Reforms necessary to put the Vietnamese economy on a higher and sustained growth path
The establishment of VAMC in July 2013 is a good start but is not a magic bullet in itself

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Greater transparency in asset classification norms, and greater convergence with international accounting standards
are necessary to foster investor confidence
Institutional infrastructure including for regulatory institutions need to be strengthened

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Corporate governance standards need to be improved and issues such as cross-shareholding in banks, greater
foreign participation, banking consolidation etc. need to be addressed
Concurrent Reforms of the SOE sector (which accounts for ~40% of GDP) crucial to reduce concentration and

CONSENT OF AUTHOR
systemic risks in the banking sector
Higher capital needed to tackle legacy problems, fund future growth and negotiate with Basel 3 related challenges

Near-term pressures on banks intrinsic risk profiles would remain but Viability Ratings may improve
over time provided some of the proposed reforms are successfully executed

www.fitchratings.com 19
Disclaimer

Fitch Ratings credit ratings rely on factual information received from issuers and other sources. Fitch Ratings
cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-

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looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be
affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed.

The information in this presentation is provided as is without any representation or warranty. A Fitch Ratings

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credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to
risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute
for information provided to investors by the issuer and its agents in connection with a sale of securities.

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Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The
agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold
any security.

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ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE
LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM.

www.fitchratings.com 20
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New York THIS
MATERIALWITHOUT PRIOR
One State Street Plaza
New York, NY 10004

CONSENT OF AUTHOR
London
30 North Colonnade
Canary Wharf
London E14 5GN