Q4 2014
www.businessmonitor.com
VIETNAM
COMMERCIAL BANKING REPORT
INCLUDES 5-YEAR FORECASTS TO 2018
ISSN 1758-454X
Published by:Business Monitor International
Vietnam Commercial Banking
Report Q4 2014
INCLUDES 5-YEAR FORECASTS TO 2018
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: August 2014
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CONTENTS
BMI Industry View 7
Table: Commercial Banking Sector Indicators 7
Table: Commercial Banking Sector Key Ratios, October 2013 7
Table: Annual Growth Rate Projections 2013-2018 (%) 7
Table: Ranking Out Of 73 Countries Reviewed In 2014 8
Table: Commercial Banking Sector Indicators, 2011-2018 8
SWOT 9
Commercial Banking 9
Political 10
Economic 11
Business Environment 12
Industry Forecast 13
Ramping Up Reform Efforts 14
Accelerating Bad Debt Sales 15
Privatisation Drive To Reduce Bank Borrowing By SOEs 15
Strengthening Credit Assessment Mechanism 16
Risks To Outlook 16
Industry Risk Reward Ratings 17

Asia Commercial Banking Risk/Reward Ratings 17
Table: Asia Commercial Banking Risk/Reward Ratings 18
Market Overview 19
Asia Commercial Banking Outlook 19
Table: Banks' Bond Portfolios, 2013 19
Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios, 2014 19
Table: Comparison of Total Assets & Client Loans & Client Deposits (USDbn) 20
Table: Comparison of USD Per Capita Deposits, 2014 21
Macroeconomic Forecasts 22
Table: Foreign Direct Investment By Country Of Origin (Top Five) 26
Table: Vietnam - Economic Activity 27
Competitive Landscape 28
Market Structure 28
Protagonists 28
Table: Protagonists In Vietnam's Commercial Banking Sector 28
Definition Of The Commercial Banking Universe 28
List Of Banks 29
Table: Financial Institutions In Vietnam 29
Company Profile 31
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Agribank 31
Table: Balance Sheet (VNDmn) 33
Table: Balance Sheet (USDmn) 33
Table: Key Ratios (%) 34
Bank for Foreign Trade of Vietnam (Vietcombank) 35
Table: Stock Market Indicator 37
Table: Balance Sheet (VNDmn) 37
Table: Balance Sheet (USDmn) 38
Table: Key Ratios (%) 38

Eximbank 39
Table: Stock Market Indicators 41
Table: Balance Sheet (VNDmn) 41
Table: Balance Sheet (USDmn) 42
Table: Key Ratios (%) 42
Sacombank 43
Table: Stock Market Indicators 45
Table: Balance Sheet (VNDmn) 45
Table: Balance Sheet (USDmn) 45
Table: Key Ratios (%) 46
VietinBank 47
Table: Stock Market Indicators 49
Table: Balance Sheet (VNDmn) 49
Table: Balance Sheet (USDmn) 50
Table: Key Ratios (%) 50
Regional Overview 51
Asia Overview 51
Global Industry Overview 55
Global Commercial Banking Outlook 55
Demographic Forecast 67
Table: Vietnam's Population By Age Group, 1990-2020 ('000) 68
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 69
Table: Vietnam's Key Population Ratios, 1990-2020 70
Table: Vietnam's Rural And Urban Population, 1990-2020 70
Methodology 71
Industry Forecast Methodology 71
Sector-Specific Methodology 72
Risk/Reward Ratings Methodology 73
Table: Commercial Banking Risk/Reward Rating Indicators 74
Table: Weighting Of Indicators 75

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BMI Industry View
Table: Commercial Banking Sector Indicators
Date
Total
assets
Client
loans
Bond
portfolio Other
Liabilities
and capital Capital
Client
deposits Other
October 2012, VNDbn 3,688,076 2,938,250 355,697 394,129 3,688,076 583,666 2,861,204 243,206
October 2013, VNDbn 4,257,985 3,309,020 502,944 446,021 4,257,985 636,710 3,580,465 40,810
% change y-o-y 15.5% 12.6% 41.4% 13.2% 15.5% 9.1% 25.1% -83.2%
October 2012, USDbn 176.9 140.9 17.1 18.9 176.9 28.0 137.2 11.7
October 2013, USDbn 201.8 156.8 23.8 21.1 201.8 30.2 169.7 1.9
% change y-o-y 14.1% 11.3% 39.7% 11.8% 14.1% 7.8% 23.7% -83.4%
Source: BMI; Central banks; Regulators
Table: Commercial Banking Sector Key Ratios, October 2013
Loan/deposit ratio
Loan/asset ratio Loan/GDP ratio GDP Per Capita, USD Deposits per capita, USD
92.42% 77.71% 93.8% 1,860.4 1,853.9
Falling Falling Falling n.a. n.a.
Source: BMI; Central banks; Regulators
Table: Annual Growth Rate Projections 2013-2018 (%)


Assets Loans Deposits
Annual Growth Rate 11 9 6
CAGR 12 10 7
Ranking 22 29 46
Source: BMI; Central banks; Regulators
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Table: Ranking Out Of 73 Countries Reviewed In 2014
Loan/deposit ratio Loan/asset ratio Loan/GDP ratio
18 4 20
Local currency asset growth Local currency loan growth Local currency deposit growth
19 19 27
Source: BMI; Central banks; Regulators
Table: Commercial Banking Sector Indicators, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f
Total assets, VNDbn 3,437,893 3,917,557 4,466,015 5,091,257 5,753,121 6,443,495 7,152,280 7,939,030
Total assets, USDbn 163.4 188.1 211.6 247.6 283.0 320.6 359.4 403.0
Client loans, VNDbn 2,829,890 3,077,700 3,447,024 3,860,667 4,285,340 4,713,874 5,138,123 5,600,554
Client loans, USDbn 134.5 147.8 163.3 187.7 210.8 234.5 258.2 284.3
Client deposits, VNDbn 2,483,357 3,080,455 3,388,501 3,693,466 3,988,943 4,268,169 4,524,259 4,795,715
Client deposits, USDbn 118.1 147.9 160.6 179.6 196.2 212.3 227.3 243.4
e/f = estimate/forecast. Source: BMI; Central banks; Regulators
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SWOT
Commercial Banking
Vietnam Commercial Banking SWOT
Strengths

■
Untapped market with potential for increased participation of foreign banks.
■
Large population with a high savings rate and potential for income growth.
■
The Vietnamese government aims to speed up the process of privatising state-owned
banks, which will help modernise the industry.
■
State-owned banks will play a lesser role going forward, and the risks associated with
state-directed lending will decrease over time.
Weaknesses
■
Domestic banks continue to lag behind their foreign peers in terms of financial
strength and the technological curve.
■
Accounting standards lag far behind international standards and the lack of
transparency entails significant risks for foreign investors.
■
Small banks have an overwhelming exposure to real estate and individual loans,
resulting in highly skewed and risky loan portfolios.
Opportunities
■
The population is still underbanked, with significant potential for adopting cash-free
payment systems and new mobile banking technologies.
■
Rising income levels and deepening capital markets could give rise to opportunities in
more sophisticated financial products and growth for the local asset management
industry.
Threats
■

Track record of macroeconomic instability threatens the credibility of the government
and could potentially drive economic policy away from further liberalisation.
■
The high level of government debt risks triggering a fiscal crisis, undermining
confidence in the banking sector.
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Political
SWOT Analysis

Strengths
■
The Communist Party of Vietnam remains committed to market-oriented reforms and
we do not expect major shifts in policy direction over the next five years. The one-
party system is generally conducive to short-term political stability.
■
Relations with the US have witnessed a marked improvement, and Washington sees
Hanoi as a potential geopolitical ally in South East Asia.
Weaknesses
■
Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party.
■
There is increasing (albeit still limited) public dissatisfaction with the leadership's tight
control over political dissent.
Opportunities
■
The government recognises the threat corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials.
■

Vietnam has allowed legislators to become more vocal in criticising government
policies. This is opening up opportunities for more checks and balances within the
one-party system.
Threats
■
Macroeconomic instabilities continue to weigh on public acceptance of the one-party
system, and street demonstrations to protest economic conditions could develop into
a full-on challenge of undemocractic rule.
■
Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably be
unsustainable.
■
Relations with China have deteriorated over recent years due to Beijing's more
assertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,
which could potentially cause wide-scale environmental damage.
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Economic
SWOT Analysis

Strengths
■
Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012.
■
The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.
Weaknesses

■
Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy
vulnerable to global economic uncertainties. The fiscal deficit is dominated by
substantial spending on social subsidies that could be difficult to withdraw.
■
The heavily-managed and weak currency reduces incentives to improve quality of
exports, and also keeps import costs high, contributing to inflationary pressures.
Opportunities
■
WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater access to both foreign markets and capital, while making Vietnamese
enterprises stronger through increased competition.
■
The government will in spite of the current macroeconomic woes, continue to move
forward with market reforms, including privatisation of state-owned enterprises, and
liberalising the banking sector.
■
Urbanisation will continue to be a long-term growth driver. The UN forecasts the
urban population rising from 29% of the population to more than 50% by the early
2040s.
Threats
■
Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could lead to a potential crisis.
■
Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold as they struggle to stabilise the economy.
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Business Environment
SWOT Analysis

Strengths
■
Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors.
■
Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia, and
beyond.
Weaknesses
■
Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.
■
Vietnam remains one of the world's most corrupt countries. According to
Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123
out of 176 countries.
Opportunities
■
Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech
skills and know-how.
■
Vietnam is pressing ahead with the privatisation of state-owned enterprises and the
liberalisation of the banking sector. This should offer foreign investors new entry
points.
Threats

■
Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern.
■
Labour unrest remains a lingering threat. A failure by the authorities to boost skills
levels could leave Vietnam a second-rate economy for an indefinite period.
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Industry Forecast
BMI View: Vietnamese banks will continue to grapple with structural weakness, impeding them from
tapping into regional growth over the coming years, as reform efforts by the government have seen little
progress thus far. That said, we are optimistic that recent efforts by the government to accelerate the pace
of reform will likely place the banking sector on a path of gradual recovery.
Vietnam's banking sector will face stiff competition from other stronger regional banks, such as those from
Singapore, Malaysia and Thailand, amid ongoing economic integration within ASEAN to create a single
free market over the coming years. Indeed, owing to years of pervasive weakness in the quality of banking
assets and a slowdown in domestic demand, Vietnam's banking sector growth has decelerated in recent
years. As shown in the accompanying chart, total banking assets as a share of GDP have retreated steadily
since peaking at 136.9% in December 2010. In addition, Joint Stock Commercial Bank for Foreign
Trade of Vietnam, the heaviest weighted bank (6.6%) in the Vietnam Ho Chi Minh Index (VNINDEX),
has seen its earnings on a multi-year downtrend. The banking sector's capital base has also suffered from
significant bad debts, thereby placing banks in a very vulnerable position to negative shocks in the
economy. While the Vietnamese government has implemented financial reforms over recent years to
strengthen the banking sector, progress has been rather slow. The sector will therefore likely continue to
grapple with structural weakness, impeding it from tapping into stronger regional growth over the coming
years. More time will be required for the government to improve banking governance, loan supervision and
banks' debt recovery mechanism.
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Slowdown In Banking Sector Growth

Vietnam - Total Banking Assets, VNDtrn (LHS) & % Of GDP
Source: BMI, IMF
Ramping Up Reform Efforts
The pressing issue for the government is to resolve the high level of bad debts in the banking sector. Recent
efforts by the government to ramp up the pace of reform suggest that continued strengthening of the
banking sector remains very much on the cards. We are optimistic that this will help banks to recover
gradually over the coming years, and are maintaining our forecast for the banking sector (as measured by
total assets) to grow at an annual average growth rate of 12.2% between the period from 2013 to 2018,
which will see its total assets as a share of GDP rise from 124.6% in 2013 to 126.8% in 2018.
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Asset Growth To Moderate
Vietnam - Total Banking Assets, VNDtrn (LHS) & % chg y-o-y
e/f = BMI estimate/forecast. Sources: BMI, IMF
Accelerating Bad Debt Sales
The Vietnam Asset Management Company (VAMC), a vehicle created by the government in 2013 to take
sour loans off banks' balance sheets, has planned to increase its purchase of bad debts by about
VND20-50trn by end-2014, after having reportedly bought VND50trn (USD2.4bn) worth of debts thus far.
For the VAMC to take on more bad debts from the banking system, it is crucial that the company is able to
sell these debts thereafter. However, the VAMC has so far managed to sell only less than 2.0% of debts that
it has bought. In order to accelerate bad debt sales, the Vietnamese government is seeking to change
existing rules to allow the VAMC to take on losses by selling those bad debts at a low price so as to attract
greater foreign interest. Positive developments on this front will help to further relieve the burden of bad
debts on banks, opening up more room for them to undergo restructuring. In addition, the government raised
the foreign bank ownership cap for strategic investors from 15% to 20%.
Privatisation Drive To Reduce Bank Borrowing By SOEs
The government has also remained committed to privatising state-owned enterprises (SOEs) in a bid to
improve operational efficiency and their bottom lines. This would reduce their reliance on bank borrowing
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to finance losses and alleviate the banking sector from sustaining high level of bad debts. Indeed, the SOEs
make up about 60% of bank loans and are responsible for more than half of the country's non-performing
loans, according to Deputy Finance Minister Truong Chi Trung. We believe that ongoing efforts by the
government to revamp the SOEs will likely gain traction over the coming quarters. Indeed, the government
has planned to let these state companies divest their investment in non-core businesses at a loss by allowing
them to sell their stakes below book values. It has also aimed to privatise 432 SOEs by end-2015.
Strengthening Credit Assessment Mechanism
In addition, the government has sought to improve banks' ability to conduct proper credit assessments of
prospective borrowers. This is a step in the right direction in ensuring that non-performing loans will be
kept in check. At present, the government is putting in place procedures for banks to extract credit
information of prospective borrowers from official institutions such as the Vietnam National Credit
Information Centre and other credit rating agencies. Meanwhile, it continues to strengthen existing
internal credit rating systems in the banking sector.
Risks To Outlook
While we are optimistic that reform efforts by the government will place the banking sector on a path of
gradual recovery over the coming years, we highlight two key risks to our outlook. The implementation of
stricter debt classification standards, which has been delayed from June 2014 to April 2015, could result in a
spike in non-performing loans, weighing on banking sector growth and profitability. The long-standing
maritime dispute between China and Vietnam over their sovereign claims to parts of the South China Sea,
which has intensified over recent months, also poses downside risks to Vietnam's economy over the coming
years.
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Industry Risk Reward Ratings
Asia Commercial Banking Risk/Reward Ratings
Commercial Banking Risk/Reward Rating Methodology
Since Q108, we have described numerically the banking business environment for each of the countries
analysed by BMI. We do this through our Commercial Banking Industry Risk/Reward Rating (IRR), a
measure that ensures we capture the latest quantitative information available. It also ensures consistency
across all countries. Like all of BMI's Industry Risk/Reward Ratings, its takes into account the Rewards on

offer within the banking sector in a given country, but also the Risks to investors being able to realise those
opportunities. The overall Rating is weighted 70% towards Rewards and 30% towards Risks.
Within the Rewards category, we look at factors that are specific to the banking industry (accounting for
60% of the score within this category), and elements that relate to that country in general (accounting for
40% of the weighting). These include, but are not limited to, total assets, asset and loan growth, GDP and
taxation. Likewise on the Risks side, we look at industry-specific Risks (weighted 40% of the Risks total)
and country-specific Risks (weighted 60%). These include, but are not limited to, the regulatory framework
and environment, the competitive environment, financial risk, legal risk and policy continuity.
In general three aspects need to be borne in mind when interpreting the IRRs. The first is that the Industry
Rewards element is the most heavily weighted of the four elements, accounting for 42% (60% of 70%) of
the overall Rating. Second, if the Industry Rewards score is significantly higher than the Country Rewards
score, within the Rewards category, it usually implies that the banking sector is (very) large and/or
developed relative to the general wealth, stability and financial infrastructure in the country. Conversely, if
the industry score is significantly lower, it usually means that the banking sector is small and/or
underdeveloped relative to the general wealth, stability and financial infrastructure in the country. Third,
within the Risks category, the industry-specific elements (i.e. how regulations affect the development of the
sector, how regulations affect competition within it, and Moody's Investor Services' ratings for local
currency deposits) can be markedly different from BMI's long-term Country Risk rating for a given market.
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Table: Asia Commercial Banking Risk/Reward Ratings

Limits of Potential Returns Risks to Potential Returns Overall

Market Structure Country Structure Market Risks Country Risks Rating Ranking
Bangladesh 56.7 45.0 43.3 44.0 49.5 55
China 93.3 57.5 63.3 74.0 76.2 14
Hong Kong 80.0 95.0 73.3 78.0 83.0 6
India 83.3 57.5 60.0 54.0 68.0 30
Indonesia 76.7 65.0 80.0 52.0 69.4 26

Japan 46.7 75.0 66.7 80.0 63.0 34
Malaysia 73.3 80.0 83.3 80.0 77.6 11
Pakistan 50.0 50.0 53.3 44.0 49.3 56
Philippines 53.3 62.5 60.0 58.0 57.5 41
Singapore 66.7 95.0 96.7 90.0 82.4 7
Sri Lanka 33.3 55.0 33.3 48.0 42.0 63
South Korea 76.7 85.0 83.3 76.0 79.7 9
Taiwan 76.7 72.5 86.7 76.0 76.6 12
Thailand 66.7 65.0 86.7 72.0 69.6 25
Vietnam 60.0 57.5 36.7 54.0 55.4 44
New Zealand 23.3 90.0 86.7 82.0 60.2 38
United States 93.3 85.0 100.0 82.0 89.8 1
Scores out of 100, with 100 the highest. Source: BMI
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Market Overview
Asia Commercial Banking Outlook
Table: Banks' Bond Portfolios, 2013

Bond Portfolio, USDbn Bond as % total assets Year-on-year growth %
Bangladesh* 20.0 22.5 13.9
China* 1,872.7 8.7 17.5
Hong Kong* 379.3 19.8 8.1
India* 353.8 25.8 14.4
Indonesia** 17.3 4.3 17.7
Japan 2,456.3 28.0 -4.5
Malaysia 77.7 12.8 -4.6
Pakistan 40.4 42.7 5.9
Philippines 42.7 21.1 8.0
Singapore 93.2 12.1 5.4

Sri Lanka 7.5 22.7 51.2
South Korea* 295.2 16.7 0.4
Taiwan 208.9 15.6 86.4
Thailand 80.4 16.3 4.7
Vietnam* 20.4 10.9 64.4
New Zealand 11.8 3.5 -9.0
United States 486.3 3.5 -8.6
Source: Central banks, regulators, BMI. **Only 2011 data available. * Only 2012 data available.
Table: Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios, 2014

Loan/Deposit
ratio % Rank Trend
Loan/Asset
ratio % Rank Trend
Loan/GDP
ratio % Rank Trend
Bangladesh 89.4 38 Falling 67.1 13 Falling 55.6 45 Rising
China 76.6 58 Falling 50.9 48 Rising 132.9 10 Falling
Hong Kong 71.0 63 Rising 38.5 66 Rising 293.8 1 Rising
India 75.1 61 Falling 67.6 11 Falling 58.1 42 Rising
Indonesia 84.6 45 Falling 65.3 19 Falling 36.1 57 Falling
Japan 68.6 65 Falling 48.1 51 Falling 91.8 22 Falling
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Comparison of Loan/Deposit & Loan/Asset & Loan/GDP ratios, 2014 - Continued

Loan/Deposit
ratio % Rank Trend
Loan/Asset
ratio % Rank Trend

Loan/GDP
ratio % Rank Trend
Malaysia 76.1 59 Falling 60.1 33 Falling 119.3 12 Falling
Pakistan 57.2 69 Falling 46.0 58 Falling 20.9 66 Rising
Philippines 66.3 66 Rising 50.1 49 Rising 38.4 56 Rising
Singapore 108.3 13 Rising 63.0 22 Rising 160.6 7 Rising
Sri Lanka 79.7 53 Rising 58.9 37 Falling 30.9 61 Rising
South Korea 112.0 11 Falling 71.4 9 Falling 101.5 14 Falling
Taiwan 78.9 54 Rising 61.5 28 Rising 167.6 3 Rising
Thailand 99.1 25 Falling 67.3 12 Rising 91.8 21 Rising
Vietnam 104.5 18 Rising 75.8 4 Falling 96.3 16 Rising
New Zealand 190.6 1 Rising 88.7 1 Rising 162.1 6 Falling
United States 103.1 19 Rising 72.8 7 Rising 62.1 38 Rising
Source: Central banks, regulators, BMI
Table: Comparison of Total Assets & Client Loans & Client Deposits (USDbn)

2014 2013

Total Assets Client Loans Client Deposits Total Assets Client Loans Client Deposits
Bangladesh 125.9 84.5 94.5 107.2 71.9 79.4
China 25,617.2 13,029.4 17,004.1 25,829.5 12,889.5 16,664.2
Hong Kong 2,333.2 897.5 1,263.8 2,185.2 832.8 1,183.7
India 1,748.6 1,181.2 1,573.5 1,376.9 930.1 1,218.3
Indonesia 491.1 320.7 379.1 407.1 270.6 301.0
Japan 9,439.4 4,537.0 6,610.8 8,787.6 4,244.6 6,094.6
Malaysia 677.5 407.2 535.2 605.7 364.1 457.0
Pakistan 108.5 49.9 89.0 94.5 43.5 70.8
Philippines 224.4 112.5 169.8 202.7 95.9 154.0
Singapore 801.9 505.3 466.6 770.5 454.6 425.6
Sri Lanka 39.1 23.0 28.9 33.1 19.5 24.9

South Korea 1,956.9 1,396.4 1,246.6 1,867.6 1,332.6 1,169.6
Taiwan 1,479.3 910.2 1,153.8 1,335.2 800.7 1,041.4
Thailand 522.8 351.7 354.8 494.9 331.3 334.3
Vietnam 247.6 187.7 179.6 211.6 163.3 160.6
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Comparison of Total Assets & Client Loans & Client Deposits (USDbn) - Continued

2014 2013
New Zealand 343.3 304.4 159.7 339.7 298.9 160.3
United States 14,970.4 10,899.0 10,569.3 13,991.0 10,138.6 9,877.8
Source: Central banks, regulators, BMI
Table: Comparison of USD Per Capita Deposits, 2014

GDP Per Capita
Client Deposits, per
capita
Rich 20% Client
Deposits, per capita
Poor 80% Client
Deposits, per capita
Bangladesh 958 596 2,386 149
China 7,203 12,200 48,800 3,050
Hong Kong 42,080 174,091 696,364 43,523
India 1,589 1,241 4,966 310
Indonesia 3,422 1,500 5,999 375
Japan 38,545 52,054 208,215 13,013
Malaysia 10,984 17,729 70,916 4,432
Pakistan 1,289 481 1,922 120
Philippines 2,897 1,696 6,784 424

Singapore 57,037 84,576 338,303 21,144
Sri Lanka 3,486 1,347 5,387 337
South Korea 27,783 25,178 100,712 6,294
Taiwan 22,557 49,249 196,994 12,312
Thailand 5,699 5,278 21,112 1,320
Vietnam 2,106 1,941 7,762 485
New Zealand 41,878 35,087 140,347 8,772
United States 54,387 32,765 131,058 8,191
Source: Central banks, regulators, BMI
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Macroeconomic Forecasts
BMI View: Latest GDP figures show that the Vietnamese economy grew by 5.0% y-o-y in Q114, and we
believe that our 2014 real GDP growth forecast of 5.9% remains in sight. Indeed, we believe that increased
macroeconomic stability, combined with pro-growth policies will help the economy accelerate from 2013
levels. Key downside risks to this view include a faster-than-anticipated slowdown in China as well as the
stalling of the country's reform drive.
Latest data released by the General Statistics office of Vietnam (GSO) showed that real GDP accelerated by
5.0% year-on-year (y-o-y) in Q114, slightly faster than the 4.9% print registered in the Q113. Although it
showed a deceleration from 6.0% recorded in Q413, we believe that the economy is still on track to hit our
2014 growth forecast of 5.9% in 2014. This would mark a slight acceleration from the 5.4% registered in
2013, and is above estimates by the Asian Development Bank, which forecasts real GDP to reach 5.6% in
2014. We believe that the economy will be driven by a strengthening of private consumption, continued
foreign direct investment into key areas of the economy, a more robust external sector, and a rebound in
manufacturing activity over the coming quarters. That said, trend growth for the Vietnamese economy will
average a slower 6.2% over the next decade, compared to 6.5% recorded in the past 10 years.
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Still-Strong Growth
Vietnam - Real GDP Growth, (% chg y-o-y)

Source: GSO, BMI
A breakdown of the data show that all sectors of the economy witnessed an acceleration in growth over the
quarter: agriculture, forestry and fisheries, which accounts for approximately 13% of GDP grew by 2.4% y-
o-y in Q114, while the industrial and construction sectors, which account for 40% of GDP expanded by
4.7% y-o-y. Importantly, the services sector which accounts for the lion's share of the economy at 47% of
GDP, accelerated by a stellar 6.0% in Q114, contributing a whopping 2.8 percentage points of the overall
growth figure. Going forward, we expect that the manufacturing, construction and service sectors will
continue to do well on the back of policy driven efforts to stimulate growth.
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Services Taking The Lead
Vietnam - Breakdown of GDP By Component (% chg y-o-y) & Share % (RHS)
Source: GSO, BMI
Government Policy To Ensure Growth Remains Strong
We believe that government policies aimed at promoting balanced economic growth, improving the stability
of the banking system, diversifying exports, attracting foreign investment and attracting investment in
infrastructure bode well for the economic outlook. In terms of promoting balanced growth, we note that the
State Bank of Vietnam (SBV) has continued to rein in inflation, which, at 4.8% y-o-y in the first quarter,
remains near record lows and well below the central bank's target of around 7.0%. The slight deceleration in
economic activity in Q114, combined with the weak inflation data over the period prompted the SBV to cut
its refinancing rate from 7.0% to 6.5% in March. Although we do not expect further cuts this year (see:
Downside Risks To Interest Rate Forecast, March 21), the central bank has adopted a dovish tone, and
could step in again should it feel that the economy needs more stimulus. With regard to banking sector
reform, the SBV continues to push forward with reforms aimed at improving the stability of the sector and
increasing credit to the economy. Two key policies are the reduction in non-performing loans, which
according to Moody's, stands at approximately 15%, as well as offloading bad debt off of bank's balance
sheets and on to the newly created Vietnam Asset Management Company (VAMC). By the end of 2013 the
VAMC had purchased approximately US$1.9bn worth of bad debt, and it aims to increase the pace of
purchases over the coming months. Combined, these policies should help stimulate credit growth over the
coming quarters, which will help underpin broader economic activity.

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External Sector To Boost Growth
Vietnam - Trade Balance (US$mn) & Three-Month Moving Average
Source: GSO, BMI
External Sector To Provide Tailwind
We expect the external sector (exports and foreign investment) to provide a tailwind to economic activity in
the coming quarters. From a trade perspective, exports rose by 14.1% y-o-y in the first quarter, which
helped bring the trade surplus to US1.0$bn for the first three months of the year and we expect this trend to
remain in place. Indeed, the Vietnamese government has been making substantial efforts to promote trade
and investment ties with other countries, and we believe it will help underpin exports over the coming
months. A case in point was the fourth round of negotiations between Vietnam and South Korea for a
bilateral free-trade agreement which took place in March, and officials are looking to conclude negotiations
by the end of 2014. Moreover, Vietnam has been forging very strong trade and investment ties with Japan in
order to attract funding and expertise to invest and develop the country's infrastructure and manufacturing
sectors.
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