VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY

INTERNATIONAL UNIVERSITY

FINANCIAL INSTITUTIONS AND MARKETS

Group Report – Semester II 2022
Lecturer: Võ Thị Quý
Group 05: Vòng Quang Minh Khôi BAFNIU20319
Nguyễn Thị Trúc Linh BAFNIU20327
Đặng Hoài Xuân Nhi BAFNIU20373
Nguyễn Thị Thu Hiền BAFNIU20176
Bùi Anh Quân BAFNIU20232
 Table of Contents
I. COMMERCIAL BANK OVERVIEW .......................................................................................................... 2
1. Definition of a commercial bank...................................................................................................... 2
2. Evaluate the performance of Vietnam's commercial bank system ................................................ 2
3. Main regulators of Vietnam commercial banks .............................................................................. 2
II. FINANCIAL STATEMENT AND ANALYSIS .............................................................................................. 3
1. Commercial bank’s balance sheet ................................................................................................... 3
2. Major categories on a commercial bank’s statement..................................................................... 6
3. Applying ratios.................................................................................................................................. 6
III. REGULATION OF COMMERCIAL BANKS ........................................................................................... 6
1. Reasons for regulating the commercial banks ................................................................................ 6
2. Types of regulations ......................................................................................................................... 7
a. Safety and soundness regulation................................................................................................. 7
b. Monetary policy regulation ......................................................................................................... 8
c. Credit allocation regulation ......................................................................................................... 8
d. Consumer protection regulation ................................................................................................. 9
e. Investor protection regulation..................................................................................................... 9
f. Entry and chartering regulation ................................................................................................... 9
IV. EXTENSION........................................................................................................................................ 9
1. The relationship between the financial market and commercial banks ........................................ 9
2. The role commercial banks play in funding real estate transactions ........................................... 11
3. How do FLCs market domination cases and Tan Hoang Minh fraudulent appropriation of assets
directly affect commercial banks? ......................................................................................................... 11
V. REFERENCES ........................................................................................................................................ 12

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 I. COMMERCIAL BANK OVERVIEW
1. Definition of a commercial bank
Commercial banks represent the largest group of depository institutions measured by asset size
and their major assets are loans. As we examine the structure of commercial banks, their
financial statements, and the regulations that govern the operations, we notice a distinguishing
feature between commercial banks and saving institutions or non-financial firms. Commercial
banks are regulated to protect against disruptions within services and control insured deposits.
In general, commercial banks perform functions similar to those of saving institutions and credit
unions, they accept deposits (liabilities) and make loans (assets). Commercial bank liabilities
include several types of non-deposit sources of funds (subordinated notes and debentures).
Moreover, their loan portfolio is more diverse including consumer, commercial, international,
and real estate loans.
→ The structure and composition of assets and liabilities of commercial banks and saving
institutions are significantly varied. Revenue from commercial banks is generated from loans,
investment securities, cash, and other assets.

2. Evaluate the performance of Vietnam's commercial bank system

In the territory of Vietnam, there is a list of 33 commercial banks (public bank, private bank,
foreign bank, and regional rural bank) that ranked at the top is the Vietnam Commercial Bank
for Investment and Development JSC (BIDV) with a total charter capital of approximately 40.000
billion VND.
Under the 4.0 industry and Basel impacts, Vietnam banks in general and commercial banks in
particular pay attention more to risk management in governance as the covid-19 pandemic
continued to develop complicatedly. The reform of financial services quality management
policies has been excellent, the bank's efficiency is measured by the usage of inputs to generate
maximum outputs, and in contrast. In fact, the majority of Vietnam's commercial banks can
generate the most significant output revenues by using the same amount of input as other
countries but at a lower cost. Demir and Danisman’s (2021) study indicated that the Covid-19
pandemic positively affects banks with large capitalization, higher customer deposits, higher-
income diversification, and lower non-performing loans. Vietnam is defined as a country with
expansionary monetary policy through liquidity support policies for banks, interest rate support
policies for borrowers, and the share price of the banking industry after the pandemic generally
tends to increase.

3. Main regulators of Vietnam commercial banks

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 Regulators of U.S commercial banks
- Federal Deposit Insurance Corporation (FDIC)
- Office of the Comptroller of the Currency (OCC)
- Federal Reserve System (FRS)
- State Authorities
Regulators of Vietnam commercial banks
Banking, organizations are under the
management of the State Bank of Vietnam
(SBV)

As listed in Article 52 of the Law on the State Bank of Vietnam, including the Policy Bank and
credit institutions’ subsidiaries:
- State-owned enterprises established by the SBV governor
- Other agencies, organizations, and individuals that are subject to observance of the laws
and regulations in the fields under the management of the SBV.

II. FINANCIAL STATEMENT AND ANALYSIS

1. Commercial bank’s balance sheet
To gain a better understanding of commercial banks, it is crucial to acknowledge and
understand the financial statement and analysis of such institutions.
A balance sheet provides its readers with a clear view of an organization’s financial health at
the time it was made. This type of report consists of two sides, assets and financing, which has
two parts: liabilities and equity. First, let us study an important part of the balance sheet itself
– assets. As for the bank, four major categories are identified for deeper learning, and such are
“cash and due from depository institutions”, “investment securities”, “loans and leases”, and
“other assets”.
The first notable category of assets is cash and due from depository institutions which consist of
vault cash, deposits at the Central bank and other commercial institutions, and cash in the
process of being collected. This type of asset has a relatively high liquidity and can be easily
converted; therefore, it is mainly used as withdrawals for customers, satisfaction requirements
from the central banks and as payment checks for various purposes.
The second category of assets mentioned above is investment securities. This type of asset
consists of federal funds sold, repurchased agreements, national treasury, agency securities or
securities issued by states, political subdivisions, mortgage-backed securities, and other debt
and equity securities. This type of asset has high liquidity, low default risk and is also able to
generate few returns. However, since its returns are too few in comparison with the next asset,
investment securities are least likely to be used as an income source but more of a tool for
managing liquidity risks due to its high liquidity and low risks.
The third type of assets, loans and leases, consist of many varieties of loans such as commercial
or industrial loans, loans secured by real estate...etc..., and leases which are assets that a
commercial bank would permit its customers to use in return for an amount of money during a

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certain term. As lending money to customers is the main activity of a bank, it is understandable
that this type of asset creates the most revenue among all assets for the institution. However,
loans and leases have a major drawback which lies in their lack of liquidity as this type of asset
is the least liquid asset compared to the others, and therefore becomes the main cause of
credit and liquidity risk for the commercial bank.
The fourth category consists of the remaining assets such as premises, fixed assets, other real
estate, intangible assets, etc... which account for a small portion of a bank’s assets. These
accounts take up a small amount of a bank asset, and though they are still recognized as part of
the asset, they are least likely to create great changes in the balance sheet.
In order to understand how Vietnam commercial banks’ balance sheet differ from that of US, a
small observation is made to further compare the structure and function of two different assets
side of a balance sheet. Vietcombank’s report will be used as a demonstration for this
comparison between commercial banks that of Vietnam and the USA.

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 Vietcombank balance sheet’s asset side for six months period ended 30 June 2021
Observing the asset side above, a few notable differences compared to that of the USA worth
mentioning are the difference between Cash and Due and Cash on hand, gold, etc..., and the
lack of leases in VCB balance sheet. However, although most of these accounts are named
differently and organized in a slightly different way, it is safe to say that the two reports share
the same purpose and principle. It is obvious that this is a standard required in every
commercial bank globally, especially how Vietnam commercial banks are emerging globally and
syncing is an important key in being global.

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 2. Major categories on a commercial bank’s statement
Apart from the balance sheet, it is essential to study important components of the financial
statement. The major categories on a commercial bank’s statement are made of interest
income, interest expenses, net interest income, provision for loan losses, noninterest income,
noninterest expenses, income before tax and extraordinary items, income tax, extraordinary
items, and net income. These categories are important for how they demonstrate the
institution ‘s financial health and give us a better understanding of the operation of this
organization. This also provides crucial information that works as indicators for owners and
customers to identify and understand the bank business in order to further intervene. Interest
income shows how much the bank had gained through lending money while interest expenses
represents the institution‘ debt obligation which it has a responsibility to pay before due. Net
interest income is calculated by contracting expense on revenue which show how much value
the institution had created. Non-interest income is those that come from activities like trading
or investing; and noninterest expenses consists of operating expenses such as labor salaries,
insurances, operating fees...etc. Provision for loan losses is the type of category used as
adjustment to the financial statement due to debts that are likely to be unpaid. Net income is
the most important to the organization and its owner due to the fact that it demonstrates how
much do the owners actually gain after an accounting period ended.

3. Applying ratios
Applying those a knowledge above of balance sheet and financial statements, ratios could be
used to serve the need for a more in depth and more detailed analysis which provides its users
with the exact information they need to know about the bank operation. There are many ratios
which could be applied on Vietnam commercial banks which are return on Equity and its
components (ROE), return for assets (ROA), Equity multiplier (EM), profit margin (PM), and
Asset utilization (AU). ROE provides information on how efficiently a bank is using its’ equity to
generate revenue as in how much revenue generated from one unit of equity, ROA tells the
percentage of net income generated on every unit of asset, while AU show how much the bank
is utilizing its’ assets to create more revenue on a unit of asset. Meanwhile, EM draws out the
line whether a bank is desperately in need of funding even from more debts and PM shows how
well the bank is operating while paying their own expenses with both interest and noninterest
income. Since these ratios provide a lot of informative data, it is encouraged to apply these
ratios when analyzing a financial institution’s status and decide whether to take any action on
the institution.

III. REGULATION OF COMMERCIAL BANKS

1. Reasons for regulating the commercial banks
- Financial stability: Banks have the ability to create credit or liquidity. Any instability in
the banking system causes a ripple effect in the entire economy. An unstable banking system

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 can bring the whole economy down by adversely impacting lending rates. In the absence of
cheap credit, all the sectors of the economy will gradually start slowing down and eventually
will stop functioning. Therefore, to prevent such a scenario, it is very important to regulate the
banking system.
- Reduce risk stability: Many commercial banks are required to offer deposit insurance to
their customers. Customers' savings in US banks are insured up to a certain extent by the
Federal Deposit Insurance Fund. It implies that if the bank is unable to satisfy its obligations,
the State will reimburse the depositors for the amount protected by deposit insurance.
Deposit insurance protects depositors in the event of a bank default, however there is no
deposit insurance available for bank stockholders.
- Protection of consumer rights: Commercial banks, financial institutions, bank holding
companies, and non-banking finance companies together provide a range of services to the
customers. To protect the rights of customers, the banking system needs to be regulated.
- Restrict monopoly: Healthy competition is good for the banking system. The US
government has adopted several laws and regulations to restrict and abolish monopolistic
practices in the banking sector. The commercial banks and the banking sector need to be
regulated to prevent mergers or acquisitions that will adversely impact the competition in the
banking industry.

2. Types of regulations
6 types of regulations:
a. Safety and soundness regulation
Layers of regulation have been imposed on commercial banks to protect depositors and
borrowers against the risk of failure. Due to a lack of diversification in asset portfolios,
regulators have developed layers of protective mechanisms that balance a Commercial bank’s
profitability against its solvency, liquidity, and other types of risk. These are illustrated in this
figure. These mechanisms are intended to ensure the safety and soundness of the commercial
bank and thus to maintain the credibility of the Commercial in the eyes of its borrowers and
lenders.

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 - First layer: these mechanisms are requirements encouraging commercial banks to
diversify their assets. These regulations may result in lower profitability, but they also lower
credit and liquidity risk and ultimately lower the risk of insolvency.
- Second layer: The second layer of protection concerns the minimum level of stockholder
capital or equity funds that the owners of a Commercial bank need to contribute to the funding
of its operations. The higher the proportion of capital contributed by owners, the greater the
protection against insolvency risk for liability claimholders such as depositors.
- Third layer: The third layer of protection is the provision of guarantee funds such as the
Depositors Insurance Fund (DIF) for banks. Deposit insurance mitigates rational incentive
depositors otherwise have to withdraw their funds at the first hint of trouble.
- Fourth layer: The fourth layer of regulation involves monitoring and surveillance.
Regulators subject all Commercial banks to varying degrees of monitoring and surveillance. This
involves on-site examination of the Commercial bank by regulators as well as the Commercial
bank’s production of accounting statements and reports on a timely basis for off-site
evaluation.
The difference between the private costs of regulations and the private benefits for the
producers of financial services is called net regulatory burden. The higher the net regulatory
burden on Commercial banks, the smaller are the benefits of being regulated compared to the
costs of adhering to regulations from a private owner’s perspective.
b. Monetary policy regulation
Regulators control and implement monetary policy by requiring minimum levels of cash
reserves to be held against commercial bank deposits.
Outside Money: That part of the money supply directly produced by the government or central
bank, such as notes and coin.
Inside Money: That part of the money supply produced by the private banking system.
Regulators commonly impose a minimum level of required cash reserves to be held against
deposits, or inside Money.
As a result, Commercial banks often view required reserves as similar to a tax and as a positive
cost of undertaking financial intermediation.
c. Credit allocation regulation
Regulations support the Commercial bank’s lending to socially important sectors such as
housing and farming.
These regulations may require a commercial bank to hold a minimum amount of assets in one
sector of the economy or to set maximum interest rates, prices, or fees to subsidize certain
sectors.

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 d. Consumer protection regulation
Regulations are imposed to prevent the Commercial bank from discriminating unfairly in
lending.
Commercial banks must report to their chief federal regulator the reasons that they granted or
denied credit. Many analysts believed that community and consumer protection laws were
imposing a considerable net regulatory burden on commercial banks without offsetting social
benefits that enhance equal access to mortgage and lending markets.
e. Investor protection regulation
Laws protect investors who directly purchase securities and/or indirectly purchase securities by
investing in mutual or pension funds managed directly or indirectly by Commercial banks (as
well as other FIs).
Various laws protect investors against abuses such as insider trading, lack of disclosure, outright
malfeasance, and breach of fiduciary responsibilities. Important legislation affecting investment
banks and mutual funds includes the Securities Acts of 1933 and 1934, the Investment
Company Act of 1940, and the Wall Street Reform and Consumer Protection Act of 2010. Since
Commercial banks are increasingly moving into offering investment banking and mutual fund
services following the passage of the Financial Services Modernization Act in 1999, these
restrictions will increasingly impact their profits. As with consumer protection legislation,
compliance with these acts can impose a net regulatory burden on commercial banks.
f. Entry and chartering regulation
Entry and activity regulations limit the number of Commercial banks in any given financial
services sector, thus impacting the charter values of Commercial banks operating in that sector.
Increasing or decreasing the cost of entry into a financial sector affects the profitability of firms
already competing in that industry. Thus, the industries heavily protected against new entrants
by high direct costs and high indirect costs of entry produce larger profits for existing firms than
those in which entry is relatively easy. In addition, regulations define the scope of permitted
activities under a given charter.

IV. EXTENSION
1. The relationship between the financial market and commercial banks
- On primary market:
✓ Publisher role:
Commercial banks issue bonds with important meanings:
o Contributes to increasing goods for the stock market.
o An important capital channel for commercial banks for the growth goal of the economy.
✓ Direct investment role:

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With strong financial potential and the ability to use short-term capital for long-term
investments, commercial banks can act as investors in the bond market, especially for
government bonds, which requires a medium long-term investment.
In fact, a large number of government and public bonds are purchased by commercial banks. In
2005, the total amount of government bonds issued was 17,226 billion VND, of which
commercial banks bought 12,058 billion VND, accounting for about 70%.
✓ Distribution and underwriting roles:
In some major financial markets in the world, in which commercial banks play an important role
in the bond market as primary dealers or underwriters.
In Vietnam, underwriting is the most common method for government bonds. With high
credibility and strong financial potential, commercial banks have great advantages when
participating in underwriting.
However, Vietnam does not have a system of primary agents. The formation of a primary
agency system with the participation of commercial banks will contribute to speeding up and
effective the process of distributing government bonds.
- On secondary market:
As an intermediary in the market, commercial banks can perform the following operations:
✓ Bond trading:
The bond business of the State Bank is essentially a discounting activity, creating liquidity for
the market. Besides, the business of bonds and public bonds with small investors also has great
potential for development but has not been organized professionally. Another advantage of
this business form is that it is not limited by the trading time of the centralized stock market.
✓ Derivative products:
Commercial banks can perform derivative products such as swaps, futures, options, futures
contracts for bonds and stocks on the market. Here, the inter-market combination of the
money market and the stock market will provide investors with a variety of tools for trading
(speculation) and hedging, while increasing the liquidity of the stock market.
✓ Securities lending:
In the United States, the Federal Reserve (Fed) performs this operation with primary dealers for
government bonds. This operation on the one hand increases the liquidity of the market, on the
other hand helps the Fed regulate the money supply. Collateral is usually cash. The lending of
securities between financial intermediaries covers a broader range of both loan securities and
collateral portfolios. The borrower mortgages the property upon receipt of the securities and
must return the securities and receive the collateral in return at maturity. The lending of

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securities really contributes to the liquidity of the market and can help the participants
(especially for financial intermediaries) to make a profit through the trading of securities. take
out a loan or get a mortgage.

2. The role commercial banks play in funding real estate transactions

Commercial banks get the capital to participate in mortgage financing at primary source of
capital:
- Demand deposits (checking accounts): not the only source but the majority of funds.
- Interim Financing - construction loans
- Home improvement loans
- Fund manufactured housing
- Home equity loans

3. How do FLCs market domination cases and Tan Hoang Minh fraudulent
appropriation of assets directly affect commercial banks?
According to FLC's latest consolidated financial statements, total bank loans as of December 31,
2021, is about VND 6,200 billion (including short-term loans of more than VND 2,000 billion,
long-term loans of nearly VND 4,200 billion), accounting for nearly VND 4,200 billion. nearly
26% of liabilities.
The largest creditor of FLC Group as of December 31, 2021, is Saigon Thuong Tin Commercial
Joint Stock Bank (Sacombank) with a total short-term and long-term loan balance of more than
VND 1,840 billion.
Next, Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) also lent
more than VND 1,747 billion to FLC, and VND 1,392 billion to Orient Commercial Joint Stock
Bank (OCB).
However, representatives of the above banks said that credit granting activities to FLC Group's
customers were carried out in accordance with laws and internal regulations. Fully secured
loans. In the event of a risk arising, banks will actively apply measures to handle collateral in
accordance with the law to recover debts and ensure the safety of the bank's operations.
About Tan Hoang Minh, there are two other banks related to it, namely Saigon Hanoi
Commercial Joint Stock Bank (SHB) and Vietnam Joint Stock Commercial Bank For Industry And
Trade (VietinBank), which are only organizations providing account management services and
secured asset management services.
And according to experts, if Tan Hoang Minh Group defaults or goes bankrupt, the financial and
banking markets involved in granting credit to Tan Hoang Minh will suffer stronger spillover
effects.

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V. REFERENCES
- Anthony Saunders & Marcia Millon Cornett. Financial Markets and Institutions sixth edition, Mc
Graw Hill education.
- Vietcombank financial report for six-months period ended June 30 2021:
https://portal.vietcombank.com.vn/content/en-
us/Investors/Investors/Financial%20Reports/Year%202021/VCB%2030.06.2021%20EN%20Cons
o.pdf
- Thuy Ha (2022). “Ngân hàng: Chỉ xử lý tài sản của FLC đã đủ khả năng thu hồi nợ”, vietnamplus,
https://link.gov.vn/jyZSaRGV
- Huyen Anh (2022). “Chủ tịch Tân Hoàng Minh bị bắt: VietinBank nói gì về 9 lô chào bán trái
phiếu vừa bị hủy?”, danviet, https://danviet.vn/chu-tich-tan-hoang-minh-bi-bat-vietinbank-noi-
gi-ve-lo-9-dot-chao-ban-trai-phieu-vua-bi-huy-20220406135015472.htm
- Kieu Linh (2022). “Tân Hoàng Minh: “Chúng tôi chưa thể trả tiền cho khách hàng nhưng sẽ bán
tài sản để thanh toán””, vietnameconomy, https://vneconomy.vn/tan-hoang-minh-chung-toi-
chua-the-tra-tien-cho-khach-hang-nhung-se-ban-tai-san-de-thanh-toan.htm
- Youtube: https://www.youtube.com/watch?v=KO8rQxk7y_c
- (2006). “Vai trò của ngân hàng thương mại trong việc tham gia phát triển thị trường chứng
khoán”, Ngân Hàng Nhà Nước Việt Nam,
https://www.sbv.gov.vn/webcenter/portal/vi/menu/fm/ddnhnn/nctd/nctd_chitiet?centerWidt
h=80%25&dDocName=CNTHWEBAP01162524991&leftWidth=20%25&rightWidth=0%25&showF
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