HANOI UNIVERSITY

Faculty of Management and Tourism

________

Bank Management
MARITIME BANK REPORT

Tutor: Ms. Dao Thi Thanh Binh

Group: 06
Tutorial: 02
Date: 5th December, 2021

Hanoi - 2021

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 PEER EVALUATION FORM

Task Mark
Team member ID Task given (written form) given (%) perform

- Task 1: Introduction of Bank

Đào Thị Dung 1904040022 Main services, Structure 100%
- Task 2: Analysis of bank
performance

Phạm Thu Hà 1904040033 - Task 3: Analysis of bank risks 100%

Interest rate risks, Liquidity
risks

- Task 4: Analysis of bank

Lê Hoàng Long 1904040072 100%
capital
Risk weighted assets
components, CAR ratios, and
Tier 1, Tier 2 Capital

Vũ Chí Trung 1904040124 - Task 5: Analysis of bank loans 100%

Corporate loans and
Individual loans

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 I. Table of Contents
INTRODUCTION ...............................................................................................................1
DISCUSSION OF FINDINGS ............................................................................................2
I. Overview .......................................................................................................................2
1. Background of Maritime Bank .................................................................................. 2
2. Main services of bank ............................................................................................... 3
3. Structure of MSB ...................................................................................................... 4
II. Analysis of bank performance ......................................................................................5
1. Consolidated financial statements ............................................................................. 5
2. Profitability analysis ................................................................................................. 7
3. Asset & Fund management efficiency ratio ............................................................... 8
III. Analysis of bank risks ...................................................................................................9
1. Credit risks ............................................................................................................... 9
2. Liquidity risks ..........................................................................................................10
3. Interest rate risks ......................................................................................................10
IV. Analysis of bank capital.............................................................................................. 12
1. What is Basel I and Basel II? ...................................................................................12
2. MSB with the application of Basel ...........................................................................13
3. The Capital Adequacy Ratio of MSB .......................................................................13
V. Analysis of bank loans................................................................................................ 16
1.Liquidity management ..............................................................................................16
2. Lending management ...............................................................................................17
CONCLUSION .................................................................................................................. 21
REFERENCES ................................................................................................................. 21

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 INTRODUCTION
The Maritime Commercial Joint Stock Bank (MSB) was Vietnam’s premier commercial bank,
founded in 1991 and with 166 trillion VND of total assets in September 2020. MSB concentrates
on affluent and massively affluent customers in retail banking segment and SME customers in
corporate banking. The head office of the bank is located in Ho Chi Minh City with 263 branches
in 51 cities or provinces, and 100% owned FCCOM and MSB AMC subsidiaries. At a period
when the concept of a public-owned commercial joint stock bank was still new and its feasibility
was being questioned, the bank was established as Vietnam's first. Maritime Bank, on the other
hand, has demonstrated the great potential of the joint stock bank model and generated
extraordinary achievements because of the pioneering and inventive spirit of the bank's founders
and the passion of its employees.
Maritime bank has risen to the top of the commercial joint stock banks in Vietnam, with the
greatest operational network and the large number of customers and enterprises. Maritime Bank
has developed an essential strategy to proceed to optimize the available competitive advantage
and provide the great experience for customers, shareholders, suppliers, communities, and
employees, based on available strengths such as strong financial strength, widespread distribution
network, and friendly staff. MSB has won numerous regional and global honor throughout the
years, demonstrating our commitment to client satisfaction. MSB was named "Best Bank in
Vietnam" by Global Finance in 2017 and 2019. MSB was also recognized as "Best Retail Bank in
Vietnam" by International Finance and World Finance in 2017 and 2015. To gain the great
achievements, Maritime Bank has constantly improved and advanced the banking system with the
massive of great goods and services for customers. This report, with the purpose of giving an
analysis of Maritime Bank, will discuss the bank performance in financial activities, the risk
management, the capital management, and the bank loans in recent years.

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 DISCUSSION OF FINDINGS

I. Overview
1. Background of Maritime Bank
Maritime Bank has been concentrating on practical application of Core Values: “Responsibility,
Listening, Respect, Innovation, and Efficiency” to create the greatest performance for its clients,
with the goal of developing an effective bank that helps customers to deal with problems quickly
and conveniently.
Incessantly expanding in scale
Maritime Bank has developed from a single private bank with 24 shareholders, 40 billion VND in
chartered capital, and a few branches in the big cities and provinces of Haiphong, Hanoi, Quang
Ninh, and Ho Chi Minh City to a financial institution with chartered capital of 11.75 trillion VND,
294 times the initial chartered capital; a network of nearly 300 branches and transaction offices.
Committed investment in technology
Maritime Bank sent shockwaves across the Vietnamese banking market by pioneering the use of
modern technology immediately after its creation. It was Vietnam's first commercial bank to be
authorized to handle overseas transactions and to create Core Banking based on a centralized
database, a concept rapidly replicated by the country's banks.
Focus on quality of products and services
When customers utilize the bank's products and services, the bank attempts to deliver the highest
quality experience possible. In addition to continuously improving the underlying technological
system, Maritime Bank offers new goods and services on a regular basis to increase its added
value. By providing customer-centric products and services that benefit not only our clients but
also their family and friends, Maritime Bank presents itself as their families' bank for individual
consumers. Maritime Bank acts as a bank for businesses' supply chains, offering banking and
financial services to our customers and business partners to help them enhance their operational
efficiency.
Attention to risk management
To successfully complete the project, Maritime Bank established a steering committee consisting
of high-level members of the Board of Directors and Executive Committee, as well as the Basel
II Centre and a specialized risk tool model, as one of the ten banks chosen by the State Bank of
Vietnam (SBV) to pioneer the implementation of the Basel II banking framework. Currently, the
bank has a strong capital adequacy ratio (CAR), well exceeding the SBV standards. The bank has
been able to successfully implement its development strategy thanks to this solid base.

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2. Main services of bank
Just like different commercial banks, the Maritime Bank has been verified to provide these three
main Customer bases, such as retail banks, company banks, and financial institutions.
First, Maritime clients can be provided services in retail banks inside the form of deposit account
offerings, such as opening a deposit or financial savings account to fulfill demand, card products,
retail loan product transactions, coverage or foreign forex purchases, digital banking offerings,
and so forth. In detail, Visa Online credit playing cards and visa journey playing cards are broadly
used because of the massive refund of each transaction, excessive security, and flexible installment
price. While a large number of customers who would love to go shopping online via Visa Online
Credit Card by dint of the convenience, Visa Tour Cards provide honest remedies related to tour
transactions and global journey insurance.
The second purpose customer is a cooperative financial institution, an appealing overdraft
account carrier, and credit packages benefits. Analyzing more about enterprise issues confronted
with a transient shortage of finances, MSB gives an overdraft account way to assist companies
take the initiative to increase cash flow for production and operation activities. Maritime Bank has
diversified types of customers with outstanding advantages: active consumption of up to 2 billion
VND, no debt series, fast charge commodities, utility bills, and employee salaries. At the same
time, MSB's comprehensive credit is an efficient option for fully meeting all of the capital needs
of the organization for the duration of the transformation system manufacturing, operation,
investment, and growth of operations aggressive interest costs, designed for each business.
Finally, Maritime Bank has provided the programs related to capital market, cash management,
and exchange finance, and correspondent banking. The capital marketplace comprises the primary
business collection which is named Forex Trading and Bond Trading. MSB has consistently been
ranked the best price maker in the secondary market for the following items and services: trading
government bonds, government-guaranteed bonds, municipal bond bonds, monetary organization
bonds; repurchase agreements/ reverse repurchase agreements; short/long term – CD Trading;
auction business. In terms of cash management, MSB gives account offerings; collection services
to satisfy the cash deposit/withdrawal or fund conversion of financial organization (FI) clients
with restrained networks; and overdrafts which are used by customers to make payment in case of
inadequate. Moreover, centralized account management is offered to advance independent account
management and permit the best use of unused funds. Exchange finance includes Outward
telegraphic transfer (T/T), assure offerings, and trade monetary services. Furthermore,
correspondent banks and forms, prices, and interest rates are other services supplied by way of
MSB to help ensure the customer’s profit.

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3. Structure of MSB
To gain a large number of achievements, MSB has constantly developed the technology, services
and skills, and worked with enthusiasm in order to bring customers the best products and services.
One of the most important factors of the achievements is the management system of the bank that
plays an important role in operating, monitoring and adjusting the bank system completely. The
Vietnam Maritime Commercial Joint Stock Bank is structured like a Shareholding Company,
which comprises several principal parts as General Meeting of Shareholder, Board of Director,
General Manager and Supervisory Board.
The General Meeting of Shareholder is known as the most powerful body making important
decisions for the entire bank. It includes the large number of shareholders in total with voting
rights and functions through annual and special meetings, as well as collecting written opinions.
In detail, the chairman of the Board of Directors is Mr. Tran Anh Tuan. After that, there are two
vice chairman respectively are Ms. Nguyen Thi Thien Huong and Mr. Nguyen Hoang An with
three Members of BOD: Mr. Tran Xuan Quang, Ms. Le Thi Lien, and Mr. Nguyen Hoang Linh.
In the Board of Management, Mr. Nguyen Hoang Linh is the Chief Executive Officer of Maritime
Bank. Then, there are three Vice CEOs of MSB: Mr. Nguyen The Minh, Ms. Nguyen Huong Loan,
and Mr. Oliver Schwarzhaupt with the Director of Retail bank, Ms. Nguyen Thi My Hanh. They
are also talented and influential characters. So they can control, give the suitable direction for
MSB. Under the manager system, Maritime Bank has a lot of other offices such as Marketing
Office, Risk Management Office,… Consequently, Maritime Bank is a reliable bank trusted by
customers as well as a bank highly appreciated by international organizations for quality and
products.

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II. Analysis of bank performance
1. Consolidated financial statements
How well Maritime Bank was performing for 4 years from 2017 usually revealed by a careful
study of their financial statements. MSB has achieved positive results and stable growth recently
that created the motivation for bank to confidently complete their target.

*in Millions of VND

Figure 1. Balance sheet of Maritime Bank from 2017 to 2020 (collapsed)

Thanks to sustained strategy management for the whole bank in technology and services as well,
MSB also has an optimistic signal in total assets for 4 years. The balance sheet above indicates the
total assets of MSB increase regularly from 112,238,978 million VND in 2016 to 176,697,625
million VND in 2020. The total assets in 2020 reached nearly VND 176.7 trillion, up 57.48%
compared to 2017. Total equity of MSB slightly increased until 4 years from 13,721,942 million
VND to 16,874,819 million VND, up to 22.97%. The growth in total assets is shown by the
expansion in goods and services in the market and focusing on scale growth in high-yield asset
categories. The bank managers have maintained to implement the strategy of focusing on
investment in the foundation systems in order to create a good basis for the whole bank to develop
strongly and sustainably.

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 Figure 2. Income statement of Maritime Bank from 2017 to 2020

According to the consolidated income statement from 2017 to 2020, it is demonstrated that net
income before taxes in 2017 only reached 164,429 million VND. It is an extremely small number
of net income before taxes compared with 2018, up to 1,052,776 million VND. After that, it
moderately rose to 1,287,822 million VND in 2019 and reached a peak of 2,523,314 million VND,
up to nearly 96% compared to 2019. To gain this result, MSB has used capital effectively, raised
fee income and reduced costs well. Until 2020, MSB has a large number of business activities
with high growth. Following the consolidated income statement, credit activities brought in
4,822,389 million VND in net interest income in 2020 with an increase of 57.48% compared to
2019, 66.16% compared to 2018, and nearly 200% compared to 2017. MSB has made efforts to
promote credit supply for low-risk industries, offering the suitable products for customers’
circumstances recently. Therefore, MSB is one of the banks that is provided more credit growth
limit by the Central bank to offer the capital demand for the economy.

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 2. Profitability analysis
During 30 years of establishment and development, Maritime Bank has received the trust of more
than 1.8 million individual and corporate customers, and has become one of the five most
prestigious and largest joint stock commercial banks in Viet Nam with diversified service
products. To evaluate the bank performance effectively, profitability ratios are chosen as the best
indicator of a bank performance to generate earnings relative to its revenue. In detail, return on
assets (ROA) and return on equity (ROE) will be the vital elements for assessing managerial
efficiency and measuring the rate of return flowing to shareholders along with another indicators.

2017 2018 2019 2020 Trends

ROA 0.11% 0.63% 0.67% 1.13% upward
ROE 0.89% 6.28% 7.01% 11.91% upward
NIM 1.43% 2.1% 1.95% 2.73% fluctuating
EPS 106 811 974 1404 upward
NPM 2.3% 11.39% 14.46% 18.68% upward

Figure 3. Profitability ratios

a. Return On Asset (ROA)
The return on asset (ROA) is an indicator that measures how well a firm uses its assets to
generate net earnings. The higher the return on assets, the better the management. According
to the table, there is an upward trend in ROA from 2017 to 2020 in order to show the great job
of Maritime Bank to convert its assets into profits. The ROA in 2018 is a significant increase
from 0.11% in 2017 to 0.63% one year later, and increase slightly in the next year (2019). After
that, it is a peak of ROA in 2020 with 1.13% that shows the management’s ability of bank
mangers to use financial resources effectively. Compared to other large banks, this figure is
considered modest.
b. Return On Equity (ROE)
The return on equity (ROE) measures the profitability in relation to its equity. Shareholders, in
particular, usually recruit well-managers to maximize value and get a greater return on equity. It
has direct influence on stock valuations: a greater ROE means a higher bank’s intrinsic value. It
is nearly the net benefit gained by the shareholders from their investment. The date above
indicated a sharp increase in ROE with the upward trends. In 2017, ROE only reached 0.89% to
show the manager of the bank has not used the capital invested by the shareholders efficiently.
However, it rose dramatically in 2018 with 6.28% and then it continued to increase with a
moderate number of percentages in 2019 (7.01%). In 2020, it reached a high of ROE with
11.91%. In conclusion, ROE went up 11.02% from 2017 to 2020. It is also noticeable that
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 Maritime Bank’s management system has done well when it comes to utilizing investment
funding to expand their firm.
c. Net Interest Margin (NIM)
The net interest margin (NIM) is a measure of how much of a difference there is between interest
income and interest expenses that management has been able to accomplish by strict control of
earning assets and following of low-cost sources of funding. It can be seen from figure 3 that
NIM increased by 0.67% from 2017 to 2018 which is a positive sign but decreased marginally
from 2.1% in 2018 to 1.95% in 2019. Obviously, the manager of the bank in 2019 had faced
difficulties to make a profit. After that, it is indicated that the net interest margin went up to
2.73% again and the management has successfully controlled assets and liabilities.
d. Earnings per share (EPS)
Earnings per share is known as a bank’s net profit divided by the number of outstanding common
shares. It is typical for a bank to declare earnings per share that has been adjusted for unusual
items and probable share dilution. The higher ratio demonstrates greater value of profit. As can
be seen from the table, the earnings per share of Maritime Bank is positively upward trend from
2017 to 2020. Until 2020, earning per share of MSB is 1,404 VND/share. Inferring from that,
the bank had higher profits relative to its share price and also is a good signal for profitability
analysis.
e. Net Profit Margin (NPM)
The net profit margin (NPM) is the ratio of net income to total revenues and reflects the
management control and direction to some extent. This ratio is indicated in the upward trend and
increased extremely in 2020 with 18.68%. It also illustrates the ability of bank to increase its
earnings and the returns to its stockholders by successfully controlling expenses and maximizing
revenues.

3. Asset & Fund management efficiency ratio

2017 2018 2019 2020
Asset utilization 4.73% 5.53% 4.6% 6.09%
Equity multiplier 8.18x 9.97x 10.56x 10.47x
Figure 4. Asset & fund management efficiency ratio
The degree of asset utilization indicates the portfolio management policies, especially the mix and
yield on assets. It is noticeable that this ratio is not a stable trend from 2017 to 2020 and reach a
peak in 2020 with 6.09%. In 2019, this ratio begins to decline and management has completely
paid close attention and assessed the reason behind the change. Then Maritime Bank got a good
result for 2020.
The equity multiplier is a clear measure of financial leverage, indicating how many dollars of
assets must be sustained by each dollar of equity capital, and hence how much of the financial

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firm’s resources must be borrowed. The equity multiplier or assets to equity ratio is frequently the
largest, averaging 10x or more for typical banks. As can be seen from figure four, the ratio of the
first two years is not extremely good (below 10x). After that, Maritime Bank has operated with
multipliers of more than 10x, respectively in 2019 with 10.56x and in 2020 with 10.47x. The
multiplier of Maritime Bank was not too high, therefore the bank has exposed less failure risk.
However, the potential for high returns for the stockholders is low with the moderate fund
management efficiency ratios.

III. Analysis of bank risks

1. Credit risks
Credit activities are one of the most important business activities for commercial banks, and they
provide a significant source of income. However, there are a large number of potential risks during
operations. The following fundamental criteria are used to indicate credit risk.

2017 2018 2019 2020

Nonperforming loan ratio 2.2% 3.0% 2.0% 2.0%
Provision for loan losses ratio -14.10% -16.61% 7.89% 18.66%
Figure 5. Credit risk ratios
From the table below, the nonperforming loan ratio of Maritime Bank seems quite stable.
According to the World Bank, a ratio of less than 5% is acceptable and preferably at 1-3%, and
the peak of Maritime Bank was 3.0% in 2018, while the rest of the years stays remain from 2.0%
to 2.2%. The lower the ratio, the better the credit quality. It partly reflects the effectiveness of
credit promotion programs of Maritime Bank recently with the variety of new products to supply
the demand customers. For small and medium business customers as well as individual customers,
Maritime Bank has given a comprehensive credit solution with simple, quick and appropriate
procedures for their capital needs. For example, in 2018, Maritime Bank has conducted M-
housing’s product that included additional benefits for individual clients in order to respond to
their demand with high effectiveness.
Provision for loan is the non-cash expense item included in the profit of the line budget when
adding to the account allowance, or project a credit loss for the unlikely debt. Provisions for credit
losses are reported on the income statement of the bank, and this ratio of 2017 and 2018 remain
negative (even smaller than 1%), respectively -14.10% and -16.61%, which deserved to be
considered at an alarming issue. It is also noticeable that Maritime Bank didn’t have the ability to
compensate for risks from provision for loan loss. However, in 2019 and 2020, the ratio back to
positive with the peak was 18.66% in 2020. This is a good signal for bank in manage credit risk
recently.

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2. Liquidity risks
When operating in the financial system, financial institutions are exposed to a variety of risks that
could result in a business downturn or even insolvency. Liquidity risk is one of the most commonly
encountered risk ratios in the financial sector. Liquidity risk occurs when a bank or financial
organization is unable to satisfy its short-term loan obligations, resulting in significant losses. This
problem normally arises when a bank's assets are unable to be converted into cash. It's crucial
since the goal of liquidity risk management is to ensure that there'll be enough cash flow to keep
payments on track. The ratios of Cash and payable from deposits held at other depository
institutions over Total assets are other indicators of exposure to liquidity risk.
The calculations below show the ratio of Maritime Bank for the last four years.

2017 2018 2019 2020

Cash and due from balances
8,602,306 22,689,332 20,578,997 16,977,765
held at other depository (A)*
Total assets (B)* 112,238,978 137,768,688 156,977,946 176,697,625
A/B 7.66% 16.47% 13.11% 9.6%
Figure 6. Liquidity ratios (*: million VND)
According to the table above, the liquidity rate of Maritime Bank varied during the four years from
2016 to 2019. At first, in 2017, the ratio of liquidity reached the peak at 16.47% from 7.66%. This
is an extreme change in the liquidity risk value of the Maritime bank because the improvement in
the cash index demonstrates the maritime bank's immediate affluence. However, after reaching
the peak in 2018, for 2 years in a row, the ratio falls to 13.11% in 2019 and 9.6% in 2020, this is
the result of the investment on the assets of Maritime Bank. The total assets was 156,977,946
million VND in 2019, which raised by 1.39 times compared to the total assets in 2017
(112,238,978 million VND), and risen by 1.57 times with the number of 176,697,625 million VND
in 2020. To summarize, the Bank's liquidity remains sufficient to fulfill the State Bank's criteria,
particularly the bank's capital and credit balances, which surpass the State Bank's norms.

3. Interest rate risks

Interest rate risk has the biggest impact on banking activities which are the most destructive and
severe types of risk that the bank has to deal with. Indeed, interest rate risks will occur since the
adverse change in interest rates on the market for the value of financial instruments that affected
the net interest income and the net worth, which is the value of the owner’s investment. MSB, as
well, the managers of Maritime Bank also need to have particular plan for risk management for
changing interest rate.
a. Interest-Sensitive Gap Management

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Interest-sensitive gap management is frequently used interest rate hedging strategies nowadays.
Gap management techniques require management to perform an analysis of the maturities and
repricing opportunities associated with interest-bearing assets and with interest-bearing liabilities
(Peter S. Rose and Sylvia C. Hudgins, 2010). If management considers that the institution is
exposed to an excessive rate of interest rate risk, it will match the number of assets it can handle
to the greatest extent practicable. Liabilities' interest rates can be modified in response to market
conditions throughout the same period, as interest rates are repriced in response to changes in the
quantity of liabilities. When the amount of repriceable assets does not equal the amount of
repriceable liabilities, there is a gap between these interest-sensitive assets and interest-sensitive
liabilities. The Interest-Sensitive Gap is determined by taking the Interest-sensitive assets minus
the Interest-sensitive liabilities. The financial firm is considered to have a positive gap and be asset
sensitive if the volume of interest-sensitive assets in each planning period (day, week, month, etc.)
exceeds the size of interest-sensitive liabilities subject to repricing. In the other scenario, assume
the liabilities of an interest-sensitive bank are greater than its interest-sensitive assets. This bank is
then deemed to be liability sensitive since it has a negative gap.

2017 2018 2019 2020

Interest-Sensitive
16,292,937 16,885,799 17,191,041 19,002,801
Gap *
Total asset * 112,238,978 137,768,688 156,977,946 176,697,625
Gap ratio 14.51% 12.25% 10.95% 10.75%
Figure 7. Interest rate risk (*million VND)
As can be seen from the table above, the interest - sensitive gap from 2017 to 2020 of Maritime
Bank is always positive (GAP > 0), means the interest rate sensitive asset is greater than the interest
rate sensitive liabilities, if the market interest rates increase, the interest received from investing
in assets will grow faster than the cost of obtaining capital, resulting in an increase in the bank’s
income, and vice versa. The interest – sensitive gap has a great impact on net interest income.
Maritime Bank with a positive gap will lose net interest income if the market interest rates drop.
Therefore, the asset management board of the bank has set up a plan to effectively manage interest
rate risk. If the interest rate rises, the management can limit short-term liabilities and increase
long-term capital mobilization or investing in short-term securities.
b. Duration gap management
We looked at interest rate sensitivity gap management in the previous section, which allows
financial institution managers to deal with the risk of losing their institution's net interest margin
or spread owing to fluctuations in market interest rates. However, Changes in interest rates can
also have a significant impact on another part of a financial company's performance: its net worth

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or the value of the institution's shareholders' investment. The fact that interest rate risk protects
the net interest margin does not guarantee that the institution's net assets are secure. This demands
the use of yet another management technique: duration gap management. The leverage-adjusted
period difference (DGAP) is determined by taking the dollar-weighted period of the portfolio of
assets (DA) minus the dollar-weighted duration multiplication of the portfolio of liabilities
multiplied by total liabilities (L) divided by total assets (A):
L
DGAP = DA – DL x A

We will not explain the precise statistics in this study since the leverage-adjusted period gap
information of the MSB is difficult to gather and measure precisely. However, the formula clearly
shows that the liabilities value must be at least more than the asset value to reduce interest rate
risk exposure. The reason for this is that when the modified period difference in leverage grows,
the interest rate becomes more sensitive. Because of its reputation over the last
few years, MSB's interest rate risk management is apparently strong. Although the issue of
databases is always a huge barrier for any bank, management systems in its databases are designed
in a synchronous, automated, and constantly updated and modified structure to match the real
management needs.

IV. Analysis of bank capital

1. What is Basel I and Basel II?
According to The Investopedia Website, Basel I is an international banking framework put
forward by the Basel Committee on Bank Supervision (BCBS) that sets out financial institutions’
minimum capital requirements of financial institutions with the goal of minimizing credit risk. In
more details, banks that operate internationally are required to maintain a minimum amount (8%)
of capital based on a percent of risk-weighted assets. Under the terms of Basel I, the various
sources capital were divided into two tiers: Tier 1 and Tier 2. Tier 1 is known as core capital,
which includes common stock, and surplus, undivided profits, qualifying noncumulative perpetual
preferred stock, minority interest in the equity account of consolidated subsidiaries and selected
identifiable intangible assets less goodwill and other intangible assets with the goodwill happen
when bank buy company at a higher price than the book value. Tier 2 is the supplemental capital
including the allowance for loan and lease losses, subordinated debt capital instruments,
mandatory convertible debt, intermediate term preferred stock with unpaid dividends, and equity
notes and other long term capital instruments that combine both debt and equity features. Capital
adequacy ratio (CAR) is an economic indicator reflecting the relationship between equity capital
and commercial banks' risk weighted assets. Therefore, CAR is an important method to measure

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the operational safety of the bank, which is developed by leading banking experts under the Basel
Committee.

Because some disadvantages of Basel I such as operational risks, irrespective of the type of
risks, no benefit from diversification, Basel II appears as an updated version of Basel I.
There are three “pillars" of Basel II: (1) Minimal capital requirements, (2) Supervisory
review and (3) Market Discipline.
To determine the importance of imposing Basel standards, the State Bank developed a legal
framework to create favorable conditions for banks to quickly apply international standards.

In 2005, the SBV issued Decision No. 457/2005/QD-NHNN with a minimum capital adequacy
ratio of 8% with a relatively comprehensive approach to Base I. In 2010, SBV issued Document
No. 13/TT-NHNN, which replaced the last document and raised the minimum capital adequacy
ratio to 9%. The calculation method is gradually approaching Basel II, the SBV issued Circular
41/2016/TT-NHNN to regulate the capital adequacy ratio of banks, considered to represent the
necessary legal framework for guiding banks to fully implement the Basel II Pillar.
2. MSB with the application of Basel
MSB is one of the pioneer banks to complete all three of Basel II's foundations and perfect the
modern risk management platform according to international standards when announcing the
application of credit risk management and the implementation of Basel III in operational risk
management, markets, and the liquidity. Results of risk weighted assets (RWA) according to the
internal ranking method applied to target capital calculation, assessment of ICAAP capital, target
capital allocation/RWA according to each type of risk. This is an important basis for the Bank to
set risk limits, improve the efficiency in formulating credit policies, measure operational
efficiency on a risk-adjusted basis to improve economic efficiency business and risk management
capacity.

Besides applying the Basel II internal ranking method for credit risk, MSB also pioneered the
implementation of Basel III standards in managing operation risks, market risks and liquidity risks.
However, this report had already focused on the Basel II application of Maritime Bank for four
years.
3. The Capital Adequacy Ratio of MSB
The purpose of using risk-weighted assets is to identify the minimum amount of capital that
must be held by banks so as to reduce the risk of insolvency. The risk assessment for each category
of bank assets based on the capital requirement. Firstly, we need to calculate the credit-equivalent
amount of each off-balance sheet (OBS) item as well as find the suitable risk-weighted type for
the balance sheet of 4 different years and the OBS item. Then the product of each balance sheet
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and credit-equivalent OBS item by the correct risk-weight is the total amount of risk-weighted
assets. In four years recently, Maritime Bank has implemented risk management according to strict
Basel II standards. Thereby, the bank has successfully completed the goal on calculating the
capital adequacy ratio on the whole system. Debt settlement activities also brought positive results.

Figure 8. The risk weighted assets components

We can calculate a bank's capital adequacy ratios based on its total risk-weighted assets and Tier
1 and Tier 2 capital levels, as mandated by the Basel I Agreement.
Tier 1 capital is essentially the most complete form of a bank's capital, the money the bank has
stored to keep it afloat through all the risky transactions it makes, such as investing and loan.
Tier 2 capital is a measure of a bank's financial strength in relation to reliable forms of financial
resources in the second row after Tier 1 capital. Tier 2 capital is considered less safe than tier 1
capital. In the US, the total bank capital requirement is partly based on the risk weight of the bank's
assets.
In order to determine whether the bank has adequately capitalized or not, there are three
requirements need to be completed:
• Tier 1 risk-based capital ratio = Tier 1 capital/ Total risk- weighted assets >= 4%
• Total risk-based capital ratio = (Tier 1 + Tier 2) / Total risk- weighted assets >=8%
• Tier 2 capital/ Tier 1 capital < = 1
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The capital adequacy ratio (CAR) is a measurement of a bank's available capital expressed as a
percentage of a bank's risk-weighted credit exposures. The capital adequacy ratio, also known as
capital-to-risk weighted assets ratio (CRAR), is used to protect depositors and promote the
stability and efficiency of financial systems around the world. Two types of capital are
measured: tier-1 capital, which can absorb losses without a bank being required to cease trading,
and tier-2 capital, which can absorb losses in the event of a winding-up and so provides a lesser
degree of protection to depositors.
𝑇𝑖𝑒𝑟1+𝑇𝑖𝑒𝑟2
CAR=
𝑇𝑜𝑡𝑎𝑙 𝑅𝑖𝑠𝑘−𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠

However, the general formula in order to calculate CAR in Basel II is:

CAR = Total regulatory capital / Total risk-weighted assets + 12.5 * (COR + CMR)
In which:
COR is the capital requirement for operational risk.
CMR is the capital requirement for market risk.
2017 2018 2019 2020
CAR (%) 10.47 12.17 10.55 10.58
Tier 1 Capital
8.51 8.98 6.43 7.4
(%)
𝐓𝐢𝐞𝐫 𝟐 𝐂𝐚𝐩𝐢𝐭𝐚𝐥
0.230 0.355 0.641 0.430
𝐓𝐢𝐞𝐫 𝟏 𝐂𝐚𝐩𝐢𝐭𝐚𝐥
Figure 9. The capacity ratios
According to the calculation above, Maritime Bank is complied generally with Basel requirements
with mostly total risk-based capital ratio (CAR) of four years ago greater than 8 percent. It can be
briefly seen that Maritime Bank had sufficient capital with an effective business strategy and was
able to pay the bank’s term debts and face other risks quickly. Maritime Bank increased their
capital adequacy ratio (CAR) with the highest of 12.17 percent in 2018, thanks to strong growth
in owner's equity. Nonetheless, by 2020, banks in Vietnam must have equity capital that meets
Basel II norms, which is a difficult task given the Vietnamese financial market's low level of
development. Therefore, the total risk-based capital ratio (CAR) in the last two years has slightly
decreased, but the ratio still increases even just a little, from 10.55% to 10.58%. Moreover, the
Tier 1 risk-based capital ratio of four years ago is a high number compared to the standard of 4
percent, and the lowest ratio is 6.43 percent in 2019. The greater the tier 1 leverage ratio, the better
Maritime Bank's balance sheet will be able to absorb negative shocks. The last requirement of
Basel is covered by Maritime Bank with the ratio of Tier 2 Capital over Tier 1 Capital was always
smaller than one. Thus, Maritime Bank has ensured these ratios and created a buffer against
liquidity crisis by safeguarding itself and its depositors.

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Basel II regulations need large financial resources of USD 10-15 million, depending on the nature
and size of the institutions. It's also a problem for small and medium-sized banks. Human
resources, as well as senior executives' risk management skills, continue to encounter numerous
challenges. Human resources and senior executives' risk management understanding are weak,
and they fall short of international requirements. Since February 2016, the State Bank of Vietnam
has selected ten pilot banks to undertake risk management projects based on the Basel II standard,
including Maritime Bank. Maritime Bank is one of the pioneer banks to complete all three pillars
until 2020. The MSB has deployed a risk governance strategy based on big data analysis and
artificial intelligence to identify and analyze prospective customers for credit card products in
order to fulfill the regulations.

V. Analysis of bank loans

1. Liquidity management
Liquidity management plays an important role to ensure the stability of bank’s operation. Thus,
the managers of banks always pay attention in measuring and controlling liquidity management
appropriately in order to make sure the profitability of assets and demand of liquidity. Liquidity
is a bank's ability to completely and promptly meet financial obligations arising in the process of
transaction activities such as deposit payment, loan payment and other financial transaction
activities. A bank is considered to be liquid if it has sufficient reserves on necessary liquid assets
and ability to borrow and mobilize instantly the liquid capital as well as sell assets.
Indeed, there are several ways to measure the liquidity of a bank that have significantly supported
the managers. In general, a bank's liquidity requirements can be analyzed in terms of using the
demand and supply of liquidity. The demand and supply of liquidity are the determinants of a
bank’s net liquidity position which equal total supply of liquidity minus total demand of liquidity.
Following this method, if the supply of liquidity is abundant, the bank’s liquidity is more positive
and better. However, the objectivity of this method is limited because it relies only on the supply
of liquidity and doesn’t have the meaning immediately in the short term. Therefore, the most
effective measurement of liquidity is used with the liquidity indicator approach.
2017 2018 2019 2020
Cash position indicator 0.11 0.16 0.16 0.1
Liquid securities indicator 0.33 0.28 0.28 0.32
Deposit composition ratio 0.25 0.38
Figure 10. The liquidity indicator
In theory, the cash position indicator is a quite big number that leads to the high ability of payment
instantaneously about the cash need. Nevertheless, the drawback of the big ratio is the decrease in

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the bank’s profit in reality because of the low return of cash and this type of assets. Maritime Bank
normally maintains a moderate proportion in this indicator and tends to decrease recently. Hence,
based on this indicator, Maritime Bank has not performed well in liquidity of cash.
The liquid securities indicator can show the comparison of the most marketable securities of
Maritime Bank could hold and the entire size of its asset portfolio. If this ratio is higher, the
liquidity risk that the bank faces is smaller. It can be seen that the ratio in the table is quite small
but tends to increase to 2020 by 0.32. The liquidity risk of Maritime bank is a problem with the
low ratios in 2018 and 2019, and it also leads the lower need for liquidity securities.
Deposit composition ratio measures the stability of Maritime Bank’s funding base. The increase
in this ratio from 0.25 in 2019 to 0.38 in 2020 will show the less deposit stability and a more need
for liquidity.
2017 2018 2019 2020
Current Assets (*) 57,621,628 86,207,545 101,107,297 112,928,916
Current Liabilities (*) 29,534,151 48,536,734 54,089,437 56,903,193
Current Ratio 1.95x 2.29x 2.15x 2.02x
Working capital (*) 28,087,477 48,536,734 54,089,437 56,903,193
Figure 11. The liquidity indicators (*:million VND)
It can be apparent that the current assets and current liabilities also go up significantly from 2017
to 2020. The bank made significant effort in enhancing its liquidity, with current assets covering
current liabilities two times over which is from around 57,000 billion VND to around 110,000
billion VND. It can be a good signal for the current ratio (also greater than 1) of Maritime Bank
in recent years. Maritime Bank has a high ability to ready pay due debts and the liquidity is high.
The term of working capital is an important factor that provides a measure of Maritime Bank’s
capacity to meet short-term debt commitments using current assets held on hand and tends to rise
moderately from 2017 at 28,087,477 million of VND to 2020 at 56,903,193 million of VND. Thus,
Maritime Bank has been able to respond to short-term debt obligations well recently.
2. Lending management
a. Individual loan
The number of credit options available to meet the financial needs of consumers is growing rapidly
among banks in Vietnam. As one part of the largest commercial bank system, Maritime Bank has
been actively advertising its lending techniques, particularly for individual consumers. Key
products of Maritime Bank retail loan concluding: Unsecured loan based on transferred salary,
Loan for house construction-repair, Overdraft loan from transferred salary, Town house collateral

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loan, Business Loan, Real estate mortgage consumer loan, Car loan, Loan to Priority customers,
and so on.

In the period from 2017-2020, MSB maintained the preferential interest rate is only 6.99% per
year for town house collateral loan, real estate loans or car loan. Loan based on salary without any
collateral for customers have the loan amount is up to 12 times of income, up to VND 500 million
and the maximum loan term is 36 months with flexible method of principal and interest payment.
The loan for house construction-repair helps customers enjoy building and repairing any house
with a credit limit of up to VND 5 billion and lend up to 70% of the loan value. About real estate
loan, MSB loans up to 90% of the value of the house and loan term up to 25 years. MSB offers
forms of overdraft loan from transferred salary, limit up to VND 300 million, meeting maximum
flexible capital use needs of customers with an attractive interest rate from 1,375%/ month. MSB
also offers the business loan with a large loan limit of up to VND 5 billion and the Granted limit
is allowed to withdraw capital in consecutive 1 year with no upfront fee. MSB requested some
documentation for loan conditions and procedures, depending on the type of loan the consumer
applied for. Besides loan application in the form of MSB, ID card and residence book, MSB
requires Proof of income: Copy of Labor Contract or Copy of Decision on transfer/ appointment/
salary increase, salary statement of recent 3 months and Documents of secured property.
MSB not only expanded customer relationships and enhanced its ability to mobilize deposits as a
result of the large number of individual loans, but it also generated profits by facilitating cross-
selling banking services like savings, payment transactions, and internet banking services. The
table below shows the data about the amount of lending of MSB from 2017 to 2020:

Individual loans Amount (million VND) Percentage (%)

2017 9,721,841 26.85
2018 12,559,864 25.76
2019 19,059192 29.96
2020 22,189,148 27.97

Figure 12. Individual loans

Looking at this table, we can see that the money that MSB used to make loans increased through
4 years recently. The total loan of MSB was recorded by the slight upward trend of 2,838,023
VND million from 2017 to 2018. However, the total individual loan amount of the MSB in 2019
reached 12.559.864 VND million, an increase of 6,499,328 VND million compared to 2018. In
addition to the positive results from commercial activities, msb also showed many bright spots in
credit quality management and bad debt handling, as shown in the ratio of bad debts in the banking
sector decreased from 1.71% in 2019 to 1.62% at the end of 2020.
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 b. Business loan
Lending is defined as the act of lending money or temporary assets to others in the aim of being
returned with interest. Lending in a business and financial setting encompasses a wide range of
commercial loans. There are two sorts of lending in the general banking system: eligible and
irrecoverable debts. This section will concentrate on MSB debt administration.
The table below shows the data about the amount of lending of MSB to different kinds of
borrowers from 2017 to 2020:
2017 2018 2019 2020
Eligible debts (*) 34,418,047 46,365,153 61,221,054 76,801,294
Irrecoverable debts (*) 640,331 1,242,518 981,322 867,771
Figure 13. Business loans (* :million VND)
Due to MSB’s annual reports in recent four years from 2017 to 2020, we collect the data of total
loans and form the chart below:

Figure 14. Amount of loans in four years ago (million VND)

Looking at the data, we can see that the money utilized by MSB to provide loans has lately grown
during a four-year period. From 2017 to 2018, the total loan of MSB showed a minor rising trend
of 12,513,703 million VND. However, the bank's overall loan amount in 2020 reached 79,340,579
million VND, an increase of 15,746,190 million VND over 2019. Meanwhile, the bank's lending
preference is for short-term loans, which account for more than half of all loans in a year.
Looking in the chart, we can see that the money that MSB used to make loans increased through
four years recently. The total loan of MSB was recorded as a huge gap of 12,549,540 million VND
from 2017 to 2018. Besides, the total loan amount of the bank in 2019 reached 63,594,389 VND
million, an increase of 14,832,115 million VND compared to 2018. Meanwhile, Maritime Bank
tend to make short-term loans, which accounts for higher than 50% of total loan in one year.
Moreover, the total loans of 2020 even reached 79,340,570 million VND, which means 15,746,190
million VND greater if compared to 2019, also leading the total loans amount to a new peak. In

19
detail, household business and individual take the highest proportion of lending from MSB with
more than 90% of total loan amount in all four years. The second place with the minor number
amount is loans on discounting negotiable instruments and valuable papers. It is obvious that the
main lending of MSB is used by corporations both small or large, private or belonging to the state.
According to MSB’s news, 2019 was considered as a successful year for MSB since all core
business activities achieved good growth, but 2020 seems even more successful. Specifically,
MSB's irrecoverable debts has decreased remarkably compared to the same period last year, from
981,332 million VND to 867,771 million VND, which means only 1.02% compared to 1.52 % of
2019, which proves that the management, or more specifically, the selection of lenders and the
debt collection ability of MSB has improved quite significantly compared to 2019. Besides bad
debt recovery ability, MSB's eligible debts also increased significantly, from 61,221,054 million
VND to 76,801,294 million VND, an increase of 1.25% compared to 2019. In addition to the good
results from business operations, MSB achieved a range of bright spots in credit quality
management and bad debt handling.
Based on the analysis of outstanding balance by loan term, we can see short-term and long-term
debts.
Below is a table of data over the years from 2017 to 2020:
2017 2018 2019 2020
Short-term (*) 17,333,702 24,947,585 32,302,659 36,622,806
Long-term (*) 8,187,310 11,950,620 17,728,703 23,040,804

Figure 15. Data in type of loans (*: million VND)

According to the table, we can see that the short-term debt ratio is always higher than the long-
term debt rate, specifically, the short-term borrowing rate of the following year always increases
approximately 2 times compared to the previous year. The amount of short-term and long-term
debt over the years has also changed markedly. Specifically, from 2017 to 2020, the amount of
short-term debt increases from 17,333,702 to 36,622,806, the amount of long-term debt increases
from 8,187,310 to 23,040,804. In summary, these numbers show that MSB is growing day by day.
Since Maritime Bank has also offered a very favorable interest rate for lots of products in order to
satisfy the demands of clients who want to use funds for agricultural production and commercial
operations. The strengths in liquidity management and lending management have always been a
strong foundation for Maritime Bank to continue to expand, and they will continue to be a robust
primary platform to enable us to continue to grow in the future.

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 CONCLUSION

In conclusion, by creating a distinction in its development approach, Maritime Bank has been
recognized as a bank that originated in Vietnam's retail banking market. In regard to multi-
utility products that appeal to a wide range of client demands, Maritime Bank has offered high-
quality services and developed boost banking technology. Maritime Bank has accomplished
the best strategy in liquidity, lending, asset and liabilities management for four years.
Furthermore, Maritime Bank has experienced a massive restructure, with an aim of developing
an efficient risk management system while sustaining a steady growth of commercial activity.
Despite of the influence of the pandemic, the Maritime Bank has maintained its position
throughout the years by superior risk management solutions, operational strategies,
managements, and outstanding locally and abroad awards.

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