SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness

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1 SOCIALIST REPUBLIC OF VIET NAM Independence - Freedom - Happiness No: 1562/ MB-HS On information disclosure of separate and consolidated financial statements for QIII/2016 Hanoi, October 31st, 2016 Attention to: - State Bank of Vietnam - State Security Commission of Vietnam - Ho Chi Minh City Stock Exchange - Hanoi Stock Exchange Company name: Military Commercial Joint Stock Bank Ticker symbol: MBB Headquarter: 21 Cat Linh Street, Dong Da, Hanoi Telephone: Fax: Information discloser: Chief Executive Officer Le Cong Address: Military Commercial Joint Stock Bank - 21 Cat Linh Street, Dong Da, Hanoi Telephone: Fax: Type of information disclosure 24 hours 72 hours extraordinary per request ordinary Information content: Separate and consolidated financial statements QIII/2016 of the Military Commercial Joint Stock Bank. This information is published on MB electronic page: Investors - Financial Statements Section The Military Commercial Joint Stock Bank hereby attests that the information disclosed is absolutely true and shall take full responsibility before the law for the contents of the information published. Sincerely! Delivered to: - As above - Board of Director, Supervisory Board (for information) - Archived: Office, the Office of the Board CHIEF EXECUTIVE OFFICER Headquarter: Millitary Bank Towner 3 Lieu Giai, Ba Dinh, Hanoi Telephone: (84-4) , Fax: (84-4) SWIFT Code: MSCBVNVX info@mbbank.com.vn Website: 1

2 Military Commercial Joint Stock Bank Address: 21 Cat Linh Street - Dong Da - Hanoi B02a/TCTD-HN CONSOLIDATED BALANCE SHEET QUARTER III, Dated 30/09/2016 Notes 30/09/ /12/2015 Audited ASSETS Cash on hand, gold, silver and gemstones III.1 1,422,418 1,235,658 Balances with the State Banks III.2 6,587,729 8,181,894 Cash and gold deposits and loans to other credit III.3 institutions 24,932,083 28,658,950 Securities held for trading III.4 422,405 3,469,067 Securities held for trading 540,722 3,614,309 Allowances for securities held for trading (118,317) (145,242) Financial derivatives and other financial assets III.16-96,437 Loans to customers 143,303, ,372,248 Loans to customers III.5 145,585, ,348,630 Allowance for credit losses to customers III.6 (2,281,492) (1,976,382) Investment securities; III.7 50,011,068 46,760,198 Available-for-sale investment securities III ,881,157 39,513,026 Held-to-maturity investment securities; III ,676,174 8,070,136 Allowance for diminution of investment securities (1,546,263) (822,964) Capital contribution & long-term investments III.8 1,578,061 1,606,122 Investments in subsidiaries - - Investments in associates 374, ,470 Other long-term investments 1,329,269 1,464,944 Allowance for capital contribution & long-term investments (125,401) (221,292) Fixed assets 2,297,368 1,931,689 Tangible fixed assets III.9 1,389, ,085 Costs of fixed assets 2,638,242 1,820,179 Accumulated depreciation (1,248,868) (1,089,094) Intangible fixed assets III ,994 1,200,604 Costs of fixed assets 1,346,967 1,574,714 Accumulated amortization (438,973) (374,110) Investment properties III , ,451 Costs of investment properties 258, ,988 Accumulated depreciation of investment properties (5,799) (3,537) Other assets 9,009,463 9,431,279 Accrued interest and fee receivables 3,181,332 2,865,221 Deferred corporate income tax assets 1,641 1,805 Receivables III.12 4,730,749 5,657,166 Other assets III.13 1,392,564 1,121,905 In which: Goodwill 84,835 Allowance for other on balance sheet assets (296,823) (214,818) TOTAL ASSETS 239,817, ,041,993 2

3 Military Commercial Joint Stock Bank Address: 21 Cat Linh Street - Dong Da - Hanoi B02a/TCTD-HN CONSOLIDATED BALANCE SHEET (cont.) QUARTER III, Dated 30/09/2016 Notes 30/09/ /12/2015 Audited LIABILITIES Borrowings from the Government and State Banks - 1,411,502 Deposits and borrowings from other CIs III ,938,110 7,509,486 Deposits from Customers III ,788, ,565,384 Derivative financial instruments and other financial liabilities III Borrowed, entrusted fund and risk-bearing loans to III.17 other CIs 289, ,958 Valuable paper issued III.18 2,369,808 2,450,058 Other liabilities 6,696,140 4,604,554 Accrued interest and fees payables 2,222,855 1,786,044 Other liabilities III.19 4,473,285 2,818,510 Allowance for off-balance sheet liabilities III TOTAL LIABILITIES 214,082, ,858,942 OWNERS EQUITY Capital and reserves Shareholders equity III.21 17,140,015 16,718,524 Chartered capital 16,311,818 16,000,000 Share premium 828, ,524 Other capital - - Reserves 2,717,727 2,241,691 Undistributed earnings 4,832,797 3,633,134 MINORITY INTERESTS 1,043, ,702 TOTAL OWERS EQUITY 25,734,238 23,183,051 TOTAL LIABILITIES AND OWNERS EQUITY 239,817, ,041,993 3

4 Military Commercial Joint Stock Bank Address: 21 Cat Linh Street - Dong Da - Hanoi B02a/TCTD-HN CONSOLIDATED BALANCE SHEET (cont.) QUARTER III, Dated 30/09/2016 OFF-BALANCE SHEET ITEMS Notes 30/09/ /12/2015 Audited I. Contingent liabilities 69,269,232 70,423, Guarantee commitments 76, , Letters of credit 28,104,839 36,520, Other guarantees 41,087,455 33,754,130 II. Foreign exchange transaction commitments 26,251,497 16,374, Foreign currency buy commitments 2,136,655 2,699, Foreign currency sell commitments 2,658,348 4,619, Swap commitments 21,456,494 9,056, Futures commitments - - III. Other commitments 5,500,992 2,756, Irrevocable loan commitments Other commitments 5,500,992 2,756,713 V.1 101,021,721 89,555,115 Prepared by: Reviewed by: Approved by: Ms. Le Khanh Hang Deputy Head of Accounting Department Hanoi, Vietnam October 28, 2016 Ms. Le Thi Loi Chief Financial Officer Mr. Le Cong Chief Executive Officer 4

5 Military Commercial Joint Stock Bank Address: 21 Cat Linh Street - Dong Da - Hanoi B03a/TCTD-HN CONSOLIDATED INCOME STATEMENT QUARTER III, Dated 30/09/2016 Quarter III Accumulative Current year Previous year Current year Previous year Notes Interest and similar income IV.1 4,091,465 3,130,201 11,304,283 10,116,924 Interest and similar expenses IV.2 (2,020,466) (1,539,320) (5,607,978) (4,640,172) Net interest income 2,070,999 1,590,881 5,696,305 5,476,752 Fee and commission Income 281, , , ,792 Fee and commission expenses (101,427) (91,559) (238,646) (224,896) Net income from fee and commission IV.3 179, , , ,896 Net gain (loss) from trading of foreign IV.4 14,256 59,222 41,029 99,585 currencies Net gain (loss) from securities held for trading, IV.5 145,048 71, ,438 89,781 investment securities, and capital contribution and long term investments Net other income IV.6 135,802 99, , ,340 Income from capital contribution and share IV.7 1,872 16,624 86,306 76,037 purchase TOTAL OPERATING INCOME 2,547,944 2,040,964 6,801,537 6,599,391 TOTAL OPERATING EXPENSES IV.8 (1,075,937) (803,701) (2,885,154) (2,346,609) Net operating profit before allowance for losses 1,472,007 1,237,263 3,916,383 4,252,782 Allowance for losses IV.10 (545,765) (512,308) (1,127,931) (1,699,809) TOTAL PROFIT BEFORE TAX 926, ,955 2,788,452 2,552,973 Current corporate income tax expense IV. 12 (191,388) (153,701) (545,162) (542,047) Deferred corporate income tax expense/income IV. 12 (164) - (164) (1,139) Current period corporate income tax expense (191,552) (153,701) (545,326) (543,186) NET PROFIT AFTER TAX 734, ,254 2,243,126 2,009,787 Minority interests 22,378 31,835 26,395 22,390 Prepared by: Reviewed by: Approved by: Ms. Le Khanh Hang Deputy Head of Accounting Department Hanoi, Vietnam October 28, 2016 Ms. Le Thi Loi Chief Financial Officer Mr. Le Cong Chief Executive Officer 1

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7 Military Commercial Joint Stock Bank Address: 21 Cat Linh Street - Dong Da - Hanoi B04a/TCTD-HN CONSOLIDATED STATEMENT OF CASH FLOW (Direct method) QUARTER III, Dated 30/09/2016 Notes From 01/01/2016 To 30/09/2016 From 1/1/2015 To 30/09/2015 CASH FLOW FROM OPERATING ACTIVITIES Interest income and similar incomes received 10,988,169 9,395,644 Interest expenses and similar expenses paid (5,171,168) (4,784,343) Net commission and fee income received 459, ,895 Net receipts for foreign currencies, and securities trading 449, ,664 activities Other income/(expenses) (1,219,795) (887,985) Proceeds from loans settled/written off by risk allowance 389, ,260 Payment to employees and for other operating activities (1,219,869) (1,028,713) Income tax paid for the period IV.11. (384,919) (528,329) Net cash flow from operating activities given changes in operating assets and liabilities 4,290,844 3,298,093 Changes in operating assets (23,292,678) (5,622,463) (Increase)/Decrease in deposits and loans to other CIs (2,126,677) 647,566 (Increase)/Decrease in securities investment and trading 2,231,509 9,117,358 (Increase)/Decrease in financial derivatives and other financial 96,436 (107,865) assets (Increase)/Decrease in loans and advances to customers (24,236,712) (13,131,943) Decrease in provision for impairments (loans, securities and (562,550) (2,232,705) investments) (Increase)/Decrease in operating assets 1,305,316 85,126 Changes in operating liabilities 15,631,212 2,655,208 (Increase)/Decrease in borrowings from the Government and (1,411,502) - SBV (Increase)/Decrease in deposits from other CIs 10,428,625 (737,377) (Increase)/Decrease in deposits from customers 5,223,259 6,917,141 (Increase)/Decrease in bonds and valuable papers issued (80,250) 545,372 (Increase)/Decrease in borrowed, entrusted fund and riskbearing (28,768) 47,508 loans to other CIs (Increase)/Decrease in financial derivatives and other financial assets (Increase)/Decrease in other liabilities 1,585,118 (3,882,784) Utilization of reserves (86,144) (234,652) Net cash flows from operating activities (3,370,622) 330,838 CASH FLOW FROM INVESTING ACTIVITIES - Payment for purchases of fixed assets (907,674) (106,606) Proceeds from disposals of fixed assets 337, ,858 Proceeds from investment properties 14,811 - Proceeds from investments and capital contribution for longterm 123,952 (151,828) investments Cash dividend received during the period 86,306 76,037 Net cash flows from investment activities (345,156) 98,461 1

8 Military Commercial Joint Stock Bank Address: 21 Cat Linh Street - Dong Da - Hanoi B04/TCTD-HN CONSOLIDATED STATEMENT OF CASH FLOW (cont.) QUARTER III, Dated 30/09/2016 Notes From 1/1/2016 to 30/09/2016 From 1/1/2015 To 30/09/2015 CASH FLOW FROM FINANCING ACTIVITIES - - Increase in share - 4,438,348 Increase/Decrease in contribution from minority - - shareholders Dividends paid to shareholders (3,850) (582,163) Net cash flows from financing activities (3,850) 3,856,185 Net cash flows during the period (3,719,628) 4,285,484 Beginning balance of cash and cash equivalents 26,002,367 20,133,554 Ending balance of cash and cash equivalents IV.12 22,282,739 24,419,038 Prepared by: Reviewed by: Approved by: Ms. Le Khanh Hang Ms. Le Thi Loi Mr. Le Cong Deputy Head of Accounting Chief Financial Officer Chief Executive Officer Department Hanoi, Vietnam October 28,

9 Reporting entity: Military CJS Bank Address: 21 Cat Linh Street, Dong Da, Hanoi Form No.: B05a/TCTD-HN NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Quarter III, 2016 I. OPERATION FEATURES OF THE CREDIT INSTITUTION 1. License for establishment and operation, and valid duration The Military Commercial Joint Stock Bank is a joint-stock commercial bank established in the Socialist Republic of Vietnam for the main activities to provide banking and relevant financial services pursuant to License No. 0054/NH-GP dated September 14, 1994 by the Governor of the State Bank of Vietnam ( SBV ) for a 50-year term from the date of granting. 2. Form of capital ownership: Shares 3. Composition of the Board of Director Full name Position/Date of appointment/reappointment Mr. Le Huu Duc Chairman Mr. Luu Trung Thai Vice Chairman Mr. Nguyen Manh Hung Vice Chairman Mr. Ha Tien Dung Member Mr. Nguyen Dang Nghiem Member Mr. Le Cong Member Ms. Nguyen Thi Thuy Member Ms. Nguyen Thi Ngoc Member Mr. Nguyen Van Hung Member Mr. Nguyen Van Hue Independent Member Mr. Nguyen Chi Thanh Member (appointed 28/04/2016) 4. Composition of the Supervisory Board Full name Ms. Vu Thi Hai Phuong Ms. Nguyen Thanh Binh Ms. Le Minh Hong Mr. Dang Quoc Tien 5. Composition of the Board of Management Full name Mr. Le Cong Mr. Do Van Hung Ms. Nguyen Thi An Binh Ms. Nguyen Minh Chau Ms. Pham Thi Trung Ha Mr. Uong Dong Hung Mr. Le Hai Ms. Le Thi Loi Mr. Tran Minh Dat Mr. Ha Trong Khiem Mr. Le Quoc Minh Position/Date of appointment/reappointment Head of Supervisory Board Member Member Member Date of appointment 6. Headquarter: 21 Cat Linh Street, Dong Da, Hanoi, Vietnam Chief Executive Officer Deputy General Director Deputy General Director Deputy General Director Deputy General Director Deputy General Director Deputy General Director Deputy General Director - Chief Financial Officer Deputy General Director Deputy General Director Deputy General Director Branches: 1 Headquarter, 81 domestic branches, 2 foreign branches, 166 transaction offices, and 1 representative office in Russian Federation 1

10 As of 30/09/2016, the Bank has 7 (seven) subsidiaries as follows: No. Name of company Operating license No. 1 Military Commercial dated Joint Stock Bank Asset 11/07/2014 issued by Hanoi Management Company Department of Planning and ( MB AMC ) Investment 2 MB Securities JSC. 07/GPDC-UBCK dated (Initially Thang Long 09/12/2013 issued by the Securities JSC.) ( MBS ) State Securities Commission 3 MB Capital 32/GPDC-UBCK dated Management JSC. 04/10/2013 issued by the (formally Hanoi State Securities Commission Securities Investment Fund Management JSC.) ( MB Cap ) 4 MB Financial One dated Member Limited 10/03/2016 issued by Hanoi Liabilities Company ( M Department of Planning and Credit ) Investment 5 MB Land JSC. (MB dated Land") (*) 25/10/2012 issued by Hanoi Department of Planning and Investment 6 Viet REMAX JSC. (*) dated 08/02/2010 issued by Ho Chi Minh Department of Planning and Investment 7 MB Ageas Life Insurance Limited Liabilities Company Associates 74/GP/KDBH dated 21/07/2016 issued by the Ministry of Finance As of 30/09/2016, the Bank has 03 (three) associates as follows: Sectors Activity Debt and asset management Securities investments and trading Investment Fund Management % ownership by the Bank % 79.52% 90.77% Consumer credit % Real estate trading Investment and construction of residential and office buildings Life insurance, health insurance and financial investments No. Name of company Operating license No. Sectors 1 VIETASSET dated 27/5/2010 Investment in Investment JSC. (*) issued by Hanoi Department Construction 2 Long Thuan Loc Joint Stock Company (*) 3 Military Insurance Joint Stock Company ( MIC ) (*) Indirect holding through subsidiaries 7. Total number of employees of Planning and Investment dated May 19, 2008 issued by Hanoi Department of Planning and Investment 43GP/KDBH issued by the Ministry of Finance on 12/06/2014 Construction works Non-life insurance As of 30/09/2016, the Bank and its subsidiaries have 8,905 employees. II ACCOUNTING STANDARD AND ACCOUNTING SYSTEM 65.29% % 61.00% % ownership by the Bank 45.00% 44.39% 49.77% 1 Compliance with Vietnam Accounting Standards and Accounting System of credit institutions in Vietnam The Board of Management confirms the consolidated financial statements attached are prepared in compliance with the Vietnam Accounting Standards and Accounting Systems for credit institutions in Vietnam. 2

11 2 Basis of preparation of the consolidated financial statements The financial statements of the Bank are presented in VND ( dong or VND ), prepared in accordance with the Accounting Systems for Credit Institutions in Vietnam under Decision No 479/2004/QD-NHNN dated April 29, 2004 (Decision 479) and Circular 10/2014/TT- NHNN dated March 20, 2014 (Circular 10) by the Governor of the State Bank of Vietnam and took effective from October 1, Decision No. 16/2007/QD-NHNN dated April 18, 2007 (Decision 16) by the Governor of the State Bank of Vietnam and Circular 49/2014/TT- NHNN in attachment with Decision 16 dated December 31, 2014 amending the Vietnam Accounting Standards issued by the Ministry of Finance, including: Decision No 149/2001/QD-BTC dated December 31, 2001 on the issuance and publication of 4 Vietnam Accounting Standards (phase 1); Decision No 165/2002/QD-BTC dated December 31, 2002 on the issuance and publication of 6 Vietnam Accounting Standards (phase 2); Decision No 234/2003/QD-BTC dated December 30, 2003 on the issuance and publication of 6 Vietnam Accounting Standards (phase 3); Decision No. 12/2005/QD-BTC dated February 15, 2005 n the issuance and publication of 6 Vietnam Accounting Standards (phase 4); and Decision No 100/2005/QD-BTC dated December 28, 2005 on the issuance and publication of 4 Vietnam Accounting Standards (phase 5). The consolidated balance sheet, consolidated income statement, consolidated undistributed earnings, consolidated cash flow statement and notes to the consolidated financial statements are presented as follows and the use of these reports is not designed for those who are not informed about Vietnam s principles, procedures and practices, and furthermore these reports are not prepared to reflect current financial position, income and cash flows of the Bank in accordance with principles and accounting practices generally accepted in countries and jurisdictions other than Vietnam. 3 Consolidation of financial statements The consolidated financial statements include financial statements of the Bank and its subsidiaries at the end of each quarter and on December 31 each year. Financial statements of the subsidiaries follow the same reporting year and accounting policies that are consistent with those of the Bank All balances and intra-group transactions, including unrealized profits arising from intragroup transactions have been fully eliminated. Financial statements of the subsidiaries are consolidated into the financial statement of the Bank in accordance with the full consolidation method from the date the Bank took control. Control is defined as the Bank exerts power, directly or indirectly, to govern the financial and operating policy of an entity in order to obtain benefits from activities of the entity. Business operating results of the recently acquired and disposed subsidiaries during the year are accounted for in the consolidated income statement appropriately from the date of acquiring or to the date of disposal Interests of minority shareholders are defined as part of the net operating result and net asset value of subsidiary determined proportionally for the benefits not held by the Parent Company, directly or indirectly through its subsidiaries. The interests of minority shareholders are presented in the consolidated balance sheet separated from liabilities and the Bank s owner s equity. The shares of minority shareholders in the income of the Bank s system are also presented as separate items 4 Basis for assessment and application of accounting estimates The presentation of the consolidated financial statements requires the Board of Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, as well as disclosures of contingent liabilities. These estimates and assumptions also affect income, expenses and the provision figures. These estimates are based on assumptions on a number of factors with varying degrees of subjectivity and uncertainty. Therefore, actual results may vary, resulting in the adjustment of related items later. 3

12 Continuous operation The Bank s Board of Management has to evaluate the possibility of ongoing activities of the Bank and the Bank has found sufficient resources to maintain business operations during a finite period. In addition, the Executive Committee did not find that there are significant uncertainties that may affect the ability of continuous operation of the Bank. Thus the consolidated financial statements are prepared on the assumption of continuous operation. 5 Changes of accounting method For dividends in shares and bonus shares, the Bank does not recognize revenue in nominal value and only update number of stocks. In addition, during the year, the Bank has adopted the Circular 45/2013/TT-BTC of April 25, 2013 on guiding the management, utilization and depreciation of fixed assets effective from June 10, On June 1, 2014, Circular No. 02/2013/TT-NHNN ( Circular 02 ) dated January 21, 2013 by the Governor of the State Bank on classification of assets, level of provision, and the use provision to handle risks in operation of CIs and branches of foreign banks, and Circular No. 09/2014/TT-NHNN ( Circular 09 ) dated March 18, 2014 on amending and supplementing a number of articles of Circular No. 02/2013/TT-NHNN officially took effect. Accordingly, major changes include: - In addition to loans and advances to customers, the following assets must also be subject to debt classification and provisioning: The amount to purchase and entrusted to purchase corporate bonds not listed on the stock market or not registered for market trading of unlisted public companies (Upcom), excluding purchases of unlisted bonds using trust funds where the entrusted parties bear the risk; Credit trust; Deposits (excluding current accounts) in domestic credit institutions, foreign bank branches in Vietnam in accordance with law, and deposits at foreign credit institutions; Credits granted in the form of credit card issuance. - Off-balance sheet commitments shall be subject to debt classification for management purpose but not provisioning. - Inter-bank deposits, loans, purchase of term valuable papers at credit institutions and branches of foreign banks in Vietnam shall be subject to debt classification and specific provision but not general provision. - Loans sale receivables and loans sold where buyer still has recourse against seller, the unsettled amount and the outstanding balance with buyer s recourse must be classified and provisioned against risks as prescribed prior to the loan sale. - Based on results of inspections, monitoring, related credit information, the State Bank may request the Bank to reassess and reclassify a specific debt and make provisioning in line with the risk level of the debt. - CIs that have been approved by the State Bank to implement risk provision policy in loan classification as specified in Article 7, Decision No 493/2005/QD-NHNN shall classify loans using both quantitative and qualitative methods, based on which loans will be classified into the higher risk levels within 3 years from the effective date of the Circular. 6 Loans and advances to customers Loans and advances to customers are disclosed and presented at the amount of principal outstanding at the end of the financial year. 7 Allowance for credit risk 7.1 Allowance for credit risks in Vietnam market According to the Credit Institutions Law No. 47/2010/QH12 taking effect from January 1, 2011, Decision No. 1627/2001/QD-NHNN dated December 31, 2001 of the Governor of the 4

13 State Bank on the issuance of Regulation on lending by Credit Institutions to customers, Decision No 127/2005 / QD-NHNN dated February 3, 2005 on amending and supplementing a number of articles of the Regulation on lending by Credit Institutions to customers issued with Decision No. 1627/2001/QD-NHNN, Circular 02/2013/TT-NHNN dated 21 January, 2013 and Circular 09/2014/TT-NHNN of the State Bank on asset classification, provisioning and use of provisions against credit risks in banking activities of credit institutions, credit institutions must implement loan classification and provisioning against credit risks. Accordingly, loans to customers are classified according to the level of risk as follows: Current loans, Special mentioned loans, Substandard loans, Doubtful and Loss based on the overdue status and other qualitative factors of the debts. Since 2008, the Bank has registered and been approved by the State Bank of Vietnam under the Official Letter No / NHNN-CNH September 25, 2008 of the State Bank of Viet Nam to allow the Bank to apply the system of internal credit ratings to classify customer loans under Article 10 of Circular 02/2013/TT-NHNN. Under this system, the bank loans will be assessed and classified based on both qualitative and quantitative basis. Accordingly, these loans are classified according to the level of risk as follows: No. Credit ranking GROUP Description 1 AAA Group 1 Current debts 2 AA Group 1 Currentdebts 3 A Group 1 Current loans 4 BBB Group 2 Special mentioned loans 5 BB Group 2 Special mentioned loans 6 B Group 3 Sub-standard loans 7 CCC Group 3 Sub-standard loans 8 CC Group 4 Doubtful loans 9 C Group 4 Doubtful loans 10 D Group 5 Loss April 23, 2012, the State Bank has issued Decision No. 780 / QD-NHNN of the classification of debt to adjusted debt repayment period, debt rescheduling. However, according to Circular 02, the Bank must classify debt and off-balance sheet commitments as stipulated in Article 10 and Clause 1 of Article 11, Circular 02 for 3 years from June 1, Accordingly, where a loan is classified differently under the provisions of Article 10 and under Clause 1 of Article 11, the loan in dispute is then classified into the group with higher risk level. Specific provision Credit risk of loans and advances to customers are calculated as the remaining value of the loan less the value of the collateral which has been discounted at the rate stipulated in Circular 02/2013/TT -NHNN and Circular 09/2014/TT-NHNN. Specific allowance is made based on credit risk of loans at respective rate of each loan group as follows: Group Type: Specific provision 1 Current loans 0% 2 Special mentioned loans 5% 3 Sub-standard loans 20% 4 Doubtful loans 50% 5 Loss 100% General provision According to Circular No. 02/2013/TT-NHNN, general provision is made for losses that have not been identified during debt classification and specific provisioning process, and in cases where credit institutions face deterioration in credit quality. Accordingly, the Bank is required to establish and maintain a general allowance at 0.75% of total loans that are classified from Group 1 to Group 4. Allowance is recorded as an expense in the separate Income statement and is utilized for non-performing loans. Under Circular 02/2013/TT-NHNN, the Bank established Risk Management Committee to decide to write off non-performing loans when they have been 5

14 classified to Group 5, or when the borrowers have declared bankrupt or dissolved (for borrowers being organization, enterprise), or borrowers have been dead or missing (for borrowers being individuals). According to Circular No. 02/2013/TT-NHNN of January 21, 2013 of the State Bank of Vietnam, general provision and specific provision of the Bank for the annual financial year ended December 31 are made based on the outstanding balance at November 30 of that year. 7.2 For the receivables from customers in respect of securities transactions, financial support and advances to customers who purchase or sell securities from Thang Long Securities JSC., a subsidiary of the Bank. Other receivables subject to review for impairment based on overdue period of receivables or estimated losses that may arise from undue debts of which indebted economic organization go bankrupt or undergo dissolution procedures; debtors are missing, have fled, are prosecuted, detained or tried by law enforcement bodies or dead For overdue receivables, applied provision rates are specified in Circular No. 228/2009/TT-BTC dated December 7, 2009 ( Circular 228 ) and Circular No. 89/2013/TT-BTC dated June 28, 2013 ( Circular 89 ) issued by the Ministry of Finance on December 7, 2009 as follows: Overdue period Provision rate From 06 months up to 01 year 30% From 01 year up to 02 years 50% From 02 years up to 03 years 70% More than 03 years 100% 8 Securities held for trading Securities held for trading are debt securities, equity securities and other securities that the Bank has purchased and intends to sell in short term to realize a capital gain on changes in price. Securities held for trading are recorded at cost at the transaction date and always reflected at cost in subsequent holding periods These securities are reviewed for diminution at the time of preparing the consolidated financial statements. Allowance for diminution of securities held for trading is made when the book value is higher than the market value determined in accordance with Circular 228 and Circular 89. In case market value of the securities cannot be determined reliably, no provisioning shall be made Allowance for diminution is recognized in the consolidated Income Statement under Net gain/(loss) from held for trading and investment securities. The Bank shall make provision for diminution of securities held for trading in accordance with guidance of Circular 228 and Circular Investment securities 9.1 Classification Investment securities are classified into 02 types: held-to-maturity and available-forsale securities. Banks shall classify investment securities on purchasing date. According to Official Letter No. 2601/NHNN-TCKT issued by SBV on April 14, 2009, Banks may reclassified investment securities no more than once after purchase. Banks shall initially record investment securities at cost. Held-to-maturity investment securities; Held-to-maturity investment securities are debt securities with fixed maturities and fixed or identifiable payments, which the Bank has the intention and ability to hold to maturity. Available-for-sale investment securities Available for sale investment securities are debt securities, equity securities or other securities that are held for an indefinite period and can be sold at any time. 9.2 Recognition The Bank records investment securities on the day the Bank becomes a partner of contractual terms with regard to these securities (trade date accounting). 6

15 9.3 Measuring Equity securities Available-for-sale equity securities are initially recorded at cost; then the value is adjusted at the lower of book value and market value with losses recognized in the separate statement of income. Market value of listed available for sale equity securities are recorded as the closing price in Ho Chi Minh City Stock Exchange and the average price at the Hanoi Stock Exchange on the last day of the accounting year. Market value of available for sale equity securities that are not listed but registered for market trading of unlisted public companies (UpCom) are defined as the average trading price on the system on the last day of the accounting year. Market value of available for sale equity securities that are not listed but traded over the counter (OTC) are recorded at cost less allowance for diminution in value of securities calculated according to the average price of three quotations from three major securities firms with chartered capital of above VND 300 billion. Available for sale equity securities that are not listed and not traded on the OTC market are subject to provision for diminution in value as other long-term capital investments presented in Note 4(e)( ii). In cases market value of the securities cannot be determined reliably, initial costs shall be used. Debt securities Applied from June 01, 2014 Debt securities are initially recorded at cost, including transaction costs and other other directly related costs. Subsequently, the debt securities recorded at cost are amortized (affected by the amortization of discounted values and premium values) less allowance for diminution in value. Premium value and discounted value arising from the purchase of debt securities are amortized to the separate statement of income under the straight-line method from the date of purchase to maturity of such securities. Listed available for sale debt securities and held-to-maturity investment securities are recorded at cost less allowance for diminution in value, calculated according to the yields listed on Hanoi Stock Exchange on the last day of the accounting year. Available for sale debt securities and held-to-maturity investment securities of unlisted companies are recorded at cost less allowance against risk. Classification and provisioning against risks of these bonds shall comply with applicable policy for customer loans as mentioned in Note 4(h). Remaining unlisted debt securities (excluding available for sale debt securities and held-tomaturity investment securities of unlisted companies) are recorded at cost less allowance for diminution in value calculated by reference to the market value of the securities. In the absence of market value of the securities or where such value cannot be measured reliably, the securities are recorded at cost. Earnings upon the purchase of available for sale debt securities and held-to-maturity investment securities are recognized in the separate statement of income on an accrual basis. Applied before June 01, 2014 Debt securities are initially recorded at cost, including transaction costs and other other directly related costs. Subsequently, the debt securities recorded at cost are amortized (affected by the amortization of discounted values and premium values) less allowance for diminution in value. Premium value and discounted value arising from the purchase of debt securities are amortized to the separate statement of income under the straight-line method from the date of purchase to maturity of such securities. Available for sale debt securities and held-to-maturity investment securities are recorded at cost less allowance for diminution in value calculated by reference to the market value of the securities. In the absence of market value of the securities or where such value cannot be measured reliably, the securities are recorded at cost. 7

16 Earnings upon the purchase of available for sale debt securities and held-to-maturity investment securities are recognized in the separate statement of income on an accrual basis. 9.4 Derecognition Investment securities are derecognized when rights to receive cash flows from these securities have ceased or the Bank has transferred a substantial amount of risks and benefits derived from ownership of these securities. 9.5 Special Bonds issued by the Vietnam Asset ManagementCompany. Special bonds issued by the Vietnam Asset Management Company( VAMC ) are term valuable papers issued by VAMC to buy bad debt of banks. Special bonds are initially recorded at face value and subsequently marked at face value less provision for risks in the holding period. Face value of special bonds issued corresponds to the amount of non performing loans (NPL) sold and the outstanding principal balance of borrowers less the amount of specific provision of the loans that has been recorded but not used. Implementing requirements of Circular No. 19/2013/TT-NHNN issued on September 6, 2013 providing for the purchase, sale and disposal of NPLs of VAMC, banks shall record provision for special bonds with the minimum annual ratio calculated by dividing face value by the term of the bonds (currently at 5 years). Banks shall record this provision expenses annually under straight line method. Provision for losses is recognized in the separate statement of income. Upon receipt of the debt previously sold to VAMC, banks use the annual risk provisions made for special bonds to settle NPLs, differences between the provision recorded and the outstanding non-recovered principal balance will be reversed and recognized in the separate statement of income. 10 Repurchase and reverse repurchase agreements Securities sold under agreements to repurchase at a specific date in the future are still recognized in the consolidated financial statements. The corresponding cash received from these agreements is recognized in the consolidated balance sheet as a liability. The difference between the sale price and repurchase price is amortized in the consolidated income statement over the term of the agreement using the straight-line method based on the interest rate stipulated in the contract Securities purchased under agreements to resell at a specific date in the future are not recognized in the consolidated financial statements. The corresponding cash paid under these agreements is recognized in the consolidated balance sheet as an asset. The difference between the sale price and repurchase price is amortized in the separate income statement over the term of the agreement using the straight-line method based on the interest rate stipulated in the contract 11 Investments in associates In accordance with the Law on Credit Institutions 2010 effective from January 01, 2011, an associate to a credit institution is a company in which the said credit institution, or such credit institution and its affiliates, own more than 11% of charter capital or 11% shares with voting rights, and which is not a subsidiary to that credit institution. Investments in associates are recognized based on equity accounting method. Associate is a company which the Bank has significant influence over and is not a subsidiary or joint venture of the Bank Under this method, the investment is initially recorded at cost and the book value of investments may increase or decrease, presenting the Bank s share in the net assets of the associates. Losses exceeding the original value of an investment in associates are recognized when the Bank is obliged to such losses. The consolidated income statement presents the Bank s shares in the business results of associates. When changes are recognized directly in equity of associated companies, the Bank will record the corresponding changes on the consolidated balance sheet. Any gains / (losses) arising from transactions between the Bank and associates are eliminated in proportion to the capital contribution to such associates. The financial statements of associates used for consolidation purpose based on equity method have the same accounting period and the same accounting policies which are 8

17 consistent with the policies of the Bank for similar transactions or events in equivalent conditions. 12 Other long-term investments Other long-term investments represent the Bank s capital investments in other enterprises where the Bank owns less than 11% of voting rights and are either a founding shareholder or a strategic partner; or have influences on the enterprise s planning and determining of financial and operating policies under written agreements to appoint personnel to the Board of Directors/Board of Management. Other long-term investments are recognized at cost on transaction date, and are subsequently measured at their cost less provision for diminution, if any. Other long-term capital contributions shall be considered for diminution possibilities. Provision for diminution in value is recognized in consolidated income statement if market value is lower than book value of investment securities and if there is objective evidence to the long-term diminution in value of the initial capital contributions. Provision for diminution in value of investments in associates is made when such associate suffers a loss (except for expected loss as anticipated beforehand in business plan) in accordance with Circular 228 and Circular 89. Accordingly, the provision is the difference between actual capital contributions of the parties to the subsidiaries and actual charter capital multiplied (x) by the ratio of capital contribution by the enterprise to the total actual capital contributed by all parties in the entity. 13 Fixed assets Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation. The cost of a tangible fixed asset comprises of all costs incurred by the Bank and its subsidiaries to acquire the tangible fixed assets and bring it to the working condition for its intended use. The arising costs of procuring, upgrading and replacing the tangible fixed assets are recognized as an increase to their cost; the costs of repair and maintenance are posted to consolidated income statement. Upon sales or liquidation of the tangible fixed asset, the cost and accumulated depreciation are written off and the gains / (losses) incurred from liquidation of such asset shall be posted to the consolidated income statement. Intangible fixed assets Intangible fixed assets are stated at cost less accumulated amortization. The cost of an intangible fixed asset comprises of all costs incurred by the Bank to acquire the intangible fixed assets and bring it to the expected operation. The arising costs of upgrading and replacing the intangible fixed assets recognized as an increase to their cost; and other costs are posted to consolidated income statement Upon sales or liquidation of the intangible fixed asset, the cost and accumulated amortization are written off and the gains / losses incurred from liquidation of such asset shall be posted to the consolidated income statement. Depreciation and amortization Depreciation and amortization of tangible and intangible fixed assets are calculated on straight-line basis over the estimated life cycle of the fixed assets as follows: Buildings and structures Machinery and equipment Transporting vehicles Other tangible fixed assets Computer software Definite term land use rights (*) 6-25 years 3-4 years 6 years 4 years 3 years according to lease term 9

18 Land use rights with indefinite term granted by the State to the Bank are not amortized, whereas definite term Land use rights are amortized by rent term. 14 Investment properties Investment properties are the real estate in which the Bank and subsidiaries invest for the purpose of leasing or making a profit fromasset appreciation. Investment properties are initially recognized at their acquisition cost, including transaction costs and subsequently stated at cost less accumulated depreciation. Depreciation expenses are recorded in other operating expense items. Land use rights with indefinite term granted by the State to the Bank are not amortized, whereas definite term Land use rights are amortized by rent term. Risk-bearing loans to other CIs 15 Recognition of revenues and expenses 15.1 Recognition of revenues from banking operations Interest income on loans Interest incomes from lending are recognized in consolidated income statement on accrual basis. Interest accruals from group 2 to group 5 loans in accordance with Circular No. 02/2013/TT-NHNN and Circular No. 09/2014/TT-NHNN shall not be recognized in the consolidated income statement. Instead, these accruals are tracked in off-balance-sheet accounts and only recognized to the consolidated income statement when they are physically received by the Bank. Fee and commission income Service fees and commissions are recorded upon completion of the rendered services 15.2 Recognition of income from other activities Revenue from securities brokerage activities When the contract outcome can be determined, revenues are recognized based on the stage of completion of work. In case the contract outcomes cannot be guaranteed, revenue will be recognized only to the extent of the recoverable costs recorded. Revenue from securities trading Income from trading securities is determined based on the difference between the selling price and the weighted average cost of the securities. Purchase and re-sale of securities Revenue is recognized in the income statement in accordance with the time of purchase and resale agreement of securities on a straight line basis. Portfolio management fees Revenue is recognized on an accrual basis in accordance with the terms and conditions of the investment portfolio management contract. Rent Income from asset rentals under operating lease contracts is recorded in the consolidated income statement under straight-line basis during the lease. Revenues from other services When the contract outcome can be determined, revenues are recognized based on the stage of completion of work. In case the contract outcomes cannot be guaranteed, revenue will be recognized only to the extent of the recoverable costs recorded. Dividend Cash dividends from investment activities are recognized as revenue when the right to receive payment of the Bank and its subsidiaries are established. Stock dividends and bonus shares are not recognized as revenue of bank and its subsidiaries; however the number of shares is updated. 10

19 16 Transactions in foreign currencies All activities of the Bank are recorded at the original currency. At the end of the period, assets and liabilities denominated in foreign currencies are converted into VND at the exchange rate at the date of the consolidated balance sheet (see details of foreign exchange rate applicable on the ending date in Note V.8). Incomes and expenses denominated in foreign currencies during the year are converted into VND at the exchange rate at the date of the transaction. Foreign exchange differences due to revaluation of assets and liabilities in foreign currencies into VND during the year are recorded and tracked in exchange rate differences in the Equity accounts and transferred to the consolidated Income Statement at the end of the fiscal year in accordance with Decision 479 and Circular 10 on the chart of accounts applicable for credit institutions. 17 Corporate income tax Current corporate income tax Tax assets and tax liabilities for the current year and previous years are measured by the amount payable to (or recovered from) the tax authorities based on enacted tax rates and tax laws at the date of consolidated balance sheet. Current income taxes are recognized and reported in the consolidated Income Statement except when income tax incurred in relation to items recognized directly to Equity. In such case, the current income tax is also recognized directly to equity. Enterprises can only apply clearing payment between the tax assets and current income tax liabilities when businesses have a legal right to offset between current income tax assets and current income tax payable and intend to do so on a net basis. The Bank s report on tax returns is subject to inspection by tax authorities. Tax amounts presented in the consolidated financial statements are subject to change following the final decision of the tax authorities. Deferred income tax Deferred tax liabilities payable are recognized for all temporary taxable differences, except: Deferred income tax liabilities arising from initial recognition of an asset or liability in a transaction which did not affect accounting profit or taxable profit (or loss) at the time of the transaction. Temporary taxable differences associated with investments in subsidiaries, associates and joint ventures which can be controlled in terms of the reversal time and certainly such temporary difference will not be reversed in the foreseeable future. Deferred income tax assets which are recognized for all deductible temporary differences, deductible amounts of the tax losses transferred to the next years and unused tax incentives when it is certain that future taxable profits will arise to use deductible differences, taxable losses and unused tax incentives, except: Deferred income tax assets arising from initial recognition of an asset or liability in a transaction which did not affect accounting profit or taxable profit (or loss) at the time of the transaction. All deductible temporary differences arising from investments in subsidiaries, associated companies and joint ventures when it is certain that the temporary difference will be reversed in the foreseeable future and with taxable profits to use such temporary differences. The book value of deferred tax assets must be reviewed again at the end of the financial year and to be depreciated to the extent to ensure enough taxable profit to use part or all of deferred tax assets. Deferred corporate income tax assets previously not recognized will be reviewed at the end of the financial year and be recognized when it is certain that taxable profit are sufficient to use such unrealized deferred income tax assets. Deferred tax assets and deferred tax liabilities are calculated at the tax rates expected to be applied for the financial year when the asset is realized or the liability is paid, based on applicable tax rates and tax laws at the end of the financial year. Deferred income taxes are recognized in the consolidated Income Statement except when income tax incurred in relation to items recognized directly to Equity. In such case, the 11

20 deferred income tax is also recognized directly to equity. Banks can only apply clearing payment between deferred income tax assets and deferred income tax liabilities when businesses have a legal right to offset between deferred income tax assets and deferred income tax liabilities and such deferred income taxes are managed by the same tax authority and banks intend to pay current income tax liabilities and current tax assets on a net basis 18 Cash and cash equivalents Cash and cash equivalents consist of cash, gold and gemstones, balances with the State Bank of Vietnam, government bills and other short-term valuable papers eligible for SBV discount, transaction accounts and deposits, loans to other credit institutions with maturity of less than three months from the date of granting. 19 Assets entrusted for management and safe-keeping. Assets entrusted for management and safe-keeping are not considered assets of the Bank and therefore not included in its consolidated financial statements. 20 Currency derivative contracts Currency forward and swap contracts For currency forward and swap contracts, the difference between the value of VND amount of foreign currency committed to buy / sell at forward rate and spot rate on the effective date of the contract is recognized immediately at the effective date of the contract as an asset item - Currency derivatives and other financial assets if positive or liabilities - Currency derivatives and other financial liabilities if negative. This difference is then amortized to "Profit / (loss) from foreign exchange operations" during the term of the contract. Foreign exchange differences due to revaluation of commitments under currency forward and swap contracts during the year are recorded and tracked in Exchange rate differences accounts and transferred to the consolidated Income Statement at the end of the fiscal year in accordance with Decision 479 and Circular 10 on the chart of accounts applicable for credit institutions. 21 Clearing Financial assets and liabilities are netted off and the net value is recorded on the consolidated balance sheet only when the Bank has the legal right to offset and the Bank intends to pay the debts and assets on a net basis, or the final accounting of assets and liabilities occur simultaneously. 22 Receivables Receivables other than those from credit activities of credit institutions are initially recognized at cost and shall always be presented at cost subsequently. Other receivables subject to review for impairment based on overdue period of receivables or estimated losses that may arise from undue debts of which indebted economic organization go bankrupt or undergo dissolution procedures; debtors are missing, have fled, are prosecuted, detained or tried by law enforcement bodies or dead Provision expense incurred are recorded under Provision expenses for doubtful receivables during the year. For overdue receivables, the provision rate is specified in Circular 228 and Circular 89 as follows: Overdue period Provision rate From 06 months up to 01 year 30% From 01 year up to 02 years 50% From 02 years up to 03 years 70% More than 03 years 100% 23 Use of estimates The presentation of the consolidated financial statements requires the Board of Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, as well as disclosures of contingent liabilities. These estimates and assumptions also affect the income, expense and resulted data. 12