INDUSTRIAL AND COMMERCIAL BANK OF VIETNAM
ANNUAL REPORT 2003
A PROFILE OF INCOMBANK
- Industrial and Commercial Bank of Vietnam (Incombank) was established in 1988, on its separation from the State Bank of Vietnam. Incombank is one of the four largest commercial banks in Vietnam and is ranked as one of the 23 special state-owned corporations;
- Possesses an extensive network of 2 Transaction Centers, 125 branches, 143 subtransaction offices, 400 saving bureaus, a Training Center and an Information Technology Center;
- Subsidiaries include a Leasing Company, a Securities Company and an Asset Management Company;
- Co-founder and major shareholder of several joint ventures, namely Indovina Bank, Vietnam International Leasing Company and IAI - Incombank Insurance Company;
- Manages correspondent banking relationships with 733 banks worldwide.
- Incombank provides a wide range of banking and financial products and services, including: deposits and savings, account maintenance in local and foreign currencies, investments and placements in the money market, loan and credit facilities, trade related services and bank guarantees, remittances and money transfers, card and payment services, foreign exchange dealing, securities trading, insurance and financial leasing, etc..
- A full member of the Society for Worldwide Inter-bank Financial Telecommunication (known as SWIFT TM), Asian Bankers Association (ABA), VISA International Service Association, Master Card International, Vietnam Bankers Association (VBA) and the Vietnam Chamber of Commerce and Industry.
- In 2003, Incombank was selected by the Vietnamese government to be the only commercial bank to join in the “APEC Financial Institutions dealing with Small and Medium-Sized Enterprises”
| FINANCIAL HIGHLIGHTS | ||
| 2002 | 2003 | |
| Total assets (VND mil.) | 80,887.100 | 67,980,412 |
| Total outstanding loans (VND mil.) | 51,778,523 | 47,120,856 |
| Total mobilized fund (VND mil.) | 71,146,192 | 59,283,956 |
| Total equity (VND mil.) | 4,154,083 | 3,173,697 |
| Net profit (VND mil.) | 205,186 | 172,524 |
| Return/Average total asset (ROA) (%) | 0.28 | 0.24 |
| Return/Average equity (ROE) (%) | 5.60 | 6.99 |
| Equity/Risk-weighted assets (%) | 6.08 | 5.57 |
A MESSAGE FROM CHAIRMAN OF THE BOARD OF DIRECTORS
Ladies and gentlemen,
In the year of 2003, Vietnam’s economy faced several challenges and obstacles, including natural disasters, which affected several parts of the country. Adverse international circumstances which negatively impacted the economy were the Iraq war
and the SARS epidemic that swept though many countries in Eastern Asia. Despite these negative influences, Vietnam successfully overcame all these challenges and recorded remarkable achievements. The deadly SARS epidemic was fully controlled; the GDP growth rate of around 7,24% was the second highest in the world while the inflation rate (CPI) was as low as 3.0%.
Threats still hang over the nation’s economy. The process of economic reform slowed down. The pace of reform of State-owned enterprises and the restructuring of the banking system and administrative procedures was also slow. The economy’s competitiveness, in general, remained weak, and the transition to a market economy is yet to be fully achieved.
The financial and banking sector in 2003 witnessed positive movements towards international competition. A number of financial institutions successfully entered the market. Interest rate policy used by the State Bank of Vietnam proved in line with market requirements. Regulations on VND operations applied to foreign banks’ branches were further eased by the State Bank. Transparency was further enhanced by the separation of policy lending from commercial lending. All together these factors contributed to a freer financial market in Vietnam.
Given all of the above positive developments, a closer analysis of the financial and banking sector revealed several shortcomings. These included the small capital base of domestic financial institutions; limited business management skills as well as technology applications; restraints on fund mobilization due to outdated regulations and practices; non-performing loans and bad debts were still major problem for the banks, partly due to the slowdown of the SOEs reform process. The securities market, though in operation for a short time, is still limited in scope due to the small number of quoted companies
and the low volumes of transactions and deals.
In this challenging environment, in 2003 Incombank successfully achieved most of its important business goals. Total fund mobilization increased by 23.3%, the composition of which changed in response to fund usage. Lending rose by a sustainable 10%, with loan quality being consistent with the bank’s stricter lending policy. Net profit exceeded the targeted level by 12.9%, while the total risk provision for the year was 30% over the initial plan. Over the year, bad debt resolution and NPLs recovery helped re-gain over VND2,016 billion, which almost equaled the loan recovery levels of the past two years. Other operations of the bank also showed positive developments. We have now completed the Phase I of the “Banking Modernization and Payment System” project. The new organizational structure has been implemented under international consultancy and supervision. More diversified banking products and services were introduced to meet various customers’ needs, which included, in addition to the successful conventional ATM card, cash cards and international credit cards issued under the prestigious brand names of Visa International and Master Card. Several new specialized units were set up and joined the network to meet the funding requirements as well as provide banking services to the economy. Of particular note, forex dealing operations and trade finance business also recorded excellent growth and thus made a considerable contribution to service fee income.
The year of 2003 was also a “year of merits” for Incombank. On its 15th year celebration, Incombank was granted the Third Class Independence Medal by the President of Vietnam. Three branches were also awarded the prestigious title “Hero Of The Renovation Age”. Besides all these stated achievements, Incombank still faced a number of difficulties and
challenges. The high level of non-performing loans, mostly connected to the restructuring and equitization of SOEs, remained a top management concern. The growth of medium and long term funds, although positive, was lower than our
expectations. Product and service quality slowly improved towards international standards, thus affecting our competitiveness in the market. To successfully face the challenges and obstacles facing the bank and to ensure the
sustainable development needed to achieve the business goals to be set during the coming years, Incombank will require its staff to continue to apply greater effort, method and wisdom.
The business goals we set for the year 2004 include: an 18% growth in fund mobilization; a 15% increase in lending, of which medium and long term lending should account for no more than 40%; overdue and non-performing loans to be kept below 3%, while maintaining net profit and risk provision at a higher level than in 2003. We have worked out the actions to be taken for the accomplishment of the above-stated goals set for 2004 as well as those of the business strategy for 2010. These include, but are not necessary limited to: diversifying fund-raising products which must be highly competitive and more sensitive to market influences; managing credit operations and lending on a customer-base and products-base in accordance with market requirements and commercial principles; securing the sustainable development of all banking
operations; giving more attention to the other economic sectors such as SMEs, export businesses and individuals and speeding up the resolution of non-performing loans. Additionally, we commit ourselves to the Phase II of the “Banking Modernization and Payment System” project; to introduce to the market new ATM products together with international credit card services and electronic banking. The bank’s organization and operation are to be restructured to meet market requirements and international standards. More attention is to be paid to the training and development of human resources. We strongly believe in our ability to achieve these goals and missions given the actions that will be taken.
May I, on this occasion, on behalf of the Board of Directors, the Board of Management and the whole staff of Incombank, extend our sincere gratitude towards the Government and Offices, the State Bank of Vietnam, Ministries and Industries, central and local bodies and authorities for their helpful and effective support and guidance. I also extend a special thanks to our domestic and overseas clients and partners for their trust and cooperation with us all over the years. We wish to retain the privileged of receiving your further support and cooperation in the years to come.
With our best regards, we remain,
Dr. Nguyen Van Binh
Chairman of the Board of Directors.
AN OVERVIEW OF VIETNAM’S ECONOMY IN 2003
The year 2003 witnessed a remarkable recovery in Vietnam’s economic growth especially if a series of adverse domestic and international events are taken into consideration. Vietnam’s economy has been more open than ever before to influences, regional and global; influences which were often in conflict to many bureaucratic ideas. This can only be seen as a positive sign that a market oriented economy is well on the way of completion.
Economic growth topped on the regional list and was second in the world
Vietnnam’s economic growth rate in 2003 was as high as 7.24%, the highest among the ASEAN countries and the second highest in the world, just one rank below China’s growth rate of 8.5%. This was also the highest level in the six years following the Asian financial crisis. The inflation rate was restricted to 3% compared to 4% in 2002. This low inflation rate was due mainly to the low price index of a basket of foodstuffs (2.8%) and the USD exchange rate (2.2%), which together offset the relatively high index of gold (26.6%).
The economic structure has benefited from the Government’s firm determination in the ongoing process of reforming SOEs and creating a more level playing field for the private sector. By the end of 2003, there were 62,908 businesses registered, of which 57,544 were non-state and foreign invested enterprises, accounting for 91.4%. This proportion, in turn, contributed up to 51.4% of the new jobs and 69.4% of the country’s GDP.
Number of businesses by economic sector
The chart shows the high speed of development of the private businesses together with the economic growth over the past three years. There were, however, a number of endogenous shortcomings and, to a certain extent, threats. The low level of technology and technological knowledge may not be sufficient to ensure sustainable growth in the so-called knowledge economy, in which technology accounts for a big part of GDP. Statistics have shown that the proportion of those businesses equipped with high technology is as low as 20.6%, those with medium technology 20.7%, whereas those with low and outdated technology was up to 58.7%. The rapid rise in land prices, due to an over-heated real estate market, drove up construction costs and rents for offices and factories. Import prices of several key input materials rose sharply due to international market fluctuations, such as oil and petroleum prices which rose by 21.1%; steel by34.1% and chemicals and fertilizers by 21.6%, etc. Combined, all these factors caused a fall in both foreign and domestic investments.
Export and FDI – the two major contributors to economic growth
Intensive efforts made by the Vietnamese companies to look for new export markets brought about fruitful results in 2003. Total export revenue rose 19% i to USD19.9 billion compared to USD16.7 billion in 2002. Export markets were further expanded to different corners of the world. Vietnam currently maintains trade relations with 221 countries and territories located in all five continents. It exports to 219 countries and, in turn, imports from 151. A trade surplus is recorded with 70 countries. Import-export markets are more focused on Asian countries than others. American, European and Australian markets account for 22.8%, 21.3% and 7.1% respectively. The four largest international trade partners are the United State of America (USD3.8 billion), Japan (USD2.5 billion), China (USD1.4 billion) and Australia (USD1.2 billion). The largest trade surpluses are in the current accounts with Japan and Australia.
Total trade revenue and export growth in the period of 1998 – 2003.
Total FDI in 2003 was USD3.1 billion or up by 26.3% compared to 2002, of which USD2 billion was for new foreign invested projects and the balance for the expansion of existing businesses. Contrary to this positive advance, negative or indifferent assessments based on statistics suggested that foreign direct investment was on a downward trend since 1996. In addition, international political chaos, threats posed by global terrorism and the feared outbreak of the dreaded SARS and bird influenza, had a negative influence on investors in their decision making.
Total registered FDIs in the period of 1996 - 2003
Banking, financial business and money market movements – new factors coming up
Outstanding facts and events on the banking, financial and monetary markets in 2003 could be briefly noted as follows:
- The flexible interest policy implemented by the State Bank of Vietnam helped stabilize the financial market and money supply;
- The Government made remarkable efforts in loosening controls on foreign exchange, granting gold import quotas to competent businesses and committing to supply on demand foreign currencies to the market and thus, helping stabilize the exchange rate. For the first time commercial banks were allowed to do option transactions as a means of risk hedging and, if applicable, making a profit. In 2003, the State Bank of Vietnam brought down to 0% the foreign exchange compulsory surrender ratio. At about VND15,536 the average exchange rate of VND/USD increased slightly by 1.6%.
- The ongoing restructuring process of the commercial banking system showed positive progress in 2003. Over VND8,850 billion were added to the state-owned banks’ equity, helping these banks increase their competitiveness and expand
their market share. Regulations on the ratio of funds raised in domestic currency applicable to the branches of foreign banks was further eased under the implementations of provisions of the Vietnam-US BTA and in preparation for WTO accession. Domestic commercial banks introduced new banking products and money services to customers, including Telephone banking and Internet banking, and upgraded technologies to meet various demands. In 2003, the six largest domestic commercial banks (including the four state-owned giants, which are Incombank, Vietcombank, BIDV and Agribank) completed their first project phase and moved on to the expansion of the “Banking Modernization and Payment System” project sponsored by the World Bank, wherein these banks would be equipped with modern, central, integrated and on-line platform.
- Non-performing loans and bad debts were still problems for most of the banking system, the resolution of which was and continues to be a priority.
The Asian Development Outlook 2004 (ADO), an annual ADB publication, forecasts that Vietnam’s GDP growth, underpinned by strong domestic demand, will rise by 10.1% in 2004 and 8.1% in 2005. It also predicts 12% growth in export revenues, while noting that the country’s trade deficit may reach an estimated USD4.2 billion and USD4.5 billion in 2004 and 2005 respectively due to the implementation of AFTA commitments and inpreparation for WTO accession. Fiscal deficits are forecast to be at acceptable levels of 4.6% in 2004 and 4.2% in 2005.
A Review of Incombank’s Performance in 2003
The amendments to the Law on the State Bank of Vietnam, released in 2003, proved to be more in line with the development of the banking industry of Vietnam, especially the introduction of new products into the open market thus helping commercial banks to better manage their funds. The Social Policy Bank was established as a separate entity, which for the first time clearly defined that the purpose of the state-owned commercial banks was to make a profit.
Throughout the year, Incombank focused on its three set targets, which were: rearranging the composition of assets and liabilities , raising capital adequacy ratios to international standards , with NPLs resolution and recovery, and, finally the successful implementation of the Banking Modernization and Payment System project.
Growth of liabilities, assets and net profit 2000 - 2003
Deposits and funds raising
From the beginning until end of 2003, the market witnessed intense competition among commercial banks in Vietnam in long-term fund-raising. Incombank successfully raised over VND2,000 billion through the issue of 2-year bonds and 3-year bonds. Total Deposit liabilities of the Bank, as of 31st December 2003 reached VND71,146 billion, up by 20% compared to 2002.
USD interest rates stayed low throughout the year while the exchange rate against VND was relatively stable, possibly driving some depositors away from banks. As a consequence, total deposits in foreign currencies were 4.9% lower than last year’s figures. Corporate borrowers were, however, tempted to borrow in USD to benefit from the lower interest rates. Incombank had to reduce its overseas deposits and placements to meet domestic customers’ short term demands.
In order to attract personal savings in VND, Incombank introduced a new and attractive product, lottery-based savings. This product was readily and widely accepted and may have caused total individual savings to rise by 21%.
Loans and investments
Since the introduction of stricter credit policies and practices in 2003, the bank continued to focus on credit quality rather than rapid credit growth. Total lending as of 31 December, 2003 was VND51,779 billion, with the growth rate at an expected level of 10%. As a result of the introduction of prudent and strict credit guidelines and procedures NPLs resolution improved substantially. Credit staff attended intensive training courses designed to enhance credit skills and familiarization with credit knowledge and practices current in the banking industry.
Total loans in VND were VND43,103 billion, a 9.2% increase compared to the previous year. Lending in foreign currencies rose 13%, approximating VND8,765 billion. Medium and long-term loans accounted for around 40% of total outstanding loans. Loans were made to several major industrial sectors, including construction, textiles and garments,
transportation, freight-forwarding and warehousing. By the end of 2003, Incombank participated in 140 appraisals of syndicated loans, 133 of which have been disbursed with a total amount of VND3,160 billion. Current outstanding balance of these are over VND2,592 billion. In 2003 28 syndicated loans totaling VND836 billion were approved. At present, Incombank is leading 17 funding syndications, mostly for heavy industries such as electricity, oil and cement.
Managing the Bank’s liquidity ratio, ensuring high funds turnover rates and maximizing profitability through the use of a growing number of money market instruments, is a Head Office responsibility. For the year 2003, the increased trading volumes delivered a prudent liquidity ratio, optimum funds turnover and boosted the profitability of our money market operations, all to the benefit of the Bank.
International banking services
In 2003 the Bank continued to implement programs to achieve integration into the regional and world financial markets. With a vision to be recognized not only as a sophisticated commercial bank with conventional products and services on the domestic market, but also as an active and equal participant in international markets, the Bank continued to diversify its total income, raising the share of service fee income while limiting operational risks, and introducing innovative products and services throughout its system. The slogan set forth for the Bank was “One stop for all needs”.
Trade finance transactions still accounted for the greater proportion of international banking services revenue. Total import bill payments were USD1.8 billion, increasing by 8 per cent. Types of goods and commodities financed were diversified along with the expansion of markets to different corners of the world. In addition to USD payments, we extended our direct payments to other convertible currencies including EUR, JPY, CAD, AUD and etc. Total export bill payments totaled USD1.26 billion, representing increase of 26.3 per cent compared to 2002. Although this was a relatively small share of the total market, positively for Incombank, the trend is up..
Trade and non-trade remittances were also up, although not as high as expected. Outward remittances were up by just 1.9%, to USD520 million, and inward remittances up 1% to USD550 million. 2003 was the third consecutive year in which Incombank was recognized as the best direct SWIFT payment partner by several banking industry giants, namely Citibank N.A, JP Morgan Chase, The Bank of New York, HSBC NY and etc. with over 98% direct, error-free payment messages.
Taking advantage of its large network of 125 branches, 500 sub-branches and Points-ofsale levered by a state-of-the-art electronic technology, Incombank handled a total of over USD180 million of overseas remittance and inwards money transfers. In addition to the conventional method of SWIFT remittance messages, Incombank for the first time piloted Internet-based individual remittances and money transfers. These technological advances enabled the Bank to make almost anytime, anywhere payments while retaining the necessary security and transactional integrity.
Travelers’ cheques clearing and encashment business in 2003 continued to grow and reached USD3.5 million, of which over 85% were American Express Travelers’ Cheques. This was also the year we decided to adopt the Internet authorization procedures for Amex, Visa and Master cheques, together with the traditional “Watch and Compare” guidelines. This new application helped reduce the time taken to handle these cheque transactions as well as expand the network of POSs to remote areas.
Backed by intensive efforts of the Bank in expanding international credit card services, meeting the demands of foreign visitors and Vietnamese citizens traveling abroad, the network of Incombank’s merchants for Visa and Master cards was expanded to over 100 nationwide. Over 20,000 card transactions were processed by us, raising total transaction volume to more than USD5 million, a 20% increase from the previous year. In our long-term strategy for credit card business, 2003 was considered as a preparatory, stepping-stone for our planned thrust to expand our merchants and POSs over the next few years.
Banking technology and system modernization
We are pleased to report the successful completion of Phase I of the “Banking Modernization and Payment System” project, an intensive, systematic renovation of the technologies as well as banking practices within the Bank. INCAS (Incombank Advanced System) was officially launched on 1 November, 2003, initially at the Head Office and 4 pilot branches, namely Transaction Office No.1, Ba Dinh branch, Hoan Kiem branch - ,and Hai Ba Trung branch, and through them a total of 46 sub-branches. INCAS is an on-line integrated system that enables the Bank to centralize management of customer information and transaction data for daily processing. Amongst the various applications integrated in INCAS are: Deposits, Loans, Remittances, Trade Finance, Treasury, General Ledger, CIF (customer information files), BDS (Branch Delivery System) and DWH (Data Warehouse); different distribution channels, namely branch and subbranches, ATMs and Internet banking…The implementation of this advanced system brought positive results, especially in service quality and bank management. Phase II of the project, which will be rolled out to the remaining 120 branches, has a planned launch date of September 2004 with completion in 2005.
In 2003, Incombank launched a series of new products and services to further increase the Bank’s customer base and market share. Two new types of ATM cards, each of which was specifically designed for one market segment, were introduced, namely ATMC card, ATM-G card. ATM services were also offered along with salary payment services and money transfers, aimed especially at college and university students. 5 new ATMs were added to the network, located in densely populated areas. Cash card, initially launched to the Bank’s staff on a trial basis will be offered to our customers in 2004.
A new electronic solution on payment and data transfer was initiated in accordance with the regulations of the State Bank. Phase I of the System Security Upgrade was successfully implemented at the Head Office. New SWIFT server was supplemented to meet with the increasing demand for I/O SWIFT messages. Concurrently the AIX o/s version was upgraded from 4.3.3 to 5.0 to be compatible with new version of SWIFT software. We also decided to adopt the Star-shaped model to replace the conventional Bus-link for inter-branch communication system performance while raising the branch data security level.
To support new products and services provided under our INCAS platform, we upgraded our North-South backbone speed from 256 Kps to 512 Kps, and 90 branches and sub-branches were equipped with high-speed leased line.
In the coming years, we plan to consider a heavy investment on new, advanced, international standard IT technologies and digital solutions to bring up service quality and support business management.
A 3-YEAR PROGRESS REVIEW OF INCOMBANK RESTRUCTURING SCHEME
After three years implementation of the Government approved Restructuring Plan 2001- 2010, Incombank is pleased to report that considerable, solid progress was made to ensure that on completion, the bank will be well positioned to assume its rightful place in both regional and world financial markets.
We have, by year-end 2003, resolved over VND4,425 billion of NPLs, through a prudent use of selected actions including chasing and pressing for repayments, liquidation of collateral and off-sets from provisions. All these efforts have succeeded In reducing the NPLs.
The Banking Modernization and Payment System Project is well on course to meet given objectives for 2003. Incombank has been preparing the pre-conditions necessary for the bank-wide implementation of the system. Organizational structure of the Head Office has also been rearranged and strengthened, hence improving the Bank’s administration.
Upon its assessment of the progress made in the restructuring project, the Government decided to release a further contribution of VND800 billion to Incombank’s equity, bringing the total of Government’s capital contribution to the bank’s equity up to VND2,900 billion, thus enhancing the bank’s financial capability.
| INCOME STATEMENT |
| Unit: VND million |
| 2003 | 2002 | |
| Income from interest | 5,739,293 | 4,174,823 |
| Interest income | 4,798,791 | 3,704,020 |
| Deposit income | 367,745 | 149,748 |
| Securities earning | 491,203 | 246,506 |
| Other incomes | 81,554 | 74,549 |
| Expense on Interest | 3,838,689 | 2,707,401 |
| Interest expense on deposit, savings, notes, acceptances and valuable papers | 3,491,926 | 2,497,184 |
| Expense on borrowings | 342,373 | 209,331 |
| Other expenses | 4,390 | 886 |
| Net interest income | 1,900,604 | 1,467,422 |
| Non-interest income | 340,173 | 277,596 |
| Income from fees | 164,717 | 146,564 |
| Income from forex trading, jewelry, gold and precious stones | 91,365 | 86,972 |
| Others | 84,091 | 46,420 |
| Total income | 2,240,777 | 1,745,018 |
| Operational expenses | 1,085,678 | 840,201 |
| Payroll | 439,414 | 311,925 |
| Administrative expenses | 258,367 | 198,790 |
| Expense on fixed assets | ||
| Expense on fixed assets | 111,167 | 94,875 |
| Others fixed assets costs | 73,700 | 60,103 |
| Expense on forex trading, jewelry, gold and precious stones | 11,478 | 31,169 |
| Others | 191,552 | 143,339 |
| Income before reserves | 1,155,099 | 904,817 |
| Loan lost reserves | 931,913 | 729,293 |
| Income before tax | 223,186 | 175,524 |
| Taxes | 18,000 | 3,000 |
| Net income | 205,186 | 172,524 |
| BALANCE SHEET As of 31 December, 2003 |
| Notes | 2003 | 2002 | |
| Assets | 80,887,100 | 67,980,412 | |
| Cash and cash equivalents | 1,044,160 | 830,881 | |
| Deposits with State Bank of Vietnam | 5,317,107 | 2,958,188 | |
| Deposits with financial institutions | 1 | 9,213,473 | 9,724,191 |
| Net loans | 2 | 51,778,532 | 47,120,856 |
| Securities investments | 3 | 10,024,497 | 5,570,669 |
| Capital contribution and shares | 4 | 218,248 | 179,662 |
| Fixed assets | 5 | 755,876 | 608,424 |
| Receivables | 6 | 2,375,468 | 866,723 |
| Others | 159,739 | 120,818 | |
| Liabilities | 76,733,017 | 64,806,715 | |
| Deposits from customers | 7 | 56,491,099 | 48,432,991 |
| Deposits from financial institutions | 8 | 11,104,441 | 6,407,212 |
| Bonds and acceptances | 3,550,652 | 4,443,753 | |
| Borrowings from State Bank of Vietnam and financial institutions | 9 | 2,596,716 | 4,481,042 |
| Payables | 10 | 2,763,276 | 255,064 |
| Others | 226,833 | 786,653 | |
| Equity | 4,154,083 | 3,173,697 | |
| Statutory capital | 2,908,000 | 2,100,000 | |
| Funds and other capital | 11 | 1,040,897 | 898,174 |
| Retained profit | 205,186 | 175,523 |
Total liabilities and equity ……………..
| NOTES TO FINANCIAL STATEMENTS |
| 2003 | 2002 | |
| 1, Deposits with financial institutions | 9,213,473 | 9,724,191 |
| Deposits with foreign financial institutions | 2,961,110 | 7,676,955 |
| Deposits with local financial institutions | 6,252,363 | 2,047,236 |
| 2, Net loans | 51,778,532 | 47,120,856 |
| Short-term | 23,769,910 | 23,374,905 |
| Medium and long-term | 24,406,977 | 19,184,729 |
| Syndicated loans and loans to financial institutions | 2,151,096 | 2,409,290 |
| Lending from foreign grants and investment agents’funds | 707,828 | 703,424 |
| Discounts and mortgaging valuable papers | 129,838 | 185,570 |
| Financial leasing | 300,797 | 289,020 |
| Guaranteed loans | 312,086 | 743,009 |
| Others | 0 | 230,909 |
| (i) Classified by industries | 51,778,532 | 47,120,856 |
| Industry | 18,667,791 | 15,955,122 |
| Commerce and Services | 10,492,728 | 9,721,033 |
| Construction and Transportation | 9,650,157 | 11,726,496 |
| Agriculture and others | 12,967,856 | 9,718,205 |
| (ii) Classified by economic sectors | 51,778,532 | 47,120,856 |
| State-owned sector | 23,818,124 | 27,264,127 |
| Non-state sector | 27,960,408 | 19,856,729 |
| (iii) Classified by currencies | 51,778,532 | 47,120,856 |
| VND | 43,013,192 | 39,360,318 |
| Foreign currencies | 8,765,340 | 7,760,538 |
| (iv) Non-performing loans | 1,726,776 | 1,842,138 |
| Frozen loans | 276,284 | 290,854 |
| Loans under recovery and litigation | 1,450,492 | 1,551,284 |
| (v) Movements in loan loss reserves | ||
| Balance at beginning of 2003 | 227,731 | 52,137 |
| Loan loss provision charge for 2003 | 931,913 | 729,293 |
| Write-offs | (1,051,623) | (553,699) |
| Balance at end of 2003 | 108,021 | 227,731 |
| 3, Securities Investments | 10,024,497 | 5,570,669 |
| Government bonds and notes | 10,024,497 | 5,558,853 |
| Credit institutions’ securities | 0 | 11,816 |
| 4, Capital contribution and shares | 218,248 | 179,662 |
| In credit institutions | 218,248 | 168,662 |
| In economic organizations | 0 | 11,000 |
| 5, Fixed assets | 755,876 | 608,424 |
| Tangible | 664,527 | 558,744 |
| Intangible | 65,623 | 36,950 |
| Leased assets | 25,726 | 12,730 |
| 6, Receivables | 2,375,468 | 866,723 |
| From State Budgets | 12,415 | 15,373 |
| Advances and allowances for operation | 365,787 | 381,423 |
| Temporary capital injection to subsidiaries | 202,954 | 106,829 |
| Expense in pending | 27,153 | 35,254 |
| Accrual interest receivable | 547,392 | - |
| Other advances and receivables | 1,219,767 | 327,844 |
| 7, Deposits from customers | ||
| (i) Classified by customers | 56,491,099 | 48,432,991 |
| Enterprises and businesses | 30,486,692 | 26,698,999 |
| Individuals | 26,004,407 | 21,733,992 |
| (ii) Classified by maturities | 56,491,099 | 48,432,991 |
| Demand deposits | 23,215,081 | 21,450,945 |
| Time deposits | 33,276,018 | 26,982,046 |
| (iii) Classified by currencies | 56,491,099 | 48,432,991 |
| VND | 43,425,028 | 34,693,693 |
| Foreign currencies | 13,066,071 | 13,739,298 |
| 8, Deposits from financial institutions | 11,104,441 | 6,407,212 |
| Financial institutions | 10,670,808 | 6,119,111 |
| State Treasury | 433,633 | 288,101 |
| 9, Borrowings from State Bank of Vietnam and Credit institutions | 2,596,716 | 4,481,042 |
| State Bank | 1,936,638 | 3,259,745 |
| Credit institutions | 660,078 | 1,221,297 |
| 10, Payables | 2,763,276 | 255,064 |
| Capital constructions and fixed assets | 89,343 | 83,397 |
| Taxes and payables to the State Budget | 5,341 | 5,363 |
| Pending expenses | 414,154 | 103,000 |
| Internal payables | 96,155 | 63,304 |
| Deposit take-ups in VND and foreign currencies | 814,097 | - |
| Accrual interest payable | 763,276 | - |
| Forex deals payable | 226,775 | - |
| Others | 354,135 | - |
| 11, Other capital and funds | 1,040,897 | 898,174 |
| Capital constructions | 283,339 | 251,542 |
| Other capital | 66,472 | 66,472 |
| Fund for development investment | 279,450 | 212,460 |
| Reserves for Statutory capital add-on | 27,958 | 19,470 |
| Financial allowances | 329,866 | 304,732 |
| Others | 53,812 | 43,498 |
INTERPRETATION ON FINANCIAL REPORTS
Composition of assets
Incombank’s total assets increased by 19% compared to 2002, reaching VND80,887 billion by 31 December, 2003, equivalent to USD 5.22 billion. Loans, deposits with banks and investments in securities were the three largest components of total assets, accounting for 64%, 17.9% and 12% respectively. Cash and equivalents made 1.29%, receivables 3% and other assets 1.8% of the total assets.
As mentioned above, loans account for the largest single share of total assets. Loans outstanding at VND51,778 billion, represented a 9.9% increase as compared to last year. Allocation of loans and financings showed a marked shift away from SOEs to companies in the private sector and the retail sector, which rose from 42% in 2002 to 54% in 2003. This was responsive lending by Incombank in acknowledgement to actual developments in the economy and to market demands driven by the surge in the growth rate of the private sector and the ongoing SOEs privatization process.
Term of lending was also increased last year. Proportion of medium and long-term lending increased from 40% last year to 47% in 2003, mainly due to the growth of longterm funds raised. In relation to the total credit growth rate, lending to the commercial and service sectors recorded lower growth and lending to the construction and transportation sector actually declined. However, financing to the industrial and agricultural sectors rose steadily.
Overdue loans to total outstanding loans were brought down to 3.3% from 3.9% in 2002. Over VND1,051 billion was written off from risk provision source, hence strengthening the balance sheet by year-end. Our successful efforts in chasing for repayments led to a reduction in NPLs. In 2003, up to VND932 billion of earnings were used to reduce NPLs. A work-out plan including provision for loan loss was approved to resolve all accumulated NPLs incurred before 2000, mainly related to the Epco-Minh Phung legal case, by the end of 2006.
The Bank’s assets were re-aligned in order to mitigate risks. Investments in Government bonds and securities, which increased by 80% compared to last year, now amount to 12.4% of total assets. This enhances the Bank’s ability to better control its liquidity position.
Composition of Liabilities
Our equity capital of VND4,154 billion as of 31 December, 2003, increased by VND990 billion over the year. Capital adequacy ratio were improved to 6.08% compared to 5,57% of 2002, mainly the result of another capital injection of VND800 billion in the form of Government long-term notes. Increase of total profit and the reduction of higher risk assets against low risk assets also contributed to efforts to maintain asset quality and the integrity of the Bank’s operation. Under the ongoing Bank Restructuring Program, the State Bank of Vietnam committed to inject further capital into the Bank’s equity, which will rise up to VND5 trillion in the next few years.
Even though Incombank successfully diversified its fund raising sources to include individual savings, deposits from other banks and financial institutions, borrowings from the State Bank of Vietnam, like most other commercial banks, the Bank’s major funding source are deposits. Given Vietnam’s high economic growth rates, Incombank applied a flexible rate policy along with diversification of saving products to meet various customers’ needs and thus enjoyed a 16% increase of deposits. Total fund raising from individual savings and issuance of bank acceptances and CDs were VND60,014 billion, accounting for 70% of total assets. Lending per deposit remained high at 92%, indicating the main source of financing came from deposits. Low USD rates, however, resulted in a 4.9% decrease of USD funds.
Liquid assets to total assets peaked at 31% compared to the 2002 ratio of 28%. Outstanding loans to total liabilities ratio stabilized around 78%, unchanged from the previous year. This liquidity ratio could be considered acceptable, within the actual scenario of the economy and the Bank itself.
Receivables and payables balances increased sharply in 2003 mainly due to the increase of year-end accrual interest receivable, interest payable and other foreign currencies investment activities.
Income and Expenses
Net income reached VND205.186 billion in 2003, increasing by 17% compared to the previous year. A further analysis of total income showed that interest income accounted for 84.4%, while income earned from fees and other activities made up 15.2% of the total. Interest earnings increased by 37.5% in 2003, attributed mainly to the rise in lending rates tied to the increase of total lending appraised thought out the year. Earnings from deposits with banks and investment securities were also substantially up, bringing its contribution to interest income to 15%.
In total interest expenses paid over 2003, those on deposits and term notes represented up to 81% of the total and a 25% increase compared to 2002 due to the expansion of deposits accepted during the year. The rise of interest on deposits also contributed to this expense increase.
Marginal interest expense, formed by the ratio of interest expenses to average interest bearing liabilities was up to 5.58% in 2003 compared to 1.14% in 2002. However, the marginal interest income ratio calculated by taking interest income divided by average interest-earning assets was 7.99%, up by 1.17%. This made the net marginal income 2.14% in 2003.
Net income from fees and other banking activities rose by 22%. Half of all fee earnings came from payment services. This was good evidence that the enhancement of banking technologies and payment systems were successful in attracting more bank customers to the clearing services and fund transfer facilities provided by Incombank. Raising fee income as a proportion of total income is one of our set targets for the coming years.
The key performance measure of operational expenses to total income stayed at 43.5% in 2003, the result of established, ongoing efforts to bring down this ratio from the 86% reported in 1999. Operating costs at VND1,085 billion, increased by 29.2% due to the business development and network expansion. 40.5% of the total operating expense was attributed to salary payments, bonuses and allowances. This was 40.8% higher than last year and is explained by an increase in the number of employees and a pay rise.
Total loan loss provision was reached a high of VND1,155 billion, accounting for 41% of Incombank’s total 2003 income.
