Although economic growth has been maintained for many years, per capita national income is still low. Savings and accumulation among the population have increased but are still modest and the population still does not really trust when depositing savings and using banking services.
The reason why GP.Bank's mobilized capital increased so much in 2013 was because in the past year, market interest rates changed continuously, people did not have many channels to invest, mainly depositing money in banks to preserve capital. Besides, thanks to the timely adaptation of the Bank and the good relationship of the Board of Directors, the Bank has attracted many sources of capital from different capital mobilization services. This shows that the Bank's operations have changed positively, reflected in the increased scale of operating capital. This growth in capital comes from the increasing capital demand of economic units in the province and the Bank is increasingly expanding its lending scope, so the Bank needs to increase its operating capital to meet the capital demand of businesses.
There are also fluctuations in the structure of mobilized capital, which affects the cost of paying interest on deposits and more or less affects the lending structure of the Bank. In 2013, mobilized capital did not increase sharply but also showed a positive recovery in the Bank's operations.
Central bank loans: In the capital structure of banks, central bank loans are the last place to meet the capital needs of banks, this is a very important source of capital for commercial banks. With GP.Bank Vung Tau, due to its good ability to mobilize capital, the need for loans from the central bank is also insignificant, specifically:
- In 2011, GP.Bank Vung Tau mobilized 4,632 million VND from the central bank, accounting for 0.9% of total capital.
- In 2012, it reached 12,160 million VND, accounting for 2.62% of total capital. There was a significant increase compared to 2011 because this was the year GP.Bank Vung Tau had a period when customers came to withdraw quite a lot of capital, the available amount of money was not enough to meet the demand, so the branch had to borrow from the central bank.
- In 2013, the branch had a fairly good recovery and only had to mobilize 9,236 million VND from the central bank, a decrease of 24.1% compared to the demand in 2012.
The increase or decrease of central bank loans depends on the capital demand in the area and the capital mobilization capacity of the bank. These factors show that the loan capital from the central bank increases or decreases depending on each year.
b/ Overview of the bank's asset structure
Asset analysis is the assessment of the fluctuations in the components of the total capital of the bank in order to examine the reasonableness of the bank's capital use. The allocation of capital to each type of bank's assets is to see the bank's ability to use capital such as cash reserves, loans and other assets.
Asset management of a bank is the conversion of credit capital into cash and earning assets, that is, the analysis of capital among cash, credit, investment and other assets. The types of assets of a bank include three types: treasury items, credit and fixed assets.
Looking at Table 2.10, we can see: Profitable assets such as customer loans, receivables, capital deposits at headquarters, etc. Specifically, this item in 2012 was 413,834 million VND, accounting for 89% of total assets (mainly loans). Loans are the item with the highest proportion in total assets, and the increase in loans will increase the profit-generating assets over the years.
Non-performing assets include cash in the fund, deposits at the State Bank and purchases of fixed assets... In 2012 and 2013, this asset accounted for 11% of the branch's total assets. The reason this type of asset is so high is because in 2012, the branch moved the location of a affiliated transaction office and had to replace many machines and equipment, so fixed assets increased significantly.
Table 2.10 shows that earning assets are uses of capital that generate income.
enter for bank
Table 2.10: Asset situation of GP.Bank Vung Tau
Unit: Million VND
Year
Target
2012 | 2013 | |
1. Cash at the fund | 20,512 | 25,658 |
2. Deposits at the State Bank | 4,300 | 2,100 |
3. Deposit capital | 53,681 | 34,802 |
4. Loan | 360.150 | 397,865 |
- Short term | 205,750 | 257,260 |
- Medium and long term | 154,400 | 140,605 |
5. Fixed assets and other assets | 25,684 | 27,531 |
Total assets | 464,327 | 487,956 |
In which: Income generating assets | 413,831 | 397,865 |
+ Earning assets/Total assets (%) | 89 | 89 |
+ Non-performing assets | 50,496 | 55,289 |
+ Non-performing assets/Total assets | 11 | 11 |
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(Source: Summary report 2012-2013 – GP.Bank)
2.3.2. Analysis of fluctuations in interest-sensitive capital
Rate sensitive (LS) funds are loans whose interest costs will change over time as interest rates change. And capital management requires consideration of additional risks as well as the spread between the cost of borrowing (mainly the interest rates of other banks) and the level of profit that can be earned from investing in credit. The main objective of this management is to ensure liquidity for the bank, ensure adequate capital for eligible credit needs and maintain the net interest margin and earnings.
a) Fluctuation of interest rate sensitive assets
Interest rate sensitivity refers to the comparison between the sensitivity of cash flows from assets (assets are sensitive to interest rates) and cash flows from capital (capital is sensitive to interest rates). The maturity of this sensitivity is usually specified (1 month, 2 months, 3 months, etc.). Short-term investments are more sensitive to interest rates.
This means that when interest rates change, the income from these investments will change.
Interest-sensitive assets are assets whose interest income will change over a period of time when interest rates change. Management of interest-sensitive assets of banks is the conversion of credit capital into cash and income-producing assets, that is, the division of capital between cash, investment credit and other assets. In the balance sheet of a bank, the item with high interest-sensitive. These two items will be important factors for a bank to be able to assess and manage its interest rate risk when it fluctuates.
Short-term loans are interest-sensitive assets with a term of up to 12 months and are used to cover the working capital shortage of businesses and short-term spending needs of individuals. Usually, these credits will be reinvested in the following years. Therefore, they are interest-sensitive assets. In addition, the amount of excess mobilized capital deposited at the headquarters is a way to increase profits. Although the difference is not much, it is safer than investing in stocks or buying government bonds.
Therefore, normally, interest-sensitive credit balances always account for the highest proportion of the bank's total assets. Through table 2.11, in recent years, the short-term lending situation at GP.Bank Vung Tau has fluctuated significantly. We can see that the interest-sensitive assets situation in 2012 was 205,750 million VND and in 2013 was 257,260 million VND, an increase compared to 2012, which was 51,510 million VND.
In 2013, the branch expanded its lending, not only investing in individual businesses and consumer loans, but also promoting lending to small and medium enterprises. Therefore, outstanding credit balance of the business sector tended to increase.
b) Fluctuation of capital sources sensitive to interest rates
Capital management requires consideration of additional risks as well as the spread between the cost of borrowing (mainly interest rates from other banks) and the return that can be earned on credit and other investments.
The main objective of these investments is to ensure the bank's liquidity, ensure sufficient capital for valid credit needs and maintain the net base interest rate and profit. This issue will be seen more clearly in Table 2.11:
Table 2.11: Interest rate sensitive capital situation of GP.Bank Vung Tau
Unit: Million VND
Target
2012 | 2013 | Compare 12/13 | ||
Amount | % | |||
1. Personal savings deposits | 416,742 | 444,610 | 27,868 | 6.7 |
- No term | 41,008 | 35,480 | -5.528 | -13.5 |
- Term < 12 months | 375,734 | 409.130 | 33,396 | 8.9 |
2. Deposits from credit institutions | 5,500 | 7,500 | 2,000 | 36.4 |
- No term | 800 | 1,800 | 1,000 | 125 |
- Term <12 months | 4,700 | 5,700 | 1,000 | 21.3 |
3. Deposits of economic organizations | 25,690 | 20,650 | -5040 | -19.6 |
- No term | 8,650 | 6,350 | -2,300 | -26.6 |
- Term <12 months | 17,040 | 14,300 | -2.740 | -16.1 |
4. Valuable papers | 1,635 | 2,460 | 825 | 50.5 |
5. Central Capital | 12,160 | 9,236 | -2.924 | -24.1 |
Total interest rate sensitive capital | 464,327 | 487,956 | 23,629 | 5% |
(Source: Summary report of GP.Bank Capital Department)
Interest-sensitive savings deposits : This is the idle money of the population that is sensitive to interest rates without a term or with a term of <12 months. Banks can mobilize a large amount from this amount. This is a mobilized amount with a very high proportion in the total mobilized capital that is sensitive to interest rates of the bank. In 2012, mobilized savings deposits accounted for 90% and in 2013, it accounted for 91% of the total mobilized capital that is sensitive to interest rates. The amount of money that is sensitive to interest rates over the years is as follows: In 2012, it was 416,742 million VND and in 2013, it was 444,610 million VND, an increase of 27,868 million VND, equivalent to 6.7%. This growth is due to the fact that the interest rate race is no longer fierce because the State Bank has reduced the ceiling interest rate for mobilization and severely punished cases.
In case of violation of regulations on interest rate ceiling, customers who previously withdrew to other banks to deposit for high interest rates have now returned to support the branch.
Currently, savings deposits at GP.Bank Vung Tau include two types: Non-term savings deposits and term savings deposits. Of which, term savings deposits < 12 months account for a larger proportion because this is the term that most customers deposit to enjoy high interest rates and incentives from the bank.
Interest-sensitive economic organization deposits: Because the bank is subject to competition from other commercial banks operating in the area, customer deposits only account for a small proportion of the bank's short-term loans. The amount mobilized is mainly from small businesses. This is the type of deposit that customers can withdraw at any time without prior notice to the bank and the bank must respond to the customer's needs. Therefore, the sensitivity is much greater than other types of deposits.
Deposits of credit institutions: this type of deposit accounts for a small proportion of the total mobilized capital, is sensitive to interest rates and has a tendency to decrease over the past 3 years. The reason for this decrease is that organizations withdraw money from banks to switch to other types of deposits or deposit in other banks with more attractive interest rates due to fierce competition among local banks to find customers.
In general, the mobilization of interest-sensitive capital of the bank in recent years has been carried out very well, always exceeding the set plan. Such results are thanks to the efforts of all officers and employees of the Bank. The Bank has made many efforts in capital mobilization, flexibly offering many forms of mobilization such as: 1 month, 2 months, 3 months... information, marketing, advertising... along with people being aware of the benefits of depositing money. However, in the area, there are many credit institutions with many diverse mobilization methods and attractive interest rates, so in order to maintain and increase mobilized capital in the coming years, the Bank needs to have better mobilization plans and measures to retain traditional customers.
Systematize and expand customers, increase mobilized capital to meet the increasing capital needs of economic sectors in the province.
2.3.3. Analysis of the current interest rate risk situation of GP.Bank Vung Tau according to the model
revaluation
Interest rate risk is a basic risk that banks are susceptible to today. It is a series of chain reactions, when interest rates increase, the cost of mobilization increases, borrowers also have to bear higher costs, the risk of failure of investment projects also increases and if it exceeds the threshold, it will lead to the risk of default.
Interest rate risk occurs when there is a difference between the average maturity of the bank's assets and liabilities in the context of market interest rates changing beyond the bank's expectations, leading to the possibility of a decrease in the bank's income compared to expectations. With the characteristics of mobilized capital being usually short-term while credit includes both medium and long-term, GP.Bank Vung Tau often faces interest rate risk and liquidity risk, especially when the market interest rate level tends to decrease as in recent times.
From Table 2.13, we can see that total interest-sensitive assets were VND 205,750 million in 2012 and VND 257,260 million in 2013. These are loans that are about to mature or are about to be re-lent. If interest rates increase after this loan is made, the bank will only re-lend if this loan can bring a potential profit equivalent to the current profit level of other financial instruments of comparable quality.
Similarly, maturing loans will provide the bank with
capital to reinvest in new loans at current interest rates.
The total interest-sensitive capital here includes certificates of deposit that are about to mature or be renewed, at which point the bank and the customer must agree on a new deposit rate consistent with market conditions; floating-rate deposit loans whose income changes automatically with market rates; and money market loans whose interest rates are adjusted daily to reflect the latest market movements.
Based on the formula of the revaluation model, we can make a preliminary assessment of the interest rate risk situation of GP.Bank Vung Tau through table 2.12.
Table 2.12: Analysis of interest rate sensitivity of GP.Bank Vung Tau
Unit: Million VND
Item
2012 | 2013 | |
Total interest rate sensitive assets | 205,750 | 257,260 |
Total interest rate sensitive capital | 464,327 | 487,956 |
The difference between assets and liabilities is sensitive. GAP | -258.577 | -230.696 |
Sensitive assets to sensitive capital ratio sense (ISR) | 44% | 53% |
Relative IS GAP (ratio of GAP to assets) interest rate sensitive assets) | -126% | -90% |
Bank status | Sensitive capital | Sensitive capital |
Net income (NIM) will decrease if | Interest rates rise | Interest rates rise |
(Source: Summary report of GP.Bank Capital Department)
What happens when the value of interest-sensitive assets is not equal to the value of interest-sensitive capital? Obviously, a difference in interest-sensitive assets and capital or an interest-sensitive gap has formed. At GP.Bank Vung Tau, the total value of interest-sensitive assets and capital is as shown in Table 2.13. And therefore, the bank has a negative interest-sensitive gap . Specifically, in 2012, the interest-sensitive gap was -258,577 million VND and by 2013, the gap decreased to -230,696 million VND. If interest rates increase, the bank's marginal interest income will decrease because the interest income on assets will increase less than the interest expense on mobilized capital. If other factors remain unchanged, the bank's interest income will decrease. Conversely, if interest rates fall when the bank is in a capital-sensitive or negative spread situation, the bank's net interest margin (NIM) will increase because interest income on assets will decrease less than the interest expense on other sources.