HEAD OFFICE. 108 Tran Hung Dao Street, Hanoi. Tel : Fax : Website :

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2 HEAD OFFICE 108 Tran Hung Dao Street, Hanoi Tel : Fax : Website :

3 annual report 2008 Vietnam Joint Stock Commercial Bank for Industry and Trade

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5 Content Message from the Chairman of the Board of Directors An Overview of Vietnam Economy in 2008 The Board of Directors The Board of Management Milestones of Success in 2008 VietinBank s Performance in 2008 Fund Mobilization Loans to the Economy Investment Banking Services Risk Management Business Plan for 2009 VietinBank and Equitization Process Organization Chart Independent Auditors Report

6 Message from the Chairman of the Board of Directors Annual Report 2008 VietinBank 2

7 Ladies and gentlemen, The Vietnamese economy first faced challenges in 2008 as the result of the increased trade deficit of USD 17 billion and an inflation rate of 22.9%. Later in the year the global economic turmoil further strained the economy as we saw dramatic swings in commodity prices such as steel, oil, gold and foreign exchange rates. The impact was broad as both trading volumes and liquidity declined sharply in the capital and property markets. Hit especially hard were the small and medium enterprises across the economic horizon. In response to these many shocks, the Government took decisive action on several fronts. Eight solution packages were introduced that resulted in lower inflation while allowing the economy to grow at 6.23%. Industrial production increased 14.6% while export turnover reached VND 62.9 billion. In addition, for the first time total registered Foreign Direct Investment rose to USD 64 billion. Within the context of these adverse economic times, Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) managed to achieve a lot in We closely managed liquidity throughout the year while being able to sharply increase fee based income. Great strides were made in managing risk and performance ratios improved. The bank was able to expand our branch network, grow total assets by 17% and increase equity to VND 12,300 billion. These achievements were largely the result of a conservative and strong management team remaining focused on prudent banking principles. The year was also a milestone for the bank in a number of other aspects. After 20 years the bank went through a rebranding exercise, launching a new brand name of VietinBank. Additional accomplishments included centralization of Trade Finance processing to reduce risk and improve efficiencies (Main Operation Center No. 3), establishment of a Disaster Recovery Data Backup Center, inauguration of the Human Resource Developing and Training School and was awarded Second-Place Independence Medal presented by the State. These were all important steps for the development, modernization and global integration of VietinBank. The final accomplishment for the year came about on 25 th December 2008 when we became among the first State owned banks to launch our Initial Public Offering. With the anticipation of continuing economic challenges domestically and globally, 2009 will be at least partly internally focused. While participating in the Government s Monetary Policies, VietinBank will focus on expense management in order to provide more favorable interest rates and fee structures to our customers. Industries the bank will continue to primarily focus on are exporters, the agricultural sector and small and medium industries. The goals for 2009 include a 24% increase in mobilized funds, and loan growth of 29% while maintaining nonperforming loans below 3%. Projected earnings for the year are estimated to reach over VND 2,500 billion, with fee income contributing VND 800 billion. Listing on the local stock exchange is also scheduled in July Longer term goals of the bank will focus on Modernization whereby the bank will be transformed. Areas of focus include improved financial transparency, standardization of services, implementation of strong corporate governance and improved human resource development programs. The objective will be while growing and expanding across all areas of the financial services industry, VietinBank plans to build an institution based on prudent and efficient policies that will allow us to meet international practices and standards. On this occasion, the Board of Directors, the Board of Management and all of the VietinBank Staff would like to express our thanks to customers, local and foreign partners for your trust and cooperation which have contributed to VietinBank successes in We hope that VietinBank will continue to receive your kind support and cooperation. Pham Huy Hung Chairman of the Board of Directors Annual Report 2008 VietinBank 3

8 An Overview of Vietnam Economy in 2008 In 2008 the economy of Vietnam encountered complicated and unpredicted movements of the world economy and domestic difficulties. In the first half of 2008, Vietnam suffered the impact of overheating economy, high inflation, trade deficit, real estate bubble and declined investment quality. In an effort to stabilize the macro-economy, the Government adjusted from high growth target to inflation control and maintaining of appropriate growth. In the late of 2008, the risks of sub-prime mortgage in the US inflamed the global financial crisis which brought not only developed countries but also emerging economies in the financial triangle Asia-Europe-US to recession. Although Vietnam was not severely impacted, the country s economy was facing numerous difficulties and challenges as a consequence of such crisis. In 2008, Vietnam s economic growth tended to slow down and remained at only 6.2 percent after high growth of over 8 percent in 3 consecutive years. Notwithstanding such difficult situation, Vietnam export turnover in 2008 attained nearly USD 63 billion, which was an encouraging result. Export turnover of all commodities experienced increase against the previous year with crude oil reaching USD 10.4 billion (increasing by 23.1%), textiles: USD 9.2 billion (increasing by 17.5%), coal: USD 1.5 billion (increasing by 44.4%), rice: USD 2.8 billion (increasing by 94.6%). GDP growth rate was In 2008, the banking system of Vietnam also saw unprecedented movements. The tightened and flexible monetary policy implemented in early 2008 was gradually shifted to prudently loosen in the second half of the year. In line with this process was the State Bank of Vietnam s unprecedented adjustment of management instruments, which focused mainly on key interest rates, reserve requirement and exchange rate control. 6.2% in 2008 The year of 2008 saw 3 times of base interest rate increase and 5 times of base interest rate reduction by the State Bank of Vietnam. Re-financing interest rate and rediscount interest rate experienced the same adjustment frequency. Reserve requirement rate increased in February and experienced decline for 4 times in the last 3 months of the year (including 2 times of decline in foreign currency reserve Annual Report 2008 VietinBank 4

9 requirement). Interest rates applicable to reserve requirement saw 5 times of adjustments (including 3 times of increase and 2 times of reduction). Foreign exchange control mechanism experienced exceptional adjustments with exchange rate band being widened for 3 times, average interbank exchange rate being strongly adjusted in June and late December. The exchange rate in 2008 was characterized with opposite fluctuations. In early 2008 the market saw surplus of foreign currencies with VND/USD exchange rate falling to the bottom level, equivalent to VND 15,300, while the scarcity of USD supply occurred both in official and free markets from May. Nevertheless, thanks to the State Bank s intervention and foreign exchange reserve capacity which was officially publicized for the first time, the exchange rate was gradually stabilized in late of the year. In summary, Vietnam Economy in 2008 coped with major difficulties such as reduced growth rate, increased inflation and imports surplus, unstable securities and real estate markets, difficult production and business activities. In 2009, the economy of Vietnam will certainly face numerous challenges and the danger of reduced growth rate. However, given the flexible policies of the Government and the great efforts of the whole society, the country will strongly sustain and create a momentum for sustainable growth in the following years. The movements of the major interest rates in 2008 (%) Base Rate Refinancing rate Discount rate 1/1 1/2 19/5 11/6 21/10 5/11 21/11 5/12 22/12 Annual Report 2008 VietinBank 5

10 Board of Directors Dr. PHAM HUY HUNG Chairman of the Board of Directors Annual Report 2008 VietinBank 6

11 Dr. PHAM XUAN LAP Member, CEO Dr. PHAM THI HOANG TAM Member Dr. DO THI THUY Member Mr. TRAN XUAN CHAU Member Mrs. NGUYEN HONG VAN Member Annual Report 2008 VietinBank 7

12 Ban Điều Hành Dr. PHAM XUAN LAP Member of Board of Directors - CEO Annual Report 2008 VietinBank 8

13 Mr. NGUYEN VIET MANH Deputy General Director Dr. NGUYEN VAN THANH Deputy General Director Mr. VO TAN THANH Deputy General Director Mrs. NGUYEN PHUONG LY Deputy General Director Mr. NGUYEN VAN DU Deputy General Director Mr. PHAM ANH TUAN Deputy General Director Mrs. BUI NHU Y Deputy General Director Mr. NGUYEN VAN CHUNG Chief Accountant Annual Report 2008 VietinBank 9

14 Milestones of Success in The launching of new brand name VietinBank in replacement of the former name Incombank On 15 th April 2008, the new brand name VietinBank was officially launched in order to create a nationally and internationally new and consistent image to meet the goals of Reliability, Efficiency, Modernity and Growth. 2. The adoption of the new brand name VietinBank was a milestone for the bank in the integration process to the world economy and sustainable development into a diversified financial group keeping leading position in Vietnam. Apart from that, VietinBank will actively integrate into the region and the world, becoming a major commercial bank in Asia and contribute to the successful implementation of industrialization, modernization and international economic integration of Vietnam. Establishment of VietinBank Main Operation Center (VMOC) Established on April 1 st, 2008 VMOC is a centralized processing center for international settlements and trade finance of the whole VietinBank system including money transfer, letters of credit, guarantees and counter-guarantees, collection, factoring, transfer of receivables, risk participation, open accounts; trust receipts, bill discounting, refinancing, etc, which are offered to all kinds of customers ranging from domestic and foreign corporates, financial institutions to individuals. VMOC also offers consultancy services, international settlement and trade finance solutions for all customers. By implementing research and development of new trade finance-related products, VMOC has contributed to improving the competitiveness of VietinBank and satisfying customers requirements. Annual Report 2008 VietinBank 10

15 3. VietinBank s Reception of Second-Place Independence Medal and Celebration of the 20 th Anniversary of Incorporation and Development 4. On 5 th August 2008, it is great honor for VietinBank to receive Second- Place Independence Medal a high level award of the State on the occasion of its 20 th anniversary. Opening of VietinBank Human Resource Development and Training School 5. On 30 th September 2008 VietinBank officially opened its Human Resource Development and Training School. This is considered as the right direction as well as a comprehensive and long-term solution in human resource development strategy of VietinBank. Inauguration of VietinBank s Disaster Recovery Data Back-up Center On 15 th December 2008 VietinBank Data Back-up Center was officially launched in Hoa Lac High Technology Zone, which was well equipped and constructed in a good location, meeting all requirements of State Bank of Vietnam as well as international standards for a back-up site, marking an important progress in ensuring the continuousness, safety and efficiency of the bank s business operation. 6. Successful IPO On 25 th December 2008 VietinBank successfully offered 53,600,000 shares to investors with the average successful bidding price of VND 20,265 VND per share compared to the starting price of VND 20,000. In the unfavorable turndown of securities market, the Bank s IPO was considered as a typical event of Vietnam securities market in Annual Report 2008 VietinBank 11

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17 VietinBank s Performance in 2008

18 Fund Mobilization In 2008 deposits from individuals to VietinBank kept on increasing, regardless of the difficulties faced by banking system in fund raising. Thanks to the large network spreading over the country and diversified deposit products offering a variety of benefits to depositors, the bank sources of funds have been increasing from year to year. Despite fierce competition among commercial banks for liquidity, VietinBank sources of funds kept on increasing in Deposits from customers amounted to VND 121,634 billion, accounting for 69.5% of total mobilized funds. Of total deposits from economic entities, deposits from state-owned enterprises were VND 35,528 billion, accounting for 75.8%, deposits from private enterprises and others made up 17% of total deposits from economic entities; deposits from foreign invested enterprises were up by 20.2 %, accounting for 7.2% of total deposits from economic entities. Given the advantage of an extensive network and good reputation, in 2008 deposits from individuals to VietinBank kept on increasing, regardless of the difficulties faced by banking system in fund raising. As of 31 st December 2008, deposits from individuals reached VND 67,670 billion, increasing by 24% compared to Total mobilized funds were VND 174,905 billion increased by 15.6% 92,359 31/12/2008 Customer deposits by types of deposits 79,628 31/12/2007 in VND billion 25, , Demand deposits 2. Term deposits 3. Deposits for specific purpose 4. Money transfer payables 5. Other amounts due to customers 6. Margin deposits 29, , Customer deposits by types of customers in VND billion 67,670 31/12/ /12/ Deposits from business entities 2. Deposits from individuals 3. Deposits from others 46,841 55,082 54,591 7,123 2, Annual Report 2008 VietinBank 14

19 Loans to the Economy 11.33% Other activities 28.24% Mining and quarrying 4.24% Agriculture, Forestry and Aquaculture 7.19% Community, social and personal service activities 9.49% Transport; storage and communications 9.54% Electricity, Petroleum and Water 18.74% Wholesale and retail trade; repair of motor vehicles, motor cycles and personal goods 11.23% Construction In 2008, VietinBank continued to sign strategic cooperation agreements with 4 major national corporations including Vietnam National Coal-Mineral Industries Group, Vietnam National Shipping Lines Corporation, Vietnam National Petroleum Corporation and Vietnam Expressway Corporation. Loans to the Economy Given the tightened monetary policy of the State Bank of Vietnam in the first three quarters of 2008 and the huge demand for credit, VietinBank was prudent in selecting efficient borrowers and key production industries for loan disbursement. From the end of the third quarter when the monetary policy was loosened and became more flexible and significant interest rate decrease which enabled enterprises to have access to funds from banks, VietinBank s credit orientation was enhancement of lending to enterprises in all economic sectors, while ensuring safety, efficiency in credit activities and maintaining market share. Loans to the economy as at 31st December 2008 were VND 120,752 billion, rose by VND 18,561 billion representing an increase of 18.2%. Medium and long-term loans accounted for 41.9%; loans to state owned enterprises accounted for 19.9% of total loans. The proportion of non-collateralized loans have been reduced in recent years, getting to the lowest level of 22.7% of total loans in 2008, a 3% decrease against that of the beginning of the year. Thanks to the strict controlling policy from the beginning of the year, VietinBank has eliminated risks arising from lending for real estate and securities investment. Loans to corporates, SMEs and individuals were 45.4%, 36% and 18.6% respectively. Annual Report 2008 VietinBank 15

20 Investment In the first half of 2008, available capital was mainly used for assuring liquidity of the bank. From the third quarter of 2008, VietinBank continued investing in the interbank market and valuable papers market. The Bank also continued to restructure its investment and capital contribution to its affiliates and joint ventures and complete the buy back of the paid-in capital of the foreign partner in the joint venture insurance company (IAI), which has resulted in IAI being 100% owned by VietinBank. As at 31 st December 2008, investment in the interbank market were VND 18,274 billion, increasing by 42.3% compared to 2007, of which term deposits and loans to other credit institutions totaled VND 12,235 billion, demand deposits and loans to other credit institutions were VND 6,039 billion. As of 31 st December 2008, total exposure to securities for investment and trading purposes doubled that of 2006, reaching VND 41,714 billion, an increase of 9.4% against Securities held by VietinBank are of high liquidity and low risks. Available for sale investment securities, which include treasury bills, central bank s bonds, municipal bonds, bills and bonds issued by reputable credit institutions and corporations, accounted for 88.8% of total investment in securities and reached VND 37,039 billion, increasing by nearly 14.5% as compared to last year. Investment in the interbank market increased by 42.3% as compared to 2007 Held to maturity securities, which include government bonds, education bonds, transportation and irrigation project-supporting bonds, treasury bonds, debt securities issued by other credit institutions and corporations, were VND 3,920 billion, decreasing by 22.4% as compared to the previous year. Annual Report 2008 VietinBank 16

21 Banking Services Payment and Remittance Services By the end of 2008, VietinBank has 3 Main transaction centers, 141 branches and more than 700 transaction offices and saving offices. With the advantage of the bank s nationwide network, domestic money transfer continued its growing impetus in Number of payment transactions increased by 29.4% and reached 6.2 million. Total payment volume was VND 2,800 billion, up by 29.1% against Bilateral payments amounted to VND 311,000 billion, increasing by 32.6% against the previous year with 1.3 million transactions representing an increase of 16.2%. Interbank e-payment volume increased by 27.9% to VND 1,300 billion with 1.1 million transactions. In 2008, VietinBank deployed many payment related products and services such as conversion of card transactions into INCAS (VietinBank core banking system), deployment of Home Banking service to corporate customers. In 2008 VietinBank also signed a bilateral payment agreement with Vietnam Development Bank and cooperated with State Treasury, General Department of Taxation, General Customs of Vietnam to start up the State budget collection through VietinBank. Overseas remittance volume (USD million) International Banking In 2008, VietinBank continued to expand the correspondent banking network and now has more than 850 banks in more than 80 countries and territories. Cooperation with foreign banks has been developed across wide geographies, with many long standing in depth relationships. Import payment volume in 2008 was USD 7.02 billion, up by 44.68% against 2007, accounting for 8.46% of import payment volume of the whole country. Export payment volume amounted to USD 4.25 billion, increasing by 48.8% as compared to 2007 and accounting for 8% of export payment volume of the country. Cross-border payments maintained its growing impetus represented by an increase of 50% in comparison with Card Service and E- Banking Service By the end of the year 2008, VietinBank has had 2.3 million customers using debit cards with 900,000 new customers. VietinBank accounts for 17% of the total card market share. The card holders can make transactions at 1042 ATMs of VietinBank and 4,000 ATMs of other banks joining 2 card alliances - Banknet and Smartlink. There were 3,905 credit cards issued by VietinBank in 2008, increasing by 94% as compared to Card payment volume rose up to VND 626 billion representing an increase of 40% against Up to now, VietinBank has established 1,700 POS for VietinBank s international credit cards and 20,000 POS for cards issued by Banknet joiners. From May 2008, SMS banking service has attracted more than 35,000 customers Annual Report 2008 VietinBank 17

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23 Risk Management

24 Risk Management VietinBank has developed a strategy on risk management in which the Board of Directors is responsible for reviewing and approving VietinBank s risk management strategies and policies while the Board of Management takes responsibility for implementing and developing those approved strategies and policies. Risk Management at VietinBank is currently functioned by the Risk Management Group (RMG). RMG is separated from sales divisions. It reports directly to the Board of Management and consists of 5 Departments each responsible for managing different kinds of risk, including credit risk, market risk, liquidity risk, and operational risk. These 5 Department members are: Department of Credit and Investment Risk Management (CIRM), Department of Credit and Investment Policy, Department of Market and Operational Risk Management, Department of Non-Performing Loans Management, and the Board of Internal Controllers. In addition, the Department of Planning and ALCO Supporting is responsible for managing liquidity risk, interest rate risk, and foreign exchange risk. Legal Department is in charge of managing legal risks. Annual Report 2008 VietinBank 20

25 Credit Risk Management Since 2005, VietinBank has developed credit strategies fully setting out targeted clients, markets and sectors. The Bank s targeted clients are large healthy financial and highly capable corporations while potential clients are small and medium enterprises and individuals. Our targeted markets are those of large cities, potential economic zones, and developing municipal and industrial areas. And the targeted sectors are those of industry, trading and service. VietinBank published policies on credit risk management in late The principles of these policies include investment portfolio diversification, multi-level process of authorization and approval, regular monitoring procedures and credit limit control. Depending on VietinBank s targeted markets and overall credit strategies as well as past performance of credit operations, markets fluctuations, and projected capital needs, the Department of Credit and Investment Risk Management proposes levels of credit growth for VietinBank, and levels of credit limits for the whole system based on types of products, currency, sectors, industries, ownership, clients, client groups, etc. These proposals are then submitted to the General Director and then to the Board of Directors for approvals. VietinBank s daily risk management is jointly functioned by the Department of Credit and Investment Policy, the Department of Credit and Investment Risk Management, the Department of Non-Performing Loans Management, and the Department of Planning and ALCO Supporting. In addition, the Board of Internal Controllers VietinBank is in the process of developing internal credit rating system in accordance with international standards evaluates VietinBank s credit operations both periodically and unexpectedly to ensure compliance with VietinBank s Credit Manual and legal regulation. Collateral valuations are currently undertaken by the customer departments and risks management departments at VietinBank s branches at the time of making loans and conducting reappraisals according to VietinBank s Guidelines. The loan to collateral value ratio is capped by a certain percentage of the total value of each type of collateral asset. Collaterals are re-evaluated at least once a year (depending on which type of collateral) or unexpectedly. Annual Report 2008 VietinBank 21

26 Authorizations to approve credit contracts at multiple levels are based on two criteria: (i) Credit Authorization Levels, which are reviewed annually based on levels of relationship management and the capability of the authorized personnel at the Head Office or branch size, the ability of credit officers, and performance at Branches; (ii) Customer Qualification Levels: Credit requirements are being established, modified, and adjusted to comply with Laws and suit to market reality to ensure safety and competitiveness in VietinBank s operation. Market and Operational Risk Management In March of 2006, VietinBank established Department of Market and Operational Risk Management (MORM) to monitor market risks and operational risks within VietinBank system. The Department s functions are to develop policies, procedures, and early warning system for market and operational risks. To minimize interest rate risks, Department of Planning and ALCO Supporting and Department of Investment jointly analyze interest rate changes based on most updated market information and specialist expertise. Floating interest rates are often applied to medium and long term loans, and even to short term loans in case of adverse market rates fluctuations. Securities investments are currently focused on low risk products. The Bank s investment portfolio includes State Treasury bonds and other Government bonds. The Department of Planning and ALCO Supporting prepares monthly reports on key financial indicators and capital adequacy ratios as required by the State Bank of Vietnam and submits these reports to the Board of Management for review and approval. VietinBank has developed strategies on risk management (included in General business strategy of VietinBank for the period ) and temporary regulations on operational risk management to meet international standards on operational risk management. In addition, VietinBank has established an internal control system from the Head Office to branches. This control system is responsible for regular review and supervision of VietinBank operations to discover and timely prevent frauds and mistakes, propose recommendations to refine operational mechanisms, policies, and procedures to ensure the Bank s efficiency, safety, and compliance with laws. Annual Report 2008 VietinBank 22

27 Legal Risk Management Legal risks at VietinBank are managed by the Legal Department which functions to consult and train business units on legal issues and to ensure VietinBank compliance with Laws and current regulations. In specific cases, for example bond underwriting, guarantees for overseas issuance, or providing loans to large projects, VietinBank might hire law firms. Branches are also allowed to hire external lawyers to solve their legal issues. However, complicated legal issues or issues stemming from staff s errors are to be reported to and handled by the Legal Department at VietinBank s Head Office. For new products, the Department reviews all legal respects to ensure compliance with Laws and other current regulations. Liquidity Risk Management Liquidity risk management is currently functioned by Department of Planning and ALCO Supporting which is mainly responsible to make plans for assets and liability management, liquidity maintenance, and allocation of reserve funds. The Department reports directly to the Board of Directors and Board of Management on a monthly basis to update VietinBank s current liquidity situation and project next month s liquidity. VietinBank strictly complies with all prevailing regulations of the State Bank of Vietnam in management of liquidity risks. VietinBank currently monitors liquidity by calculating liquidity ratios as guided by the State Bank of Vietnam and reports to the State Bank of Vietnam on a regular basis. To actively ensure liquidity and avoid unexpected events, VietinBank considers and maintains an appropriate liquid asset ratio so that cash, liquid assets, cash equivalents, nostro accounts, money market instruments, and reserves at the State Bank account for about 25% of total assets of VietinBank. In emergency cases, VietinBank is able to apply for support from the State Bank of Vietnam and other domestic banks. Annual Report 2008 VietinBank 23

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29 Business Plan for 2009

30 Business Plan for 2009 Funding and Owners Equity Total liabilities in 2009 are expected to increase to VND 226,803 billion, up by 25% as compared to 2008, of which fund mobilization from the economy is VND 204,813 billion (up by 24%), fund mobilization from inter-bank market is VND 13,038 billion (up by 48%). Chartered capital by the end of 2009 is expected to reach VND 12,253 billion. Retained earnings and reserves of about VND 1000 billion may be used to supplement to VietinBank s chartered capital. Assets Loans During the past few years, annual average loan growth of VietinBank is around 17-18%, lower than the industry average as the Bank has been focusing on restructuring loan portfolio together with the issuance of internal policies and procedures in credit activities as well as credit risk management. In 2009, on the basis of the bank s internal management capacity, branch network expansion together with the government s stimulus packages, VietinBank sets the target for loan growth of 28.9% while enhancing the credit quality of loan portfolio and keeping NPL ratio under 3%. Investment in valuable papers In 2009, VietinBank plans to make more investments in corporate bonds which are considered a potential market and of higher efficiency than government bonds and more liquid than loans because of the fact that financial institutions are increasingly active in trading valuable papers in capital market. The trading volume of valuable papers including bonds and bills of Government, SBV bonds, municipal bonds and corporate bonds are expected to increase by VND 8,899 billion to reach VND 50,700 billion in Financial investments Financial investments include investment in joint ventures and other long-term investments. In 2009, VietinBank plans to increase the financial investments by VND 1,056 billion, including the capital injection to Indovina Bank (estimated VND 450 billion), establishment of life insurance jointventure company (estimated VND 300 billion), capital contribution to the Gold Joint-venture Company (VND 100 billion), capital contribution to Thai Nguyen Steel Company (VND 100 billion) and other long term investments. Loan loss provision In 2008, VietinBank has allocated sufficient loan loss provision. In 2009, given the target for loan growth of 29%, and NPL ratio of below 3%, it is expected that VND 1,000 billion will be allocated for loan loss provision; and the provision reserve at 2009 yearend will reach VND 2,500 billion, of which general provision is VND 1,170 billion and specific provision is VND 1,330 billion. Annual Report 2008 VietinBank 26

31 Plan for branch network expansion In 2009, VietinBank plans to open 4 new branches: Dien Bien, Bac Kan, Ha Giang, Hau Giang, and the total number of branches and main operation centers will increase to 148. VietinBank will open more than 80 transaction offices in 2009, focusing on developed towns and districts nationwide. Business performance Interest income in 2009 is projected to be VND 20,635 billion, decreasing by 2.03% as compared to Fee income from service and other activities are expected to reach VND 2,137 billion, increasing by VND 633 billion or 42% against In 2009, before tax profit is estimated to reach VND 2,592 billion, ROA 1.2%; profit after tax are VND 1,945 billion, ROE is 16.54%, the expected cash dividend (for the second half of the year) is 4.31%. CAR >11% ROA 1.20% ROE 16.54% Plan for 2009 (in VND billion) % change Total assets 240,388 24% Chartered capital 12,253 N/A Fund mobilization from economy 204,813 24% Total loans 155,700 29% Profit before tax 2, % Annual Report 2008 VietinBank 27

32 VietinBank and Equitization Process As a result of great efforts during the 4 years equitization preparation process, VietinBank s Initial Public Offering (IPO) was successfully launched on December 25 th 2008 at Ho Chi Minh City Stock Exchange. All 53.6 million shares offered were bought with the highest winning price of VND 45,000/ share, lowest winning price of VND 20,000/share and average winning price of VND 20,265/share. VietinBank s IPO was launched amid the ongoing global financial crisis and the near bottom of Vietnam stock market and lowest level of total market capitalization. However, the registered share volume was 4.29% higher than total offered volume, the bidding capital volume was VND 1,086 billion which almost doubled total trading value of both HOSE and HaSTC on the same day. This indicated that VietinBank s share are attractive and potential. Annual Report 2008 VietinBank 28

33 Listing on the Stock Exchange To improve the position and image of VietinBank on the market as well as attract resources from the society, enhance corporate governance, transparency and prepare for international IPO, the Bank plans to list its shares on Ho Chi Minh Stock Exchange in July 2009 after completion of procedures for transformation into a joint-stock bank. Chartered Capital as at June 2009 After the equitization, the State Capital Investment Corporation (SCIC) manages the State s capital in the Vietnam Joint Stock Commercial Bank for Industry and Trade. The State Bank of Vietnam will assign representatives for the State ownership and participate in the Board of Directors of the Bank. According to the roadmap to the year 2012, the State stake will reduce to 51 percent, domestic investors will own 29% and foreign strategic shareholders will hold 20 percent of the Bank s capital. The transformation to joint-stock bank status, the diversification of ownership and participation of non-state owned sector and foreign strategic investors will enhance corporate governance and business culture as well as increase the competitiveness of the bank. There will be more opportunities for accessing new technology and expertise in banking business. After equitization, organization structure will be restructured to facilitate the renovation and enhancement of the bank s human resource structure. After equitization, VietinBank will develop into VietinBank Financial Group. The period from now on to 2010 will be the transition period with focus given to completion of organization structure, strategies and operation mechanism of a financial group. After 2010 the financial group will operate in its full functions. These are considered as crucial basis for VietinBank to have sustainable development and successful integration. 1.82% Employees 89.23% State 2.83% Trade Union 4.76% Public 1.81% Domestic strategic investors Annual Report 2008 VietinBank 29

34 Organization Structure Assets and Liabilities Management Committee general shareholder s meeting board of directors IT Management Committee CEO Credit Committee Financial Institutions Committee DEPUTY General Directors and Chief Accountant Business Group Banking Services Group Risks Management Group Supporting Group Corporate Banking Department Card Service Center Credit and Investment Risk Management Department Planning and ALCO Supporting Department Financial Accounting Management Department SMEs Banking Department E-Banking Department Credit and Investment Policy Department MIS Department Accounting Policy Department Consumer Banking Department VND Remittance Department Market and Operational Risk Management Department Legal Department Cash and Vault Management Department Financial Institutions Department Vietinbank Main Operation Center NPLs Management Department ISO Management Department Back Office Dealing Room Cash Payment Department Board of Internal Controllers Human Resources Department Administration Department Investment Department Overseas Remittance Department Labour and Salary Management Department Capital Construction and Purchasing Department Business and Service Department VietinBank Human Resources Development and Training School Emulation Department Call Center Information and Communication Department Annual Report 2008 VietinBank 30

35 Supervisory Board CEO s office IT Group Main Transaction Offices Branches Representative Offices Non-profit Making Units Subsidiaries IT Center Transaction Offices Savings Offices Transaction Offices Savings Offices Command Center and Help Desk Annual Report 2008 VietinBank 31

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37 Independent Auditors Report

38 Annual Report 2008 VietinBank 34 INDEPENDENT AUDITORS REPORT To: The Board of Directors and Board of Management of Vietnam Bank for Industry and Trade Reference: / We have audited the accompanying consolidated balance sheet of Vietnam Bank for Industry and Trade ( the Bank ) and its subsidiaries as at 31 December 2008, and the related consolidated statement of income statement, consolidated statement of retained earnings, consolidated statement of cash flows for the year then ended and the notes thereto ( the consolidated financial statements ) as set out on pages 2 to 66. The consolidated financial statements are the responsibility of the Bank s Management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Basis of Opinion We conducted our audit in accordance with the Vietnamese and International Standards on Auditing applicable in Vietnam. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Bank s Management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.. Opinion In 2008, the Bank has amortised 50% for the intangible asset relating to the lease payment for land use right at Hanoi Nam Thang Long City Complex based on the Bank s analysis which are presented in Note The accounting treatment, however, does not comply with Vietnamese Accounting Standard ( VAS ) 01 Frame work and VAS 06 Lease and related regulations, accordingly, land use right lease is normally regarded as operating lease and lease fee paid once in advance for many years should be recognised as prepaid expense and allocated into yearly operating expense over the lease period using straight line method. Had the Bank followed this accounting treatment, the net book value of intangible fixed assets as at 31 December 2008 would have been decreased by VND 424,944 million, other assets as at 31 December 2008 would have been increased by VND 831,649 million and consequently, the net profit for the year 2008 in the accompanying consolidated financial statements would have been increased by VND 182,171 million. In our opinion, except for the effects of the matter described in the preceding paragraph, the consolidated financial statements give a true and fair view, in all material respects, of the financial position of the Bank and its subsidiaries as at 31 December 2008 and of the results of operations and cash flows for the year then ended in accordance with the Vietnamese Accounting Standards and System for Credit Institutions and comply with other relevant financial and accounting regulations stipulated by the State Bank of Vietnam. Ernst & Young Vietnam Limited Vo Tan Hoang Van Deputy General Director Registered Auditor Certificate No: 0624/KTV Vo Xuan Minh Auditor in-charge Registered Auditor Certificate No: 0923/KTV Hanoi, Vietnam 20 May 2009

39 CONSOLIDATED BALANCE SHEET 35 as at 31 December 2008 Notes 31/12/ /12/2007 Reclassified ASSETS Cash and cash equivalents 4 1,980,016 1,743,604 Balances with the State Bank of Vietnam 5 6,010,724 8,496,135 Placements with and loans to other banks 6 18,273,849 12,841,040 Current accounts with other banks 6.1 6,038,534 4,829,941 Term deposits with and loans to other banks ,235,315 8,011,099 Provision for loans to other banks - - Trading securities 7 755, ,381 Trading securities 796, ,456 Less: provision for impairment (41,671) (3,075) Derivative financial instruments and other financial assets 8 86, Loans and advances to customers 118,601, ,482,233 Loans and advances to customers 9 120,752, ,190,640 Less provision for credit losses 10 (2,150,396) (1,708,407) Investment securities 11 40,959,079 37,404,891 Securities available-for-sale ,039,093 32,352,839 Securities held-to-maturity ,919,986 5,052,052 Provision for impairment of investment securities - - Long-term investments , ,138 Investment in subsidiaries - - Investment in joint ventures , ,531 Investment in associates - - Other long-term investments , ,607 Provision for impairment of long-term investments - - Fixed assets 13 1,995,515 1,214,196 Tangible assets ,279, ,671 Cost 2,823,054 2,238,996 Accumulated depreciation (1,543,774) (1,242,325) Intangible assets and land use rights , ,525 Cost 1,272, ,642 Accumulated amortization (556,064) (92,117) Other assets 14 4,019,707 2,507,095 Interest and fee receivables 2,416,172 1,659,447 Construction in progress , ,060 Receivables , ,964 Acquisition and major repair of fixed assets 436, ,955 Other assets , ,669 TOTAL ASSETS 193,590, ,112,971 The attached notes from 1 to 42 form part of these consolidated financial statements

40 Annual Report 2008 VietinBank 36 CONSOLIDATED BALANCE SHEET (continued) as at 31 December 2008 Notes 31/12/ /12/2007 Reclassified LIABILITIES Borrowings from the Ministry of Finance and the State Bank of Vietnam , ,745 Deposits and borrowings from other banks 16 8,824,710 5,259,911 Current accounts from other banks ,968,678 1,094,289 Term deposits and borrowings from other banks ,856,032 4,165,622 Customer deposits and other amounts due to customers ,634, ,425,814 Debts issued and other borrowed funds 18 40,217,706 29,296,023 Valuable papers issued 19 3,459,121 3,672,024 Derivative financial instruments and other financial liabilities 8-6 Other liabilities 20 6,348,518 4,099,919 Accrued interest expenses ,064,924 1,832,736 Other payables ,094,646 2,106,755 Provision for contingent liabilities and off-balance sheet commitments , ,428 TOTAL LIABILITIES 181,254, ,466,442 OWNER S EQUITY Capital 22 Chartered capital 7,717,168 7,608,643 Capital to purchase fixed assets 286, ,065 Other capital 106,061 66,472 Reserves 22 3,947,333 2,420,702 Foreign exchange translation reserve 22 94,880 61,585 Difference from assets revaluation Retained earnings , ,062 TOTAL OWNER S EQUITY 12,336,159 10,646,529 TOTAL LIABILITIES AND OWNER S EQUITY 193,590, ,112,971 The attached notes from 1 to 42 form part of these consolidated financial statements

41 CONSOLIDATED BALANCE SHEET (continued) as at 31 December OFF-BALANCE SHEET ITEMS Contingencies Notes 31/12/ /12/2007 Reclassified Credit guarantees 34 16,941 75,402 Letters of credit 34 7,882,510 13,995,644 Other guarantees 34 8,033,477 6,006,839 15,932,928 20,077,885 Prepared by: Approved by: Approved by: Mr. Dinh Quoc Tuan Head of Accounting Department Mr. Nguyen Van Chung Chief Accountant Mr. Nguyen Van Thanh Deputy General Director Hanoi, Vietnam 20 May 2009 The attached notes from 1 to 42 form part of these consolidated financial statements

42 Annual Report 2008 VietinBank 38 CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2008 Notes OPERATING INCOME Interest and similar income 23 21,062,887 12,769,280 Interest and similar expenses 24 (13,873,456) (8,085,890) NET INTEREST AND SIMILAR INCOME 7,189,431 4,683,390 Fees and commission income 588, ,656 Fees and commission expenses (150,205) (102,909) Net gain from fees and commission income , ,747 Net gain from dealing in foreign currencies ,046 64,087 Net gain / (loss) from securities trading 27 (22,787) 71,374 Net share of profit in associates and joint ventures and dividend income ,099 88,247 Net gain from other operating activities ,479 1,406,835 TOTAL OPERATING INCOME 8,694,253 6,648,680 OPERATING EXPENSES Payroll and other staff costs (2,947,019) (1,619,189) Depreciation and amortization charges 13 (827,162) (312,022) Other operating expenses 30 (1,183,504) (834,816) TOTAL OPERATING EXPENSES (4,957,685) (2,766,027) Net profit before provision for credit losses 3,736,568 3,882,653 Provision of credit losses 10 (3,784,606) (2,690,853) Reversal of provision for credit losses 10 2,484, ,285 (1,300,180) (2,353,568) PROFIT BEFORE TAX 2,436,388 1,529,085 Current enterprise income tax 21 (631,924) (379,643) Deferred enterprise income tax - - (631,924) (379,643) NET PROFIT FOR THE YEAR 1,804,464 1,149,442 Prepared by: Approved by: Approved by: Mr. Dinh Quoc Tuan Head of Accounting Department Mr. Nguyen Van Chung Chief Accountant Mr. Nguyen Van Thanh Deputy General Director Hanoi, Vietnam 20 May 2009 The attached notes from 1 to 42 form part of these consolidated financial statements

43 CONSOLIDATED STATEMENT OF RETAINED EARNINGS for the year ended 31 December Notes RETAINED EARNINGS AT THE BEGINNING OF THE YEAR 192,062 57,551 Net profit for the year 1,804,464 1,149,442 RETAINED EARNINGS BEFORE APPROPRIATIONS 1,996,526 1,206,993 Less: Decrease of interest income subsidization from the MOF (6,331) - Additional creation of reserve for prior year 22 (12,164) 2,422 Creation of reserves for current year 22 (1,780,531) (1,012,352) Supplementary capital from retained earnings - (5,001) Additional tax expense in accordance with Tax Finalization of 2007 (8,294) - Others (4,908) - RETAINED EARNINGS AT YEAR END 184, ,062 Prepared by: Approved by: Approved by: Mr. Dinh Quoc Tuan Head of Accounting Department Mr. Nguyen Van Chung Chief Accountant Mr. Nguyen Van Thanh Deputy General Director Hanoi, Vietnam 20 May 2009 The attached notes from 1 to 42 form part of these consolidated financial statements

44 Annual Report 2008 VietinBank 40 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2008 Note Reclassified CASH FLOW FROM OPERATING ACTIVITIES Interest and similar income receipts 20,306,162 12,390,675 Interest and similar expense payments (12,641,268) (8,212,246) Fees and commission income receipts , ,747 Net gain from dealing in foreign currencies 283,863 64,087 Net gain / loss from securities trading (22,787) 71,374 Other operating income 16,757 61,212 Recovery from bad debts previously written-off ,722 1,345,623 Payment to employees and suppliers (4,130,523) (2,454,005) Tax paid in the year 21 (377,475) (262,441) Net cash flow from operating profit before changes in operating assets and working capital 4,520,436 3,339,026 Changes in operating asset (18,076,828) (23,783,745) (Increase)/decrease in placements with and loans to other banks 1,075,454 16,604,169 (Increase)/decrease in investment in securities 961,706 (17,911,373) (Increase)/decrease in derivatives financial instruments (86,552) (258) (Increase)/decrease in loans and advances to customers (18,579,436) (22,038,306) Use of provision to write off bad debts (829,671) (495,037) Other (Increase)/ decrease in other operating assets (618,329) 57,060 Changes in operating liabilities 24,066,807 25,376,689 Increase/(decrease) in borrowings from the MOF and SBV 110,860 (15,583,770) Increase/(decrease) in deposits and loans from other Banks 3,564, ,169 Increase/(decrease) in customer deposits and other amounts due to customers 9,208,652 36,725,106 Increase/(decrease) in debts issued and other borrowed funds 10,921,683 7,770,344 Increase/(decrease) in valuable papers issued (212,903) (4,506,350) Increase/(decrease) in derivatives financial instruments and other financial liabilities (6) 6 Increase/(decrease) in other liabilities 710, ,737 Utilization of reserves in the year 22 (237,121) (136,553) Net cash flows (used in)/from operating activities 10,510,415 4,931,970 The attached notes from 1 to 42 form part of these consolidated financial statements

45 CONSOLIDATED STATEMENT OF CASH FLOWS (continued) for the year ended 31 December Note Reclassified CASH FLOW FROM INVESTING ACTIVITIES Acquisition of fixed assets and construction in progress (1,677,880) (409,276) Proceeds from disposal of premises and equipments 6,256 4,920 Additional equity investments in associates and joint ventures 12 (307,698) (120,660) Receipts from equity investment in associates and joint ventures 12-21,757 Dividend income received from other long-term investments 82,733 53,445 Net cash used in investment activities (1,896,589) (449,814) CASH FLOW FROM FINANCIAL ACTIVITY Increase in chartered capital 22 72,600 3,992,600 Net cash flows from financial activities 72,600 3,992,600 Net cash flow of the year 8,686,426 8,474,756 Cash and cash equivalents at the beginning of the year 23,426,389 14,951,633 Cash and cash equivalents at the end of the year 31 32,112,815 23,426,389 NON-MONETARY TRANSACTIONS RELATING TO INCREASE IN THE BANK S CHARTERED CAPITAL IN THE YEAR IS AS FOLLOWS: Capital increase in form of writting-off of borrowings from SBV in accordance with Decision 37/ QĐ/NHNN 07 issued by the SBV 35,925 Prepared by: Approved by: Approved by: Mr. Dinh Quoc Tuan Head of Accounting Department Mr. Nguyen Van Chung Chief Accountant Mr. Nguyen Van Thanh Deputy General Director Hanoi, Vietnam 20 May 2009 The attached notes from 1 to 42 form part of these consolidated financial statements