Presenters: Group 10

GROUP MEMBERS:

1. Trần Thu Trang

2. Vũ Minh Tuấn

3. Lê Minh Tùng

4. Trần Thị Hải Vân

5. Vũ Thị Minh Yến

6. Đặng Thị Hải Yến

7. Nguyễn Hoàng Hương

8. Phạm Vũ Diễm Hằng

News

(Week from 5/4/2010 to

12/4/2010)

Consequences

1. The trend of increasing charter

capitals in large banks like

Vietinbank, Agribank, etc.

- Increase CAR;

- Expand

operations.

2.- SBV tries to help reduce

interest rates in the banking

market;

- USD price decreased

significantly, particularly in the

black market;

– Domestic gold price increased

during the week, but went less

than the world gold price.

- The domestic

financial market

will become more

stable.

3. More than 150 ATMs in HCM

and Hanoi were found to be

electrically leaked.

- The customers’

trust in banks has

decreased.

4. Conferences in banking and

finance sector among

governors of ASEAN central

banks (7-8/4/2010 in Nha Trang

City).

- Cooperation plans

for ASEAN in this

sector.

News

(Week from 5/4/2010 to

12/04/2010)

Consequences

1. 8/4/2010: Minister of the US

Ministry of Finance came and

talked to Chinese Government

- Reduce political

tensions between

2 countries and

help unify the

exchange rate of

the 2 currencies

2. - Greek Government asks from

subsidies and supports from EU

and IMF

- Greek banks need more than

USD 20 billions to survive.

- The situation of

Greece keeps

going worse.

3. Reserve Bank of

Australia decides to

raise the cash rate

from 4% to 4.25%,

effective 7/4/2010.

- Against inflation

increasing trend

4.- Investment in Asian

stocks increased

significantly this week;

- Asian currencies,

particularly Ringgit of

Malaysia, Rupee of India,

etc. are appreciated.

- Asian economies go first

in the recovery trend after

recession.

CAMELS is an international bank-rating system

where bank supervisory authorities rate

institutions according to six factors:

C - Capital adequacy,

A - Asset quality,

M - Management quality,

E – Earnings,

L – Liquidity,

S - Sensitivity to Market Risk.

C - Capital adequacy

Capital adequacy ultimately determines how well FIs

can manage with shocks to their balance sheets.

A - Asset quality

The quality of assets depends on exposure to specific

risks, trends in non-performing loans, and the health

and profitability of bank borrowers.

M - Management quality

Sound management is the key to bank performance

but is difficult to measure as it is a qualitative

factor.

E – Earnings

Profitability keeps up the sound health of FIs. Too low

or too high profitability can both indicate problems.

L – Liquidity

Liquidity risk threats the solvency of FIs. They should

strike the tradeoff between liquidity position and

profitability so they could maintain their health sound.

S - Sensitivity to Market Risk

Market risks are risks inherent in dealing with products

and services embedded with interest rates, foreign

currencies, and financial assets and commodity

prices.

The purpose of CAMELS ratings is to determine

a bank’s overall condition and to identify its

strengths and weakness.

It’s a standardized method which allows the

assessment of the quality of banks according

to standard criteria providing a meaningful

rating.

PEARLS is a financial performance monitoring

system that consists of a set of financial ratios

or indicators that help standardize terminology

between institutions.

It is designed to offer management guidance for

credit unions and other savings institutions.

P - Protection

The primary goal of protection is to ensure that

the credit union provides depositors a safe

place to save their money.

E - Effective Financial Structure

The PEARLS system measures assets, liabilities

and capital, and recommends an "ideal“

structure for credit unions.

A - Assets Quality

The Assets Quality indicators help institutions

control delinquencies and monitor the ratio of

non-earning assets to total assets.

R - Rates of Return and Costs

The PEARLS system segregates all essential

components of net earnings to help calculate

investment yields and evaluate operating

expenses.

L - Liquidity

The maintenance of adequate liquidity reserves is

essential to sound, financial management.

S - Signs of Growth

The PEARLS system links growth of assets to

profitability and other key areas by evaluating

the strength of the system as a whole.

Executive Management Tool:

monitoring the performance of credit unions.

Standardized Evaluation Ratios and Formulas:

eliminating the diverse criteria to evaluate

operation and creates a universal financial

language.

Objective, Comparative Rankings:

comparing credit union performance on a national

basis.

Facilitate Supervisory Control:

providing the framework for a supervisory unit at

the National Federation.

PEARLS uses quantitative indicators while CAMEL

uses quantitative and qualitative PEARLS

provides an objective evaluation of financial

performance.

PEARLS evaluates the financial structure of the

balance sheet because it has a direct impact on

efficiency and profitability.

PEARLS considers growth rates, which directly

affects financial structure and helps managers in

credit unions to assess the degree of satisfaction

among member-clients.

1988 20041997

A little CAMEL CAMEL+ S= CAMELS family PEARLS

2004 2008 Future(Decision 400/2004-

QĐ-NHNN)(Decision 06/2008-

QĐ-NHNN)

Only 1 CAMELA lonely CAMEL

Target subjects of the law just covers joint-stock

commercial banks, and just few banks follow the rule,

only some large banks like ACB, BIDV, Vietinbank.

Supervision activities follow the quantitative

assessment, lack of qualitative assessment. However,

quantitative assessment depends on Vietnam

accounting standard and statistic figure at the end of

fiscal years. Therefore, the direction value of this

method is limited while risks can happen regardless of

time.

In the law, supervision must includes both on-

site and off-site activities (follow the

international bank supervision - the 20th

principle of Basel). In fact, only off–site activities

has been implemented.

The supervision activity of DIV has gradually

implemented based on CAMELS and the

coordination with Vietnamese situation.

Scoring each criterion in CAMEL (Letter “S” is

omitted)

o Capital: -2 15 points

o Asset: 0 35 points

o Management: 0 15 points

o Earnings: 0 20 points

o Liquidity: -6 15 points

TYPE

Required score

( total 100

points)

Point of each criterion (C, A, M, E, L)

A>= 80 - not lower than 65% of its maximum

score

B60 -79

>79

- not lower than 50% of its maximum

score

- one criteria 50 -65 % of its maximum

score

C50 – 59

> 59

- each criteria :>=45% of its maximum

score

- one criteria : 45% - 50% of its maximum

score

D< 50

>+ 50- one criteria : < 45% of its maximum

score

2005 2006 2007 2008 2009

Charter capital(VND bil)Requirement: Charter capital ≥Legal capital

5.000 5.607 9.409 13.400 11.252

CARRequirement:CAR≥8%

6.07%(-3 pts)

5.18%(-3 pts)

6.24%(-3 pts)

10.09% 8.09%

Band score 12/15 12/15 12/15 15/15 15/15

Indicators 2005 2006 2007 2008 2009

2.1 Credit quality

Ratio of nonperforming loansRequirement≤ 0%)

3%(-10 pts)

1.41%(-5 pts)

1.02%(-5 pts)

1.09%(-5 pts)

1.06%(-5 pts)

Band score 15/25 20/25 20/25 20/25 20/25

Indicators 2005 2006 2007 2008 2009

2.2 Quality of guarantee

Past-due guarantee loan

Band score 5/5 5/5 5/5 5/5 5/5

2005 2006 2007 2008 2009

2.3 Structure of on-balance sheet’s assets (R1)(Requirement: R1≥ 75%)

89.3% 92.4% 91.6% 92.7% 92.8%

Band score 5/5 5/5 5/5 5/5 5/5

Total band score 25/35 30/35 30/35 30/35 30/35

On-balance sheets assets which can earn interest total on-balance sheet assetsR1=

Requirement:

Number of members in BOD, BOM and their

legal statuses.

Cooperation, competency, cohesiveness of

BOD and BOM’s members.

The adequacy of the audition, control and

management systems.

Gradual improvement in earnings and

performance.

Vietinbank is one of pioneer commercial banks

applying the international audition standards in

their annual reports

Vietinbank receives a lot of awards in the

industry.

Vietinbank is the trust and favorite bank of a lot

of customers.

Vietinbank’s profits increase gradually.

Management quality

2005 2006 2007 2008 2009

Band score 12/15 13/15 14/15 15/15 15/15

2005 2006 2007 2008 2009

R2Requirement R2=20%

10.5% 13.87% 15.01% 19.75% 13.35%

Band score 9/15 9/15 12/15 12/15 9/15

R3 (bonus)If R3> 20%

7.0%(+0 pt)

7.6%(+0 pt)

6.6%(+0 pt)

6.8%(+0 pt)

9.1%(+0 pt)

Band core 0/5 0/5 0/5 0/5 0/5

Total band score 9/15 9/15 12/15 12/15 9/15

• R2= Pretax profit/ owners’ equity• R3= Fee and commission income/ operating income

2005 2006 2007 2008 2009

Acid test ratio

Band score

9/9 9/9 9/9 9/9 9/9

Medium-long term capital usage

Band score

6/6 6/6 6/6 6/6 6/6

Total band score

15/15 15/15 15/15 15/15 15/15

Criterion Overall Band Score

2005 2006 2007 2008 2009

C : Capital 12 12 12 15 15

A : Asset quality 25 30 30 30 30

M : Management 12 13 14 15 15

E : Earning 9 9 12 12 9

L: Liquidity 15 15 15 15 15

Total 73 79 83 87 84

Rating B B A A A

Standardize guidelines for banks in supervision and

risk management ; Reform of the supervision

function with both on-site and off-site supervision

Adapt CAMELS instrument for a wider variety of

usage

Develop and apply public CAMEL reports which can

become the basis for a public CAMEL rating

Add specific modules to the CAMEL to be used in instances

where these are useful

Develop additional training materials aimed at supervisors

and staff of second tier institutions. Provide training for

bank supervisors in the use of the CAMEL and work with

banking authorities in the integration of CAMELS principles.

Update the CAMELS analysis framework to reflect developments in finance and in regulation & supervision practice. Reflect the trend toward risk- based supervision in an appropriate way

Develop Management Information System to mobilize banks Improve commercial banks as the order:

Credit manual

Risk management

Corporate governance

Asset liability committee

Internal auditing

New business plan

Introduction of MIS

IT development and applications

Development of new services

PEARLS should be developed as financial

analysis tool for credit unions;

Use other credit rating of international agency

like Fitch, Moody if possible in banking

assessment.