sector overview

In Vietnam, as in other emerging markets, the banks that have built strong franchises in the right market segments and implementedrobust risk governance structures have the potential for strong growth and attractive returns on capital. Banking provides a leveraged play on the economy as financial intermediation grows in importance and bank instruments replace cash. For all of the banking sector’s rapid growth over the last several years, the banking sector remains underpenetrated and SOEs continue to account for most loans in the banking system. According to Euromonitor, only 13% of Vietnam’s population had access to the banking system as of 2010. It is also estimated that Vietnamese consumers only held approximately 550,000 credit cards as of 30 June 2011, a level which certainly has much room to grow as GDP per capita rises. Futher, various estimates place the amount of physical gold and USD held outside the banking system at approximately US$40-70 billion (equivalent to 40-70% of GDP). It is expected that much of this wealth will eventually flow into the Vietnamese banking system.

Vietnam’s banking sector has grown rapidly for most of the past decade. The reasons for investors’ aversion to the sector are understandable. Rapid credit growth led to Vietnam’s domestic credit as a percentage of GDP ballooning from 71% in 2006 to the high (but not yet critical) level of 130% in 2010. More recently, many banks have struggled as tight monetary policy has revealed underlying weaknesses in terms of limited access to funding and illiquid and undercapitalized balance sheets. The quality of banking sector assets and risk controls remains a concern. As discussed elsewhere in this website, we stands out for our strengths in many areas that are weaknesses for the banking sector overall, such as our liquid balance sheet, strong deposit franchise and robust risk controls which we believe will enable us to capitalized on the sector opportunity.