Group coursework Report

VIETNAM NATIONAL UNIVERSITY HCMC

THE UNIVERSITY OF ECONOMICS AND LAW

BANKING MANAGEMENT
CASE STUDY
Lecturer: Ms. Nguyen Thi Diem Hien
Name Student ID
Le Nguyen Phuong Nghi K214041650
Nguyen Le Hanh Tam K214041653
Hoang Thanh Thao K214041654
Pham Trang Linh K214041648
Nguyen Ha My K214041247
Table of Contents
I. INTRODUCTION OF BIDV: ................................................................................................ 2
II. ANALYSE THE PROFITABILITY POTENTIAL OF BIDV BANK (2019-2022) ................... 5
III. INTEREST RATE RISK IN BIDV ....................................................................................... 9
IV. CREDIT RISK IN BIDV .................................................................................................... 10
V. LIQUIDITY RISK .............................................................................................................. 11
VI. CURRENCY RISK ............................................................................................................ 17
VII. BANK’S CAPITAL ........................................................................................................... 22

I. INTRODUCTION OF BIDV:

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BIDV (Bank for Investment and Development of Vietnam) is one of Vietnam's largest and most
influential banks, with over 100 branches and 2,700 transaction offices nationwide. It is a joint-
stock commercial bank, with the state holding 64.47% of its charter capital, institutional
shareholders owning 22.52%, and individual shareholders 13.01%. BIDV offers a wide range of
financial services for individuals and businesses, including savings, loans, remittances, insurance,
digital banking, and investment services. It operates in key sectors like banking, insurance, and
financial investment, aiming to support both personal and business economic growth. Key services
include:

● Retail Banking: Deposit, loan, card, e-banking, insurance, and investment services.
● Commercial Banking: Deposits, loans, payments, e-banking, and guarantees.

Despite not being entirely state-owned, BIDV remains under state management and is one of the
four largest banks in Vietnam by customer base.

To gain a more detailed understanding of a bank's operational performance, we have compiled a

list of key financial ratios:

Overall, BIDV appears to have demonstrated a solid performance in terms of profitability. The
upward trends in ROA and ROE suggest that the bank has been effective in managing its assets
and generating returns for shareholders. The stable NIM indicates a consistent ability to earn
interest income. Non-Performing Loan Ratio (NPLR) is used to indicate the risk of BIDV. After a
slight increase in 2018-2019, a significant decrease occurred in 2020, likely due to improved
economic conditions and effective loan recovery strategies. However, subsequent increases in
2021 and 2022 suggest potential impacts from the COVID-19 pandemic and changes in lending
practices. These fluctuations highlight the influence of both internal factors like BIDV's risk
management and external factors like economic conditions on the bank's asset quality.

The Cost-Income Ratio (CIR) is an indicator to measure the efficiency of a bank. There is no
specific range for this ratio, however, it is expected that lower CIR, better the ability to control
cost. While there was a significant improvement in 2020, with CIR decreasing to 31.15%, it has
since rebounded. This suggests that while BIDV has made efforts to control costs and improve
operational efficiency, there have been factors, possibly related to the economic environment or
increased investment in technology and digitalization, that have contributed to the rise in CIR in
recent years. A lower CIR generally indicates better cost management and higher profitability.
Thus, maintaining a downward trend in CIR would be beneficial for BIDV's financial
performance. The liquidity ratio that is used in BIDV is LDR. The LDR decreased significantly in
2021 and 2022, indicating improved liquidity management and a more prudent approach to
lending. This suggests that BIDV has been successful in balancing its lending activities with its

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funding sources, ensuring it has sufficient funds to meet its obligations. However, a slight increase
in the LDR in 2023 suggests that BIDV may be increasing its lending activities, which could
potentially impact its liquidity position if not managed carefully. Overall, the trend in BIDV's LDR
indicates a healthy and sustainable liquidity profile.

A comparison will be drawn between BIDV and VCB. When comparing profitability ratios, BIDV
has the lowest ROE and ROA among the three banks, although its NIM outperforms VCB and is
similar to VietinBank. Despite this, all three banks are top performers in ROE. BIDV's lower ROA
suggests it is less efficient in utilizing its assets, despite having the largest total assets of over 1.642
trillion VND. In contrast, VietinBank and VCB, with smaller asset bases, show higher asset
utilization efficiency. This highlights that high profits don't always reflect operational efficiency—
asset and credit quality are key indicators of a bank's health. While state-owned banks like BIDV
generate significant profits, their NIM is lower than private banks, primarily due to aggressive
interest rate cuts made to support the economy and align with government policies, despite lower
funding costs from strong brands and networks.

When comparing the risk indicator (NPLr), both BIDV and Vietinbank have controlled it worse
than VCB. However, the SBV has set the limit of NPL ratio to be less than 3%, All three banks
adhere to the regulations of the SBV and execute their respective annual plans
precisely.Unfortunately, during past years, it is recorded that the NPLr from these 3 banks have
increased compared to private banks ( VPB, TCB,...). The primary driver of profit growth for the
three state-owned banking giants has been the reduction in operating costs and loan loss
provisions, even as net interest income has either declined or stagnated. The decrease in loan loss
provisions has led to a significant decline in loan loss coverage (LLC) ratios and a rapid increase
in NPLs. In terms of absolute value, BIDV has the highest NPLs among the Big 4 banks and is the
second-largest NPL holder in the entire banking industry.

The Cost-to-Income Ratio (CIR) for BIDV, VCB, and VietinBank shows notable differences
from 2019 to 2023. A CIR of 50% or below is considered good for banks. BIDV’s CIR remains
stable around 35% (ranging from 31.15% to 35.86%), indicating strong cost management. VCB is
slightly more efficient, with a CIR between 30% and 34.59%, especially in 2021 and 2023, where
it outperforms BIDV. VietinBank, however, had a higher CIR, peaking at 38.83% in 2019 and

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improving to 28.98% in 2023, suggesting initial operational challenges but recent improvements
in cost efficiency. These differences reflect variations in business models, operational scale, and
cost strategies. VCB’s lower CIR indicates a more streamlined cost structure, while VietinBank’s
earlier higher CIR likely reflects restructuring efforts or operational challenges. As for the Loan-
to-Deposit Ratio (LDR), an optimal range is 75%-90%. An LDR below 75% suggests
underutilization of deposits for lending, limiting profitability, while above 90% indicates higher
risk. BIDV and VietinBank have managed both CIR and LDR effectively, ensuring sound
operational efficiency and risk management.

II. ANALYSE THE PROFITABILITY POTENTIAL OF BIDV BANK (2019-2022)

2.1 Return on Assets (ROA):

BIDV's ROA increased from 0.57% in 2019 to 0.87% in 2022: While the ROA shows positive
growth, it remains on the lower end compared to VCB. A low ROA indicates that BIDV is less
efficient at generating profits from its total assets. However, the increase in ROA from 2019 to
2022 suggests that the bank has become slightly more efficient over time. The slight dip in 2020
(0.48%) could be attributed to the pandemic's impact on profitability, but the recovery in 2021 and
2022 signals improved operational efficiency.

2.2. Return on Equity (ROE):

ROE shows a marked improvement, moving from 11.01% in 2019 to 17.68% in 2022: The increase
in ROE highlights BIDV’s ability to generate higher profits relative to its equity base. A rising
ROE is a positive indicator of a bank’s ability to efficiently use shareholders' equity to produce
returns. The significant jump from 2020 (9.07%) to 2022 (17.68%) suggests that BIDV improved
its profitability strategies and possibly benefited from higher capital efficiency, especially in 2022.

2.3. Net Interest Margin (NIM):

NIM grew slightly from 2.70% in 2019 to 2.86% in 2022: BIDV’s NIM shows gradual
improvement over the years, signaling a modest enhancement in its ability to generate income
from its lending activities versus its funding costs. The NIM remained stable in 2021 and 2022,
indicating that while the bank’s loan portfolio grew, it might have also faced pressures from
increasing funding costs or competition in the loan market. However, BIDV has managed to
maintain a relatively stable margin, suggesting a balanced strategy.

Comparative Summary:

1. Profitability & Efficiency:

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VCB has been significantly more profitable than BIDV, with higher ROA and ROE in each year
of the period analyzed. The increasing ROA and ROE over the years indicate VCB’s superior
operational efficiency and capital utilization.
BIDV has shown improvement, especially in ROE, but still lags behind VCB in terms of asset
utilization and return generation.

2. Net Interest Income:

Both banks have grown their NII over the period, but VCB has outpaced BIDV in terms of overall
growth. VCB seems to be more effective in leveraging its lending activities and maintaining
income from interest-bearing assets.

3. Net Interest Margin:

VCB has had a consistently higher NIM than BIDV, indicating better management of interest rate
spreads and more effective use of funds.

Conclusion:

VCB has demonstrated stronger overall performance in terms of ROA, ROE, and NIM, signaling
superior financial health and operational efficiency. The bank’s ability to generate higher returns
on both assets and equity, coupled with consistent growth in NII and NIM, positions it as the
stronger performer in this comparison. BIDV, while showing steady growth and improvement,
especially in ROE and NIM, still has room for improvement, particularly in terms of ROA. Its
financial performance suggests a more cautious or slower-paced growth strategy, but it has
demonstrated positive trends over the four years analyzed.

Decomposition of ROE following to The Nature of Bank Profit

2019:

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In 2019, BIDV's ROE stood at 11.01%, supported primarily by a high Equity Multiplier that
compensated for a relatively low ROA of 0.57%. Asset Utilization was moderate, meaning BIDV
was able to generate revenue from its assets, but this was offset by a high Expense Ratio, indicating
significant costs relative to total assets. The Tax Ratio also contributed to the reduction in ROA,
as taxes took a substantial portion of profits. Overall, BIDV relied heavily on leverage to enhance
its returns to equity, while high expenses and taxes limited its net profitability.

2020:
In 2020, ROE declined to 9.07% due to a decrease in ROA to 0.48%. Asset Utilization slightly
weakened, signaling less efficient revenue generation from assets, while the Expense Ratio
remained high, indicating persistent operational costs relative to total assets. The Tax Ratio
continued to impact ROA, further lowering profitability. Although BIDV maintained a high Equity
Multiplier, the reduced ROA, driven by lower revenue efficiency and stable expenses, led to the
overall decline in ROE. Economic conditions and external pressures may have contributed to these
outcomes, affecting BIDV’s ability to maintain its revenue levels.

2021:
In 2021, ROE rebounded to 12.56% as ROA increased to 0.62%. Asset Utilization showed
improvement, suggesting that BIDV generated more revenue from its assets, while the Expense
Ratio slightly declined, reflecting better cost control. The Tax Ratio remained steady, with taxes
not significantly affecting the increase in ROA. With a stable Equity Multiplier, BIDV’s higher
ROA resulted in improved returns for shareholders. The year’s results indicate stronger operational
efficiency and expense management, which were key factors in enhancing ROE.

2022:
In 2022, ROE rose substantially to 17.68%, supported by an increase in ROA to 0.87%. Asset
Utilization further improved, showing that BIDV was highly efficient in generating revenue from
its assets, while the Expense Ratio continued to decrease, indicating effective control over
operating costs relative to assets. The Tax Ratio was maintained at a manageable level, allowing
BIDV to retain a larger portion of its earnings. With a consistently high Equity Multiplier, the
improvements in both revenue efficiency and cost management significantly boosted ROE,
demonstrating BIDV’s strong financial performance and strategic success in optimizing
profitability."

Dupont Model

2019:
The ROE in 2019 was 11,01%, indicating that the company had a relatively stable return on equity
and can be inferred that the company used assets and financial leverage reasonably. However,
asset turnover was not optimized, which led to overall effectiveness being lower than in the
following years.

2020:

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ROE decreased to 9,07% in 2020, primarily due to the impact of the COVID-19 pandemic. The
profit margin was likely affected by additional costs during this period, and asset turnover might
not have performed as expected. However, the company maintained a reasonable level of financial
leverage, but it was not enough to offset the decline in profit margin and asset turnover.

2021:
ROE increased to 12,56% in 2021, showing a strong recovery after the pandemic. The profit
margin improved due to better cost control and revenue growth. Asset turnover also improved
significantly, indicating the company used its assets more effectively to generate revenue.
Financial leverage remained at a reasonable level, supporting the company's stable growth.

2022:
In 2022, ROE saw a significant increase to 17.68%. This was a result of the company improving
its profit margin and optimizing asset turnover. The high profit margin indicates that the company
managed costs well and increased revenue. Financial leverage remained stable, not overly
influenced by debt, helping maintain sustainable growth.

Ways a Bank Can Increase Non-Interest Income:

1. Expanding Fee-Based Services:

BIDV can boost non-interest income by enhancing fee-based services, including tailored credit
card packages and improved digital banking. Customized packages for different customer
segments increase relevance, while upgrades to digital interfaces can drive usage. High-quality
foreign exchange and brokerage services will attract clients seeking reliable, professional advice.
Additionally, loyalty programs offering fee discounts and advanced security measures like two-
factor authentication can boost customer retention. Collaborations with fintech firms could
introduce new features such as e-wallets and personal finance tools, helping BIDV cater to
evolving customer preferences.
2. Increasing Digital Banking Offerings:
Expanding services like mobile banking, online payments, and peer-to-peer (P2P) options allows
BIDV to collect small transaction fees, enhancing non-interest income. Investments in user-
friendly design and robust security (e.g., biometric authentication) are essential for gaining
customer trust. Adding P2P and QR code payment options also supports the demand for cashless
transactions. Partnerships with fintech companies can further enrich BIDV's digital services by
incorporating features like e-wallet integration and automated savings tools, improving customer
satisfaction and solidifying BIDV's position in the digital market.

Ways a Bank Can Reduce Non-Interest Expenses:

1. Streamlining Operational Efficiency:

BIDV can reduce costs by automating processes and enhancing operational efficiency. The
bank’s use of AI for data analysis and fraud detection can improve decision-making, while
Robotic Process Automation (RPA) can handle repetitive tasks, freeing staff for more complex
responsibilities. Digitizing records and introducing chatbots for 24/7 customer support also
improve productivity. A Business Process Management (BPM) system could help BIDV identify
bottlenecks, further enhancing efficiency and responsiveness.
2. Outsourcing Non-Core Activities:
Outsourcing tasks like IT services and customer support allows BIDV to focus on core banking,
saving on infrastructure costs. By choosing reliable providers, maintaining oversight, and setting

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 performance indicators, BIDV can ensure high-quality service. Investing in technology transfer
for key outsourced services reduces dependency on third parties over time, while building long-
term partnerships fosters quality, innovation, and cost savings.

III. INTEREST RATE RISK IN BIDV

The GAP model measures the difference between rate-sensitive assets (RSA) and rate-sensitive
liabilities (RSL) over a specific period. It reflects how much of BIDV's assets and liabilities are
affected by changes in interest rates. This model is essential for assessing and managing BIDV’s
exposure to interest rate risk. Interest rate risk impacts the value of a bank’s assets and liabilities
when market rates change. A positive GAP typically benefits BIDV in a rising rate environment,
as income from rate-sensitive assets (e.g., loans or bonds) grows faster than liability costs. In
contrast, a negative GAP could lead to losses, with liability costs outpacing asset returns. Thus,
effective GAP management is vital for mitigating interest rate risk and maintaining BIDV’s
financial stability amidst market fluctuations.

In 2021, BIDV strategically adjusted its balance sheet by increasing its rate-sensitive assets
(RSA) from 958 million VND in 2020 to 1,465 million VND, while reducing its rate-sensitive
liabilities (RSL) from -394 million VND to -133 million VND. This raised the bank's GAP from
1,352 million VND to 1,598 million VND, positioning BIDV to benefit from rising interest rates
in 2022. By increasing RSA, BIDV made its assets more responsive to rate changes, while
lowering RSL reduced its liability exposure. When rates rose by 2% in 2022, BIDV’s positive
GAP allowed for higher income from assets while controlling liability costs, raising Net Interest
Income (NII) from 46.8 million VND in 2021 to 56.1 million VND in 2022. These adjustments
showcase BIDV’s effective interest rate risk management and alignment with market trends.

Key Drivers of NII Growth:

i. Interest Rate Fluctuations:

Lower rates in 2021 compressed NII due to economic support measures. However, the 2%
increase in 2022 enabled BIDV to generate greater returns on rate-sensitive assets like loans.

2. GAP Management:
BIDV’s proactive GAP management in 2021, with increased RSA and reduced RSL, created
a positive GAP that allowed BIDV to benefit from rate hikes, directly contributing to the NII
growth.

3. Economic Recovery and Loan Growth:

As economic conditions improved in 2022, loan demand increased, boosting BIDV's credit
volumes and interest income. Additionally, a shift towards more profitable lending segments
further enhanced RSA and supported NII growth.

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BIDV's combination of a positive GAP, rising interest rates, and a favorable economic climate
were crucial in raising NII, reflecting strong strategic and risk management.

IV. CREDIT RISK IN BIDV

To evaluate BIDV's creditworthiness and identify vulnerabilities, we analyzed three key metrics:
the Non-Performing Loan (NPL) ratio, the Allowance for Loan Losses (ALL) ratio, and the
Provision for Loan Losses (PLL) ratio.

● NPL ratio: Measures the proportion of bad debts (group 3-5) relative to total loans. A
higher NPL ratio signals increased credit risk, poor lending quality, and potential
liquidity problems, which can limit credit flow and harm the bank's competitiveness.
● ALL ratio: Reflects the bank's provisions for loan losses relative to total loans. A higher
ALL ratio indicates stronger preparedness to absorb potential defaults, but an excessively
high ratio may suggest overly cautious lending or anticipated future losses, which could
affect profitability.
● PLL ratio: Compares provision expense for loan losses to gross loans. A higher PLL ratio
shows a bank's ability to cover potential credit losses, indicating better risk management
and resilience to defaults.

These ratios, compared to industry benchmarks and trends, help assess BIDV's asset quality,
provisioning adequacy, and credit risk exposure.

Between 2019 and 2023, BIDV's NPL, ALL, and PLL ratios reflected its loan portfolio quality
and provisioning strategy, influenced by economic conditions. In 2019, the NPL ratio was 1.75%,
with the ALL ratio at 1.31% and the PLL ratio at 1.80%. The slight increase in NPL to 1.76% in
2020 was accompanied by higher provisions (ALL ratio at 1.57%, PLL ratio at 1.92%) due to the
economic uncertainty caused by the COVID-19 pandemic. In 2021, despite a drop in NPL to
1.00%, the bank raised provisions significantly (ALL ratio at 2.15%, PLL ratio at 2.18%) to
prepare for potential future defaults amid pandemic recovery. By 2022, the NPL ratio rose slightly
to 1.16%, while the ALL ratio increased to 2.51%, reflecting continued caution, although the PLL
ratio decreased to 1.58%, signaling fewer actual loan losses. In 2023, the NPL ratio increased to
1.26%, but both the ALL and PLL ratios decreased (to 2.28% and 1.14%, respectively), suggesting
a more stable loan book and improved economic conditions. This pattern shows that higher NPLs
lead to higher provisions, while reduced NPLs allow for lower provisioning, illustrating BIDV's
adaptive risk management strategy.

Recommendations to improve the credit risk in BIDV:

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To align with Basel Committee recommendations and international best practices, it is advised
that BIDV adopt a centralized credit risk management model. At the Head Office, the decision-
making process should be separated from the credit management function by clearly defining the
roles of departments such as credit assessment, credit approval, credit management, and credit risk
management. Similarly, at the branches, distinct functions should be established for sales
(customer contact and marketing), credit analysis (evaluation, forecasting, and client assessments),
and operations (documentation processing, loan monitoring, and debt collection). This separation
of functions is designed to minimize risks and enhance operational efficiency, while ensuring that
each staff member can focus on their area of expertise to optimize the bank's overall credit
operations.

+ Strengths: Risk management is implemented systematically across the entire bank,

ensuring long-term competitiveness. It establishes and maintains a cohesive risk
management environment that aligns with business unit operations. The model enhances
the ability to measure and monitor risks, builds a unified risk management policy for the
entire system, and is well-suited for large banks.
+ Weaknesses: Developing and implementing this centralized management model requires
significant investment in time and effort. The staff must possess the necessary knowledge
and the ability to apply theoretical concepts to practical situations.

In this model, the Customer Relationship Department is responsible for identifying, developing,
and maintaining customer relationships. They assess customer needs, assist with loan applications,
and transfer the application to the Credit Analysis Department. The Credit Analysis Department
verifies customer information, gathers additional data from sources like the bank's records, CIC,
and public media, and conducts a thorough evaluation of the customer's situation, financial
standing, loan proposal, and collateral. The department then reports its findings to the Credit
Approval Authority, which makes the final decision. Once approved, the decision is recorded by
the Credit Analysis Department and forwarded to the Customer Relationship Department to
proceed with the next steps.

V. LIQUIDITY RISK

Liquidity risk occurs when commercial banks experience a liquidity deficiency (NLP < 0). The
bank is experiencing an operating capital crisis, resulting in insufficient funds to meet client
payments, lending, and economic investments. Commercial banks face liquidity concerns, which
can lead to missed investment opportunities and poor business performance.

With current market liquidity challenges, BIDV’s strategy emphasizes compliance with State
Bank regulations, system safety, asset liquidity, and quality.

5.1. Liquidity gap

The liquidity gap of a bank refers to the mismatch between a bank’s assets and liabilities over a
given time period, showing the potential shortfall or surplus in liquidity. The liquidity gap is the

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difference between maturing assets (such as loans and investments that will generate cash) and
maturing liabilities (such as customer deposits and short-term borrowings) within specific time
frames. 𝑁𝑒𝑡 𝑙𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑔𝑎𝑝 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡 − 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦

A positive liquidity gap means the bank's maturing assets are greater than its maturing liabilities
within a given time period. This suggests that the bank is in a strong position to meet its
obligations and may have excess cash for additional investment or lending.

A negative liquidity gap occurs when maturing liabilities exceed maturing assets. This indicates
that the bank may face a potential cash shortage and could struggle to meet its obligations
without accessing external funding or liquidating assets.

In 2019, BIDV’s liquidity gap analysis showed short-term pressure, with negative gaps in the
“up to 1 month” and 1-3 month buckets, implying more liabilities than assets maturing and
potential costly funding needs. Positive gaps in medium and long-term buckets led to an annual
liquidity surplus of VND 359,422.332 million, indicating strong long-term asset support.

In 2020, short-term pressure increased, with the “up to 1 month” gap nearly doubling and the 1-3
month bucket still negative. Positive gaps in the 3-12 month, 1-5 year, and over 5-year buckets
maintained a total surplus, but managing short-term liquidity became more challenging.

By 2021, BIDV improved short-term liquidity, reducing the “up to 1 month” gap to -VND
129,195.178 million, though the 3-12 month bucket turned negative, indicating a shift to
medium-term liabilities. Long-term buckets stayed positive, but the total annual surplus fell,
signaling tighter overall liquidity.

In 2022, BIDV’s short-term challenges persisted, with a significant negative gap in the “up to 1
month” bucket and a larger negative gap in the 3-12 month bucket. Long-term buckets stayed
positive, but the total annual surplus declined further, indicating constrained liquidity and greater
reliance on long-term assets, affecting short-term flexibility.

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5.2. Liquidity measurement
5.2.1. Asset Liquidity measure
a) Loan-to-deposit ratio

The loan-to-deposit ratio (LDR) measures a bank's total loans against its total deposits,
indicating liquidity and lending efficiency. A high LDR may mean insufficient liquidity for
unexpected needs, while a low LDR suggests the bank may not be maximizing earnings. The
LDR is calculated by dividing total loans by total deposits, both found on the bank's balance
𝑇𝑜𝑡𝑎𝑙 𝑙𝑜𝑎𝑛𝑠
sheet. 𝐿𝐷𝑅 = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡

The table shows that BIDV's loan-to-deposit ratio increased from 2019 to 2020 but then dropped
significantly from 2020 to 2022. According to Circular 22/2019/TT-NHNN by the State Bank of
Vietnam (SBV), a commercial bank's LDR should not exceed 90% or fall below 70%. An LDR
between 80% and 85% is considered optimal, balancing profitability and risk control. BIDV has
maintained an excellent performance, keeping its LDR within this ideal range over the past four
years.

BIDV's LDR of 83.7% in Q3 2022 positions it as having a relatively high value compared to
many other banks, though it is not the highest. While it shows a slight decrease from its 2021
figure of 85.8%, BIDV's LDR is higher than banks like TPB (63.8%) and NVB (70.8%), but
lower than VPB, which has the highest LDR at 92.1%. This indicates BIDV's strong utilization
of deposits for lending, placing it in the upper range among its peers.

b) Liquidity asset over total asset

The liquid assets to total assets ratio is a financial metric used to assess the liquidity of a
company by measuring the proportion of its assets that can be quickly converted to cash. This
ratio indicates the ability of the bank to meet short-term obligations without needing to sell long-
𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑎𝑠𝑠𝑒𝑡
term or illiquid assets. 𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑎𝑠𝑠𝑒𝑡 𝑜𝑣𝑒𝑟 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡

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By 2022, BIDV's liquidity position improved significantly, becoming more comparable to
Vietinbank but still trailing behind VCB, which had the strongest liquidity position. The rise in
BIDV's liquidity ratio suggests a shift towards a more conservative management strategy.
Agribank maintained a lower liquidity position than BIDV and others, indicating a different asset
focus. Overall, BIDV's liquidity ratio reflects adaptability and increased emphasis on resilience,
with initial reductions followed by recovery showing strategic adjustments to economic
conditions for balanced growth and stability.

5.2.3. Liability Liquidity measure

There are many ratio to measure liability liquidity such as total equity to total assets, risk assets
to total assets, loan losses to net loans, reserve for loan losses to net loan, core deposits to total
assets, or Federal funds purchased and RPs to total liabilities.

Liquidity ratios are an important type of financial metric used to determine a debtor's ability to
pay its current debt obligations without raising external capital. Liquidity ratios measure a
company's ability to pay its debt obligations and margin of safety by calculating metrics
including current ratio, outstanding loans to total assets, and equity-to-total assets ratio.
In this case, we used 3 measurements: Equity over total assets , Total deposits to total liabilities
and total debt over total asset.

Equity-to-assets ratio, is a measure of a company's financial leverage iindicates what proportion

of a company’s assets is financed by shareholder equity, providing insight into the overall
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦
financial stability and risk profile of the company. 𝐸𝑞𝑢𝑖𝑡𝑦 𝑡𝑜 𝑎𝑠𝑠𝑒𝑡 𝑟𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡

The total deposits to total liabilities ratio is a financial metric primarily used in the banking
industry. This ratio indicates the proportion of a bank’s total liabilities that are made up of
customer deposits. A high total deposits to total liabilities ratio suggests that a significant portion
of the bank’s liabilities is funded by customer deposits, which are generally considered more
stable and lower-cost than other forms of debt𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡𝑠 𝑡𝑜 𝑡𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑝𝑜𝑠𝑖𝑡
𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦

The total debt over total assets ratio, also known as the debt-to-assets ratio, is a financial metric
that measures the proportion of a company's assets that are financed by debt. A higher debt-to-

14
assets ratio indicates that a larger portion of the company’s assets is financed through debt. This
can mean higher financial risk, as the company must meet debt obligations regardless of its
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡
earnings. 𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑎𝑠𝑠𝑒𝑡𝑠 𝑟𝑎𝑡𝑖𝑜 = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡

From the table, BIDV's equity-to-assets ratio was relatively stable, hovering between 4.90% and
5.25% over the four years. This low and consistent ratio indicates that BIDV has been
maintaining a high level of financial leverage, with only a small portion of its assets financed by
shareholder equity.The slight decline in this ratio from 5.21% in 2019 to 4.91% in 2022 suggests
an increase in debt financing relative to equity over time, which can imply greater financial
risk.BIDV's deposit-to-liabilities ratio fluctuated significantly. It increased from 78.89% in 2019
to a peak of 83.90% in 2020, indicating a strong reliance on deposits for funding during that
period. However, it fell to 73.08% in 2022, pointing to a shift towards other sources of
liability.The drop in this ratio in 2022 could raise concerns about liquidity risk as it suggests that
a smaller proportion of total liabilities is covered by customer deposits, which are generally more
stable and low-cost. BIDV's debt-to-assets ratio remained very high and increased slightly, from
94.79% in 2019 to 95.09% in 2022. This indicates that BIDV has been heavily reliant on debt to
finance its asset base. The consistently high level of this ratio implies that BIDV maintains
significant leverage, which could amplify both potential returns and financial risk, especially in
economic downturns.

Compared to Agribank, BIDV has a lower total deposits to total liabilities ratio, particularly in
2022, where Agribank reached 90.83%, indicating better deposit funding stability for Agribank.
VCB maintained a higher ratio in 2019 and 2021 but fell below BIDV in 2022 with 74.10%,
showing that BIDV’s reliance on deposits has become comparatively weaker. Vietinbank has
shown lower ratios consistently than BIDV, suggesting a relatively lower reliance on deposits for
funding.

Recommendations.

BIDV’s liquidity gap analysis reveals ongoing short-term liquidity pressure, with negative gaps
in the "up to 1 month" and "1-3 month" buckets across multiple years, though positive gaps in

15
medium and long-term buckets suggest a stable overall position. To address this, Improve
Short-term Asset-Liability Matching by reallocating investments to more liquid, short-term
assets, reducing reliance on costly short-term funding. Additionally, Establish a Contingency
Funding Plan to access emergency funding sources, such as pre-arranged credit lines, which
will provide a quick and cost-effective solution for unexpected liquidity needs.

In terms of asset and liability liquidity measures, BIDV should Maintain Optimal Loan-to-
Deposit Ratio (LDR) within the ideal range of 80-85%, balancing profitability with liquidity
risk, and Increase Liquidity Asset Holdings Gradually to strengthen BIDV’s ability to meet
immediate obligations, especially during economic uncertainty. Furthermore, Improve Equity-
to-Assets Ratio by raising additional equity capital or retaining a higher proportion of earnings
to reduce dependency on debt, thereby enhancing BIDV’s financial stability. BIDV should also
Increase Deposit Funding to boost its total deposits to total liabilities ratio, improving its
liability structure with more stable, low-cost deposits, and Monitor and Manage Debt-to-
Assets Ratio to limit financial risk and dependence on external funding.

For long-term resilience, BIDV would benefit from implementing a Comprehensive Liquidity
Risk Management Framework that includes stress testing, scenario analysis, and contingency
planning to anticipate and address various liquidity risks effectively. Optimize the Maturity
Structure of Assets and Liabilities by aligning the maturities of assets and liabilities more
closely to reduce liquidity gaps and improve BIDV's ability to meet short-term obligations.
These steps will collectively strengthen BIDV’s short-term liquidity, enhance its financial
stability, and improve its ability to handle liquidity demands across different timeframes,
ensuring both operational resilience and investor confidence.

Advantages of a Bank Holding Less Cash:

1. Increased Profitability:
Holding less cash allows the bank to allocate more funds into interest-bearing
investments such as loans, bonds, or other financial instruments. This can lead to higher
profits since the bank earns interest on these assets rather than letting cash sit idle, which
doesn’t generate any return.
2. Improved Liquidity Management:
Banks are required to maintain a certain level of liquidity, but holding large amounts of
cash beyond what’s necessary can be inefficient. By optimizing cash reserves, the bank
can strike a balance between liquidity and investment, using sophisticated financial
instruments like short-term bonds or repos to quickly raise cash if needed.
3. Better Use of Capital:
By holding less cash, banks can allocate more capital toward growing their loan portfolio,
which is often one of their most profitable activities. This means more credit facilities for
businesses, individuals, and projects, which can enhance the bank’s growth potential and
market position.
4. Lower Opportunity Cost:
The opportunity cost of holding excess cash is high because that money could otherwise
be generating income. By keeping less cash, the bank reduces this cost, allowing them to

16
 reinvest funds in higher-return areas like technology, customer service, or financial
products that enhance competitiveness.

Disadvantages of a Bank Holding Less Cash:

1. Reduced Liquidity Buffer:

The biggest risk is a liquidity shortage. If the bank holds too little cash, it may struggle to
meet sudden withdrawals or unexpected liabilities. In extreme cases, this could trigger a
liquidity crisis, potentially harming the bank’s reputation or even its solvency if it can't
quickly raise funds.
2. Increased Dependency on Market Liquidity:
Holding less cash may force a bank to rely more on borrowing from financial markets
during times of stress or when there’s a sudden need for liquidity. If market conditions are
unfavorable, the bank might face high borrowing costs or even difficulty accessing short-
term funding, putting its financial health at risk.
3. Potential Regulatory Issues:
Banks must comply with regulatory requirements like the Liquidity Coverage Ratio (LCR)
and other liquidity regulations. If a bank holds too little cash and is unable to meet these
requirements, it may face penalties, increased scrutiny, or tighter oversight from regulators,
all of which can affect its operations.
4. Risk in Crisis Situations:
In times of financial crisis or economic downturns, having less cash on hand can put the
bank at a disadvantage. Markets may freeze, and the bank could find it harder to quickly
sell assets or raise liquidity, exacerbating the crisis. This can lead to panic among
depositors, risking a bank run.

VI.CURRENCY RISK

6.1 Models and Indicators can be used to measure currency risk

a) Value-at-Risk (VaR)

Definition: Value-at-Risk (VaR) is a widely used statistical technique that quantifies the potential
loss in value of a portfolio due to adverse movements in market variables, such as exchange rates,
within a defined time horizon and at a specified confidence level (commonly 95% or 99%). It
provides a maximum expected loss threshold under normal market conditions.

Formula:

Where:

• Var is the value at risk

• EWR is the expected weighted return of the portfolio

17
 • Z represents the z-score associated with the chosen confidence level (e.g., 1.65 for 95%
confidence, 2.33 for 99% confidence).
• STD is the standard deviation
• PV is the portfolio value

Application: VaR is used by financial institutions to assess the risk exposure in their portfolios,
specifically how much value could be lost due to currency fluctuations over a specified period. By
calculating VaR, financial managers can make informed decisions regarding capital allocation,
risk limits, and hedging strategies. It allows for a systematic approach to quantifying and managing
potential downside risks under normal market conditions.

b. Net Open Position (NOP)

Definition: Net Open Position (NOP) refers to the difference between an institution’s foreign
currency assets and liabilities, including any off-balance sheet exposures (such as derivatives). It
is a key measure of a bank’s or corporation’s overall exposure to foreign currency risk. A large
NOP indicates greater vulnerability to exchange rate fluctuations.

Formula: the sum of the net short positions or the sum of the net long positions, whichever is the
greater; plus the net position (short or long) in gold, regardless of sign.

Application: The NOP provides a snapshot of an institution’s foreign exchange exposure by

showing whether its foreign currency assets and liabilities are balanced. A significant NOP implies
that the entity is susceptible to currency risk, as movements in exchange rates could lead to
financial losses. This measure is critical for risk management, guiding decisions on hedging
strategies, currency rebalancing, and overall foreign exchange management.

c. Earnings-at-Risk (EaR)

Definition: Earnings-at-Risk (EaR) quantifies the potential impact of exchange rate fluctuations
on a company’s earnings over a specific period. It measures the sensitivity of a firm’s profits to
changes in foreign exchange rates, making it a vital tool for assessing currency risk in earnings
forecasts.

Formula: EaR does not have a singular, standardized formula. However, its basic principle
involves conducting sensitivity or scenario analysis to model how changes in exchange rates affect
earnings. Typically, it can be represented as:

EaR=Δ Earnings due to Δ Exchange Rates

V: Value of or the base amount on which Earnings at Risk is calculated

Z(X): the Z-score corresponding to the specified confidence interval X%

σ annual: This represents the annualized standard deviation of earnings, a measure of earnings
volatility. It reflects the average variability of earnings over a year.

18
t: time horizon

Application: EaR is particularly useful for multinational corporations or institutions with

significant foreign currency exposure in their revenue streams. It allows firms to predict how
fluctuations in currency values may affect their profitability. Through sensitivity analysis, EaR
helps identify how vulnerable a company’s earnings are to adverse exchange rate movements,
thereby guiding risk mitigation strategies such as hedging and currency diversification.

6.2 Using Net Open Position (NOP) to analyze currency risk at BIDV

In these 3 models, NOP is chosen to measure currency risk exposure in BIDV as it already
presented in note 47 in financial statements.

Currency position is calculated by subtracting foreign-denominated liabilities from foreign-

denominated assets.

• When foreign-denominated assets are greater than foreign-denominated liabilities, the

bank is in a long position. This means the bank holds more of that currency in assets than
it owes, and it benefits if that currency appreciates.
• When foreign-denominated assets are less than foreign-denominated liabilities, the
bank is in a short position. This means the bank owes more of that currency than it holds
in assets, and it benefits if that currency depreciates.

Image 1 Gain or loss result from exchange rate movement

Table 6.1 Exchange rate impact on banks (BIDV and VCB) gain and loss

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 Table 6.2 BIDV's currency position and NOP from 2019 to 2022

In 2019, The bank had a long position in all currencies, which means the bank was exposed to
currency risk as the foreign-denominated currency depreciated, lowering the assets’ value.

For the EUR, the bank held slightly more assets than liabilities on the on-balance sheet. Still, when
factoring in the off-balance sheet position, it almost nets out, resulting in a small total EUR position
of 8,032 million VND.

For USD, the bank has slightly more liabilities than assets on the on-balance sheet, creating a
negative position of (-817,306). However, the off-balance sheet activities (such as forward
contracts, option contracts, and currency swaps) offset this, resulting in a final positive exposure
of 535,499 million VND. This means the bank is long USD, meaning it would benefit if the USD
appreciates.

Overall the bank holds a long currency position of 1138385 million VND, however, in the year
2019, both USD and EUR depreciated slightly, resulting in bank loss. The hedging on the off-
balance sheet (typically through instruments like forwards or options) is supposed to mitigate that
risk, but if they still incurred a loss, it's possible the hedging wasn’t effective due to incorrect
forecasting, mismatch timing, or ineffective hedging instruments.

Currency risk year 2020

For EUR, the bank's on-balance sheet shows a small positive net position of 66,266 million VND.
However, when including the off-balance sheet, it leads to an almost flat exposure of (-91) million
VND. This suggests a neutral position with minimal exposure to EUR currency fluctuations.

For USD, the bank holds more assets than liabilities on the on-balance sheet, resulting in a positive
net position of 4,113,587 million VND. But, when considering the off-balance sheet exposure, this
turns into a negative net position of (1,036,102) million VND. This suggests that the bank has
short exposure to USD, meaning it could lose if the USD appreciates.

The other currency, meanwhile, maintained it position as positive in the year 2020

In 2020, overall, the bank has a slightly negative total net foreign exchange position of (1036193)
million VND. This indicates that the bank is short on foreign currencies as a whole, thus a
depreciation of USD currencies was beneficial for the bank while the appreciation in EUR didn’t
affect the cash flow.

Currency risk year 2021

The bank has a significant negative position in USD in both on and off-balance sheet up to negative
5649859 million VND.

20
The EUR risk is much smaller in scale and somewhat hedged with off-balance-sheet activities.
This minimum in Euro currency can be beneficial as the EUR has depreciated against the USD,
largely due to the gloomy outlook for the Eurozone economy as the Russia-Ukraine conflict
unfolds. The region’s dependence on Russian gas makes the economy vulnerable to the fallout
from the conflict in Ukraine, which in turn has harmed the currency market.

The bank is in a long position with other currencies

In general, the bank had a foreign exchange gain in the year 2021, due to the depreciation of
exchange rate in both dominant foreign currencies denominated (USD and EUR) against its short
position in NOP.

Currency risk year 2022

In 2022, The bank's on-balance sheet showed a long position in both USD and EUR, however the
hedging activities in off-balance sheet offset these positions, completely leaving both currency in
short position.

The bank's projected forecast for the euro exchange rate was correct as it remained in a downward
pattern. However, the hedging activities on the off-balance sheet that attempt to protect against a
potential USD drop canceled out its gain as USD appreciation

On the flip side, since other currencies remain positive, the bank would gain back approximately
half if other currencies in which the bank transacts appreciate.

6.3. Comparision of currency position and NOP in BIDV and VCB

Table 6.3 BIDV's currency position and NOP from 2019 to 2022
Vietcombank generally maintained a larger gap between liabilities and assets (increasing the Net
Open Position, or NOP) in foreign currency, which boosted its income more than BIDV, but it
also raised the bank’s risk exposure to currency fluctuations.

Vietcombank also held positive positions in foreign currencies generally, which might suggest a
strategy leaning towards holding foreign assets. This approach could indicate a favorable view of
foreign currency returns or align with a strategic need for foreign currency assets.

BIDV, meanwhile, tended toward negative positions in USD and EUR, possibly as part of a risk
management or hedging strategy, or to match the currency needs of its customers. A negative NOP
doesn't indicate weakness but rather a different approach to currency management and risk
mitigation.

Vietcombank showed more resilience in currency positions, particularly in USD and other
currencies, while BIDV’s positions were more volatile and leaned towards the negative side,
especially in 2021.

21
6.4. Recommendation for BIDV

Implement Dynamic Hedging Strategies:

BIDV should consider a more precise and dynamic hedging approach to manage currency risks
more effectively. By not diversifying their hedging methods—like mixing forwards, options, and
even cross-currency swaps—they limit their ability to adapt when the market doesn't move exactly
as expected. A more dynamic approach could’ve allowed them to tweak their positions as they
saw how USD and EUR were actually behaving instead of just locking into a strategy that
backfired. Regularly reassessing hedging positions based on market conditions would add
flexibility and allow the bank to take advantage of favorable currency movements while protecting
against losses.

Use Forecasting Tools and Analytics for Better Decision-Making:

BIDV's projected exchange rates in the period of 4 years (2019-2022) had some flaws with a small
dip in 2019 (563 million vnd) and a loss in 2022 (34093 million vnd) as a result.

Therefore, leveraging advanced forecasting tools and analytics could enable BIDV to make more
informed decisions about its foreign currency exposure. These tools could include statistical
models, machine learning algorithms, or financial market simulations. By forecasting potential
currency movements more accurately, BIDV can adjust its positions ahead of time to minimize
losses or even capitalize on favorable trends.

Increase Diversification in Currency Holdings

BIDV could benefit from diversifying its currency portfolio by increasing its holdings in other
stable or appreciating currencies. By spreading exposure across multiple currencies, BIDV
could reduce the impact of volatility in any single currency (such as USD or EUR). This
diversification might include other relatively stable currencies, allowing the bank to capture gains
from favorable currency movements outside of USD and EUR

VII. BANK’S CAPITAL

1. Changes in bank’s capital in 4-years period:

Source: BIDV’s shareholder equity from 2019 to 2022

22
2019: BIDV's equity position in 2019 served as the baseline for comparison. The bank's capital
structure was relatively stable, with moderate growth of 1.63% in the bank's capital and 25.77%
in charter capital. In 2019, the bank approved documents on transactions with foreign strategic
investors. Accordingly, the Bank will privately issue to its partner KEB Hana Bank 603.302.706
shares, equivalent to 15% of the Bank’s chartered capital after investment. The total transaction is
20.295.103.029.840 VND. This private placement of KEB Hana bank contributed a total amount
of mobilized capital of VND 20.295.103 million in cash to the bank.

2020: Despite the global economic challenges posed by the COVID-19 pandemic, BIDV managed
to maintain its equity position. The bank's reserves saw a significant increase of 40.12%,
demonstrating its resilience and proactive risk management. In 2020, the bank paid dividends for
the year 2019 to shareholders in cash with a dividend ratio of 8% and the total of dividends payable
are approximately VND 3.217.614 million, which explained for a slight decrease in retained
earnings. Moreover, the bank faced currency risk when converting financial statements of
subsidiaries (a decrease by 61.54%).

2021: BIDV experienced substantial growth in its equity position in 2021. The bank's capital and
charter capital continued to expand, with increases of 18.92% and 25.77%, respectively. Share
premium also witnessed a notable increase of 7.41%. This growth reflects the bank's strong
performance and investor confidence. In 2021, BIDV's RE decreased significantly by 35.84% due
to net loss and dividends payment (approximately VND 804.404 million). Moreover, the bank
witnessed a huge loss in foreign exchange conversion, which implied that the bank did not manage
its currency risk efficiently.

2022: BIDV's equity position continued its upward trajectory in 2022. The bank's reserves
experienced a further growth of 28.53%, reinforcing its financial strength. Additionally, retained
earnings surged by 148.79%, indicating robust profitability and reinvestment capabilities. This
trend can be explained by a growth in profit after tax of the bank (nearly 18.158.502 million VND).
The increase in non-controlling interest of 47.85% mainly due to gain from changes in proportion
of ownership of BSC.

2. Capital adequacy ratio (CAR):

a. Definition and regulations in calculations:

The capital adequacy ratio (CAR) is an indicator that reflects the relationship between the bank’s
own capital and its risk-weighted assets. The CAR is a fundamental measure used by regulators to
assess the financial soundness of a bank. If a bank is deemed by the central bank to not meet capital
requirements, it is considered unable to operate normally and may be forced to shut down. Based
on the capital adequacy ratio, one can determine the bank's ability to repay its debts and absorb
other risks. Therefore, regulatory authorities in various countries require banks to maintain a
minimum capital adequacy ratio.

The implementation of Basel II standards for the Vietnamese commercial banking system was
outlined in the Specific Objectives of the Banking Development Strategy in Vietnam until 2025,

23
with an orientation toward 2030, as issued under Decision No. 986/QD-TTg by the Prime Minister
on August 8, 2018: By the end of 2020, the aim was for most commercial banks to meet the capital
adequacy levels in line with Basel II standards, with at least 12-15 commercial banks successfully
applying the standardized Basel II approach or higher. The State Bank of Vietnam issued Circular
No. 41/2016/TT-NHNN on December 30, 2016, regulating the capital adequacy ratio for banks
and branches of foreign banks.

According to Article 6 of Circular No. 41/2016/TT-NHNN: Banks without subsidiaries and

foreign bank branches must regularly maintain a minimum capital adequacy ratio of 8%, based on
their financial statements. Banks with subsidiaries must maintain:

a) A minimum capital adequacy ratio of 8%, based on the bank's financial statements;

b) A consolidated capital adequacy ratio of at least 8%, based on the bank’s consolidated financial
statements. If a bank has a subsidiary that is an insurance company, the consolidated capital
adequacy ratio should be determined based on the bank's consolidated financial statements but
without consolidating the insurance subsidiary according to the accounting and financial
reporting regulations for credit institutions.

According to Circular No. 41/2016/TT-NHNN, CAR is calculated using the following formula:

Where:

C: Core capital includes total Tier 1 and Tier 2 capital, minus deductions as specified in
Appendix 1 issued with Circular 41.

RWA: Total risk-weighted assets

Total risk-weighted assets (RWA) include total credit risk-weighted assets (RWAcr) and total
counterparty credit risk-weighted assets (RWAccr) calculated using the following formula:

Total credit risk-weighted assets (RWAcr) are the sum of on-balance sheet assets calculated as
follows:

Where:

Ej: Value of asset (not a receivable) j;

CRW: Credit risk weight of asset j as specified in Article 9 of Circular 41/2016/TT-NHNN after
risk mitigation measures as outlined in Articles 12, 13, 14, and 15 of this Circular;

Ei*: Outstanding value of receivable i;

24
SPi: Specific provisions for receivable i;

CRWi: Credit risk weight of receivable i as specified in Article 9 of this Circular.

The outstanding value of a receivable (including principal balance, interest receivables, and fees
receivables if accounted for as income in compliance with legal regulations) for banks and foreign
bank branches is calculated as follows:

Where:

Ei: Outstanding value of receivable i, determined by original cost;

Eon: On-balance sheet balance of receivable i;

Eoffi: Off-balance sheet commitment balance of receivable i;

CCFi: Conversion factor for the off-balance sheet commitment of receivable i as specified in
Article 10 of this Circular.

Counterparty credit risk-weighted assets (RWAccr) are calculated for:

a) Proprietary trading transactions;

b) Repo and reverse repo transactions;

c) Derivative transactions for hedging risks;

d) Foreign exchange transactions and financial asset transactions for the needs of customers and
partners as specified in Clause 32, Article 2 of this Circular.

K(OR): Required capital for operational risk, calculated as follows:

Where:

● BI for year n: Business indicator determined at the most recent quarter at the time of

calculation;

● BI for year n-1, BI for year n-2: Business indicators determined for the corresponding

quarters of the two consecutive years preceding the calculation year.

The business indicator is calculated as follows:

25
Where:

● IC: Absolute value of interest income and similar income minus interest expenses and
similar expenses;
● SC: Total value of income from service activities, service expenses, other operating
income, and other operating expenses;
● FC: Total absolute value of net gains/losses from foreign exchange trading, securities
trading, and investment securities trading.

The business indicator is determined according to the guidance in Appendix 3 issued with this
Circular.

K(MR): Required capital for market risk.

Where:

● KIRR: Required capital for interest rate risk, excluding options;

● KER: Required capital for equity price risk, excluding options;
● KFXR: Required capital for foreign exchange risk (including gold), excluding options;
● KCMR: Required capital for commodity price risk, excluding options;
● KOPT: Required capital for options transactions.

b. Analysis of BIDV's CAR Ratio and Comparison with other banks:

Source: BIDV’ s CAR disclosures

BIDV consistently maintained its CAR above the regulatory minimum of 8%, which aligns with
Basel II standards. The table shows that the consolidated CAR for 2022 was 9.34%, which is an
improvement from previous years (e.g., 8.74% in 2019). This demonstrates that BIDV was
compliant with capital requirements and managed to keep its CAR above the threshold despite
challenges like the COVID-19 pandemic. The Tier 1 CAR figures reflect a steady but cautious
capital position. The 2022 consolidated Tier 1 CAR was 6.00%, indicating a robust core capital
foundation primarily made up of common equity and retained earnings. However, compared to
global standards and anticipated Basel III expectations, this figure highlights that BIDV may need
further strengthening to meet more stringent future requirements. The data shows an increase in
RWAs from 2019 (1,110,339 billion VND consolidated) to 2022 (1,646,632 billion VND

26
consolidated). This trend suggests that BIDV expanded its lending and investment activities, which
could be linked to its role in infrastructure financing and corporate banking. However, higher
RWAs require maintaining proportionally higher capital levels to ensure compliance with CAR
requirements.

The period from 2019 to 2022 was marked by significant credit risk due to BIDV's exposure to
corporate lending, real estate, and sectors heavily impacted by the pandemic (e.g., tourism and
retail). The increase in RWAs over the years could be partially attributed to these higher-risk
exposures. The pandemic likely influenced BIDV’s capital management, as the bank participated
in loan restructuring to support clients, potentially raising credit risk and impacting capital
adequacy. Despite these challenges, the improvement in CAR over the years shows BIDV's
resilience and effective capital management during economic uncertainty.

While BIDV maintained CAR and Tier 1 CAR above the 8% regulatory minimum, it is worth
noting that future compliance with Basel III standards, which require stricter leverage and capital
regulations, may require additional efforts. The 2022 Tier 1 CAR at 6.00% indicates room for
strengthening the core capital base. Although not detailed in the table, it is important to note that
BIDV and other Vietnamese banks will need to adapt to stricter Basel III liquidity and leverage
standards, as Vietnam gradually transitions from Basel II.

Based on BIDV’s CAR disclosure in 2022, BIDV has developed and implemented an Internal
Capital Adequacy Assessment Process (ICAAP), which outlines the principles and steps for capital
planning annually and over each period to ensure compliance with capital adequacy regulations,
maintain the capital adequacy ratio, and align with the business plan. Capital increase is one of
BIDV’s key plans to enhance financial capacity to meet risk management requirements set by the
State Bank of Vietnam and align with international practices. BIDV has planned to raise capital
from sources such as stock dividend payments, additional share issuances to financial investors in
2023, and the issuance of Tier 2 capital-raising bonds. The annual capital increase will be based
on market conditions and practical implementation.

Comparative CAR ratio analysis of BIDV, Vietcombank, and VietinBank from 2019 to 2022:

In 2019, Vietcombank had a stronger CAR than BIDV, with a separate CAR of 8.97% and a
consolidated CAR of 9.24%. Both ratios comfortably exceeded the regulatory minimum of 8%,
reflecting a solid capital buffer. BIDV, on the other hand, had a separate CAR of 8.52% and a
consolidated CAR of 8.74%, both above the regulatory requirement but lower than Vietcombank.

27
Vietcombank's higher CAR indicates a better capability to absorb potential losses, suggesting
stronger risk management and financial stability compared to BIDV.

In 2020, both banks continued to maintain CARs above the minimum requirement. Vietcombank
further increased its CAR, reaching 9.22% (separate) and 9.56% (consolidated), which again
exceeded BIDV’s ratios of 8.61% (separate) and 8.15% (consolidated). This increase for
Vietcombank reflects an enhanced ability to handle financial risks. BIDV's consolidated CAR
decreased from 2019, which could imply either an increase in risk-weighted assets or capital
challenges. Despite this, both banks remained compliant with the regulatory threshold of 8%.

In 2021, VietinBank’s CAR data became available, with a separate CAR of 8.98% and a
consolidated CAR of 9.40%, both above the regulatory requirement. Vietcombank maintained its
strong CAR, with a separate CAR of 8.97% and a consolidated CAR of 9.31%, continuing its trend
of robust capital adequacy. BIDV showed improvement, with its separate CAR reaching 8.60%
and consolidated CAR improving to 8.97%. Although still trailing Vietcombank and VietinBank,
BIDV’s increase in consolidated CAR demonstrates efforts to bolster capital adequacy. Overall,
all three banks showed compliance with the 8% requirement, with Vietcombank and VietinBank
having a slight edge over BIDV in terms of capital strength.

In 2022, BIDV's efforts to improve its CAR became more evident. BIDV's separate CAR reached
8.92%, while its consolidated CAR increased to 9.34%, surpassing Vietcombank's consolidated
CAR of 9.05% for the first time. Vietcombank's separate CAR, however, remained strong at
9.50%, the highest among the three banks, indicating its focus on maintaining a high capital buffer.
VietinBank's CAR was also robust, with a separate CAR of 8.90% and a consolidated CAR of
8.98%, both above the regulatory minimum. BIDV’s substantial improvement in consolidated
CAR reflects a strategic push to meet or exceed regulatory requirements and strengthen its
financial stability amid potential risks. All three banks remained compliant with the 8% minimum,
showcasing overall healthy capital adequacy ratios by regulatory standards.

c. Recommendations for capital improvements:

BIDV should continue its focus on enhancing its Tier 1 capital to prepare for Basel III requirements
and to ensure long-term stability in a dynamic economic environment. Strengthening risk
management practices, particularly in credit risk monitoring and stress testing, will be critical for
BIDV to mitigate potential impacts from future economic shocks or sector-specific risks, such as
in real estate and corporate lending. As BIDV expands its digital banking operations, balancing
growth in digital services with robust cybersecurity and risk controls is vital. This can support
customer acquisition while protecting capital and minimizing risks associated with rapid
digitalization.

To strengthen its Tier 1 capital, BIDV could focus on several strategic initiatives. Enhancing
profitability through better operational efficiency and reducing non-performing loans (NPLs)
would increase retained earnings, a core component of Tier 1 capital. Adjusting the dividend policy
to retain more profits could also help bolster reserves. BIDV might consider issuing new shares or
conducting private placements to raise equity capital, possibly engaging strategic investors to bring

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in additional expertise and partnerships. Divesting non-core assets and re-evaluating loan
portfolios to reduce exposure to high-risk segments could improve the capital adequacy ratio
(CAR) without compromising core Tier 1 capital. The bank could issue hybrid instruments that
qualify as Tier 1 capital, like perpetual bonds, or convert Tier 2 capital into Tier 1 where feasible.
Investing in digital banking technologies and automation would streamline operations, cut costs,
and boost retained earnings. Strengthening risk management practices, including proactive NPL
management and regular stress testing, would support capital resilience. Additionally, securitizing
loan portfolios and considering structured finance solutions like collateralized loan obligations
(CLOs) could free up capital by reducing risk-weighted assets. Strategic mergers or acquisitions
could provide access to new revenue streams or consolidate internal operations for balance sheet
efficiency. Finally, robust capital planning using advanced modeling and leveraging any
regulatory relief programs would ensure that BIDV remains well-prepared for Basel III
compliance and continues its stable growth trajectory.

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REFERENCES

1. Financial Statement of BIDV (2019-2023)

2. Financial Statement of VCB (2019-2023)

3. Financial Statement of Vietinbank (2019-2023)

4. Thanh Hồng. (2023). Vì sao nợ xấu của 3 “ông lớn” BIDV, Vietcombank và Vietinbank tăng cao?
VNBusiness. https://vnbusiness.vn/ngan-hang/vi-sao-no-xau-cua-3-ong-lon-bidv-vietcombank-va-
vietinbank-tang-cao-1096341.html

5. Tuệ Nhiên. (2024). Câu chuyện phía sau hiệu suất sinh lời của ngân hàng. Kinh Tế Sài Gòn Online- Tạp
Chí Của UBND TP.HCM. https://thesaigontimes.vn/cau-chuyen-phia-sau-hieu-suat-sinh-loi-cua-ngan-
hang/

6. Lương Hải Vinh. (2023). Rủi ro tín dụng và các mô hình quản lí rủi ro tín dụng tại Việt Nam. Tạp Chí
Ngân Hàng. https://tapchinganhang.gov.vn/rui-ro-tin-dung-va-cac-mo-hinh-quan-li-rui-ro-tin-dung-tai-viet-
nam.htm

7. WallStreetMojo Team. (2024). Loan Loss Provision. WallStreetMojo.

https://www.wallstreetmojo.com/loan-loss-provisions/

8. Nguyễn Thu Hằng. (2024). BIDV là ngân hàng gì? Tất tần tật những thông tin bạn cần biết về ngân hàng
BIDV. Fpt Shop.com.vn. https://fptshop.com.vn/tin-tuc/danh-gia/bidv-la-ngan-hang-gi-176922

9. Lou Gattis. (2023). Finance Core Topic #9 Section #2 Earnings at Risk [Video]. YouTube.
https://youtu.be/-wQ4naC87Uw

10. IMF Institute Learning Channel. (2024). Calculating the Net Open Position. YouTube.
https://www.youtube.com/watch?v=xHLNzoCZyrU

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