Table of contents MESSAGE FROM THE CHAIRMAN GENERAL INFORMATION HISTORY OF THE BANK 10 REPORT OF THE BOARD OF DIRECTORS 20 REPORT OF THE BOARD OF MANAGEMENT 26 ORGANIZATION STRUCTURE, HUMAN RESOURCES AND CORPORATE GOVERNANCE 42 ASSOCIATED COMPANIES 62 FINANCIAL STATEMENTS FOR 2012 72 ERN OD E FFIC NT IE M RELIABL -E Message from the Chairman To our valued customers, partners, and shareholders, In 2012, due to the global economic crisis, all the major economies of the world struggled in the face of slow growth, difficult challenges, widespread unemployment, low purchasing power, and growing public debt On the domestic front, businesses experienced great difficulty in running their operations, leftover inventories were at alarmingly high levels, the real estate market became increasingly stagnant, and tens of thousands of enterprises went bankrupt The banking industry, which has been undergoing a restructuring process, was affected as well Credit growth was low in comparison to the target set by the State Bank of Vietnam, and non-performing loans were on the rise Despite having to brave such tremendous hardships, VietinBank prevailed and carried out our duties with flying colors VietinBank’s performance results were all favorable and indicative of stellar quality, safety, and effectiveness We continued to revamp our organizational structure, improve upon our corporate governance and risk management practices, recruit new talents, and invest in our information technology infrastructure The year 2012 was a significant one for VietinBank and marked a series of reforms In line with our tradition, VietinBank confirmed our position as a leading commercial bank of Vietnam that follows the mandates of the Party and the State, adheres to national monetary policies, contributes to the stabilization of the macro economy, and strives to integrate into the global economy VietinBank was able to maintain secure and effective growth throughout 2012 The following achievements could be observed: total assets reached VND 503.5 trillion (an increase of 9.4% from the previous year); loans increased by 13.6%; mobilized funds increased by 9.3%; profit before tax was over VND 8,168 billion; ROE and ROA were 19.9% and 1.7%, respectively These figures are indicative of VietinBank’s leading position and truly remarkable given the adverse conditions seen throughout the entire banking industry over the past year 2012 was a successful year for VietinBank In May 2012, VietinBank became the first Vietnamese bank to issue USD 250 million international bonds and was chosen by FinanceAsia as Best Borrower in Vietnam In addition, by the end 2012 Annual Report Message from the Chairman of the year, VietinBank had opened branches in Vientiane, Laos, and Berlin, Germany These achievements constitute the pride of not only VietinBank, but also of Vietnam’s entire financial and banking sector They also mark VietinBank’s effort to soar into the international banking arena Despite the fact that foreign investors have been wary of engagements in Vietnam’s market, at year end 2012 VietinBank managed to sign a strategic cooperation agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU), the largest bank in Japan and a subsidiary of the Mitsubishi UFJ Financial Group, the world’s third largest financial group The agreement, which saw 20% of VietinBank’s stake, equivalent to USD 750 million, sold to BTMU, is up until now the single largest and most successful transaction of its kind in Vietnam It is a testament to VietinBank’s thriving reputation and position as perceived by investors all around the globe It was also in 2012 that VietinBank made positive changes and had breakthroughs in modernizing and restructuring our organization We kicked off two major projects, the Core Banking Replacement (CBR) Project and the Organizational Restructuring and Development of Human Resources Strategies (ORP) Project The CBR project serves to vastly modernize our information technology system, satisfy customer demands, expand our operations, and 2012 Annual Report fulfill our long-term growth strategies The ORP project is aimed at completely revamping our organizational structure and business model, thus allowing us to gain a competitive edge and to adhere to the latest and most accepted international standards and practices Further, to continuously undergo sustainable development with the help of a solid workforce, VietinBank put into operation VietinBank Human Resource Development and Training School in Van Canh, situated on a 10 hectare plot of land The school is equipped with state of the art technology and facilities It is meant to facilitate training and produce a body of staff that is on par with international standards We anticipate that 2013 will be yet another challenging year for the Vietnam’s financial and banking sector Hence, as members of the Boards of Directors and Management, we cautiously set the following targets: increase total assets by 10%; increase mobilized funds by 8%; increase loans and investment by 12%; restrain non-performing loans ratio under 3%; increase profit before tax by 5%; keep capital adequacy ratio above 10% We also make it our mission to lead the way in carrying out national monetary policies, to modernize the bank, as well as to enhance our financial strength and competitive capacity Finally, it is imperative that we provide better staff training, improve upon our service and product quality, manage risk in compliance with Basel II, and curb nonperforming loans In so doing, VietinBank will have what it takes to undergo secure, effective, and sustainable growth The coming year is sure to bring about many challenges and opportunities alike In anticipation of VietinBank’s 25th anniversary, the entire bank is committed to building on our achievements, exerting yet more effort, performing duties with steadfast determination, and contributing to the growth of the banking industry as well as that of the whole economy Chairman Dr Pham Huy Hung 2012 Annual Report General information Registered name in Vietnamese: NGÂN HÀNG THƯƠNG MẠI CỔ PHẦN CÔNG THƯƠNG VIỆT NAM Registered name in English: VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE Trade name: VietinBank Headquarter: 108 Tran Hung Dao street, Hoan Kiem district, Hanoi, Vietnam Charter capital: VND 26,218 billion (as at December 31, 2012) Establishment license: No 142/GP-NHNN dated July 3, 2009 by the State Bank of Vietnam Business registration license: 0100111948 (first issuance dated July 3, 2009 by the Hanoi Department of Planning and Investment, registered for the 7th amendment on July 6, 2012) Tax code: 0100111948 SWIFT code: ICBVVNVX Network: Domestic branches: 147 branches across 63 provinces and cities nationwide Foreign branches: branch in Frankfurt, Germany branch in Berlin, Germany branch in Vientiane, Lao PDR Number of employees: 19,840 (as at December 31, 2012) Foreign shareholder: International Finance Corporation (IFC) Independent auditor: Deloitte Vietnam 2012 Annual Report Mission Be the leading financial and banking group in Vietnam with versatile operation, providing products and services according to international standards to improve the values of life Vision  To become a leading modern and efficient financial and banking group both at home and abroad Core Values - Customer-oriented; - Dynamic, innovative, professional, devoted, transparent, modern; - Employees are entitled to make their best efforts, to be justly compensated for the effectiveness and results of their contributions, and to pay homage to outstanding employees, best performers Business Philosophy - Secure, effective, sustainable, and in compliance with international standards; - United, cooperative, sharing, and socially responsible; - Client’ prosperity is VietinBank’s success 2012 Annual Report History of the Bank Establishment Important Milestones VietinBank was established on March 26, 1988, upon separation from the State Bank of Vietnam under Decree No.53/HDBT of the Council of Ministers April 15, 2008 Change of name from IncomBank to VietinBank Scope of business VietinBank offers a wide range of retail and wholesale banking products and services both at home and abroad VietinBank also operates in the following areas: lending, investment, trade finance, guarantee, re-guarantee, forex trading, deposit, payment, money transfer, card services, local and international credit cards, traveler’s cheques, securities trading, insurance, financial leasing, and many others Listing Ho Chi Minh City Stock Exchange (HOSE) since July 16, 2009 Stock type: Common Stock symbol: CTG Par value: VND 10,000 Shares Outstanding: 2,621,754,537 shares (as at December 31, 2012) 10 2012 Annual Report July 31, 2008 VietinBank was granted the ISO 9001 – 2000 certification for credit, guarantee and payment activities June 04, 2009 First VietinBank General Shareholders’ Meeting July 08, 2009 Pursuant to the Establishment and Operation License No.142/ GP-NHNN issued on July 3, 2009 by the Governor of the State Bank of Vietnam, VietinBank became officially known as a joint stock commercial bank, as reflected by its new name, Vietnam Joint Stock Commercial Bank for Industry and Trade October 10, 2010 VietinBank and IFC signed investment and cooperation agreements July 6, 2012 VietinBank was re-granted the enterprise certificate (code 0100111948) with charter capital totaling VND 26,218 billion by Hanoi’s Department of Planning and Investment, replacing the certificate issued on July 3, 2009 December 27, 2012 VietinBank signed an agreement selling 20% of its stake to the Bank of Tokyo-Mitsubishi UFJ, Ltd - the largest bank of Japan 138 31/12/2012 31/12/2011 31/12/2012 31/12/2011 2012 Annual Report 12,234,145 - 74,451 Trading securities - Debt securities 88,888 327,109 7,943,559 621,309 6,664,631 1,110,851 298,440 67,487,055 16,888 217,023 293,434,312 20,236 263,194 258,385 35,779 65,295,229 12,101,060 3,713,859 (*) (*) (*) (*) (*) 75,511 (*) (*) (*) (*) 16,790 (*) 12,234,145 2,511,105 Accrued fee and interest expenses 3,615,577 28,669,229 27,293,733 4,834,923 11,089,117 36,824,508 257,135,945 74,407,913 (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) 47,882 (*) (*) (*) (*) 35,779 (*) 12,101,060 3,713,859 (*) The Bank has not determined fair value of financial assets and financial liabilities as at the balance sheet date because Vietnamese Accounting Standards as well as prevailing regulations have not had specific guidance on fair value determination of such items Consolidated financial statements for the year ended 31 December 2012 Other payables and liabilities 11,223,665 15,757,161 (*) (*) 465,440,661 427,343,300 Grants, trusted funds and borrowings at risk of credit institution Valuable papers issued 33,226,708 289,105,307 Deposits from customers 2,785,374 96,814,801 Borrowings from the Government and the SBV Deposits and borrowing from other credit institution s Financial liabilities 143,304 174,443 (*) 488,917,143 451,091,385 Interest and fee receivables Other assets Other long-term investments Other receivables 73,297,671 Investment securities - Equity securities without market price reference 145,023 Investment securities - Equity securities with market price reference Investment securities - Debt securities 333,356,092 Loans to customers Derivative financial instruments and other financial assets 26,504 257,763 Trading securities - Equity securities with market price reference Trading securities - Equity securities without market price reference 57,890,220 Placements with and loans to other credit institutions 2,511,105 Balances with the State Bank of Vietnam Cash, gold and gemstones Financial assets million VND million VND million VND million VND Book value(Excluding provisions) Fair value 46 FINANCIAL INSTRUMENTS (Continued) Notes to the CONSOLIDATED financial statements (continued) Form B 05/TCTD-HN Financial assets 358,718 - 12,234,145 57,890,220 - - 333,356,092 - - 621,309 7,943,559 - million VND measured at - - - - - - 71,081,582 327,109 - - - million VND Total 2,511,105 12,234,145 57,890,220 284,267 74,451 333,356,092 73,531,582 327,109 621,309 7,943,559 143,304 million VND 2,654,409 488,917,143 2,511,105 - - - - - - - - - 143,304 million VND sale amortised cost Available-for- 2,450,000 412,045,325 71,408,691 - - - - - - 2,450,000 - - - - Loans and receivables All the financial liabilities of the Bank as at 31 December 2012 are classified as financial liabilities measured at amortised cost Classification of financial liabilities as at 31 December 2012: - - - 284,267 74,451 - - - - - - million VND Cash, gold and gemstones Balance with the State Bank of Vietnam (“SBV”) Placements with and loans to other credit institutions Trading securities Derivative financial instruments and other financial assets Loans to customers Investment securities Other long-term investments Other receivables Interest and fee receivables Other assets million VND trading Held-to -maturity Held-for- Other assets Classification of financial assets as at 31 December 2012: 46 FINANCIAL INSTRUMENTS (Continued) Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 2012 Annual Report 139 Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 47 CURRENCY RISKS Currency risk is the risk that values of financial instruments fluctuate due to changes in foreign exchange rate The Bank was incorporated and operates in Vietnam and its reporting currency is Vietnam dong (VND), while part of the Bank’s assetequity is in foreign currencies (USD, EUR, etc.) Thus, currency risk may arise The Bank is exposed to the following risks: • Currency risks in foreign currency trading • Currency risks in fund mobilisation and lending • Currency risks in investments The economic situation and macroeconomic policies during the year which had significant effects on the Bank’s operations: In 2012, to stabilise the exchange rates, the State Bank of Vietnam took a number of measures such as putting restrictions on the types of entities eligible to borrow in foreign currencies, requesting state-owned corporations to sell USD to banks and regulating the ceiling interest rate of USD deposits at 0.50% per annum for enterprises and 2% per annum for individuals Thanks to the SBV’s positive measures, the foreign exchange market in 2012 was kept stable In 2012, foreign currency credit growth is not high compared to that at the end of 2011, due to the fact that interest rate increased and the Bank enhanced its control over foreign currency loan balances In addition, the Bank actively utilised USD foreign currency funds from international markets through international refinancing and capital raising channels Particularly, in 2012, the Bank succesfully issued USD 250 million of international bonds The Bank has used these funds to finance many projects/production and business plans in Vietnam, contributing to the economy’s growth To prevent the risk of exchange rate fluctuations, the Bank has applied the following synchronous measures: Based on actual data, the growth demand of affiliates and business orientation, Capital and Financial Planning Management Department analyses and projects cash inflows and outflows and proposes fund planning projection for each currency unit (including VND, USD, and EUR equivalent) to the Bank’s Board of Management based on actual cash flows and business orientation to ensure safety and effectiveness of the whole system All foreign currency loans are financed through mobilised funds in the same currency, thus no currency risk arises in lending and mobilisation activities For investment activities: The Bank faces currency risk with regards to its investment in Indovina Bank Ltd and the investment in the establishment of branches in Germany and Laos Currency risk for these investments is closely monitored by the Bank through analysis and forecast of changes in exchange rates of these currencies against VND The Bank is currently considering plans to use derivatives to hedge currency risks for the three investments For foreign currency trading activities: Regulations on currency position for each currency unit are developed by the Market Risk Management Department and approved by the General Director, which are within the Bank’s risk tolerance The currency position limit is controlled and executed by the FX Department at the Head Office and independently supervised by the Market Risk Management Department The currency position is managed on a daily basis and hedging strategies are used to ensure that the currency position is maintained within established limits 140 2012 Annual Report million VND million VND million VND million VND - - 178,105 - 105,976 - - - Loans to customers (*) Investment securities (*) Long-term investments (*) Fixed assets 378,247 - 1,392,058 - 64,669,400 74,451 - 11,492,344 2,187,676 1,987,760 5,276,653 1,424,956 73,531,582 266,743,483 - 284,267 46,053,418 10,046,469 - - - - - - 166,353 - 39,122 Total 5,276,653 2,817,014 73,531,582 333,356,092 74,451 284,267 57,890,220 12,234,145 2,511,105 million VND 5,042,983 412,405 - 75,075 Grants, trusted funds and borrowings 2,200,790 (993,817) Off-balance sheet currency position Total currency position 33,624,531 17,539,732 22,586,070 27,851,075 258,592,842 49,215,861 2,750,768 2012 Annual Report 24,663,694 27,539,243 24,571,932 13,973,679 84,488,091 412,160,879 (2,875,549) 10,598,253 - 802,675 6,008,084 5,023,936 25,432,255 47,186,535 34,606 33,624,531 18,597,656 28,669,229 33,226,708 289,105,307 96,814,801 2,785,374 302,601 134,353 48,544,410 43,848,065 37,227 502,823,606 168,248 4,696,345 - - - - 37,227 - - Consolidated financial statements for the year ended 31 December 2012 (*) Excluding risk provision 6,137,409 (3,194,607) - 255,249 Other liabilities (*) Capital and reserves Total liabilities and owners’ equity Balance sheet currency position Valuable papers issued at risk of credit institution 351,697 Deposits from customers other credit institutions Deposits and borrowings from and the SBV Borrowings from the Government Other assets (*) 715,512 1,418,366 17,410,544 - 19,544,422 Total assets 2,942,802 81,612,542 422,759,132 205,475 507,519,951 Liabilities and owners’ equity 1,943,209 and other financial assets Derivative financial instruments Trading securities (*) other credit institutions (*) Placements with and loans to Balance with the State Bank of Vietnam Cash, gold and gemstones Assets ITEM EUR equivalent USD equivalent Gold equivalent Other currencies equivalent Carrying amounts of assets and liabilities denominated in foreign currencies as at 31 December 2012 are as follows: 47 CURRENCY RISKS (Continued) Notes to the CONSOLIDATED financial statements (continued) Form B 05/TCTD-HN 141 Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 48 INTEREST RATE RISK Interest rate risk is the possibility of the Bank’s income or asset value being affected when market interest rate fluctuates Interest rate risk to the Bank possibly derives from investment activities and fund mobilisation and lending activities The effective interest rate re-pricing term of the assets and liabilities is the remaining period from the date of consolidated financial statements to the nearest interest rate re-pricing date The following assumptions and conditions have been adopted in the analysis of effective interest rate re-pricing term of the Bank’ asset and liabilities: • Cash, gold and gemstones long-term investment and other assets (fixed assets, investment properties and other assets) are classified as non interest-bearing items; • Balance at the SBV are considered settlement deposit, thus the effective interest rate re-pricing term is assumed to be within one month; • The effective interest rate re-pricing term of investment securities and trading securities is determined based on the time to maturity from the balance sheet date of each securities; • The effective interest rate re-pricing term of placements with and loans to other credit institutions; loans to customers; borrowings from the Government and the SBV; deposits and borrowing from other credit institutions; deposits from customers are determined as follows: »» Items with fixed interest rate during the contractual period: the effective interest rate re-pricing term is determined based on the time to maturity from the balance sheet date; »» Items with floating interest rate: the effective interest re-pricing term is determined based on the time to the nearest interest rate re-pricing date from the balance sheet date; • The effective interest rate re-pricing term of valuable papers is determined based on the time to maturity from the balance sheet date of each valuable paper issued; • The effective interest rate re-pricing term of grants, trusted funds and borrowings at risk of credit institution is determined based on their time to maturity from the balance sheet date to the transactions which have fixed interest rates The Bank’s interest rate risk policies are as follows: Inter-bank lending (short-term): investment interest rate is based on the fluctuation of the market and the Bank’s funding cost The inter-bank loans usually have short terms (less than months) The Bank forecasts fluctuation of the market interest rate and its fund balancing ability in order to make appropriate investment decisions In case that the interest rate is forecasted to decline, the Bank will focus on long-term investments to increase profitability Conversely, if interest rates are forecast to have increasing trend, the Bank will increase short-term investments Fund mobilisation: interest rate for fund mobilisation is determined based on market price, business orientation of the Bank’ management, the Bank’s fund balance and regulations of the State Bank of Vietnam Fund is mobilized mainly with short interest rate re-pricing term 142 2012 Annual Report Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 48 INTEREST RATE RISK (Continued) The Bank’s interest rate risk policies are as follows (Continued): Lending activities: The Bank determines lending interest rate based on the funding cost, management expenses, risk consideration, collateral value and market interest rate to ensure competitiveness as well as efficiency The Head Office regulates the floor lending interest rate for each period; branches can themselves decide lending interest rates for each period based on credit risk analysis and assessment provided that the rates are not less than the regulated floor rate and budgeted profit is assured Besides, due to the fact that capital structure focuses on the funds with short interest rate re-pricing term, the Bank requires that all loans must be at floating interest rate, adjusted every one to three months Interest rate risk management: The Bank manages interest rate risk at levels: transaction level and portfolio level, of which the former is more focused: • Interest rate risk management at portfolio level »» The Bank has been implementing the completed systems of the rules, regulations and procedures of interest rate management in the Bank in accordance with international rules and Basel II regulations; implementing interest rate management under “3 control stages” rule »» In 2012, the Bank has completed the construction of software system of Assets-Liabilities Management (ALM), which runs to the transaction level under international practices, automatically providing reports of term differences, revaluation under nominal term and behaviour, interest rate increase/decrease analysis reports etc in order to facilitate the Bank’s interest rate management activities ALM system is currently in the test phase and expected to be officially launched in 2013 »» Re-pricing terms of all loans are required to be adjusted based on the re-pricing terms of funds mobilised The interest rate re-pricing gaps are controlled within established limits • Interest Rate Management at transaction level »» All credit contracts are required to include terms relating to interest rate risk prevention to ensure that the Bank can hold initiative in coping with fluctuations of the market, lending interest rate must reflect the Bank’s actual funding cost; »» Management through the Fund Transfer Pricing (FTP) system: Since 02 April 2011, the Bank has implemented the internal fund transfer pricing system - FTP following term-matching principle for every single transaction in line with international practices Depending on the orientation of the Bank and the market movements, the Head Office can change the fund price for each type of customers or products, etc to give signals for the business units to determine their lending/fund mobilisation rates With the experience and sensitivity in managing, the Bank has been cautiously, flexibly in managing the deposit and loan interest rate mechanism to ensure the safety and effectiveness of the business operation As shown in the interest rate re-pricing gap report, the majority of interest bearing assets of the Bank has re-pricing term within months, which is in line with the re-pricing structure of the mobilised funds that have short interest rate re-pricing term Interest rate sensitivity Since Circular 210 does not provide specific guidance on implementation of interest rate sensitivity analysis, the Bank has not disclosed such information herein 2012 Annual Report 143 Triệu VND Triệu VND Triệu VND Non- VND Overdue VND VND VND Current 144 2,511,105 2012 Annual Report - - - 74,451 - 1,003,600 91,575,220 - - - 9,593,134 - 74,451 - 324,059 134,092,287 13,624,950 - - 253,272 - VND VND - - - - - 57,840,641 45,787,610 - - - - - - VND - - - - 5,276,653 2,817,014 - 4,457,457 29,434,892 - - - - VND MILLION 2,511,105 2,511,105 5,276,653 74,451 2,817,014 73,531,582 284,267 74,451 333,356,092 57,890,220 12,234,145 284,267 57,890,220 12,234,145 - 4,889,996 Total liabilities - Grants, trusted funds and borrowings Net liquidity difference 12,069,716 (*) Excluding risk provision Total net interest rate gap 12,069,716 - 12,069,716 Balance sheet net interest gap Off-balance sheet commitments affecting to sensitivity with assets and liabilities' interest rate 18,597,656 18,597,656 Other liabilities (*) Total liabilities at risk of credit institution (*) Excluding risk provision Valuable papers issued 4,889,996 - 4,889,996 - - - - - - - Other liabilities (*) Deposits from customers Valuable papers credit institutionsissued 1,411,738 - 1,411,738 - - - - - - - - - - - - - 1,411,738 - - at risk of credit institution Deposits and borrowings from other - - 4,889,996 - - Grants, trusted funds and borrowings Borrowings from the Government and the SBV Deposits from customers Liabilities Deposits and Total assets borrowings from other credit institutions 30,667,372 Borrowings (*) Other assets from the Government and the SBV 19,544,422 - - - 59,654,490 - 17,346,381 15,512,890 - 2,785,374 - 1,545,938 19,071,613 6,307,230 2,317,268 59,654,490 4,249,083 17,346,318 9,254,850 15,512,890 2,776,455 28,910,531 1,744,448 - - - 6,250,253 26,760,402 14,133,210 10,705,573 6,592,991 3,860,569 2,822,881 5,198,9553,307,573 - - 167,681,078 57,689,366 - 57,689,366 226,800,864 2,580,231 (35,735,439) - -35,735,439 102,554,948 - 2,006,846 19,658,376 - 19,658,376 35,614,366 - 969,484 (26,735,030) - -26,735,030 38,117,689 - 15,921,349 3,493,755 - 3,493,755 44,728,178 - 7,191,319 35,888,482 - 1,578,398 2,785,374 19,544,422 18,597,656 289,105,307 28,669,229 33,226,708 96,814,801 2,785,374 289,105,307 96,814,801 507,519,951 38,320,876 - 38,320,876 469,199,075 18,597,656 28,669,229 469,199,075 33,226,708 38,320,876 2,785,374 - - - 99,513,353 124,854,153 196,701,649 42,032,386 6,097,534 6,250,253 14,133,210 6,592,991 2,822,881 3,427,373 1,411,738 (15,159,357) (25,971,396) (24,587,724) 61,849,137 35,888,482 - 167,681,078 - - 50,289,302 - - - 4,363,772 2,785,374 - - 26,760,402 10,705,573 3,860,569 284,490,230 50,289,302 66,819,509 55,272,742 11,382,659 48,221,933 - - 5,276,653 - 636,750 26,164,349 - 3,046,533 - 13,695,737 - 55,599,241 3,257,404 35,975,97914,658,316 3,899,078 3,028,091 794,895 333,356,092 1,628,702 - - 19,544,422 3,604,333 84,353,996 98,882,757 172,113,925 103,881,523 41,986,016 8,173,735 5,597,362 7,159,522 45,193,842 3,568,877 507,519,951 73,531,582 1,411,738 - 227,757,074 - - - - 1,411,738 - 40,894,678 12,234,145 - - 3,046,533 - Fixed assets 5,276,653 Liabilities - 4,889,996 - 1,411,738 - - - - - 284,267 40,894,678 12,234,145 2,817,014 30,667,372 4,889,996 19,544,422 2,817,014 - - - - 4,889,996 - - - VND Total Long-term investments (*) 2,817,014 - Investment securities (*) 233,911 Total assets Loans to customers (*) Other assets (*) Derivative financial instruments and Long-term investments (*) other financial assets 5,267,653 - - Fixed assets - - - 233,911 284,267 - 284,267 - - Investment securities (*) Trading securities (*) Loans to customers (*) Placements with and loans to other and other financial assets credit institutions (*) Derivative financial instruments Balance with the State Bank of Vietnam Trading securities (*) Cash, gold and gemstones Placements with and loans to other credit institutions (*) Assets Balance with the State Bank of Vietnam VND Triệ Over Within Within From to From From From 1to Over months months month months to 6 to 12 years years interest Assets months months bearing MILLION MILLION MILLION MILLION MILLION MILLION MILLION MILLION MILLION Cash, gold and gemstones 2,511,105 2,511,105 - - - - - VND 48 INTEREST RATE RISK (Continued) Notes to the CONSOLIDATED financial statements (continued) Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 49 CREDIT RISK Credit risk is the risk that results in the Bank’s loss because its customer or counterparties default on their contractual obligations or fail to fulfil their committed obligations Tools that the Bank uses to manage credit risk include: For credit activities: The Bank manages and controls credit risk by setting limits for each counterparty and geographical and industrial concentration, and by monitoring exposures in relation to such limits The Bank has established a credit quality review process to provide early identification of possible changes in the financial position as well as solvency of counterparties based on the qualitative and quantitative factors Credit limits are established for each counterparty based on its risk rating assigned by the credit rating system Risk rating is subject to regular assessment For investment activities/interbank lending activities: The Bank controls and manages risks by setting the interbank and investment limit for each specific counterparty based on the analysis and assessment of the counterparty’s risks These limits are set by the Financial Institution Committee and executed by Investment Department Financial assets overdue but not impaired The Bank’s overdue financial assets that are not impaired include overdue loans with no provision required under Vietnamese Accounting Standards, Vietnamese Accounting System and other prevailing regulations applicable to credit institutions in Vietnam (“VAS”) The aging of such financial assets is presented below: Overdue Under 90 days 91-180 days 181-360 days Over 360 days million VND million VND million VND million VND Loans to customers 7,485 25,148 12,177 671,247 The Bank is currently holding collaterals in the forms of real estate, movable assets, valuable papers and others in kind for the above financial assets However, the Bank has not been able to determine the fair value of such assets due to the lack of specific guidance and necessary market information For the purpose of determining whether the assets are impaired and any provision is needed, these assets’ values are measured in accordance with Decision 493 and Decision 18 2012 Annual Report 145 Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 50 LIQUIDITY RISK Liquidity risk is defined as the risk that results in the Bank’s difficulty in meeting obligations associated with its financial liabilities Liquidity risk arises because the Bank might be unable to meet its payment obligations when they fall due under both normal and stressed circumstances or when the Bank has to mobilize funds at a higher cost The Bank had issued regulations on the liquidity management which establishes rules of preparing net liquidity gap, designs stress test scenarios and build backup plan to proactively handle measures in facing with the market volatility To minimise this risk, management plans to diversify its funding sources The Bank also develops fund management report system to calculate liquidity position on a daily basis as well as prepares analysis and forecast reports on future liquidity position on a regular basis On a monthly basis, at ALCO Committed meeting, fund balance and liquidity of the Bank is one of the key content to be discussed Based on analysis and evaluation, ALCO Committee makes recommendations to the Board of Directors and Board of Management to maintain the ability to balance liquidity of the Bank In addition, the Bank also maintain a list of secondary liquid assets such as government bonds, which may be sold under repurchased contracts with the State Bank in serious liquidity circumstances if any The maturity of assets and liabilities represents the remaining time to the contractual maturity date from the balance sheet date The following assumptions and conditions have been adopted in the analysis of the Bank’s maturity relating to its assets and liabilities: • Balance with the State Bank of Vietnam is considered current including the compulsory reserve, which is determined upon the composition and maturity of the Bank’s customer deposits • The maturity of trading securities and investment securities is based on contractual maturity dates • The maturity of amounts due from other credit institutions and loans to customers is based on the contractual maturity date The actual maturity sometimes varies from contractual term when the contract is extended In addition, the loans to customers are represented by the residual value after deducting risk provision • The maturity of equity investment is considered to be over five years as equity investments have indefinite maturity • The deposits, loans from other credit institutions and deposits from customers are determined on the nature of these amounts or maturity dates For demand deposits from business entities and the grants, trusted funds and borrowings at risk of credit institution, there is an assumption that a certain volume is maintained in the next term • Vostro accounts and current accounts paid upon customers’ demand are considered to be current The maturity of term borrowings and deposits is based on their contractual maturity dates In practice, such items may be rolled over and maintained for longer periods • The maturity of fixed assets is determined based on their remaining useful lives • Based on the approved annual business plan of the management, Capital and Financial Planning Management Department does analysis and makes forecasts of cash inflows and outflows of the system according to the approved plans; and also based on the actual daily fluctuations of fund mobilisation and utilisation, the Bank makes decisions on the management of capital adequacy 146 2012 Annual Report Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 50 LIQUIDITY RISK (Continued) Based on the projection of capital adequacy, Investment Department creates the Bank’s liquidity buffer through purchasing highly liquid valuable papers, which could be converted into cash through secondary market The Investment Department may decide to sell valuable papers to SBV in open market, or to borrow to replenish working capital’s deficiency to ensure liquidity position of the whole system Based on the SBV’s regulations, Capital and Financial Planning Management Department in cooperation with the Investment Department proposes available fund management plan in order to assure the actual average balance of deposits in VND and foreign currencies at the SBV is not less than the required level of compulsory reserve Besides, the Investment Department also establishes credit limit with other banks for mutual support when needed The process of capital adequacy of the Bank is performed in the INCAS, the interbank payment program CITAD On the basis of centralized payment at the Head Office, the Bank actively performs liquidity risk management on a daily basis Currently, the Bank is promptly implementing and developing software for upgrading and improving the process of risk management in accordance with international standards The date in the Liquidity Risk Report as at 31 December 2012 shows that the Bank’ funds are fairly plentiful with ranging from to 12 months, the longer-term funds are quite limited; however, they have been improved significantly compared to 2011 This is a common situation of commercial banks in Vietnam In fact, the Bank still maintains an appropriate rate of short-term funds utilisation for medium and long-term loans within the limit set by the State Bank The Bank’s liquidity risk management activities are monitored closely in compliance with the regulations of the State Bank and the Bank’s criteria for internal liquidity management for each of major currency unit (such as VND, USD, EUR) on deposits and loans portfolios 2012 Annual Report 147 148 Within million VND million VND million VND million VND million VND 2012 Annual Report - Balance with the State Bank of Vietnam - - - 4,889,996 Fixed assets Other assets (*) Total assets - - 636,750 26,164,349 - 284,267 40,894,678 12,234,145 2,511,105 - - 1,003,600 91,575,220 - - 3,046,533 - - - - 9,593,134 134,092,287 74,451 - 13,695,737 - - - - Deposits from customers - - 4,889,996 Other liabilities (*) Total liabilities Net liquidity difference 5,276,653 2,817,014 4,457,457 29,434,892 - - - - - Total 5,276,653 2,817,014 73,531,582 333,356,092 74,451 284,267 57,890,220 12,234,145 2,511,105 million VND years million VND - - 1,744,448 6,561,993 80,949,486 7,940,158 - 1,545,938 14,072,103 72,276,327 32,710,702 - 19,071,613 7,909,757 106,968,964 53,496,465 - 6,307,230 1,375,282 28,910,530 2,662,889 - 3,307,573 - 4,587 2,785,374 2,785,374 28,669,229 33,226,708 289,105,307 96,814,801 - 2,317,268 4,249,083 9,254,850 2,776,455 - 18,597,656 - 99,513,353 124,854,153 196,701,649 42,032,386 6,097,534 469,199,075 1,411,738 (15,159,357) (25,971,396) (24,587,724) 61,849,137 35,888,482 38,320,876 - - - - Consolidated financial statements for the year ended 31 December 2012 (*) Excluding risk provision - at risk of credit institution Valuable papers issued Grants, trusted funds and borrowings - - Borrowings from the Government and the SBV Liabilities Deposits and borrowings from other credit institutions - - 57,840,641 45,787,610 - - 253,272 - - million VND - 1,628,702 3,257,404 14,648,316 - - 19,544,422 1,411,738 84,353,996 98,882,757 172,113,925 103,881,523 41,986,016 507,519,951 - - - 1,411,738 - - - - - - - Investment securities (*) Loans to customers (*) Long-term investments (*) 4,889,996 and other financial assets Derivative financial instruments - - Placements with and loans to other credit institutions (*) Trading securities (*) - Cash, gold and gemstones Assets 31/12/2012 years Within 1 From to From to 12 From to 5 Over 05 months months month months months Over Overdue Current 50 LIQUIDITY RISK (Continued) Notes to the CONSOLIDATED financial statements (continued) Form B 05/TCTD-HN Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 51 CAPITAL AND OPERATING LEASE COMMITMENTS 31/12/2012 31/12/2011 million VND million VND Capital commitments: premises construction, and equipment acquisition 849,206 999,809 Capital commitments: equity investments - - Irrevocable operating lease commitments 908,051 1,032,519 Of which: Due within one year 191,054 154,292 Due from two to five years 313,957 414,007 Due after five years 403,040 464,220 52 CONTINGENT LIABILITIES Currently, investigation agencies are prosecuting former employees of Ho Chi Minh City branch and Nha Be branch of the Bank for alleged misappropriation of assets by means of fraudulence According to the criminal legislation and criminal procedure code, for cases under prosecution and investigation, the legal responsibilities and obligation of related parties will be determined only when the trial has been completed with an effective judgment However, based on results of internal reconciliation, review and investigation procedures that have been taken up to the date of these consolidated financial statements, the Bank’s management believes that the Bank neither is jointly liable for nor incurs any financial loss that regards to the illegal actions of these individuals 53 EXCHANGE RATES OF SOME FOREIGN CURRENCIES AT THE END OF THE YEAR 31/12/2012 31/12/2011 VND VND USD 20,828 20,828 EUR 26,736 27,374 GBP 33,621 32,813 CHF 22,137 22,536 JPY 267.01 275.20 SGD 16,952 16,304 CAD 21,160 20,693 AUD 21,580 21,578 NZD 17,243 16,414 THB 675,11 670,37 SEK 3,170 3,068 NOK 3,638 3,533 DKK 3,588 3,676 HKD 2,682 2,721 CNY 3,293 3,358 KRW 18.62 16.74 LAK 2.58 Non-applicable 2012 Annual Report 149 Notes to the CONSOLIDATED financial statements (continued) Consolidated financial statements for the year ended 31 December 2012 Form B 05/TCTD-HN 54 SUBSEQUENT EVENT As at 27 December 2012, the Bank joined in the strategic investment contract and comprehensive cooperation contract with Bank of Tokyo-Mitsubishi (“BTMU”) Accordingly, the Bank shall obtain license to sell 20% of its shares to BTMU through issuing 644,389,811 ordinary shares and increase chartered capital to 32,661 billion VND As at the date of these consolidated financial statements, the Bank and strategic partner are completing legal procedure for capital increase On 26 February 2013, shareholders of the Bank passed Resolution No 06/NQ-DHCD to approve the plan regarding additional shares issuance for BTMU 55 COMPARATIVE FIGURES Comparative figures in the consolidated financial statements are those in the consolidated financial statements for the year ended 31 December 2011 which were audited by another independent auditing company Some figures in the consolidated balance sheet have been reclassified as follows: Consolidated Consolidated financial statement financial statement for the year ended for the year ended Items Note 31/12/2011 Difference 31/12/2012 million VND million VND million VND Deposits from customers (i) 257,273,708 (137,763) 257,135,945 Other payables and liabilities (i)&(ii)&(iii) 19,744,820 (78,825) 19,665,995 Other provisions (ii) 435,811 32,741 468,552 Placements with other credit institutions (iii) 61,979,076 (183,847) 61,795,229 (i) The reclassified amount represents the amount due to customers and deferred payment which are presented as “Deposits from customers” in the consolidated financial statements for the year ended 31 December 2011 In accordance with Decision No 16/2007/ QD-NHNN issued by the SBV on 18 April 2007, such amounts should be presented in the “Other payables and liabilities” (ii) The reclassified amount represents the claim provisions and catastrophe reserves of Vietinbank Insurance Company Ltd (iii) The reclassified amount on the financial statements of Vietinbank Fund Management Company Ltd Accordingly, this is the first year that Vietinbank Fund Management Company Ltd prepares financial statements in accordance with Circular No 125/2011/TT-BTC dated 05 September 2011 issued by the Ministry of Finance, providing guidance on accounting for fund management companies Figures on the consolidated balance sheet, the consolidated income statement, the consolidated statement of cashflows and related notes are prepared in the new guidance Preparer Ha Quang Vu Head of Financial Accounting Management Department 21 March 2013 150 2012 Annual Report Approver Approver Nguyen Hai Hung Nguyen Van Du Chief Accountant Deputy General Director ... by its new name, Vietnam Joint Stock Commercial Bank for Industry and Trade 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