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Joint Stock Commercial Bank for Foreign Trade of Vietnam
Vietcombank (VCB:HOSE): 2014 AGM Notes
We attended VCBs 2014 AGM on 23 April 2014 and the following are key takeaways:
2013 Business Review
VCBs PBT totaled VND 5,743 billion (~$273.5 mn), nearly flat in 2013. Although net interest income slightly
declined by 1.5% YoY due to lower NIM and higher deposit growth than credit growth, non-interest income
increased by 14.1% YoY mainly thanks to other income from collecting bad debts which had been written off.
In 2013, this figure was VND 863 billion, 2.33 times compared with that of 2012. Therefore, net operating
profit before operating expenses and provision for credit losses incremented by 2.8% YoY. However, due to a
slight increase in operating expenses (3.8% YoY) and VND 217 billion higher provisions for credit losses, PBT
was nearly unchanged in 2013.
In 2013, Vietcombank underwent a brand makeover. In July 2013, it appointed a new CEO, Mr. Nghiem Xuan
Thanh who used to be Deputy CEO of VietInBank (CTG: HOSE). Mr. Nghiem Xuan Thanh succeeded the
former CEO, Mr. Nguyen Phuoc Thanh, who was appointed Deputy Governor at the State Bank of Vietnam
(SBV).
Interest income: VCBs deposit and credit growths were 16.3% and 13.7% YoY, respectively, which were
slightly higher than the industry averages of 15.5% and 12.5% YoY.
According to VCB, the Bank actively administered deposit growth to reflect credit growth in order to
improve efficiency given low demand for lending in 2013. Demand deposits accounted for 25.7% of total
deposits, higher than its peers (BID: 18.4% and CTG: 17.3%), which equipped VCB with a low funding
cost.
If we were to include corporate bonds in credit to customers, credit growth would total 14.82% YoY in
2013. Lending to SOEs and individuals achieved the highest growth rates of annual 32.6% and 29.4%,
respectively. In the context of economic difficulties, VCB actively focused on lending to SOEs that are
respective leaders in their industries such as Electricity of Vietnam (EVN), Vietnam Airlines,
PetroVietnam, Petrolimex, PVEP and Vietnam Rubber Group, etc. According to VCB, NPL ratios of these
SOEs are always lower than average (1.02% vs. 2.73 % in 2013). In 2013, the proportion of individual
lending increased from 11.94% to 13.58% in total outstanding loans. The majority of these loans were
housing loans and car loans.

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NIM contracted to 2.52% in 2013 from 2.89% in 2012 due to the following reasons: (1) lending interest
rate declined faster than deposit interest rate during 2013; (2) fiercer competition in lending in the context
of low demand for bank loans and (3) deposit growth was higher than credit growth. As a result of a mild
decline in net income, both ROE and ROA decreased to 10.43% and 0.99% in 2013.
NPL ratio increased from 2.4% in 2012 to 2.73% in 2013. VCBs provision coverage ratio has consistently
declined in the last 3 years, from 125% in 2011 to 86% in 2013. However, this ratio remains at a high
level compared with other banks (~63% for 26 banks and ~70% of 8 listed banks). According to the CEO,
VCB has been running two systems of classifying NPLs: one is qualitative pursuant to Decision
No.493/2005-QD-NHNN and one is pursuant to Circular 02/2013/TT-NHNN. The difference in NPL ratio
between these two systems is not very significant, less than 1%. The Bank expects that once Centralized
debt classification system (through CIC) is applied on 1 Jan 2015, its NPL ratio may exceed 3% however,
the bank will be equipped with methods to lower it to below 3% by the end of the year.
Non-Interest income: We see that VCBs non-interest income over total operating income (before operating
expenses and provision) ratio was quite high compared with other banks and stable, at 26.8% over the last 10
years. The majority of non-interest incomes are fees from international payments (34% of total non-interest
income) and gains from dealing in foreign currencies (30%), all of which are strengths of VCB. However,
according to VCB, its market share in import-export payments has gradually declined in the last few years. In
2013, its import-export turnover was USD 41.6 billion (+7.2% YoY) and its market share was 15.8%, ranking
No.1 in Vietnam. Although import-export turnover of Vietnam has gradually increased, foreign banks with the
clients being FDI companies enjoy the most benefits. Moreover, more banks participating in international
payments also nibbled away at VCBs share. The Bank targets to maintain its market share at 15%.
As mentioned above, VCB had another income worth VND 863 billion from collecting bad debts which had
been written off.
2014 Outlook
2014 Target (VND billion) 2013A 2014P YoY growth (%)
Total assets 468,994 520,583 11.0%
Charter capital 23,174 26,650 15.0%
Deposits 340,260 384,493 13.0%
Credit 274,314 309,975 13.0%
No. of employees 13,864 14,834 7.0%
Labor cost/PBT excluding labor cost 33% 37%
No. of new branches 1 16
Provisions for credit losses 3,520 5,000 42.1%
PBT 5,743 5,500 -4.23%
Dividend ratio on par value 12% 10%
NPL 2.73% < 3%
Source: VCB, SSI Research

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We would like to highlights key elements on VCBs 2014 target:
In the favorable conditions, the Bank may ask the SBV to allow it to increase credit growth for 2014 up to
15%. And if 2014 credit growth is 15%, VCBs 2014 PBT is planned at VND 5,700 billion, nearly flat YoY.
Provision for credit losses of the Bank will reach VND 1,500 billion, higher than that of 2013. This
additional amount is for new loans in 2014 and more importantly for stricter regulations on booking
provisions for credit loss under Circular 09. Nonetheless, VCBs net operating profit before provision is
targeted to increase by 13.13% YoY in 2014.
In 2013, VCB sold bad debts worth VND 1,000 billion to VAMC and it plans to continue to sell another
VND1,000 billion in 2014. The Bank also expects that other income from collecting bad debts which were
written off will reach VND 1,200 billion in 2014.
At 2014 AGM, general shareholders also approved the following:
12% cash dividends for 2013: Dividend for 2013 will be in cash, at 12% on par value and will be paid
soon after 2014 AGM. At the current price of VND 29,000/share on 24 April 2014, VCBs dividend yield is
4.14%.
15% stock dividend: VCB will pay stock dividend at the ratio of 15% in order to increase its charter
capital to VND 26,650 billion. The source which will fund the stock dividend payment will come from
retained earnings and share surplus which are 67% of its charter capital. One of the reasons for
increasing charter capital in which VCB mentioned at the AGM is to prepare for possible M&A
transactions should any arises. However, at the moment, no details have been decided and released.
VCB has a plan to apply Basel II from 2015 to 2018 and its CAR under Basel II may be lower than its
CAR under Vietnamese regulations (13.37%). The BoM will submit to authorities for approval in May-June
2014 and issue stock bonus in July 2014. In August, VCB will list these newly-issued shares on HOSE.
Change in the Charter: The Bank made a change in its Charter. Accordingly, the legal representative of
the bank will be the Chairman instead of the CEO at the moment. The Chairman of VCB is Mr. Nguyen
Hoa Binh who has been the Chairman of VCB since July 2004.
Valuation and Investment View
We estimate that 2014 EPS will reach VND 1,442, a 9% YoY decrease based on VCBs 2014 profit plan and
average number of shares in 2014. At the current price of VND 29,000/share on 24 April 2014, VCB is trading
at a current PB of 2.22x and 2014 PE of 20.11x which are higher than industry average (1.22x and 12.1x).
However, we think VCB always enjoys a premium in valuation thanks to its good trademark, better corporate
governance and transparency than peers, diversified sources of income, and stronger quality of assets.

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Appendix: Annually Financial Statements (2010-2013)
VND Million 2010 2011 2012 2013
Balance Sheet

+ Cash on hand, gold, silver and gemstones 5,232,743 5,393,766 5,627,307 6,059,673
+ Balances with the SBV 8,239,851 10,616,759 15,732,095 24,843,632
+ Balances with and loans to other CIs 79,653,830 105,005,059 65,712,726 91,737,049
+ Trading securities 7,181 817,631 520,876 195,270
+ Derivatives and other financial assets 34,686 0 0 136,725
+ Loans and advances to customers 171,241,318 204,089,479 235,889,060 267,863,404
+ Investment securities 32,811,215 29,456,514 78,521,304 64,463,096
+ Long-term investments 3,955,001 2,618,418 3,020,788 3,041,790
+ Fixed assets 1,586,094 2,605,744 3,660,336 4,085,686
+ Other assets 4,859,422 6,118,909 5,803,825 6,567,707
Total Assets 307,621,340 366,722,279 414,488,317 468,994,032
+ Amounts due to the Government and the SBV 10,076,936 38,866,234 24,806,433 32,622,411
+ Deposits and borrowings from other CIs 59,535,634 47,962,375 34,066,352 44,044,289
+ Deposits from customers 204,755,949 227,016,854 285,381,722 332,245,598
+ Derivatives and other financial liabilities 0 11,474 5,461 0
+ Financed funds, trust funds and borrowings from other credit
institutions
20 0 0 0
+ Valuable papers issued 3,563,985 2,071,383 2,027,567 2,013,597
+ Other liabilities 8,832,055 22,012,029 26,502,018 15,532,445
Total Liabilities 286,764,578 337,940,349 372,789,553 426,458,340
+ Capital 14,255,875 20,739,157 32,420,728 32,420,728
Charter capital 13,223,715 19,698,045 23,174,171 23,174,171
Share premium 987,000 995,952 9,201,397 9,201,397
Other capital 45,160 45,160 45,160 45,160
+ Reserves 1,456,674 2,116,611 2,793,880 3,468,552
+ Foreign exchange differences 269,314 191,020 121,228 123,853
+ Asset revaluation differences 35,631 70,442 72,800 82,306
+ Retained earnings 4,719,237 5,521,466 6,138,213 6,290,626
Total Shareholders' Equity 20,736,731 28,638,696 41,546,849 42,386,065
Minority Interests 120,032 143,234 151,915 149,627
Total Liabilities, Shareholders' Equity & Minority Interest 307,621,342 366,722,279 414,488,317 468,994,032

Growth

Deposit 22.9% 10.0% 25.5% 16.3%
Credit 24.8% 18.4% 15.2% 13.7%
Total assets 20.4% 19.2% 13.0% 13.2%
Shareholders' Equity 24.1% 38.1% 45.1% 2.0%
Net interest income 26.1% 51.6% -11.9% -1.5%
Operating income 24.2% 29.0% 1.4% 2.8%
Operating expense 31.0% 24.5% 5.5% 3.8%
Profit before tax 11.3% 2.3% 1.2% -0.4%
Profit after tax 9.1% -2.0% 4.8% -1.0%

Valuation

PER 15.44 12.19 16.76 16.94
PBR 2.23 1.58 2.12 2.05
Dividend yield 0.00% 5.50% 4.41% 4.48%


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VND Million 2010 2011 2012 2013
Income Statement

Interest and similar income 20,587,491 33,354,733 31,733,995 28,298,671
Interest and similar expenses -12,392,225 -20,933,053 -20,792,943 -17,516,269
Net interest income 8,195,266 12,421,680 10,941,052 10,782,402
Fee and commission income 1,917,377 2,198,033 2,235,698 2,745,171
Fee and commission expenses -502,130 -688,300 -861,939 -1,125,800
Net fee and commission income 1,415,247 1,509,733 1,373,759 1,619,371
Net gain from trading foreign currencies 561,680 1,179,584 1,487,751 1,426,859
Net gain/(loss) from trading securities 18,149 -5,896 76,742 22,172
Net gain/(loss) from investment securities 268,381 24,012 207,631 160,461
Net other income/(expenses) 580,072 -1,260,916 525,098 934,285
Net income from investments in associates and joint-ventures 492,026 1,002,574 468,583 561,804
TOTAL OPERATING INCOME 11,530,820 14,870,771 15,080,616 15,507,354
TOTAL OPERATING EXPENSES -4,577,786 -5,699,837 -6,013,108 -6,244,061
Net profit before provisions and allowances for credit losses 6,953,035 9,170,934 9,067,508 9,263,293
Provisions and allowances for credit losses -1,384,183 -3,473,529 -3,303,210 -3,520,217
PROBIT BEFORE TAX 5,568,852 5,697,405 5,764,298 5,743,076
Corporate Income Tax -1,265,807 -1,480,073 -1,343,305 -1,365,494
PROBIT AFTER TAX 4,303,045 4,217,332 4,420,993 4,377,582
Net profit attributable to the minority interest -21,248 -20,521 -23,500 -19,530
NET PROFIT 4,281,797 4,196,811 4,397,493 4,358,052
EPS (VND) 2,105 1,789 1,623 1,582
Cash dividend (VND) 0 1,200 1,200 1,200
Stock dividend ratio 1,200 0 0 0

Capital requirement

Capital adequacy ratio - CAR 9.0% 11.1% 14.8% 13.4%
Total assets/Equity 14.83 12.81 9.98 11.06
Equity/Loans to customers 11.7% 13.7% 17.2% 15.5%

Assets quality

NPL ratio 2.83% 2.03% 2.40% 2.73%
Provision coverage ratio 111% 125% 91% 86%

Management

Cost to income ratio - CIR 39.7% 38.3% 39.9% 40.3%
Net operating profit per employee 1,010 1,184 1,106 1,119
Profit before tax per employee 488 453 423 414
Net operating profit per branch/transaction office 26,816 193,127 38,569 37,457
Profit before tax per branch/transaction office 12,951 73,992 14,742 13,872

Earnings

Net interest margin - NIM 3.01% 3.80% 2.89% 2.52%
Non-interest income/Net operating profit 28.93% 16.47% 27.45% 30.47%
ROA - average balance 1.53% 1.25% 1.13% 0.99%
ROE - average balance 22.98% 17.08% 12.60% 10.43%

Liquidity

Loans to deposits ratio - LDR 84.9% 91.4% 83.9% 82.1%
Source: VCB, SSI Research

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RATING
Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stocks expected
return relative to the market required rate of return, which is 16% (*). A BUY rating is given when the security is expected
to deliver absolute returns of 16% or greater. A SELL rating is given when the security is expected to deliver returns below
or equal to negative - 8%, while a HOLD rating implies returns between negative - 8% and 16%.
Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months
because of a stock catalyst or event. Short-term rating may be different from 12-month rating.
Industry Rating: We provide the analyst industry rating as follows:
Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the
relevant broad market
Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant
broad market
Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the
relevant broad market.
*The market required rate of return is calculated based on 1-year Vietnam government bond yield and market risk premium derived from using Relative
Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents.
DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion, are based
upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. Expressions of
opinion herein were arrived at after due and careful consideration and they were based upon the best information then
known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time; Expressions of opinion
contained herein are subject to change without notice; This document is not, and should not be construed as, an offer or
the solicitation of an offer to buy or sell any securities; SSI and its affiliates and/or its officers, directors and employees
may have positions and may effect transactions in securities of companies mentioned herein and may also perform or
seek to perform investment banking services for these companies.
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whatsoever for any direct or consequential loss arising from any use of this document or its content; The use of any
information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.
CONTACT INFORMATION
Phuong Hoang Senior Director, Institutional Research & Investment Advisory phuonghv@ssi.com.vn
Giang Nguyen Associate Director, Banking & Insurance giangntt@ssi.com.vn