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Market Share of Capital Mobilization of Vietnamese Commercial Banks



Joint Stock Commercial Bank

41.75

47.91

45.2

44.43

Foreign Bank Branch

7.53

5.60

9.62

12.30

Joint venture bank

1.01

1.20

1.38

1.57

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Source: Report of State Bank of Vietnam [23]

In terms of absolute value, by the end of 2013, the market share of mobilized capital of banks remained stable and growing, in which the group of joint stock commercial banks and the group of state-owned commercial banks such as Vietcombank, BIDV, Vietinbank, Agribank accounted for 62.2% of the total value of mobilized capital of the entire Vietnamese commercial banking system.

Figure 2.8 Market share of capital mobilization of Vietnamese commercial banks

by the end of 2013 (unit: billion VND, %)


Source: Report of State Bank of Vietnam [23]

Capital mobilization activities have a direct impact on credit granting activities, credit risk management, liquidity, and safety in general operations of commercial banks based on the assessment of the credit granting ratio compared to mobilized capital, in which capital mobilized from market 1 is most highly valued, this ratio is called LDR (loan - to - deposit ratio) and is used and evaluated in the form of the relationship between loans and deposits. The State Bank of Vietnam manages commercial banks on safety ratios in the operations of credit institutions through the implementation of Circular 13/2010/TT-NHNN dated May 20, 2010 of the State Bank, which includes regulations on the credit granting ratio compared to mobilized capital (LDR).

In terms of general operational risk management and credit and liquidity risk management,

In particular, internal analysts and managers also regularly evaluate


The ability of a bank to repay its depositors and other creditors without incurring excessive costs while maintaining growth in its capital is known as liquidity or solvency of a bank, along with assessing operational risk through a diverse set of tools and techniques such as the loan-to-deposit ratio (LDR) which is one of the most widely studied measures.

As of the end of 2013, the credit ratio index compared to mobilized capital of the Vietnamese commercial banking system was within the safe range, in which the group of financial leasing companies and the Vietnam Cooperative Bank exceeded 100%, reflecting the correct function and scope of operation of this group in the entire system.

Figure 2.9 Ratio (%) of credit granted compared to mobilized capital (TT1) of Vietnamese commercial banks as of the end of 2013

383.71

97.13

74.66

64.8

112.23

Source: Report of State Bank of Vietnam [23]


2.1.4 Credit activities of Vietnamese commercial banks (2009 -2013)

Credit activities of Vietnamese commercial banks in the period from 2009 to 2013 grew in difficult conditions, with high interest rates, inflation and rapidly increasing overdue debt. Credit growth of commercial banks in the period from 2009 to 2013, besides the positive aspect of promoting GDP growth (Gross Domestic Product), is also considered the cause of high inflation because the money supply of commercial banks has not been strictly controlled and has not been used for the real purpose of those in need of loans.


Table 2.3 Credit Growth Rate to GDP and Inflation 2009-2013

Unit : billion VND, %


Target

2009

2010

2011

2012

2013

Total outstanding debt

1,497,774

2,059,887

2,702,367

3,091,507

3,478,255

Growth rate

credit

37.53

31.19

14.4

8.85

12.51

GDP growth

5.32

6.78

6.24

5.25

5.42

Inflation rate

6.52

11.75

18.13

6.81

6.04

Source: General Statistics Office [25]

By the end of 2013, the credit balance of the entire banking system reached

3,478,255 billion VND, in which state-owned commercial banks and large joint-stock commercial banks account for a high proportion and dominate the entire commercial banking system. Table 2.4 Credit market share of commercial bank groups 2009-2012 ( unit %)

Year

Criteria

2009

2010

2011

2012

State Commercial Bank

63.50

59.9

57.6

51.92

Joint Stock Commercial Bank

22.90

26.5

28.94

31.40

Foreign Bank Branch

12.06

12.10

11.27

12.80

Joint venture bank

1.54

1.5

2.23

3.88

Source: Report of State Bank of Vietnam [23]

In terms of value for each bank and banking group, the data below for 2013 shows that the credit market share still belongs to the group of state-owned commercial banks and some large joint-stock commercial banks such as ACB, Sacombank, Techcombank, Vpbank, MB, Eximbank.

Figure 2.10 Credit market share of Vietnamese commercial banks as of the end of 2013 (unit: billion VND, %)



Source: Report of State Bank of Vietnam [23]

If we temporarily divide commercial banks into three groups including state-owned commercial banks, joint-stock commercial banks and the remaining groups, over the past 5 years, the outstanding loans of the banking groups have also shifted in the direction of the market share of state-owned commercial banks decreasing and joint-stock commercial banks increasing but not much, while the remaining groups tend to maintain their market share.

Assessing the credit growth rate of the commercial banking system in the last 10 years, the commercial banks with the highest growth rate were in 2007 with a rate of 53.89%. 2007 was assessed as the period when commercial banks developed credit rapidly with the aim of capturing market share. At the same time, this period was also assessed as the cause of bad debt and high inflation in the following years. Below, Figure 2.11 describes the clearest change in credit market share of the 3 main banking groups: state-owned commercial banks, joint-stock commercial banks and the remaining groups.

Figure 2.11 Developments in market share of outstanding credit of banking groups 2007-2013

Unit: %


Source: Source: Report of State Bank of Vietnam [23]


­ Regarding lending interest rates: The early stages of the years from 2003 to 2008 showed that the Vietnamese banking system operated very stably in terms of lending interest rates and deposit interest rates.


dynamic, this is the period when joint stock commercial banks did not have much market share. However, from 2009 to 2013, the market share of joint stock commercial banks increased significantly due to commercial banks accelerating their network, customers, so the supply and demand for lending and deposit interest rates also began to lose control, leading to races in deposit interest rates and leading to races in lending interest rates, which peaked in 2012 and 2013. Although, the credit growth rate in 2012 and 2013 slowed down because the State Bank implemented a tight monetary policy through the interest rate channel (ceiling on deposit interest rates) and through the credit channel (credit growth limit and tight credit limit for some discouraged industries), which stopped the credit growth rate. As a result, the credit growth rate of banks since 2012 has slowed down and tends to decrease, but on the contrary, lending interest rates are still increasing. This is also the reason why many customers of the banking system gradually lose their ability to repay their debts and accelerate the increase in bad debt ratio.

Figure 2.12: Developments in credit balance and average interest rate of banks


Source: Report of State Bank of Vietnam [23]


2.1.5 On overdue debt at Vietnamese commercial banks (2009 -2013)


2.1.5.1 Overdue debt

Due to the impact of the financial crisis and global economic recession from 2008 to present, our country's economy has been negatively impacted and the macro economy has many unfavorable factors. Production and business activities of enterprises have encountered many difficulties. Therefore, bad debts of the credit institution system have tended to increase from 2009 to present, especially bad debts increased sharply in 2012.


Figure 2.13: bad debt ratio of the banking system 2009 - 2013 (unit: %)


8.82

4.61

3.06

2.01

2.16

10

8

6

4

2

0

2009 2010 2011 2012 2013


Source: Report of the State Bank of Vietnam [23] In the period of 2009-2013, the growth rate of mobilization and lending of credit institutions was the highest in the region, in which the commercial banking system played a key role with a credit market share of over 80% of the entire system of credit institutions (CIs). Credit for the economy has grown by an average of over 30% per year in the period of 2009-2013. Besides the strong growth with positive contributions to the economy in the recent past, the hot credit growth in the past 5 years has left many outstanding problems, the most prominent and always of great concern is the issue of bad debt. Bad debt is an inevitable existence in the credit granting activities of the commercial banking system, however, bad debt is only truly dangerous when it goes beyond the control threshold. For Vietnam, the bad debt situation in the period of 2012 to present is really

alarming, but needs to be dealt with decisively to avoid serious consequences.

Table 2.5 Bad debt of Vietnamese commercial banks in the period 2009 -2013

Unit: billion VND


Year

Target

2009

2010

2011

2012

2013

Total outstanding debt

1,750,000

2,271,500

2,504,911

3,086,750

3,300,000

Total bad debt

35,175

49,064

76,650

272,251

160,050

Bad debt ratio %)

2.01

2.16

3.06

8.82

4.85

Source: Report of State Bank of Vietnam [23,24]


Figure 2.14: Bad debt ratio of the group

Commercial Bank

Source: Report of State Bank of Vietnam [23,25]

­ If considering the bad debt ratio of commercial bank groups by 2013, the bad debt of state-owned commercial banks including Agribank, Vietinbank, BIDV, Vietcombank accounted for 45.60%. Joint stock commercial banks accounted for 35%. In which, the bad debt of the entire Agribank system was 7.56%, the estimated bad debt of Agribank was nearly 33,519 billion VND, accounting for

25% of total bad debt in the whole system. Vietinbank is 8,518 billion VND, accounting for 2.46% of total outstanding debt, Vietcombank is 2.62%, with bad debt balance of 7,212.47 billion VND, and BIDV is 1.96%, nearly 7,300 billion VND.

Figure 2.15: Bad debt ratio of groups of sectors

economic sector

Source: Report of State Bank of Vietnam [23,25

­ If assessing bad debt by industry and lending sector, in the State Bank's year-end summary report of 2013 on bad debt by economic sector, the lending sectors of commercial banks with high proportions of overdue debt are the transport lending sectors, real estate business and service sectors. These sectors, often have terms considered medium.

long-term and concentrated largely on state-owned enterprises, so these loans often arise at state-owned commercial banks.

2.1.5.2 Debt classification

The Vietnamese commercial banking system classifies debt according to the regulations of the State Bank as follows:

Decision 493/2005/QD-NHNN dated April 22, 2005 of the State Bank of Vietnam regulating debt classification, provisioning and use of provisions to handle credit risks, Circular 02/2013/TT-NHNN dated January 21, 2013, and Circular 09/2014/TT-NHNN dated March 18, 2014. According to the contents on debt classification, provisioning and use of provisions to handle credit risks in banking activities, bad debts are debts classified into group 3 (substandard debts), group 4 (doubtful debts), group 5 (debts with the possibility of losing capital). Based on the above criteria, Vietnamese commercial banks determine


debt classification based on 2 factors: overdue for more than 90 days and the borrower's ability to repay is doubtful (According to international accounting standards - IAS 39).

Figure 2.16 Bad debt value of Vietnamese commercial banks by the end of 2013. (Unit: billion VND)



Source: Report of State Bank of Vietnam [23]

From Figure 2.14, it can be seen that, according to the above regulations of the State Bank, the overdue debt of Agribank, Vietinbank, BIDV, Vietcombank and the group of joint stock commercial banks including Techcombank, MB, ACB, Sacombank, VPBank, Eximbank accounts for over 82% of the total bad debt of the entire banking system. The remaining joint stock commercial banks have outstanding debt and overdue debt with low absolute numbers, so they account for a low proportion in the entire system. However, if we consider each specific bank, this number is very high, in which Habubank or Navibank is one of these cases.

2.1.5.3 Bad debt settlement

Bad debt settlement is a regular and continuous task of commercial banks in any period, the period 2009-2013 is no exception, but it can be affirmed that 2013 is the year in which bad debt settlement is carried out at all levels from commercial banks, State Bank,

The government is most concerned and applies many measures, in which the establishment of the debt trading company VAMC is a strong step forward and is considered the most expected solution in resolving bad debt. However, the effectiveness of resolving bad debt is still

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