VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE (CTG)

Transcription

1 INDUSTRY: FINANCE - BANKING ICB Industry code: 8355 Bloomberg Ticker: CTG VN Updated on: 09/06/2011 Stock Information Price 09/06/2011 (VND): 27, week Lowest (VND): 18, week Highest (VND): 31,700 Market Cap (VND Billion): 47,034 Outstanding shares: 1,685,810,134 P/E: P/B: 2.06 EPS (VND): 2,047 Stock price VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE (CTG) Investment highlights CTG is one of the largest banks with the second widest business network in Vietnam. The Bank also leads the market in terms of NIM and ROE in 2010 thanks to strengths in lending and deposits, international payment and remittance. Outstanding performance was recorded in 2010 with 33.5% growth in NPAT, 82 % of which was contributed by NII and 9% was from fees and commission. The performance was supported by an increase of 51% in total assets. Lending accelerated due to strong financial capacity and advantage of lowcost funding from both the Government and State agencies. However, lending activities will be hurt in 2011 by the Government s credit policy and NPLs ratio is likely to rise. The Bank has completed selling of 10% shares to its international strategic partner, IFC, and planned to sell another 15% stake to the Bank of Nova Scotia in 2011 s third quarter. Currently, CTG s CAR just meets the minimum requirement of 9%. According to our estimates, 2011 profit will still depends heavily on lending activities and service fees. Provision for credit losses would rise in 2011 and drag the Bank s profit down. Share holders 9.69% 10% 80.31% SCIC IFC Other Indicator Total Assets 166, , , ,932 Equity 10,647 12,336 12,572 17,461 Loans 100, , , ,318 Deposits 121, , , ,683 NPBT 1,529 2,436 3,373 4,540 NPAT 1,149 1,804 2,573 3,433 NPLs Ratio (%) ROA (%) ROE (%) Source: VCBS Unit: VND billion Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 1

2 OVERVIEW OF VIETINBANK VietinBank (CTG) was established in March 1988 when it was separated from the SBV and officially named as Vietnam Industry and Commercial Bank (ICB) in It became a stated-owned corporation in In 2008 CTG successfully replaced its logo and changed its name to VietinBank. Currently VietinBank is one of the four largest banks in Vietnam with the total asset of VDN368 trillion (USD17.6 billion) at 31/12/2010, accounting for over 20% of the market share of the whole banking system. The Bank has developed a wide operation network reaching 56 provinces and cities, with a focus on large cities such as Hanoi (19 branches) and Ho Chi Minh City (22 branches), industrial zones, trading and economic parks and densely populated areas. Up to Mar 2011, in terms of chartered capital, CTG comes third with VND16,858 billion (USD808 million), after only Agribank (VND20,708 billion) and Vietcombank (17,587 billion). It has just finished selling 10% stake to IFC (International Finance Corporation), one of the Bank s international strategic partners, in 10/03/2011, reducing the shareholding of SCIC from 89.23% to 59.56%. CTG also planned to sell 15% stake to The Bank of Nova Scotia in 2011 s third quarter. This development is expected to provide CTG with the foreign technical support necessary to continue its impressive performance. With a view to become a regional financial group by 2015, CTG has set up independent accounting subsidiaries specialized in financial leasing, securities, asset management and insurance. CTG is also an investor in various other institutions, such as IndoVina Bank, Saigon-Cong Thuong Bank, Gia Dinh Bank, Ha Tien Cement 2, Phuoc Hoa Rubber, and Banknet. MARKET POSITION CTG is one of the largest banks in scale: As of 31/12/2010 CTG is the largest among joint-stock commercial banks in terms of total assets and gross loans and the second largest (after VCB) in terms of shareholders equity and deposits. Like its peer VCB, CTG possesses strong financial capacity which enables it to finance high-value projects of large corporate customers including economic groups, stateowned and joint-stock companies. As a wholesale commercial bank, CTG succeeds in maintaining long-standing credit relationships with key state corporations like PVN, EVN, Vinacomin, Vinaconex, Vinachem, Petrolimex, VNPT, Northern Food Corporation, Cement Corporation and Steel Corporation. Recent outstanding projects include the USD200-million finance deal for Dung Quat oil refinery project and USD220-million credit contract for Ca Mau Fertilizer Plant in 2009; USD68-million in total USD227-million financial arrangement for FPSO project serving Chim Sao mine in 2010 and VND1.215-billion (USD59-million) credit contract for the Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 2

3 construction project of DAP 2 factory following the mutual agreements between CTG and Vinachem in Jan , , , , , , ,000 50,000 0 CTG VCB ACB STB EIB SHB HBB Total Assets Loans Deposits Ownners' Equity Source: 2010 financial statements of banks Strong financial capacity, particularly in VND mobilizing and highest NIM & ROE at 31/12/2010: As of 31/12/2010, CTG s gross loans was VND231.3 trillion, total deposits (valuable papers included) was VND245.7 trillion and shareholders equity was VND17.5 trillion. While VCB has outstanding advantages over other banks in mobilizing and trading foreign currencies, CTG is strong at fund mobilizing, particularly in VND, thanks to its nationwide network (1,093 branches and transaction counters in 2010), large corporate customer base and some privileges granted by the Government. NPAT in 2010 amounted to VND3,433 billion, which can be translated into a ROE of 22.92% and a NIM of 3.51%, the highest ratios among listed banks. The average annual growth of CTG s NPAT, total assets and deposits from customers during was 44.3%, 31.1% (2010: 51%) and 27.07% (2010: 42.7%) respectively. Second widest business network in Vietnam: CTG possesses a nationwide operation network covering 63/63 provinces and cities, ranking second only to Agribank in Vietnam with 1 head office, 150 operation centers and branches, (1) training center and seventy one (71) branches nationwide, three (3) local subsidiaries, 950 transaction counters, 1 representative office in Frankfurt and 2 other coming overseas branches located in Frankfurt and Berlin. Strengths in main business lines, including lending and deposit, international payment and remittance: CTG holds very impressive market shares in different business lines including 9.7% in lending (VCB: 8.4%), 8.6% in deposits (VCB: 9.8%), 11% and 8% in import and export settlements (VCB: 23% in international trade), 15% in card payments (VCB: 55%) and 16.7% (2010) in remittance. As can be seen, CTG still stays behind its peer VCB in terms of deposits, international trade, card payments and particularly forex trading. Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 3

4 CTG compared to other listed banks at 31/12/2010 Unit: VND bn CTG VCB ACB STB EIB SHB HBB Total Assets 367, , , , ,128 51,136 38,440 Loans 231, ,143 86,478 82,185 61,720 24,302 16,194 Deposits 245, , , , ,375 44,651 30,398 Shareholders' Equity 17,461 21,216 11,381 14,223 14,782 4,198 3,860 Chartered Capital 15,172 13,224 9,377 9,179 10,560 3,590 3,001 NPAT 3,433 4,204 2,339 1,870 1, NIM (%) ROA (%) ROE (%) EPS (VND) 2,896 3,306 2,945 2,629 2,006 1,922 1,989 BVPS (VND) 11,508 16,044 12,190 15,494 13,998 12,002 12,866 Market Price (VND) 28,800 30,200 22,400 13,700 14,600 9,900 9,800 P/E P/B Source: VCBS calculation INCOME STATEMENT ANALYSIS Interest income is the dominant income driver; non-interest income contributes modestly to Operating income. Net Interest Income (NII) of CTG accounted for 81.8% of Operating income in This proportion stayed relatively high in the previous years ( %) and much higher than the average level of its peers (VCB: 73.7%, ACB: 60.1%, STB: 56.1%, EIB: 73.1%). Meanwhile, Non-Interest Income (NoII) only represented 18.2% of Operating income in 2010, lower than the average of its peers (VCB: 26.3%, ACB: 39.9%, STB: 44%, EIB: 26.9%). It is also noted that fees and commissions, and other income are the two main sources generating NoII. Breakdown of income is illustrated in CTG s different business lines as following. (1) Lending key income driver with 2010 market share of 10%. As can be observed, 2010 was a successful year of CTG in terms of NII (VND12,108 million) with a rocket growth of 52.6% y-o-y. The Bank s large lending deals in 2010 were supported by comprehensive cooperation agreements with key state corporations like PetroVietnam Finance Corporation (PVFC), Vietnam National Chemical Group (Vinachem) and Vietnam Rubber Group (VRG). However, as CTG still remains essentially a wholesale commercial bank, loans are primarily made to corporations, accounting for over 75% of CTG s total loans (2009: 77%, 2010: 80%) while the proportion of loans made to individuals remains under 25% (2009: 21.1%, 2010: 19.4%). Although CTG has planned to develop its retail banking, the Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 4

5 VND Billions VIETCOMBANK SECURITIES COMPANY Bank has not taken advantage of the wide distribution network for this business. We expect that IFC will provide CTG with technical supports to boost retail banking. (2) International payment and remittance strong growth. Being one of the four largest banks in Vietnam, CTG is at a good position to maintain high growth of international payment settlement and remittance. Volume from import and export settlement in 2010 respectively increased 28.8% and 23.3% compared to 2009, leading to a rise of 30% in fees earned from this business also witnessed a surge of 30% y-o-y in remittance inflow to Vietnam via CTG (USD1.2 billion), making up 16.7% of Vietnam s total remittance inflow. CTG is enforcing the remittance effectiveness by collaborating with Western Union to put the H2H system in operation and signing sub-contracts with many other banks. Income breakdown NII growth Q % 7.63% 5.32% % 9.69% 8.57% % 6.70% 8.30% % 5.04% 7.64% -20% 0% 20% 40% 60% 80% 100% NII Fee & commissions Forex trading Trading securities Investment securities Dividends Other income 14,000 12,000 10,000 8,000 6,000 4,000 2, % 52.6% 32.1% 10.4% NII NII growth 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Source: VCBS (3) Card business significant market share in debit card issuance but moderate popularity. Currently CTG is the third largest issuer of debit cards among domestic banks (after Vietcombank and East Asia Bank). By the end of 2010, CTG had issued over 5.18 million debit cards, representing 20% market share and 123,805 credit cards, accounting for 25.7% market share (VCB s card market share: around 55%). Although CTG possesses a large number of ATMs, approximately around that of VCB, CTG s cards are not as popular and favored as VCB s. The Bank s management, therefore, has invested more resources (including technology and human) to promote this business, holding the ambition to become the main competitor of VCB in several coming years. (4) Forex trading not prioritized. Income generated from forex trading soared up to VND160 billion (an increase of 170%) but is still much lower than that in 2008 and contributes very modestly to CTG s total income (1.1% in 2010). This is obviously not the strength of CTG, particularly when compared to its peer VCB, which explains why the management did not give priority to the promotion of this business. Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 5

6 (5) Trading of trading and investment securities makes loss and reduces operating income. CTG s securities trading generated significant loss in 2010 (-VND52.2 billion for trading securities and VND259 billion for investment securities). Although this business made positive income in 2009, it has never exceeded more than 1.5% of total income. (6) Equity investment and other financial services: Total equity investment made by CTG as at the end of 2010 was VND1.971 billion, up 34,6%, equivalent to 13% of its chartered capital. The largest investment (VND1.660 billion) is in IndoVina Bank and the rest lies in Saigon Bank, Gia Dinh Bank, Ha Tien Cement 2, Phuoc Hoa Rubber and Banknet. CTG also involves in other financial activities through its subsidiaries, including stock brokerage services (Vietinbank Securities), financial leasing (Vietinbank Leasing Com.), insurance (Bao Ngan Insurance), asset management (Vietinbank Asset Management Com.), jewelry (Vietinbank JewelryCom.), and debt management and asset development (Vietinbank AMC Com.) Performance of CTG s subsidiaries - Unit: VND bn Subsidiary CTG s ownership Chartered Capital Total Assets 2010 Revenue 2010 NPAT Vietinbank Leasing 100% Bao Ngan Insurance 100% Debt management & Asset Development 100% Vietinbank Jewelry 100% Vietinbank Asset Management 100% Vietinbank Securities 75.61% 790 1, Source: Vietinbank Operating Expenses (O.E) increased due to investment in human resources but O.E related ratio down while Interest Expense (I.E) and I.E related ratio up in CTG s operating expenses in 2010 was VND7.241 billion, up by 24.8% from The main driver to this increase was the soaring up of expenses for staff (currently presenting 57.2% of total O.E). One of the most remarkable activities of CTG in 2010 was the massive recruitment of key positions for the purpose of expanding the number as well as strengthening the quality of existing staff, with the remuneration packages offered at a very competitive level. However, as the operating income (O.I) grew at a much higher rate (52.8% in 2010) than operating Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 6

7 VND Billions VIETCOMBANK SECURITIES COMPANY expenses, the O.E/O.I ratio has been improved. Accordingly, while O.E/O.I ratio of CTG showed an upward trend during (41.6%-59.9%), it dropped to 48.6% in Although the O.E/O.I ratio was improved, it stayed the highest among five largest listed banks. We put that down to the Bank s ineffective expense management so far but expect the ratio to be steadily improved in the coming years. Interest expenses, on the contrary, went down significantly from 2008 to 2009 and went up again in Accordingly, I.E/I.I ratio dropped from around 63-66% in to 58% in 2009 and bounced back to 62.1% in This trend was reasonable given the fact the interest rate subsidy package stopped at the end of It is notable that I.E/I.I of CTG in 2010 was much lower than that of STB (69.2%) and ACB (72.1%), showing CTG s advantages of economic scale and financial capacity. We believe CTG has taken advantage of its wide networks of corporate customers and the Government s support which allows the bank to mobilize funds at a lower cost. However, when compared to VCB and EIB, CTG s I.E/I.I ratio was still higher. CTG Expense Ratio Expense Ratio Comparison % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% ,000 20,000 15,000 10,000 5,000 0 EIB STB ACB VCB CTG 27.9% 61.8% 69.2% 43.6% 72.1% 39.3% 59.2% 39.1% 62.1% 48.6% I.E O.E O.E/O.I I.E/I.I Source: VCBS I.E/I.I O.E/O.I Note: I.E = Interest Expenses, O.E = Operating Expenses, T.E = Total Expenses, O.I = Operating income Net profit after tax (NPAT) grew significantly due to increase in total assets. NPAT of CTG gradually increased from VND1,149 billion in 2007 to VND3,433 billion in 2010, up by 33.5% as compared to 2009 and exceeding the 2010 target by 12.5%. Accordingly, CTG was ranked as one of the top performers in 2010 in the banking system given unfavorable market conditions during the years. Some of other large commercial banks had a much lower NPAT growth, including VCB with 7.2%, ACB with 6.26%, STB with 14% and Techcombank with 22%.. According to the management, this result was attributable to the increase of 51% in total assets with focuses on loans to customers and other credit institutions, securities and other long-term investments. However, we do not expect that CTG could achieve the same growing pace in 2011 as credit growth is limited to 20% and the Government is taking serious measures to control inflation. Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 7

8 VND Billions VIETCOMBANK SECURITIES COMPANY 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 CTG Net Profit % 80.0% 60.0% 40.0% 20.0% 0.0% Profit before provision & credit risk NPAT NPBT NPAT growth Source: VCBS BALANCE SHEET ANALYSIS Fund mobilization was much improved with significant increase in total deposits and shareholders equity witnessed a remarkable growth of total deposits (46.3%) and shareholders equity (44.5%) while these figures in 2009 were only 28.5% and 1.9% respectively. In details, 46.3% growth of total deposits was contributed by increases of 38.6% in deposits from customers, 133.8% in deposits and borrowings from other credit institutions and 25% in valuable papers. Two other important sources of funds with which CTG has enviable advantages over other banks, namely borrowings from the Government and SBV and trusted funds from the Government, international and other institutions, also experienced strong increases of 215% and 30%, reaching VND43.2 trillion and VND44.7 trillion respectively as of 31/12/2010, and even higher than funds mobilized from the interbank market (VND35 trillion). CTG enjoys low-cost funding from many State agencies. As one of the four largest banks in Vietnam with 60% of shares owned by the Government, CTG has enjoyed huge amounts (VND42.7 trillion in 2010) of low-cost funding via refinancing activities and discounting valuable papers with the SBV at rates of only 8%-9% p.a. CTG s borrowings from the SBV also included funds to support loans directed by the Government and loans in foreign currency to modernize the Banks and its payment system sponsored by the World Bank via SBV. In terms of trusted fund (i.e. funds provided by other institutions to make loans/investments on their behalf), CTG maintains a stable funding source from many State agencies like State Treasury, Social Insurance Fund, SCIC, Ministry of Finance, SBV and other State-owned corporations such as Southern Airlines Corp., Bao Viet Holdings, Vietnam Reinsurance Corp. Lending and investment accelerated thanks to strong financial capacity. The significant increase in CTG s capital has effectively supported the Bank in accelerating its lending, reflecting in net loans to customers of VND231,435 billion, up by 43.2% compared to This is the highest credit growth since Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 8

9 VND Billions VND Billions VIETCOMBANK SECURITIES COMPANY 2006 (average growth during : 21.8%). Given the increasing competition from smaller jointstock banks, CTG s credit market share has shrunk significantly from 14.3% to 9.9% over the period However, the Bank still remains the third largest lender in the system, after only Agribank and BIDV. CTG participated actively in the interbank market as one of the largest lenders. CTG was considerably active in the interbank market with VND50.9 trillion of placements with and loans to other credit institutions, representing an increase of 112% from All investments of CTG in 2010 witnessed a remarkable growth; particularly the investment securities went up by 58% to VND61.6 trillion from VND39 trillion in In short, the Bank has achieved an outstanding performance compared to other peers in the system as its main businesses, lending and service, were strongly invested in CTG's Assets and Loans 400, , , , , , ,000 50, Total Assets Net Loans Net Loans Growth 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% CTG's Equity and Deposits 300, % 45.0% 250, % 200, % 30.0% 150, % 20.0% 100, % 50, % 5.0% 0 0.0% Equity Total Deposits Deposit growth Source: VCBS CAMEL ANALYSIS Capital Adequacy The period saw an overall downward trend of the equity/total assets ratio from 6.4% to 4.9%, which represents the declining amount of assets on which shareholders have a residual claim. This ratio of CTG in 2010 (4.9%) was much lower than the average of other listed banks (8.5%). Equity/gross loans ratio followed the same trend, dropping from 10.4% to 7.8% over the period, which put CTG at a higher risk should there be a dramatic increase in non-performing loans. This also indicates the slower growth of shareholders equity compared to the growth of its lending. Accordingly, in order to meet the regulations on prudential ratios, CTG has completed its phase I of raising chartered capital from VND11,253 billion to VND15,172 billion in 2010, receiving VND3,920 billion of Tier 1 capital. Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 9

10 Thanks to this action, CTG s CAR reached its adequate level of 9% in 2010 after dropping as low as 8.46% in Given the fact that the Bank has successfully sold 10% of its shares to IFC in early 2011 and planned to sell other 15% of shares Nova Scotia Bank in Q3.2011, we believe CTG s CAR has been above 9% by now and will be improved during the year. 14% 12% 12.02% 10% 8% 6% 4% 2% 8.46% 9.00% 0% CAR Equity/Total Assets Equity/Gross Loans Source: VCBS Asset Quality As CTG s assets, particularly loans to customers and investments, grew exponentially in 2010, the asset quality was the key factor to ensure effective business results of the banks. When loans were classified by term and quality, the following features should be noted. CTG has maintained a stable structure of its loan portfolio by term from 2008 until now. Short-term loans accounted for 60.4% of gross loans in 2010, a moderate increase from 57.2% in The proportions of loans for medium and long term in gross loans both decreased in 2010 (medium-term: from 13.7% to 11.8%; long-term: from 29.1% to 27.8%). In addition, short-term loans grew by 51.4% in 2010 while medium and long-term loans went up by a lower level of 33%. This indicated a positive change in loan structure by term and further strengthened CTG s ability to ensure a safe ratio of short-term funds used to make medium and long-term loans. In terms of loan quality, NPLs ratio was maintained below 1% at all time during the period 2009 Q Credit proportion for non-manufacturing sectors was 9%. Although lending income constitutes 82% of CTG s total income, the loan quality was effectively controlled with NPLs ratio below 1%, though in an upward trend, from 0.61% 2009 to 0.71% in Q This ratio was also lower than the average of the other listed banks (1.59% in Q1.2011). In addition to strict credit procedures, CTG s healthy loan structure in terms of sectors was one of the factors supporting CTG s low NPLs ratio. According to Mr. Hung, CEO of CTG, the Bank s loan proportion for non-manufacturing sectors was only Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 10

11 VND Billions VIETCOMBANK SECURITIES COMPANY 9% up to May 2011 and CTG planned to keep this indicator below 10% for the whole year 2011, lower than the rate of 16% required by the SBV. This indicates that CTG is under no pressure to withdraw money from its lendees in non-manufacturing sectors in order to meet the required 22% by the end of June like many other smaller banks. However, we expect the NPLs ratio to increase in 2011 due to the negative impacts of the tight monetary policies on the operations of many firms including both manufacturing and non-manufacturing ones. 2,500 2,000 1,500 1, % 0.61% 0.66% 0.71% 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 100% 90% 80% 70% 60% 50% 40% 30% 20% 28.4% 29.1% 27.8% 28.6% 13.6% 13.7% 11.8% 11.6% 58.1% 57.2% 60.4% 59.8% 0.20% 10% Q % 0% Q Loans group 3 Loans group 4 Loans group 5 NPLs/Gross loans Source: VCBS Short-term loans Long-term loans Medium-term loans Investment portfolio was safe, including 99.76% of bonds, among which 51.6% was discountable Government bonds and 35% are non-financial corporate bonds. CTG spent a large amount of VND61,585 billion on investment securities in 2010, accounting for 16.7% of the Bank s total assets and up significantly by 58% as compared to Debt securities made up 99.76% of the portfolio, in which discountable Government bonds accounted for as much as 51.6% of the total investment. This has been an extremely competitive advantage of large banks like CTG and VCB over other peers in the market. Using these bonds as collaterals to borrow from the SBV at a lower rate and lend at a higher rate has generate a considerable profit for these banks in However, the SBV has recently narrowed this income source of banks by increasing all the regulatory rates, including refinancing rate and discount rate, from 9% p.a and 7% p.a to 14% p.a and 13% p.a respectively after a series of adjustments since early It is also noteworthy that non-financial corporate bonds constitutes 35% of the portfolio, up by 2.4 times from VND9,083 in 2009 to VND21,400 in 2010, including bonds issued by EVN, Vinacomin, LILAMA, Song Da holdings, FPT, Vinasteel, Vinpearl Land, etc.,. Many of these borrowers are large State agencies and corporations with strong financial capacity, which indicated that the quality of the corporate bond portfolio could be guaranteed. The bank also made a VND250-billion provision (50% par value) for Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 11

12 Vinashin s bonds. Before 01/03/2011, corporate bonds bought by banks, which are actually a type of lending, were not counted as customer loans of banks. Therefore, banks including CTG exploited this feature to expand its lending activities without exceeding the maximum regulated LDR of 80%. However, according to the Instruction 01/CT-NHNN released on 01/03/2011, purchases of corporate bonds will also be counted in banks loans to customers. Accordingly, CTG s corporate bonds only increased modestly by 2.4% in Q compared to the end of All in all, we believe CTG s investment in 2011 cannot achieve the high growth rate as in 2010 due to limits on lending activities. The little 0.24% was spent on equity investment, including investments in Phuoc Hoa Rubber, TISCO Steel and Ha Tien cement. Management Competence At present, CTG s two large shareholders are IFC (10%) and SCIC (59.56%) as the representative for the Government. This allows the Bank to enjoy supports from both sides, finance and technology from the prestigious IFC and grants (i.e. funds to sponsor agricultural sectors with low rate) from the Government. The Bank planned to sell another 15% stake to The Bank of Nova Scotia in the 3 rd quarter which will further strengthen the management competence of CTG. The management board of CTG has made successful transformation of the Bank during the period 2008 now, focusing on PR activities, technology innovations and human resources. In 2008, the Bank changed its brand name from INCOMBANK to VIETINBANK. The success of the campaign in such a short time was beyond expectation. Currently, the PR activities are one of the Bank s priorities when CTG attracted the attention of investors by regular updates on its new major loan deals, along with being sponsor for many activities. Most recently, CTG served as the diamond sponsor for the ADB annual meeting and provide extra effort to the success of the meeting. According to our observation, the motivation behind this action is to gain a good stake in the loans granted by ADB for Vietnam in the coming time. We also have high opinion of CTG management board in (1) improving the technology system with 25 on-going IT projects currently under implementation and (2) strengthening staff quality with massive recruitments for key positions in CTG whole system with high compensation packages. Thus, under the new recruitment strategy, a lot of competent staff has joined CTG, helping the Bank to build stronger human resources. Although it will take CTG more time to thoroughly transform, we believe CTG s development strategy is on the right track and the rapid growth of the Bank in recent years has shown an effective management so far. Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 12

13 ROE VIETCOMBANK SECURITIES COMPANY Earnings Ability Top listed bank in terms of ROE and NIM. CTG surpassed VCB to become the top listed bank in terms of ROE in 2010 (22.92%). In terms of ROA, however, CTG stood at nearly the lowest level (above NVB only) among listed banks with 1.13%. This was explained by the soaring of the Bank s assets by 50.8%, which was much higher than NPAT growth of 32.4%. The net interest margin (NIM) of CTG also leads the market compared to other listed banks in 2010 with 3.51%, which was the result of a significant y-o-y increase of 52.3% in net interest income. As one of the largest lenders in the market, CTG enjoys many sources of low-cost funding including trusted funds from State agencies and big corporations and special grants from the Governments. Although the Bank is also obliged to provide cheap loans to state-owned enterprises, the low-cost fund attracted can excessively offset these loans. 5% 25% 30% 4% 4% 3% 3% 2% 2% 1% 1% 0% 4.05% 3.52% 3.51% 3.78% Q NIM (TTM) ROAA (TTM) ROAE (TTM) 20% 15% 10% 5% 0% 25% CTG VCB 20% ACB 15% SHB STB HBB 10% EIB 5% 0% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% ROA Source: VCBS Liquidity Risk Deposits from customers decreased, caused by a decline in VND deposits. Deposits from customers was VND192,415 billion in Q1.2011, making up 78.2% of total deposits. This represented a total decrease of 6.6% compared to 2010, including 8.5% decline in both VND demand and term deposits. Deposits in USD, though increased by 7.2% compared to 2010, witnessed a fall of 9.7% in USD demand deposits. This may imply that some of CTG s customers have shifted their deposits to other smaller banks offering higher interest rates in the period. This trend was also observed in its peer VCB. Deposits and borrowings from other credit institutions grew rapidly; difference between lending and borrowing in the interbank market reached the lowest level since Deposits and Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 13

14 borrowings from other credit institutions maintained a high growth of 89% during the period In Q1.2011, this growth was 52.4%, representing an amount of VND54,493 billion and 21.8% of total deposits. The proportion of deposits from other credit institutions in the total deposits from both sources has increased significantly since 2008, from 6.8% to the current 21.8%. Accordingly, the difference between lending and borrowing in the interbank has narrowed, reaching the lowest level since 2006 of VND3,470 billion (2010: VND15,864 billion). This revealed the fact that even large banks of strong financial capacity still faced liquidity problem in Q1.2011, though less tense than other smaller ones. Loans/deposits (LDR) ratio of CTG stayed above 90% during Q1.201, which is the highest among listed banks. However, the risk of high LDR ratio was reduced as the liquid assets/deposits ratio of CTG (52.15%) was considerably high compared to other listed banks, lower than only STB (58.95%). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q LDR Net loans/total assets Deposits from customers/total assets Liquid assets/deposits 100% 90% 80% 70% 60% 78.2% 93.2% 90.8% 85.4% 50% 40% 30% 20% 10% 21.8% 6.8% 9.2% 14.6% 0% Q Deposit from customers Deposits and borrowings from other credit institutions Source: VCBS SWOT ANALYSIS Strengths One of the four largest commercial banks in Vietnam. Strengths in lending, international payment, and remittance. Capable of sustaining growth in spite of the financial crisis Weaknesses Profit depends heavily on lending activities. The quality of human resources still needs to be strengthened. Opportunities Strong and firm growth once the transformation is completed. Potential growth rate in retail banking as less than 10% of the population has a Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 14

15 bank account. Threats Market share shrinks due to the fierce competition from foreign and other local banks. High possibility of lending income shrinks due to Government credit limits. More exposed than most major banks in Vietnam to changes in the global economy PROSPECT As income from lending activities is the key income driver, we believe CTG s 2011 profit will be hurt by the credit policy of the Government. The cap of 20% on credit growth, along with strict limits on loans to non-manufacturing sectors, has forced the Bank to be more selective and cautious in choosing which projects to finance. In addition, the tough economic conditions also deteriorate the loan quality as many firms are struggling to maintain their normal business activities, not mentioning the ability to make profits. Accordingly, while the net interest income of CTG in Q increased by 86.8% yoy, the provision for credit losses rocketed by 6 times compared to that of the same period in 2010, resulting in a yoy growth of only 1.2% in NPAT. Although interest income cannot achieve such a remarkable growth in 2011, we believe this income source will still be the primary component of total income. We also expect CTG to have a higher interest spread compared to smaller players thanks to the availability of low cost funding. Trading of trading securities may continue to generate loss in In Q1.2011, income from trading securities experienced a loss of VND5.2 billion after this business incurred a loss of VND38.6 billion in Considering the current conditions of the stock market, it is not likely that CTG will receive any income contribution from this business line. Fees and commission may be improved while forex trading is not the Bank s priority. CTG planned to increase the contribution of fees income to the total income in 2011 to offset other income sources. However, we do not expect a significant improvement in this business line as the card business and the retail banking still need at least 2-3 years to reach their competitive level. Fees income saw a growth of 22.7% yoy in Q and we estimate the growth rate for the whole 2011 to stay at around 20%. We also expect no changes in the proportion of income from forex trading as CTG does not give priority to this business. Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 15

16 BALANCE SHEET Unit: VND billion Q Total Assets 193, , , ,844 Cash and Precious Metals 1,980 2,204 2,814 2,752 Balances with the SBV 6,011 5,369 5,037 1,575 Placements with and loans to other credit institutions 18,274 24,045 50,961 56,963 Trading Securities Derivatives and other financial assets Loans and advances to customers, net 118, , , ,146 Investment Securities 40,959 38,977 61,585 67,140 Investment in other entities and long term investments 908 1,464 2,093 1,930 Fixed Assets 1,996 3,298 3,298 3,267 Other Assets 4,020 6,435 10,247 14,824 Liabilities and Shareholder's Equity 193, , , ,047 Total Liabilities 181, , , ,025 Due to Gov and borrowings from SBV ,719 43,221 45,955 Deposits and borrowings from other credit institutions 8,825 15,012 35,097 53,493 Deposits from customers 121, , , ,415 Derivatives and other financial liabilities 40, Funds received from Gov, international and other institutions 0 34,525 44,735 31,266 Convertible bonds/cds and other valuable papers issued 3,459 8,585 10,728 18,470 Other liabilities 6,349 10,416 9,641 31,426 Shareholder's Equity 12,336 12,572 18,170 22,819 Chartered Capital 7,717 11,253 15,172 18,806 Reserves 4, Foreign Currency Difference reserve Difference upon Assets Revaluation Retained Earnings ,218 3,214 Minority Interest Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 16

17 INCOME STATEMENT Unit: VND billion Q Net Interest Income 7,189 7,936 12,089 4,201 Net Fee and Commission Income , Net gain/(loss) from foreign currency and gold dealings Net gain/(loss) from trading of trading securities Net gain/(loss) from disposal of investment securities Net Other income/(expenses) , Dividends income Total operating income 8,694 9,684 14,819 5,083 General and Admin expenses -4,958-5,803-7,197-1,938 Operating Profit Before Provision for Credit Losses 3,737 3,881 7,622 3,145 Provision for credit losses -1, ,024-1,983 Profit before tax 2,436 3,373 4,598 1,162 Business Income Tax , Net Profit For the Year 1,804 2,573 3, Minority Interest Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 17

18 FINANCIAL RATIO RATIO Q GROWTH YOY Total Assets 16.54% 25.93% 50.83% 50.05% Owners Equity 15.87% 1.91% 44.53% 30.32% Loans to customers 18.03% 36.27% 43.20% - Deposits 10.44% 25.36% 47.37% - Total deposits 9.96% 28.53% 46.25% - Total operating income 30.77% 11.39% 53.03% - NPAT 56.99% 43.15% 32.18% 0.95% PROFITABILITY Interest spread 1.91% 2.17% 1.80% 0.27% ROAA (TTM) 1.00% 1.18% 1.12% 1.05% ROAE (TTM) 15.70% 20.74% 22.21% 17.12% ROAA 1.00% 1.18% 1.12% 0.26% ROAE 15.70% 20.74% 22.21% 4.95% NIM (TTM) 4.05% 3.52% 3.51% 3.78% CAPITAL ADEQUACY Debt/Equity % % % % Equity/Total assets 6.37% 5.16% 4.94% 5.76% CAR 12.02% 8.46% 9.00% - OPERATING EFFICIENCY Operating expenses/operating income 57.02% 59.92% 48.57% 38.13% Interest bearing assets/total assets 91.64% 92.49% 93.76% 93.88% Non-interest expenses/total assets 2.64% 2.47% 2.07% 0.52% Non-interest expenses/(net interest income + Non-interest income) 57.75% 61.03% 50.16% 40.12% LIQUIDITY Loans/Deposits 90.91% 98.82% 96.02% % Loans/Total deposits 88.56% 93.90% 91.93% 93.48% Loans/Total assets 61.26% 66.30% 62.94% 62.44% Deposits from customers/total assets 62.83% 60.93% 56.00% 48.61% Liquidity assets/deposits 49.10% 40.22% 47.58% 52.15% ASSET QUALITY Provision for loans to customers/loans 1.78% 0.95% 1.18% 1.71% NPL/Loans 1.81% 0.61% 0.66% 0.71% NPL/Owners equity 17.73% 7.96% 8.47% 7.87% IMCOME COMPOSITION NII/Operating income 82.69% 81.95% 81.58% 82.65% Fee & commissions income/operating income 5.04% 6.70% 9.69% 7.63% Forex trading income/operating income 3.34% 0.61% 1.07% 3.03% Trading of trading securities/operating income -0.26% 1.24% -0.26% -0.10% Trading of investment securities/operating income 0.00% 0.15% -1.76% 0.15% Dividends/Operating income 1.55% 1.05% 1.11% 1.33% Other income/ Operating income 7.64% 8.30% 8.57% 5.32% Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 18

19 DISCLAIMER This report is designed to provide updated information on the results of companies business as well as analysis of factors affecting the prospects of the business. The report and / or any judgments and information in the report are by no means construed as investment advices, buy or sell offers, or investment proposals of any financial products, securities of related companies analyzed in the report. Therefore, this report should be best considered as a reference only. VCBS does not bear any responsibility for unwanted results when the information in the report is used. All the information stated in the report has been collected and assessed as carefully as possible, however VCBS does not guarantee the accuracy of the information and has no obligation to update the information after the report was released. All opinions, judgments, estimations and projections in this report represent independent views of the analyst at the date of publication only. Therefore, VCBS and/or departments of VCBS may have securities transactions inconsistent with recommendations in this report. This report may not be copied, reproduced, published or redistributed by any person for any purpose without the written permission of an authorized representative of VCBS. Please cite sources when quoting. Copyright 2010 Vietcombank Securities Company. All rights reserved. VIETCOMBANK SECURITIES COMPANY 12 th and 17 th floor, Vietcombank Tower 198 Tran Quang Khai Street, Hanoi, Vietnam Tel: / Fax: RESEARCH & ANALYSIS DEPARTMENT Head of Research: Investment Analyst: Le Thi Le Dung (ltldung@vcbs.com.vn) Le Thi Ngoc Anh (ltnanh@vcbs.com.vn) Quach Thuy Linh (qtlinh@vcbs.com.vn) Nguyen Thi Thanh Nga (nttnga_hcm@vcbs.com.vn) Le Huyen Minh (lhminh@vcbs.com.vn) Nguyen Vinh Nghiem (nvnghiem@vcbs.com.vn) Tran Gia Bao (tgbao@vcbs.com.vn) Ngo Manh Duy (nmduy@vcbs.com.vn) Research & Analysis Department Investment Analyst: Quach Thuy Linh (qtlinh@vcbs.com.vn) Trang 19