Financial statements for the year ended 31 December 2010
Corporate Information Banking Licence No 04/NHNN-GP 6 February 2002 The banking licence was issued by the State Bank of Vietnam and is valid for 20 years from the date of the banking licence. Business Registration Certificate No. 107058 24 April 2002 The Branch s Business Registration Certificate has been amended several times, the most recent of which is dated 30 December 2010. The Business Registration Certificate was issued by the Department of Planning and Investment of Ho Chi Minh City. Branch Management Ralph Wu General Manager Pai Mei Li Operation Manager Vincent Wu Head of Credit Department (to 25 March 2011) Eric Tsai Head of Credit Department (from 25 March 2011) Vu Thi Hoang Ha Head of Accounting Department Registered Office Petro Vietnam Tower, Floor 1 1-5 Le Duan Street, Ben Nghe Ward District 1 Ho Chi Minh City Vietnam Auditors KPMG Limited Vietnam 1
INDEPENDENT AUDITORS REPORT To the Owners Chinatrust Commercial Bank, Ho Chi Minh City Branch Scope We have audited the accompanying balance sheet of Chinatrust Commercial Bank, Ho Chi Minh City Branch (the Branch ) as of 31 December 2010 and the related statements of income and cash flows for the year then ended and the explanatory notes thereto which were authorised for issue by the Branch s management on 13 April 2011. These financial statements are the responsibility of the Branch s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Audit opinion In our opinion, the financial statements give the true and fair view of the financial position of Chinatrust Commercial Bank, Ho Chi Minh City Branch as of 31 December 2010 and of its results of operations and its cash flows for the year then ended in accordance with Vietnamese Accounting Standards, the Vietnamese Accounting System for Credit Institutions and other relevant accounting regulations stipulated by the State Bank of Vietnam and the relevant statutory requirements. KPMG Limited Vietnam Investment Certificate No: 011043000345 Audit report No: 10-01-199 Nguyen Thanh Nghi CPA No. 0304/KTV Deputy General Director Ha Vu Dinh CPA No. 0414/KTV Ho Chi Minh City, 2
Floor 1 - PetroVietnam Tower, 1-5 Le Duan Street, Balance sheet as at 31 December 2010 Form B02/TCTD Governor of the State Bank of Vietnam) A ASSETS Note I Cash on hand 3 596,940 1,073,477 11,301 19,259 II Balances with the State Bank of Vietnam 4 4,636,306 12,618,413 87,775 226,387 III Balances with and loans to credit institutions 5 132,422,857 26,583,036 2,507,030 476,926 1 Deposits 132,422,857 26,583,036 2,507,030 476,926 VI Loans and advances to customers 298,700,312 230,072,395 5,654,995 4,127,728 1 Loans and advances to customers 6 300,858,867 232,430,950 5,695,861 4,170,043 2 Allowance for loans and advances to customers 7 (2,158,555) (2,358,555) (40,866) (42,315) VII Investment securities 8 777,082 808,377 14,712 14,503 2 Held-to-maturity securities 777,082 808,377 14,712 14,503 IX Fixed assets 206,774 247,942 3,915 4,448 1 Tangible fixed assets 9 206,774 247,942 3,915 4,448 a. Cost 696,467 716,926 13,186 12,862 b. Accumulated depreciation (489,693) (468,984) (9,271) (8,414) XI Other assets 1,460,518 1,595,154 27,649 28,621 2 Accrued interest and fee receivables 1,342,292 1,422,448 25,412 25,520 4 Other assets 10 118,226 172,706 2,237 3,101 TOTAL ASSETS 438,800,789 272,998,794 8,307,377 4,897,872 The accompanying notes are an integral part of these financial statements 3
, Balance sheet as at 31 December 2010 (continued) Form B02/TCTD Governor of the State Bank of Vietnam) B Note LIABILITIES AND OWNERS EQUITY Liabilities II Deposits and borrowings from credit institutions 11 192,800,000 117,162,357 3,650,090 2,102,010 1 Deposits 89,800,000 62,095,134 1,700,094 1,114,049 2 Borrowings 103,000,000 55,067,223 1,949,996 987,961 III Deposits from customers 12 170,556,381 122,244,175 3,228,973 2,193,183 VII Other liabilities 4,609,052 3,620,468 87,258 64,955 1 Accrued interest and fee payables 1,436,579 1,026,423 27,197 18,415 3 Other liabilities 13 2,466,490 2,468,062 46,695 44,280 4 Provision for off balance sheet commitments 14 705,983 125,983 13,366 2,260 Total liabilities 367,965,433 243,027,000 6,966,321 4,360,148 Equity VIII Capital and reserves 15 1 Allocated capital 50,000,000 15,000,000 946,600 269,115 2 Reserves and funds 3,131,775 2,252,241 59,291 40,408 5 Retained profits 17,703,581 12,719,553 335,165 228,201 Total equity 70,835,356 29,971,794 1,341,056 537,724 TOTAL LIABILITIES AND OWNERS EQUITY 438,800,789 272,998,794 8,307,377 4,897,872 The accompanying notes are an integral part of these financial statements 4
, Balance sheet as at 31 December 2010 (continued) Form B02/TCTD Governor of the State Bank of Vietnam) OFF BALANCE SHEET ITEMS I Contingent liabilities 72,710,719 28,064,881 1,376,559 503,512 1 Unutilised letters of credit 66,052,252 25,137,023 1,250,501 450,983 2 Guarantees 6,658,467 2,927,858 126,058 52,529 II Other commitments 18,042,896 803,563 341,588 14,417 1 Undrawn loan commitments 18,042,896 749,351 341,588 13,444 2 Unmatured foreign currency contracts - 54,212-973 Approved by: Vu Thi Hoang Ha Head of Accounting Department Ralph Wu General Manager The accompanying notes are an integral part of these financial statements 5
, Statement of income for the year ended 31 December 2010 Form B03/TCTD Governor of the State Bank of Vietnam) Note 2010 2009 2010 2009 1 Interest and similar income 16 15,107,514 13,325,133 286,016 239,066 2 Interest and similar expenses 16 (5,371,937) (4,476,048) (101,702) (80,305) I Net interest income 16 9,735,577 8,849,085 184,314 158,761 3 Fee and commission income 17 1,899,211 1,304,899 35,956 23,411 4 Fee and commission expenses 17 (182,268) (156,420) (3,451) (2,806) II Net fee and commission income 17 1,716,943 1,148,479 32,505 20,605 III Net gain from trading of foreign currencies 1,216,539 669,768 23,032 12,016 VI Other income - net 6,784 1,360 128 24 VIII Operating expense 18 (4,399,281) (5,105,226) (83,287) (91,593) IX Profit before allowance and provision expenses 8,276,562 5,563,466 156,692 99,813 X Allowance and provision expenses (380,000) (77,366) (7,194) (1,388) XI Profit before tax 7,896,562 5,486,100 149,498 98,425 7 Income tax expense current 19 (2,033,000) (1,520,000) (38,489) (27,270) XII Total income tax expenses 19 (2,033,000) (1,520,000) (38,489) (27,270) XIII Net profit after tax 5,863,562 3,966,100 111,009 71,155 Approved by: Vu Thi Hoang Ha Head of Accounting Department Ralph Wu General Manager The accompanying notes are an integral part of these financial statements 6
, Form B04/TCTD Statement of cash flows for the year ended 31 December 2010 Governor of the State Bank of Vietnam) 2010 2009 2010 2009 Cash flow from operating activities 01 Interest and similar income received 15,945,690 13,576,055 301,885 243,568 02 Interest and similar expenses paid (4,961,781) (4,769,177) (93,936) (85,564) 03 Net fee and commission income received 1,716,943 1,148,479 32,505 20,605 04 Net receipts from foreign exchange and securities trading activities 1,261,791 707,285 23,888 12,691 05 Other income received 6,784 1,036 128 19 07 Salaries and operating expenses paid (4,883,839) (4,165,392) (92,461) (74,731) 08 Income tax paid (1,567,386) (1,480,514) (29,674) (26,562) 7,518,202 5,017,772 142,335 90,026 Changes in operating assets 09 Balances with and loans to credit institutions - 2,356,129-42,271 12 Loans and advances to customers (68,627,917) 780,854 (1,299,264) 14,009 14 Other assets 54,479 34,754 1,031 624 Changes in operating liabilities 15 Deposits and borrowings from credit institutions 75,637,643 (25,407,761) 1,431,972 (455,841) 17 Deposits from customers 48,312,206 (14,608,864) 914,647 (262,098) 21 Other liabilities (462,990) (7,424) (8,765) (133) I Net cash flow from operating activities 62,431,624 (31,834,540) 1,181,956 (571,142) The accompanying notes are an integral part of these financial statements 7
, Form B04/TCTD Statement of cash flows for the year ended 2010 2009 2010 2009 Cash flow from investing activities 01 Payment for purchase of fixed assets (50,447) (56,006) (955) (1,005) 02 Proceeds from disposal of fixed assets - 324-6 03 Increase in investment - (839,761) - (15,066) II Net cash flow from investing activities (50,447) (895,443) (955) (16,065) Cash flow from financing activities 01 Proceeds from capital contribution 35,000,000-662,620 - III Net cash flow from financing activities 35,000,000-662,620 - IV V VI Net increase in cash flow for the year 97,381,177 (32,729,983) 1,843,620 (587,207) Cash and cash equivalents at the beginning of the year 40,274,926 73,004,909 722,572 1,239,404 Foreign exchange translation difference - - 39,914 70,375 VII Cash and cash equivalents at the end of the year (Note 20) 137,656,103 40,274,926 2,606,106 722,572 Approved by: Vu Thi Hoang Ha Head of Accounting Department Ralph Wu General Manager The accompanying notes are an integral part of these financial statements 8
31 December 2010 Governor of the State Bank of Vietnam) These notes form an integral part of, and should be read in conjunction with, the accompanying financial statements. 1. Reporting Entity Chinatrust Commercial Bank, Ho Chi Minh City Branch (the Branch ) is a foreign bank branch licensed in Vietnam of Chinatrust Commercial Bank, incorporated in Taiwan. The principal activity of the Branch is to carry out banking activities under Banking Licence No. 04/NHNN-GP issued by the State Bank of Vietnam ( SBV ) on 6 February 2002. The banking licence is valid for 20 years from the banking licence date. As at 31 December 2010, the Branch had 60 employees (2009: 60 employees). 2. Summary of significant accounting policies The following significant accounting policies have been adopted by the Branch in the preparation of these financial statements. (a) Basis of financial statement preparation The financial statements, expressed in United States Dollars ( ), have been prepared in accordance with Vietnamese Accounting Standards, the Vietnamese Accounting System for Credit Institutions and other relevant accounting regulations stipulated by the State Bank of Vietnam and the relevant statutory requirements. These accounting policies may differ in some material respects from International Financial Reporting Standards and the generally accepted accounting principles and standards of other countries. Accordingly, the accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with generally accepted accounting principles and practices in countries or jurisdictions other than Vietnam. Furthermore, their utilisation is not designed for those who are not informed about Vietnam s accounting principles, procedures and practices. The financial statements, except for the statement of cash flows, are prepared on the accrual basis using the historical cost concept. The statement of cash flows is prepared using the direct method. These accounting policies have been consistently applied by the Bank and are consistent with those used in the previous year. (b) Fiscal year The fiscal year of the Branch is from 1 January to 31 December. (c) Foreign currency translation Monetary assets and liabilities denominated in currencies other than are translated into at rates of exchange ruling at the reporting date. Transactions in currencies other than during the year have been translated into at rates approximating those ruling on transaction dates. All realised and unrealised foreign exchange differences are recorded in the statement of income. For the purposes of preparation of the equivalent financial statements in Vietnam Dong ( VND ), the financial statements are translated at the rate of exchange ruling at the balance sheet date. Differences arising on this translation are recorded as a movement in the capital and reserves (Note 15). 9
(d) Cash and cash equivalents Cash and cash equivalents include cash on hand, balances with the SBV, balances with credit institutions and other branches in the group with original terms to maturity of not exceeding three months. (e) Held-to-maturity investment securities Held-to-maturity investment securities are debt securities, with fixed or determinable payments and maturities where the Branch s management has the positive intention and ability to hold until maturity. Held-to-maturity investment securities are initially stated at cost of acquisition. They are subsequently measured at the lower of cost and market value if there is indication of long-term diminution in value. Premiums and discounts arising from purchases of debt securities are amortised to the statement of income using effective interest rate method over the period from the acquisition dates to maturity date. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Branch has transferred substantially all risks and rewards of ownership. (f) Loans and advances to customers Decision No. 493/2005/QD-NHNN dated 22 April 2005 issued by State Bank of Vietnam, which was amended and supplemented by Decision No. 18/2007/ QD-NHNN dated 25 April 2007 issued by the State Bank of Vietnam, requires specific allowance to be made for loans and advances on a quarterly basis based on loan groups. The specific allowance disclosed at the reporting date (i.e. 31 December) is determined utilising the following allowance rates against principal outstanding as at 30 November less allowed value of collateral. 10
Group 1 Current 2 3 Special mention Substandard 4 Doubtful 5 Loss Overdue status Current loans or overdue loans less than 10 days and current irrevocable commitment and undrawn loan commitment. Loans being overdue between 10 days to 90 days; or Loans having rescheduled terms of repayments for the first time (if customers are assessed as being capable of repaying both principal and interest according to the first revised terms of repayments for the case of enterprises and organisational customers). Loans being overdue between 91 days and 180 days; Loans having rescheduled terms of repayments for the first time except for the loans with revised terms of repayments classified into the above mentioned Group 2; or Loans having exempt or reduced interest because customers are not able to pay the interest according to contracts. Loans being overdue between 181 days and 360 days; Loans having rescheduled terms of repayments for the first time and being overdue less than 90 days according to the first rescheduled terms of repayments; or Loans having rescheduled terms of repayments for the second time. Loans being overdue more than 360 days; Loans having rescheduled terms of repayments for the first time and being overdue for 90 days or more according to the first rescheduled terms of repayments; Loans having rescheduled terms of repayments for the second time and being overdue according to the second rescheduled terms of repayments; Loans having rescheduled terms of repayments for the third time; or Blocked loans, or loans awaiting for settlements. Allowance rate 0% 5% 20% 50% 100% In addition, the Branch is required to make a general allowance of 0.75% of total outstanding loans that are classified from Group 1 to Group 4 as at the reporting date. Such general allowance is required to be made in full within 5 years from the effective date of Decision No. 493/2005/QD-NHNN. As at the reporting date, the Branch provided a general allowance of 0.75% of the above balances as at 30 November 2010 (2009: 0.85%). In accordance with the requirements of this Decision, loans and advances are written off against allowance when loans and advances have been classified to Group 5 or when borrowers have declared bankruptcy or dissolved (for borrowers being organisations, enterprises) or borrowers have been dead or missing (for borrowers being individuals). (g) Provision for off balance sheet commitments In accordance with Decision No.18/2007/QD-NHNN, the Branch is also required to classify guarantees, acceptances, undrawn loan commitments which are irrevocable into relevant groups and make specific provisions accordingly. In addition, the Branch is required to make a general provision of 0.75% of total irrevocable outstanding letters of guarantee, letters of credit, and irrevocable undrawn loan commitments as at the reporting date. Such general provision is required to be made in full within 5 years from the effective date of Decision No. 493/2005/QD-NHNN. As at the reporting date, the Branch has provided a general provision of 0.75% of the above balances as at 30 November 2010 (2009: 0.51%). 11
(h) Tangible fixed assets (i) Cost Tangible fixed assets are stated at cost less accumulated depreciation. The initial cost of a tangible fixed asset comprises of its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the tangible fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the statement of income in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of tangible fixed assets beyond its originally assessed standard of performance, the expenditure is capitalised as an additional cost of tangible fixed assets. (ii) Depreciation Depreciation is computed on a straight-line basis over the estimated useful lives of items of tangible fixed assets. The estimated useful lives are as follows: Leasehold improvements 5 years Office equipment 3-5 years Communication and transportation facilities 5-6 years (i) Interest subsidy During the year, having implemented policies of the Prime Minister and the SBV on interest subsidy program in which the qualified customers were subsidised 2% interest rate on medium-term and long-term loans granted by the Branch, the interest income portion representing this 2% per annum was recorded as receivable from the State. (j) Derivative financial instruments Derivatives are recorded in a balance sheet account at contract value on the date when a derivative contract is entered into and revalued subsequently at foreign exchange rates at the reporting date. Gains or losses from realisation of derivatives are recognised in the statement of income. Unrealised gains or losses are recognised in the statement of income on the reporting date. (k) Provisions A provision is recognised if, as a result of a past event, the Branch has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (l) Other payables Other payables are stated at their cost. 12
(m) Employee benefits Under the Vietnamese Labour Code, when employees who have worked for 12 months or more ( eligible employees ) voluntarily terminates his/her labour contract, the employer is required to pay the eligible employees severance allowance calculated based on years of service and employees compensation at termination. Provision for severance allowance has been provided based on employees years of service and their current salary level. Pursuant to Law on Social Insurance, effective from 1 January 2009 the Company and its employees are required to contribute to an unemployment insurance fund managed by the Vietnam Social Insurance Agency. The contribution to be paid by each party is calculated at 1% of the lower of the employees basic salary and 20 times the general minimum salary level as specified by the Government from time to time. With the implementation of unemployment insurance scheme, the Company is no longer required to provide severance allowance for the service period after 1 January 2009. However, severance allowance to be paid to the existing eligible employees as of 31 December 2008 will be determined based on the eligible employees years of service as of 31 December 2008 and their average salary for the six-month period prior to the termination date. (n) Allocated capital Allocated capital is classified as equity. (o) Reserves According to Decree No. 146/2005/ND-CP dated 23 November 2005 issued by the Government of Vietnam, the Branch is required to make the following allocations before distribution of profits: Annual allocation Maximum balance Reserve to supplement allocated capital: 5% of profit after tax Allocated capital Financial reserve : 10% of remaining profit after tax 25% allocated capital The purpose of the financial reserve is to cover losses incurred during the normal course of business. This reserve and the reserve to supplement allocated capital are required by law and are non-distributable. (p) Revenue recognition Income is recognised in the statement of income on an accruals basis, except for interest on loans classified in Group 2 to Group 5 as defined in Note 2(f) which is recognised upon receipt. Fees and commissions are recognised when earned. (q) Operating lease payments Payments made under operating leases are recognised in the statement of income on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of income as an integral part of the total lease expense. 13
(r) Taxation Income tax on the profit or loss for the year comprises of current and deferred tax. Income tax is recognised in the statement of income except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted as at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted as at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (s) Related companies Related companies include the Head Office, its subsidiaries and associates. (t) Off balance sheet items In the normal course of business, the Branch has entered into off balance sheet commitments. (i) Foreign exchange contracts The Branch enters into foreign exchange forwards and swaps which enable customers to transfer, modify or reduce their foreign exchange or other market risks and also trades these products for its own account. Forward contracts are commitments to either purchase or sell a designated currency at a specific future date for a specific exchange rate and are settled in cash. Swap contracts are commitments to settle in cash at a future date based on differentials between specified exchange rates, as applied to a notional principal amount. (ii) Commitments and contingent liabilities At any time, the Branch has outstanding commitments to extend credit. These commitments take the form of approved loans and overdraft facilities. The Branch also provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. Many of the contingent liabilities and commitments will expire without being advanced in whole or in part. Therefore the amounts do not represent expected future cash flows. 14
(u) Nil balances Items or balances required by the Decision No. 16/2007/QD-NHNN dated 18 April 2007 issued by the Governor of the State Bank of Vietnam on promulgation of financial statement reporting for credit institutions that are not shown in these financial statements indicate nil balances. 3. Cash on hand Cash on hand in VND 350,429 748,290 6,634 13,425 Cash on hand in foreign currencies 246,511 325,187 4,667 5,834 596,940 1,073,477 11,301 19,259 4. Balances with the State Bank of Vietnam These consist of a compulsory reserve for liquidity and a current account. Under the State Bank of Vietnam s regulations relating to the compulsory reserve, banks are permitted to maintain a floating balance for the compulsory reserve requirement ( CRR ). The monthly average balance of the reserve must not be less than CRR rates multiply with preceding month s average balances of deposits in scope as follows: Deposits in scope CRR rates Preceding month's average balances of: Deposits in foreign currencies with term of less than 12 months 4% 7% Deposits in foreign currencies with term of and more than 12 months 2% 3% Deposits in VND with term of less than 12 months 3% 3% Deposits in VND with term of and more than 12 months 1% 1% Compulsory reserve and current account 4,636,306 12,618,413 87,775 226,387 15
Effective year end annual interest rates are as follows: Deposits in VND Within the compulsory reserve requirement 1.2% 1.2% Exceeding the compulsory reserve requirement 0% 0% Deposits in Within the compulsory reserve requirement 0% 0% Exceeding the compulsory reserve requirement 0.1% 0.1% 5. Balances with and loans to credit institutions Current accounts 6,243,267 4,140,251 118,198 74,280 Current accounts in VND 423,572 1,569,427 8,019 28,157 Current accounts in foreign currencies 5,819,695 2,570,824 110,179 46,123 Term deposits 126,179,590 22,442,785 2,388,832 402,646 Term deposits in VND 50,179,590 16,442,785 950,000 295,000 Term deposits in foreign currencies 76,000,000 6,000,000 1,438,832 107,646 132,422,857 26,583,036 2,507,030 476,926 Effective year end annual interest rates are as follows: Current accounts in 0.25% - 0.5% 0.2% Current accounts in VND 3.0% 1.2% - 2.4% Term deposits in 0.34% - 0.55% 0.25% Term deposits in VND 10% - 13.5% 8% - 12% 16
6. Loans and advances to customers Loan portfolio by loan group is as follows: Current 300,858,867 232,010,139 5,695,861 4,162,494 Doubtful - 420,811-7,549 300,858,867 232,430,950 5,695,861 4,170,043 Loan portfolio by term is as follows: Short term 204,883,216 134,873,285 3,878,850 2,419,760 Medium term 68,944,954 73,085,030 1,305,266 1,311,219 Long term 27,030,697 24,472,635 511,745 439,064 300,858,867 232,430,950 5,695,861 4,170,043 Loan portfolio by industry sectors is as follows: Manufacturing 240,883,833 176,533,356 405,784 3,167,185 Services and trading 59,975,034 55,897,594 5,290,077 1,002,858 300,858,867 232,430,950 5,695,861 4,170,043 17
Loan portfolio by type of borrower is as follows: State owned enterprises 31,455,822 25,887,521 595,522 464,448 Foreign invested companies 249,147,587 181,123,612 4,716,863 3,249,538 Joint venture companies 15,249,909 7,589,103 288,711 136,156 Limited liability companies 4,600,250 7,359,314 87,092 - Individuals and others 405,299 10,471,400 7,673 319,901 300,858,867 232,430,950 5,695,861 4,170,043 Effective year end annual interest rates are as follows: Loans and advances in VND 12.8% - 19.5% 9.25% - 12% Loans and advances in 1.48% - 8.7% 1.02% - 7.14% 7. Allowance for loans and advances to customers Allowance for loans and advances to customers consists of: General allowance 2,158,555 2,041,795 40,866 36,632 Specific allowance - 316,760-5,683 2,158,555 2,358,555 40,866 42,315 18
Movements in general allowance for loans and advances to customers were as follows: Opening balance 2,041,795 2,281,189 36,632 38,728 Allowance made during the year 116,760-2,211 - Reversal made during the year - (239,394) - (4,295) Foreign exchange translation difference - - 2,023 2,199 Closing balance 2,158,555 2,041,795 40,866 36,632 Movements in specific allowance for loans and advances to customers were as follows: Opening balance 316,760-5,683 - Allowance made in the year - 316,760-5,683 Reversal made in the year (316,760) - (5,997) - Foreign exchange translation difference - 314 - Closing balance - 316,760-5,683 8. Investment securities The held-to-maturity government bonds have a coupon rate of 7.8% per annum and a term to maturity of 5 years and are pledged with the SBV so that the Branch can participate in the low-value-settlement system. The bonds will mature in 2012. 19
9. Tangible fixed assets Leasehold improvements Office equipment Communication and transportation facilities Total Cost Opening balance 206,310 481,848 28,768 716,926 Additions - 50,447-50,447 Disposal - (42,138) (28,768) (70,906) Closing balance 206,310 490,157-696,467 Closing balance () 3,906 9,280-13,186 Accumulated depreciation Opening balance 101,741 338,475 28,768 468,984 Charge for the year 41,262 50,353-91,615 Disposal - (42,138) (28,768) (70,906) Closing balance 143,003 346,690-489,693 Closing balance () 2,707 6,564-9,271 Net book value Opening balance 104,569 143,373-247,942 Closing balance 63,307 143,467-206,774 Closing balance () 1,199 2,716-3,915 Included in the costs are fixed assets costing 219,290 (2009: 151,861) which have been fully depreciated as of 31 December 2010, but are still in active use. 20
10. Other assets Value added tax receivable 2,187 16,887 41 305 Prepaid expenses 36,113 75,069 683 1,347 Other receivables 79,926 80,750 1,513 1,449 118,226 172,706 2,237 3,101 11. Deposits and borrowings from credit institutions Term deposits Term deposits in VND - 5,295,134-95,000 Term deposits in 89,800,000 56,800,000 1,700,094 1,019,049 Borrowings Borrowings in foreign currencies 103,000,000 55,067,223 1,949,996 987,961 192,800,000 117,162,357 3,650,090 2,102,010 Effective year end annual interest rates are as follows: Term deposits in VND - 11.50% - 11.90% Term deposits in 0.24% - 0.65% 0.45% - 3.20% 21
12. Deposits from customers Current accounts Current accounts in VND 31,104,400 25,748,486 588,868 461,953 Current accounts in foreign currencies 50,720,214 33,554,185 960,235 601,996 Term deposits Term deposits in VND 59,604,418 45,209,796 1,128,431 811,109 Term deposits in foreign currencies 29,127,349 17,731,708 551,439 318,125 170,556,381 122,244,175 3,228,973 2,193,183 Deposits from customers by type of customers are as follows: Economic entities 149,713,564 103,836,955 2,834,377 1,862,939 Individuals 20,842,817 18,407,220 394,596 330,244 170,556,381 122,244,175 3,228,973 2,193,183 Effective year end annual interest rates are as follows: Current accounts in VND 0.5% 1.0% Current accounts in 0.05% 0.1% Term deposits in VND 4% - 12.2% 4.8% - 10.3% Term deposits in 0.35% - 1% 0.5% - 1.65% 22
13. Other liabilities Taxes payable 562,028 104,365 10,640 1,872 Accrued expense 1,638,851 2,224,051 31,026 39,901 Provision for severance allowance 72,128 69,485 1,366 1,247 Other payables 193,483 70,161 3,663 1,260 2,466,490 2,468,062 46,695 44,280 Movements in provision for severance allowance were as follows: Opening balance 69,485 58,729 1,247 997 Provision made during the year 14,847 13,600 281 243 Provision utilised during the year (12,204) (2,844) (231) (52) Foreign exchange translation difference - - 69 59 Closing balance 72,128 69,485 1,366 1,247 14. Provision for off balance sheet commitments Movements in general provision for off balance sheet commitments were as follows: Opening balance 125,983 125,983 2,260 2,139 Provision made in the year 580,000-10,981 - Foreign exchange translation difference - - 125 121 Closing balance 705,983 125,983 13,366 2,260 23
15. Capital and reserves Statement of changes in equity Allocated capital Reserve to supplement allocated capital Financial reserve Retained Profits Total Balance at 1 January 2009 15,000,000 567,551 1,089,775 9,348,368 26,005,694 Net profit for the year - - - 3,966,100 3,966,100 Transfer to reserves - 198,305 396,610 (594,915) - Balance at 1 January 2010 15,000,000 765,856 1,486,385 12,719,553 29,971,794 Capital contribution 35,000,000 - - - 35,000,000 Net profit for the year - - - 5,863,562 5,863,562 Transfer to reserves - 293,178 586,356 (879,534) - Balance at 31 December 2010 50,000,000 1,059,034 2,072,741 17,703,581 70,835,356 Allocated capital Reserve to supplement allocated capital Financial reserve Retained Profits (Note 2 (c)) Total Balance at 1 January 2009 254,655 9,635 18,501 158,708 441,499 Net profit for the year - - - 71,155 71,155 Transfer to reserves - 3,558 7,116 (10,674) - Foreign exchange translation difference 14,460 547 1,051 9,012 25,070 Balance at 1 January 2010 269,115 13,740 26,668 228,201 537,724 Capital contribution 662,620 - - - 662,620 Net profit for the year - - - 111,009 111,009 Transfer to reserves - 5,550 11,101 (16,651) - Foreign exchange translation difference 14,865 760 1,472 12,606 29,703 Balance at 31 December 2010 946,600 20,050 39,241 335,165 1,341,056 24
Contributed capital Chinatrust Commercial Bank, Taiwan ( Head Office ) 50,000,000 15,000,000 946,600 269,115 Movements in allocated capital during the year were as follows: Opening balance 15,000,000 15,000,000 269,115 254,655 Cash contribution by Head Office 35,000,000-662,620 - Foreign exchange translation difference - - 14,865 14,460 Closing balance 50,000,000 15,000,000 946,600 269,115 25
16. Net interest income 2010 2009 2010 2009 Interest and similar income On loans and advances to customers 12,572,202 11,521,267 238,017 206,703 On placements and loans to credit institutions 2,461,485 1,783,409 46,601 31,996 On investments 73,827 20,457 1,398 367 15,107,514 13,325,133 286,016 239,066 Interest and similar expenses On deposits from customers (4,207,004) (3,206,019) (79,647) (57,519) On deposits and borrowings from credit institutions (1,164,933) (1,270,029) (22,055) (22,786) (5,371,937) (4,476,048) (101,702) (80,305) 9,735,577 8,849,085 184,314 158,761 26
17. Net fee and commission income 2010 2009 2010 2009 Fee and commission income Guarantees 488,068 256,732 9,240 4,606 Settlement and cash services 829,099 763,572 15,697 13,699 Trade finance services 582,044 284,595 11,019 5,106 1,899,211 1,304,899 35,956 23,411 Fee and commission expenses Settlement and cash services (182,268) (156,420) (3,451) (2,806) (182,268) (156,420) (3,451) (2,806) Net fee and commission income 1,716,943 1,148,479 32,505 20,605 18. Operating expense 2010 2009 2010 2009 Salaries and related expenses 1,147,901 1,013,132 21,732 18,177 Depreciation of fixed assets 91,615 85,632 1,734 1,536 Tax, duties and fees 256,169 272,167 4,850 4,883 Tools and equipment expenses 54,607 53,898 1,034 967 Office rental 902,256 823,748 17,082 14,779 Telecommunication expenses 162,679 164,962 3,080 2,960 General administration expenses allocated from Head Office 1,495,150 2,317,768 28,306 41,583 Others 288,904 373,919 5,469 6,708 4,399,281 5,105,226 83,287 91,593 27
19. Income tax (a) Recognised in the statement of income 2010 2009 2010 2009 Current tax expense Current year 2,033,000 1,510,329 38,489 27,097 Under provision in prior years - 9,671-173 Income tax expenses 2,033,000 1,520,000 38,489 27,270 (b) Reconciliation of effective tax rate 2010 2009 Profit before tax 7,896,562 5,486,100 Tax at the Branch s tax rate 25.00% 1,974,141 25.00% 1,371,525 Non-deductible expenses 0.21% 16,381 0.61% 33,413 Deferred tax assets previously unrecognised 0.54% 42,478 1.92% 105,391 Under provision in prior years 0.00% - 0.18% 9,671 25.75% 2,033,000 27.71% 1,520,000 2010 2009 Profit before tax 149,498 98,425 Tax at the Branch s tax rate 25.00% 37,374 25.0% 24,607 Non-deductible expenses 0.21% 310 0.61% 599 Deferred tax income previously unrecognised 0.54% 805 1.92% 1,891 Under provision in prior years 0.00% - 0.18% 173 25.75% 38,489 27.71% 27,270 28
(c) Applicable tax rate The Branch has an obligation to pay the government income tax at the rate of 25% of taxable profit. The income tax computation is subject to the review and approval of the tax authorities. 20. Cash and cash equivalents Cash on hand 596,940 1,073,477 11,301 19,259 Balances with the State Bank of Vietnam 4,636,306 12,618,413 87,775 226,387 Balances with credit institutions 132,422,857 26,583,036 2,507,030 476,926 137,656,103 40,274,926 2,606,106 722,572 Included in cash and cash equivalent are cash and cash equivalent in currencies other than VND amounting to the equivalent of 84,866,479 (2009: 14,426,444). 21. Significant transactions with related parties In the normal course of banking business, the Branch carries out transactions with related parties, mainly with the Head Office and other entities within the Group. As at the year-end and during the year, there were the following significant balances and transactions with related parties: 2010 2009 2010 2009 Transactions Interest income from Head Office 1,119 562 21 10 Interest expenses to Head Office 219,158 744,662 4,149 13,360 Head Office charges 1,495,150 2,317,768 28,306 41,583 Balances Inter-branch balances 71,034,846 6,031,718 1,344,832 108,215 Inter-branch deposits 103,000,000 55,067,223 1,949,996 987,961 29
22. Geographical segment disclosure Loans and advances to customers Balances with and loans to credit institutions Deposits and borrowings from credit institutions Deposits from customers Undrawn loan commitments Domestic 300,858,867 57,577,610 89,800,000 170,556,381 18,042,896 Overseas - 74,845,247 103,000,000 - - 300,858,867 132,422,857 192,800,000 170,556,381 18,042,896 Loans and advances to customers Balances with and loans to credit institutions Deposits and borrowings from credit institutions Deposits from customers () Undrawn loan commitments Domestic 5,695,861 1,090,060 1,700,094 3,228,973 341,588 Overseas - 1,416,970 1,949,996 - - 5,695,861 2,507,030 3,650,090 3,228,973 341,588 23. Employee benefits 2010 2009 2010 2009 Total employees 60 60 60 60 Employee income 1. Salaries 789,269 714,090 14,942 12,811 2. Bonus 105,153 90,207 1,991 1,618 4. Total (1+2) 894,422 804,297 16,933 14,429 5. Average annual salary 13,154 11,901 249 214 6. Average annual income 14,907 13,405 282 240 30
24. Obligation to State Budget Movement Opening balance Incurred Paid Closing balance Value added tax 15,781 250,237 (251,625) 14,393 Corporate income tax 56,205 2,033,000 (1,567,386) 521,819 Personal income tax 18,758 91,435 (109,915) 278 Withholding tax 13,621 105,075 (93,158) 25,538 104,365 2,479,747 (2,022,084) 562,028 Movement Foreign Opening balance Incurred Paid exchange translation difference Closing balance Value added tax 283 4,738 (4,764) 15 272 Corporate income tax 1,008 38,489 (29,674) 57 9,880 Personal income tax 337 1,731 (2,081) 18 5 Withholding tax 244 1,989 (1,764) 14 483 1,872 46,947 (38,283) 104 10,640 25. Type and value of collateral from customers 2010 2009 2010 2009 Cash, notes, deposit accounts 29,453,297 16,454,619 557,610 295,212 Real estate 96,244,010 46,099,590 1,822,092 827,073 Movable assets 73,287,170 22,060,841 1,387,473 395,794 198,984,477 84,615,050 3,767,175 1,518,079 31
26. Financial risk management The Branch manages risks through a framework of principles, organisational structures as well as measurement and monitoring processes that are guided by Group s instructions and closely aligned with the activities of the Branch. The Branch has exposure mainly to the following risks: Credit risk Liquidity risk Market risk Operational risk (a) Credit risk Credit risk arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, borrower or obligor ( counterparties ). Management of credit risk - Limit Setting & Risk Concentration Management: The Branch manages credit risk by lending to a diverse base of corporate customers in various industry and geographic sectors. The Branch is able to assign credit risk limits based upon credit history and industry information as well as balance exposure to country risk to prevent concentration risk. - Internal Rating System: In order to monitor and evaluate credit risk properly, the Branch installed advanced internal rating systems, which helps to differentiate and categorise different credit risks. The Branch s internal rating system measures the financial as well as the non-financial aspects of each borrower and examines the impact of external economic or industry changes on each borrower before it determines each borrower s credit rating. - Credit Officer Mechanism: Coupled with rating system, the Branch s Credit Officer Mechanism is also the foundation of a risk-based organization. Full credit approval of individual credit transactions must be given by at least two credit officers. They must independently approve or decline each credit request according to their respective delegated authorities. The Branch keeps credit officers compensation and performance evaluations separate from sales and marketing divisions in order to ensure the officers independence. - Basel II Compliance: Currently, the Branch is in the process of implementing IRB approach of Basel II Accord, which equips the Branch with proactive framework of credit risk measurement and management. Not only does the implementation comply with the incoming regulatory capital requirement, but IRB approach is also applied to regular business operations. 32
- Credit Information: To prevent severe credit events, the Branch takes advantage of abundant default data from Vietnam s Credit Information Center (CIC), which holds all credit information among companies and individuals in Vietnam. Exploited by the risk control units, the acquired data further facilitate the Branch s internal risk measurement and control by effectively scrutinizing customer-level line of credit management, solvency of secured loan borrowers as well as value changes of collaterals. - Core Credit Policy: The core credit policy is drawn up for governing the lending business of the Branch. It shall serve as the highest principles for all relative departments to set up related guidelines and working manuals for maintaining the quality of lending assets. The contents include: The principle of portfolio management, customer level credit line management, credit product program management, credit risk measurement, loan review management, impaired asset management, credit transaction delegation, and compliance with laws and regulations etc. - Portfolio Monitoring: For monitoring asset quality, the credit risk management units keep track of portfolio structure and development of all credit products and submit related credit reports to relevant management level(s) periodically. Those reports include: Credit portfolio review reports, relevant model validation reports and country risk exposure report, etc. - Stress Testing: In order to control the extreme credit risk during economic downturns, the Branch stress tests its portfolio. We assume several economic scenarios and evaluate the impacts of portfolio structure and credit loss. Stress testing will be included as a part of limit setting management. Exposure to credit risk As at 31 December 2010, the Branch s credit risk arises principally from the Branch s credit facilities to customers, off - balance sheet commitments and balances with credit institutions. The maximum exposure to credit faced by the Branch is equal to the carrying amounts of loans and advances to customers, balances with and loans to credit institutions, unutilised letters of credit and other guarantees. (b) Liquidity risk Liquidity risk is the risk arising from our potential inability to meet all payment obligations when they come due or only being able to meet these obligations at excessive costs. Management of liquidity risk The Branch liquidity management policies require that: - If the amount of the transaction is significant, Treasury Department must be informed before the transaction being processed. - Management of balance and liquidity must be established and limits are imposed. - Potential significant cash flows from foreign exchange activities must be monitored closely. - The Head Office commits to support the Branch 200 million anytime to maintain the Branch in good liquidity position. 33
(c) Market risk Market risk is the risk of potential loss in the value of portfolios, including both trading and non-trading activities, due to adverse movements in market risk factors such as interest rates, foreign exchange rates, credit spreads, equity prices and their volatilities and correlations. Management of market risk - Position Control: only position of foreign exchange trading is allowed at the Branch. Our branch is allowed to maintain long or short position of foreign currencies in the limit of total of positive/negative foreign currency follow Decision 1081/2002/QD-NHNN: not exceeds 30% of financial institution s own capital. - The Branch is only permitted for trading under the market risk limits which are approved by the Head Office on an annual basis. - Limit of interest rate risk PVBP: On monthly basis, Back office is responsible to prepare ALM report including of the Branch s assessment report of Balance sheet/statement of income, report of foreign currency trading department and report to the Head Office s market risk management department for supervising. - Stop loss limit: the stop loss limit for the Branch s foreign currency trading department which was approved by Head Office is 400,000 per annum. Exposure to market risk As at 31 December 2010, the Branch s market risk is deemed to be affected by two main components: change in interest rates and foreign currency movements. (d) Operational risk Operational risks include risks arising from system failure, human error or non-adherence to systems and procedures, or from fraud or inadequate internal controls and procedures, resulting in financial or reputation loss. The Branch has put in place necessary preventive and detective controls to ensure those risks are managed to the minimum level. 34
, 31 December 2010 (continued) Governor of the State Bank of Vietnam) 27. Market risk (a) Interest rate risk As at 31 December 2010 Overdue Free of Interest Up to 1 month From 1 to 3 months From 3 to 6 months From 6 to 12 months From 1 to 5 years Over 5 years Assets I Cash on hand - 596,940 - - - - - - 596,940 II Balances with the SBV - - 4,636,306 - - - - - 4,636,306 III Balances with and loans to credit institutions - - 119,481,805 12,941,052 - - - - 132,422,857 VI Loans and advances to customers - - 238,144,580 34,881,536 19,261,322 1,428,571 7,142,858-300,858,867 VII Investment securities - - - - - - 777,082-777,082 IX Fixed assets - 206,774 - - - - - - 206,774 X Other assets - 1,460,518 - - - - - - 1,460,518 Total - 2,264,232 362,262,691 47,822,588 19,261,322 1,428,571 7,919,940-440,959,344 Liabilities I Deposits and borrowings from credit institutions - - 122,000,000 70,800,000 - - - - 192,800,000 II Deposits from customers - - 130,135,940 19,240,311 18,045,575 3,134,555 - - 170,556,381 VI Other liabilities - 4,609,052 - - - - - - 4,609,052-4,609,052 252,135,940 90,040,311 18,045,575 3,134,555 - - 367,965,433 Interest sensitivity gap of balance sheet items - (2,344,820) 110,126,751 (42,217,723) 1,215,747 (1,705,984) 7,919,940-72,993,911 Interest sensitivity gap of off - balance sheet items - - - - - - - - - Total interest sensitivity gap - (2,344,820) 110,126,751 (42,217,723) 1,215,747 (1,705,984) 7,919,940-72,993,911 35
, 31 December 2010 (continued) Governor of the State Bank of Vietnam) As at 31 December 2010 Overdue Free of Interest Up to 1 month From 1 to 3 months From 3 to 6 months From 6 to 12 months From 1 to 5 years Over 5 years VND million Assets I Cash on hand - 11,301 - - - - - - 11,301 II Balances with the SBV - - 87,775 - - - - - 87,775 III Balances with and loans to credit institutions - - 2,262,030 245,000 - - - - 2,507,030 VI Loans and advances to customers - - 4,508,553 660,377 364,655 27,046 135,230-5,695,861 VII Investment securities - - - - - - 14,712-14,712 IX Fixed assets - 3,915 - - - - - - 3,915 X Other assets - 27,649 - - - - - - 27,649-42,865 6,858,358 905,377 364,655 27,046 149,942-8,348,243 Liabilities I Deposits and borrowings from credit - 2,309,704 1,340,386 - - - - 3,650,090 institutions - II Deposits from customers - - 2,463,734 364,258 341,639 59,342 - - 3,228,973 VI Other liabilities - 87,258 - - - - - - 87,258 Total 87,258 4,773,438 1,704,644 341,639 59,342 - - 6,966,321 Interest sensitivity gap of balance sheet items - (44,393) 2,084,920 (799,267) 23,016 (32,296) 149,942-1,381,922 Interest sensitivity gap of off - balance sheet items - - - - - - - - - Total interest sensitivity gap - (44,393) 2,084,920 (799,267) 23,016 (32,296) 149,942-1,381,922 36
, 31 December 2010 (continued) Governor of the State Bank of Vietnam) (b) Currency risk VND EUR Other Total currencies As at 31 December 2010 Assets I Cash on hand 350,429 246,511 - - 596,940 II Balances with the SBV 1,836,033 2,800,273 - - 4,636,306 III Balances with and loans to credit institutions 50,603,162 80,771,916 1,031,859 15,920 132,422,857 VI Gross loans and advances 39,085,147 261,773,720 - - 300,858,867 VII Investment securities 777,082 - - - 777,082 IX Fixed assets 206,774 - - - 206,774 X Other assets 1,460,518 - - - 1,460,518 94,319,145 345,592,420 1,031,859 15,920 440,959,344 Liabilities and owners equity I Deposits and borrowings from credit institutions - 192,800,000 - - 192,800,000 II Deposits from customers 90,708,817 78,818,138 1,028,160 1,266 170,556,381 VI Other liabilities 4,609,052 - - - 4,609,052 95,317,869 271,618,138 1,028,160 1,266 367,965,433 FX position on balance sheet (998,724) 73,974,282 3,699 14,654 72,993,911 FX position off balance sheet - - - - - FX position on and off balance sheet (998,724) 73,974,282 3,699 14,654 72,993,911 37