HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM



Bank Management Assignment

Bank Analysis – ACB
(Asia Commercial Bank)

Lecturer: PhD. Dao Thi Thanh Binh

Tutor: Nguyen Thi Minh Hang – Tutorial 2
Group 500Bros:
1. Dao Thi Huong Giang
2. Nguyen Thi Khanh Vy
3. Doan Khanh Linh
4. Cao Anh Thuy Duong

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

Đào Thị Hương

2204040030 - Task 1: Introduction of bank 100%
Giang
- Task 2: Analysis of bank
Nguyễn Thị
2204040102 performance 100%
Khánh Vy
- Task 3: Analysis of bank risks
Đoàn Thị
2204040055 - Task 4: Analysis of bank capital 100%
Khánh Linh
- Task 5: Analysis of bank loans
Cao Ánh Thùy
2204040026 100%
Dương

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 Table of contents

Abstract...........................................................................................................................................4
Introduction.....................................................................................................................................5
Discuss of findings..........................................................................................................................6
I. Overview............................................................................................................................6
1.1 Background of ACB...........................................................................................................6
1.2. Main services.......................................................................................................................7
1.3. Structure of ACB.................................................................................................................8
II. Analysis of bank’s performance.......................................................................................9
2.1. Consolidated financial statements.......................................................................................9
2.2. Profitability analysis..........................................................................................................12
2.3. Operations Efficiency Ratios.............................................................................................14
III. Analysis of bank risks......................................................................................................15
3.1. Credit risks of ACB...........................................................................................................15
3.2. Liquidity risks....................................................................................................................16
3.3. Interest rate risk..................................................................................................................18
IV. Analysis of capital management.....................................................................................20
4.1. What is basel I and basel II? .............................................................................................20
4.2. ACB with application of Basel..........................................................................................21
4.3. The Capital Adequacy Ratio of ACB................................................................................21
V. Analysis of bank loans.....................................................................................................24
5.1. Liquidity management.......................................................................................................24
5.2. Lending management.........................................................................................................25
Conclusion....................................................................................................................................28
Reference......................................................................................................................................29

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 Abstract

A "commercial bank" is a type of financial institution that takes deposits, offers checking
account services, makes various loans, and offers basic financial products to individuals and
small businesses, such as certificates of deposit (CDs) and savings accounts. The majority of
people conduct their banking with a commercial bank. Additionally, commercial banks
contribute to the economy by generating credit, capital, and market liquidity (Kargan, 2021).
Analyzing, researching, and presenting basic information about a commercial bank—including
its structure, primary services, performance, risks, and capital—is the aim of this study.
Analyzing, researching, and presenting basic information about a commercial bank—including
its structure, primary services, performance, risks, and capital—is the aim of this study.

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INTRODUCTION

The Asia Commercial Bank (ACB) was one of the leading joint stock commercial banks in
Vietnam, established in 1993 and with total assets recorded up to 718.8 trillion Vietnamese dong.
ACB offers a wide range of banking services, including retail banking, corporate banking, and
wealth management, and it is known for its focus on customer service and innovation in banking
technology. By the end of 2022, ACB had 90 branches and 294 transaction offices, totaling 384
units, present in 49 out of 63 provinces and cities nationwide. ACB's branches and transaction
offices are primarily concentrated in Ho Chi Minh City and Hanoi. ACB always prioritizes
investing in technology to enhance service quality and protect customer data. ACB has won
numerous prestigious awards both domestically and internationally, solidifying its position and
reputation.
Asia Bank is one of the leading joint stock commercial banking organizations in Vietnam.
Since its inception, ACB has experienced a strong and sustainable development process,
expanding its branch network to most provinces and cities nationwide. This expansion not only
reflects growth in scale but also demonstrates the bank's effective management ability and
development strategy. ACB has implemented a prudent risk management strategy to ensure
financial stability and put the interests of stakeholders and customers first. In addition, the bank
has paid special attention to development, considering digital transformation as a spearhead and
creating many achievements. ACB's continuous efforts in improving service quality and
strengthening reputation have been recognized by many reputable rating organizations.
Specifically, the bank has been ranked in the list of Top 10 Best Commercial Banks in Vietnam,
Top 50 Prestigious and Effective Public Companies in 2022, conducted by Vietnam Report. In
addition, the bank was ranked in the Top 50 Best Listed Companies in 2022 by Forbes Vietnam
Magazine.These honors not only demonstrate success in maintaining high service standards but
also demonstrate recognition by the community and national financial institutions for ACB's
development and contributions in the industry. banks in Vietnam. This report aims to evaluate
ACB bank, focusing on analyzing the bank's financial aspects, including financial performance,
risk management strategy, capital management and policies for recent bank loan.

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DISCUSSION OF FINDINGS

I. Overview
1. Backgrounds of ACB
Asia Commercial Bank (ACB) is a prominent joint-stock commercial bank in Vietnam,
established in 1993. Its guiding principle is to "manage the bank's growth safely and efficiently."
ACB specializes in catering to individual customers and small to medium-sized enterprises in the
private sector. Headquartered in Ho Chi Minh City, ACB has demonstrated remarkable growth
over the years, establishing itself as one of the most reputable and successful banks in Vietnam's
financial landscape.

History and Development

ACB was initially founded by domestic shareholders comprising both individuals and
organizations. In the journey of over 25 years of development and growth, there have been many
milestones, but perhaps one of the most important is the listing of the bank on the Ho Chi Minh
City Stock Exchange (HOSE) in 2006. ACB has progressively improved service quality,
technology, and branch network. ACB had, as of late 2022, a network of 90 branches and 294
transaction offices in 49 out of 63 provinces of Vietnam (totaling 384 units).

Products and Services

ACB has a wide variety of financial products and services that they provide for individual and
business customers, including personal banking, corporate banking, and electronic banking
services.

Technology and Innovation

ACB is a big focus on technology investment to improve customer experience. As such,

alongside the digitalization of banking services, ACB will constantly enhance its online channels
and mobile apps to ensure convenient and safe transactions for customers [Source: ACB]. More
specifically, ACB employs artificial intelligence (AI) and machine learning to exploit and
analyze data to optimize cash flows. The use of AI algorithms and models to automatically
processing, analysing, and interpreting financial data allows for accurate predictions and status
and cash flow assessments. In addition, ACB applies high technologies in service provision such

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as eKYC (electronic identification) features including Liveness Check and Video Call Face ID,
contributing to data protection and ensuring account security for businesses.

Development Strategy and Vision

ACB has developed a sustainable development strategy based on five core values: integrity,
prudence, innovation, harmony, and efficiency. The bank aspires to a vision of sustainable
growth, driven by a spirit of transformation to boost competitiveness and fulfill its mission of
delivering an exceptional customer experience. ACB is focused on achieving robust total income
growth and aims for an annual return on equity (ROE) of 20% or higher.

Achievements and Recognition

ACB has received many accolades from international banks, which articulate efforts and success
in the banking and finance industry. This bank has long been established itself as one of the most
sound financial institutions offering quality services for majority of customers and business
entities in Vietnam. More recently the ACB achieved a credit rating from FiinRatings with an
assessment rating that put it just in the outermost tier ahead of other banks, a testimony of good
business positioning, well established capital structures, and solute earnings capacity along with
a well managed prudent credit risk environment. Moreover, it is expected that the capacity of
raising capital and of liquidity will be bolstered as well thanks to stable sources of capital that
will contribute to the credit’s growth and support the stability of liquidity. In 2022 other
organizations including Enterprise Asia and International Banker honored ACB in
commendation as one of the most inspiring brands and as the bank that offered its services in
Asia.

2. Main services of ACB

Asia Commercial Joint Stock Bank (ACB) offers a comprehensive suite of financial services
designed to meet the varied needs of individual, corporate, and financial institution clients. For
retail customers, ACB provides a wide range of deposit accounts, including savings accounts,
current accounts, and fixed deposits, which help customers manage their finances efficiently.
The bank also offers personal loans, home loans, and auto loans, providing flexible financing
options tailored to individual needs. To further enhance convenience, ACB issues debit and

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credit cards, such as Visa and MasterCard, which facilitate secure and hassle-free transactions
both domestically and internationally.

Corporate clients benefit significantly from ACB’s extensive business banking services, which
include business loans, trade finance, and working capital solutions to support the financial
health and growth of their enterprises. ACB’s cash management services assist companies in
optimizing their cash flow, ensuring effective financial management. The bank also offers
foreign exchange services, helping businesses with currency conversion and international trade
transactions, thus supporting their global operations.

In addition to serving individuals and corporations, ACB caters to the specific needs of financial
institutions. The bank provides interbank payment services, fund management, and
correspondent banking services, facilitating smooth operations and effective cash flow
management for these organizations. ACB also supports financial institutions with investment
banking services, including bond trading and advisory services, which help optimize investment
portfolios and manage financial risks. These services are crucial in fostering collaboration with
both domestic and international partners, enhancing ACB's role as a trusted partner in the
financial sector.

In line with the digital transformation, ACB provides robust online and mobile banking
platforms, allowing customers to perform various banking activities, such as making
transactions, paying bills, and managing accounts, anytime and anywhere. Additionally, ACB
offers investment advisory services, mutual funds, and wealth management solutions to help
clients achieve their financial goals through strategic investment decisions.

The bank also facilitates international trade and remittances by offering services such as foreign
exchange trading and cross-border transaction facilitation, thereby supporting the financial needs
of individuals and businesses engaged in global markets. Through these comprehensive services,
ACB effectively caters to the diverse financial requirements of its customers, solidifying its
position as a leading financial institution in Vietnam.

3. Structure of ACB

International Banker (UK) – Bank With The Best Customer Service in Asia 2022, Best
Sustainable Bank in Asia 2022, and many other great achievements to mention about ACB Bank.

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Along with countless other banks appearing in Asia in general and Vietnam in particular, it is
undeniable that ACB is one of the banks with good development potential both now and in the
future. One of the important factors in building the brand and reputation of ACB Bank is its
management system, which also plays a key role in the operation, supervision, and
comprehensive adjustment of the banking system. Asia Commercial Bank is structured as a joint-
stock company, including several main components: the General Meeting of Shareholders, the
Board of Directors, and the Executive Board.

Asia Commercial Bank - ACB is organized and managed in the following order: At the top is the
General Meeting of Shareholders, which has the highest authority in the bank. Below the General
Meeting of Shareholders are the Supervisory Board and the members of the Board of Directors.
The Chairman of the Board of Directors is Mr. Tran Hung Huy, and the Vice Chairman of the
Board of Directors is Mr. Nguyen Thanh Long. The Board of Directors includes various councils
and the office of the Board of Directors. Below the Board of Directors is the General Director,
who manages and controls the Head Office units and distribution channels at lower levels. These
Head Office units include nine divisions and seven departments. The distribution channels
currently have more than 348 branches and transaction offices in 46 provinces and cities
nationwide. The distribution channels, branches, and transaction offices are currently under the
direct management of the Transaction Office and the Card Center, which is the final level in the
organizational structure of ACB’s management. These factors have helped ACB to strengthen its
position in Vietnam’s financial market

II. Analysis of bank performance

1. Consolidated financial statements

A detailed analysis of ACB Bank's financial statements over the five years from 2019 typically
highlights its performance. Recently, ACB has demonstrated stable growth and positive results,
providing the bank with the confidence to achieve its goals.

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 Figure 1. Balance sheet of ACB Bank from 2019 to 2023

2019 2020 2021 2022 2023

Total Asset 383,514,439 444,530,104 527,769,944 607,875,185 718,794,589

Total
354,649,080 407,981,941 481,815,498 547,614,285 646,063,036
Liabilities
Total Equity 27,765,359 35,448,163 44,900,909 58,438,663 70,955,961

*in Millions of VND

Through strategic focus on technology and service advancements, ACB Bank has experienced
robust financial growth over the past few years. The bank’s total assets nearly doubled between
2019 and 2023, climbing from 383,514,439 million VND to an impressive 718,794,589 million
VND. This growth underscores the bank’s success in expanding high-yield asset categories and
scaling its operations to meet market demands.

Moreover, total equity surged by 155.5%, rising from 27,765,359 million VND in 2019 to
70,955,961 million VND in 2023. This sharp increase reflects ACB’s prudent reinvestment
strategies and its focus on building a solid financial foundation. Altogether, these numbers tell

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the story of a bank that is not only growing but thriving, positioning itself for long-term success
with a keen eye on sustainable development and operational excellence.

*Billions of VND

Figure 2. Income statement of ACB Bank from 2021 to 2025F

Based on ACB's income statement from 2021 to the 2025 forecast, we can see significant growth
in net income. In 2021, ACB's profit before tax reached 11,998 billion VND. By 2023, this figure
is projected to rise to 20,068 billion VND, showing a substantial increase. This growth reflects
the bank’s effective capital utilization, expansion in fee income, and controlled expenses. ACB's
net interest income also experienced steady growth, from 18,945 billion VND in 2021 to 24,960
billion VND in 2023, an impressive rise driven by the bank’s efforts to optimize its credit
operations. Income from fees and commissions experienced inconsistent growth, rising from
2,894 billion VND in 2021 to 3,526 billion VND in 2022, but then slightly declining to 2,922
billion VND in 2023.

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The bank’s strong focus on expanding credit to low-risk sectors and offering tailored products
has contributed to this positive performance. This strategic approach has enabled ACB to
maintain stable growth, positioning it as one of the leading banks in terms of profitability and
operational efficiency in recent years.

2. Profitability analysis
Over the past 30 years of establishment and growth, Asia Commercial Bank has gained the trust
of millions of individual and corporate clients, establishing itself as one of the top five most
reputable and largest joint stock commercial banks in Vietnam, offering a wide range of services.
To effectively assess the bank's performance, profitability ratios are considered the best measures
for generating earnings concerning revenue. Specifically, return on assets (ROA) and return on
equity (ROE) are key factors in evaluating managerial efficiency and determining the rate of
return to shareholders, alongside other indicators.

2021 2022 2023 2024F 2025F

ROA 2. % 2. % 2. % 2. % 2. %
ROE 23. % 26. % 24. % 22. % 22. %
NIM 4. % 4. % 3. % 4. % 4. %
EPS 3,55 4,05 4,13 4,56 5,35
NPM 24. % 25. % 26. %
Figure 3: Table of Profitability Analysis

a. Return on assets ( ROA)

The return on assets (ROA) measures how efficiently a bank uses its assets to generate profits. A
higher ROA indicates better management. The table demonstrates an upward trend in ROA from
2021 to 2023, indicating improved asset management. In 2022, ROA increased significantly
from 2.0% to 2.4%. It reached a peak of 2,4% in 2023. This represents the bank's management's
ability to effectively use financial resources.

b. Return on equity (ROE)

The return on equity (ROE) measures how profitable a bank is relative to its equity. Shareholders
expect well-managed banks to maximize value and generate higher returns. A higher ROE
indicates a higher intrinsic value of the bank and greater benefits for shareholders. The data

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shows a significant increase in ROE over the years. In 2021, ROE was at 23.9%, suggesting
inefficient use of shareholder capital. However, it rose dramatically to 26.5% in 2022 and
decreased moderately in 2023 (24.8%). This indicates that Asia Commercial Bank management
has effectively utilized investment funds to grow the bank.

c. Net Interest Margin (NIM)

Net Interest Margin (NIM) is a financial metric used to measure the difference between the
interest income generated by banks or financial situations from their lending activities and the
interest they paid out to depositors, relative to their interest-earning assets. It’s expressed as a
percentage and helps assess the profitability of a bank. From Table 3, it can be easily seen that
NIM increased by 0.3% from 2021 to 2022 which is considered a positive sign. However, in the
following year, ACB’s NIM diminished from 4.3% to 3.9%. In 2023, the bank faced numerous
challenges from the economy and internal management to maintain profitability. Besides that,
forecasts indicate that ACB’s Net Interest Margin will grow slightly in 2024 and 2025.

d. Earnings per share (EPS)

EPS (Earnings Per Share) is a key financial metric that reflects the profitability attributable to
each share of a company. Investors widely use it to assess a company's financial performance on
a per-share basis. ACB’s earnings per share have a positive growth trend from 2021 to 2024.
According to KBSV's report, ACB bank's EPS experienced a significant increase of 499 VND
per share between 2021 and 2022. Subsequently, from 2022 to 2023, the EPS exhibited minor
fluctuations and rose to 4,131 VND per share. Looking ahead, it is projected that by the end of
2024 and early 2025, the EPS will experience substantial growth, reaching 4,567 VND and 5,350
VND per share, respectively. This can be seen as a positive aspect of the company's financial and
operational situation, as it predicts net profit growth and reflects the company's strong
management ability in optimizing resources, which can potentially lead to an increase in the
stock price.

e. Net Profit Margin (NPM).

Net Profit Margin (NPM) is a ratio that measures how much net income is generated from every
dollar of revenue and reflects the most important indicators of a company’s overall financial
health. This figure illustrated an upward trend and went up extremely in 2023 with 26.1%. It also

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indicated that ACB is effectively fulfilling its role in increasing income and profits for
shareholders by successfully controlling costs and maximizing profits.

3. Operations Efficiency Ratios

2021 2022 2023 2024F 2025F

LDR 95.3% 99.9% 101.0% 98.0% 100.0%

CIR 34.9% 40.3% 33.2% 33.5% 33.3%

NPL (substandard) 0.8% 0.7% 1.2% 1.3% 1.2%

Coverage ratio 210.0% 159.8% 91.4% 88.3% 102.3%

(substandard)

NPL 1.3% 1.3% 1.9% 2.0% 1.9%

(precautionary)

Coverage ratio 125.2% 90.3% 59.4% 57.4% 63.6%

(precautionary)
Figure 4: Table of Operations Efficiency Ratios

The loan deposit ratio (LDR) is a crucial metric used in banking management and supervision to
evaluate the liquidity and solvency of a credit institution. ACB Bank's LDR has shown a
consistent upward trend in recent years. According to KBSV's report, the LDR gradually rose
from 95.3% to 101.0% between 2021 and 2023. It is anticipated that by the end of 2024, the LDR
will modestly decline to 98.0% before increasing again to 100.0% in 2025. A high ratio could
indicate that the bank's lending exceeds its deposit holdings, potentially exposing it to liquidity
risk if the need arises to repay deposits without sufficient cash reserves.

The Cost to Income Ratio (CIR) serves as an indicator of each bank's operational performance,
calculated by comparing the bank's operating costs to its revenue. ACB Bank's CIR showed a
slight fluctuation from 2021 to 2023, reaching its peak at 40.3% in 2022. It is anticipated that
there will be no significant changes in the CIR at the end of 2024 and 2025. This suggests that
the bank is effectively managing its costs and revenue.

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A non-performing loan (NPL) is a loan in which the borrower fails to repay the principal and
interest on time. It is expected that both the substandard NPL ratio and the precautionary NPL
ratio will increase. It is anticipated that both ratios will peak in 2024. The substandard NPL ratio
was 0.8% in 2021, experienced a slight decline of 0.1% in 2022, and then rose to 1.2% in 2023.
It is projected to remain stable in 2025. Meanwhile, the precautionary NPL ratio stayed at 1.3%
in both 2021 and 2022. It increased from 1.3% to 1.9% in 2023 and is anticipated to reach 2.0%
in 2024 before returning to 1.9% in 2025. Increasing the NPL ratio can affect the bank's liquidity,
and reduce profits and stock prices, therefore, banks need to strengthen the management and
monitoring of loans and set aside additional provisions for risk.

The substandard coverage ratio and precautionary coverage ratio are both experiencing a
significant downward trend. In 2021, the substandard coverage ratio stood at 210.0% but has
since decreased to 91.4% in 2023. It is projected to continue declining to 88.3% in 2024 before
rebounding to 102.3% in 2025. Similarly, the precautionary coverage ratio saw a substantial
decrease of approximately 65.8% from 2021 to 2023 but is expected to rebound by around 4.2%
in 2025.

III. Analysis of bank risks

1. Credit risk

The probability that a borrower would default on a loan and stop making payments when they
are supposed to is known as credit risk. As a result, there is some credit risk associated with
every lending arrangement, which the lender must be prepared to take. When this happens, the
bank forfeits not just the loan's principle but also the interest that was due. A financial imbalance
results from the bank's continuing responsibilities to pay interest on the money it has borrowed.

Additionally, unpaid loans can interfere with the bank's credit cycle, diminishing its efficiency.
A significant level of credit risk can also undermine the bank's financial stability,
potentially resulting in insolvency and decreased depositor confidence. Consequently, this can
harm the bank's reputation and overall viability.

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 Figure 5. Credit risk

The Nonperforming Loan Ratio (Substandard) reflects the proportion of loans that are
categorized as substandard and not performing well. Over the four-year period from 2020 to
2023, this ratio has shown significant fluctuations. In 2020, the ratio was at 0.6%, indicating a
relatively low level of nonperforming loans. However, in 2021, the ratio increased to 0.8%,
suggesting a deterioration in the quality of the loan portfolio. This trend briefly reversed in 2022,
with the ratio declining slightly to 0.7%, indicating a modest improvement in loan performance.
However, in 2023, there was a sharp increase in the nonperforming loan ratio to 1.2%, signaling
a substantial rise in the number of underperforming loans. This spike could reflect broader
economic challenges or specific issues within the bank's loan portfolio, highlighting the need for
careful monitoring and management of loan quality.

The Provision for Loan Losses Ratio represents the percentage of total loans that the bank sets
aside to cover potential loan losses. This ratio is a crucial indicator of the bank's preparedness to
absorb losses from nonperforming loans. In 2020, the provision for loan losses ratio was 0.86%,
reflecting a cautious approach to potential loan defaults. In 2021, this ratio increased
significantly to 1.44%, which aligns with the rise in the non performing loan ratio during the
same year. The substantial increase indicates that the bank proactively allocated more funds to
cover anticipated losses from the higher number of nonperforming loans. In 2022, the ratio
decreased to 0.98%, and it further declined to 0.89% in 2023. Despite the decreases in the later
years, the provision for loan losses ratio in 2023 remained higher than in 2020, suggesting that
the bank maintained a conservative stance in provisioning against potential loan losses. This
trend indicates that while the bank may have considered its previous provisions adequate, it
continued to exercise caution in its financial risk management strategies.

2. Liquidity risk

Liquidity risk arises when a bank cannot meet its short-term financial obligations without
incurring substantial losses. It occurs when a bank lacks cash or assets that can be readily

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converted into cash to cover maturing debts or essential operations. For commercial banks,
liquidity risk is a critical factor that impacts the financial stability of both the bank and the
overall financial system. Banks typically acquire short-term funds from customer deposits, and
the difference in the maturity of loans and deposits creates the risk of unforeseen withdrawals.
Banks must strike a balance between holding liquid assets and maximizing profits. Holding too
many liquid assets can diminish profits due to low interest rates, but inadequate liquidity
maintenance may lead to a short-term capital shortfall.

The chart below shows ACB Bank's reserve liquidity ratio from 2019 to 2023.

Figure 6. Liquidity ratios

The provided chart illustrates the reserve liquidity ratio of ACB Bank over the past 5 years.
Upon reviewing the chart, it is evident that the reserve liquidity ratio consistently exceeds 10%
and demonstrates a declining trend. Overall, this trend is positive. During the initial 3 years, the
reserve liquidity ratio fluctuated between 22.5% and 23.6% of total assets, indicating that ACB
maintains a substantial amount of highly liquid assets, enhancing its ability to manage risky
situations. However, this also results in lower capital efficiency as the bank holds an excessive
amount of liquid assets, yielding minimal profit. From 2021 to 2022, the reserve liquidity ratio
notably decreased to 16.1% and experienced a slight increase to 16.7% in 2023. These changes
reflect significant shifts in the bank's liquidity management strategy. ACB Bank has utilized
capital more efficiently, thereby capitalizing on additional investment opportunities. Conversely,

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the reduced liquidity ratio may elevate liquidity risk for ACB Bank. In the event of a financial
crisis and mass customer withdrawals, the bank may encounter challenges in meeting payment
obligations consistently.

3. Interest rate risk

Interest rate risk poses the greatest challenge to banking operations, being one of the most
detrimental and significant risks ACB Bank faces. This type of risk arises when unfavorable
shifts in market interest rates affect the value of financial instruments, impacting both net interest
income and the bank’s equity, which represents the shareholders' investment. Similarly, ACB
Bank's management must develop a specific risk management strategy to address fluctuating
interest rates.

a. Interest-Sensitive Gap Management

Interest-sensitive gap (ISG) management is a widely used method in modern interest rate
hedging. This strategy involves assessing the timing of maturities and repricing opportunities for
both interest-earning assets and interest-bearing liabilities. When a bank is overly exposed to
interest rate risk, management will attempt to align the volume of assets with that of liabilities as
much as possible. During this time, the interest rates on liabilities can be adjusted in response to
market fluctuations. A gap arises when the amount of repriceable assets does not match the
amount of repriceable liabilities. This gap is calculated by subtracting interest-sensitive liabilities
from interest-sensitive assets. If, during any planning period (day, week, month, etc.), the
interest-sensitive assets are greater than the interest-sensitive liabilities, the bank is considered to
have a positive gap and is asset-sensitive. On the other hand, if interest-sensitive liabilities
exceed assets, the bank is classified as liability-sensitive, indicating a negative gap.

2019 2020 2021 2022 2023

Total Asset 383,514,439 444,530,104 527,769,944 607,875,185 718,794,589

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 Total 354,649,080 407,981,941 481,815,498 547,614,285 646,063,036
Liability

ISA 359,220,627 413,501,527 479,775,938 575,583,492 682,031,916

ISL 348,364,946 399,237,482 464,948,557 526,664,060 624,661,029

ISG 10,855,681 14,264,045 14,827,381 48,919,432 57,370,887

GAP ratio 2.83% 3.21% 2.81% 8.05% 7.98%

Figure 7. Interest rate risk (*million VND)

From 2019 to 2023, the Interest-Sensitive Gap (ISG) consistently remained positive (>0) and
demonstrated a gradual increase over the years, signifying that interest-bearing assets
substantially exceeded interest-bearing liabilities. The gap ratio (calculated as ISG / total assets *
100) showed significant growth, rising from 2.83% in 2019 to 7.98% in 2023. In the event of an
increase in market interest rates, the returns on interest-bearing assets are expected to surpass the
cost of capital, consequently enhancing overall income. At the same time, this indicates that the
company is becoming increasingly reliant on interest-sensitive assets and liabilities, which
heightens interest rate risk due to market fluctuations. To effectively manage this risk, the
company should implement measures such as using financial derivatives to hedge against interest
rate volatility.

b. Duration gap management

In the previous section, we explored interest rate sensitivity gap management, a tool that helps
financial institution managers mitigate the risk of losing their net interest margin (NIM) or
spread due to market interest rate fluctuations. However, changes in interest rates can also
significantly affect another aspect of a financial company’s performance: its net worth or the
value of its shareholders’ investment. Protecting the NIM from interest rate risk does not ensure

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the security of the institution’s net assets. This necessitates the use of another management
technique: duration gap management. The leverage-adjusted duration gap (DGAP) is calculated
by taking the dollar-weighted duration of the asset portfolio (DA) and subtracting the product of
the dollar-weighted duration of the liability portfolio and total liabilities (L), then dividing by
total assets (A):

DGAP = DA – DL x L/A

We will not delve into the exact statistics in this study due to the challenges in accurately
collecting and measuring the leverage-adjusted period gap data for ACB. However, it is evident
from the formula that to mitigate interest rate risk, the value of liabilities must exceed that of
assets. This is because an increase in the modified leverage period gap heightens interest rate
sensitivity. In recent years, ACB has demonstrated robust interest rate risk management. Despite
the persistent challenge of database management faced by all banks, ACB’s database systems are
designed to be synchronized, automated, and continuously updated to meet actual management
requirements.

IV. Analysis of capital management

1. What is basel I and basel II?

As noted by Investopedia, Basel I is an international banking framework introduced by the Basel

Committee on Banking Supervision (BCBS), designed to establish minimum capital
requirements for financial institutions to reduce credit risk. Banks operating internationally are
required to hold at least 8% capital based on their risk-weighted assets. Basel I divides capital
into two categories: Tier 1, known as core capital, which includes common stock, retained
earnings, certain preferred stock, and specific intangible assets minus goodwill (the excess paid
over the book value during an acquisition); and Tier 2, supplementary capital, which includes
provisions for loan losses, subordinated debt, convertible debt, and other hybrid capital
instruments with both debt and equity features.

The Capital Adequacy Ratio (CAR) is a key metric that compares a bank's equity to its risk-
weighted assets, serving as an important measure of a bank’s financial health. CAR was
developed by banking experts under the Basel framework.

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Basel I had its shortcomings, such as its lack of focus on operational risks and no benefit from
diversification. To address these, Basel II was introduced, built around three pillars: (1)
Minimum capital requirements, (2) Supervisory review, and (3) Market discipline.

To help banks implement Basel standards, the State Bank of Vietnam (SBV) introduced a legal
framework. In 2005, the SBV issued Decision No. 457/2005/QD-NHNN, setting a minimum
capital adequacy ratio of 8%, in line with Basel I. In 2010, this ratio was raised to 9% through
Document No. 13/TT-NHNN, and in 2016, Circular 41/2016/TT-NHNN further regulated capital
adequacy, bringing banks closer to Basel II standards.

2. ACB with application of Basel

Asia Commercial Joint Stock Bank (ACB) has successfully implemented key aspects of ILAAP
and Basel III standards, which have stringent requirements for capital and liquidity risk
management. This achievement further elevates ACB’s risk management standards.

Previously, ACB was among the early adopters of the three pillars of Basel II. By 2022, ACB’s
compliance with Basel III standards for liquidity risk management and capital adequacy was
confirmed by an independent review from KPMG. This review highlighted that ACB met all
critical components of the Basel III framework. Additionally, ACB has developed
comprehensive regulations for ILAAP processes, liquidity risk management policies, capital
mobilization strategies, and maintenance of liquidity buffers, aligning closely with global
standards.

Over the past 30 years, ACB has consistently focused on enhancing its risk management
capabilities, particularly in liquidity risk and overall risk management through the capital
adequacy index. The completion of Basel III and ILAAP strengthens ACB’s ability to withstand
systemic risks, manage financial crises, and flexibly adjust its capital raising plans as needed to
address liquidity risks.

3. The Capital Adequacy Ratio of ACB

Risk-Weighted Assets (RWA) are a critical tool in banks' risk management practices, enabling
them to assess the risk associated with their assets. RWA classifies assets based on their risk

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profiles, assigning lower risk weights, such as 0%, to safer assets like cash or government bonds
with high credit ratings. Conversely, higher-risk assets such as corporate loans with elevated risk
or securitized products may carry risk weights as high as 150% or even 1250%. Risk assets are
closely related to on balance sheet and off-balance sheet. On-balance sheet assets are included in
the calculation of risk-weighted assets (RWA) based on their specific risk exposure. Off-balance
sheet assets must also be taken into account, as they can create financial obligations and credit
risk, despite not being reflected on the balance sheet. Proper management of both types of assets
is crucial to ensure that the bank maintains adequate capital to mitigate risks and uphold financial
stability.The following is a pre-calculated table depicting on-balance sheet and off-balance sheet
components, which is available for review.

Figure 8: The risk-weighted assets components of ACB (million VND)

The capital adequacy ratio is a vital measure for assessing an organization's ability to handle
financial risks, especially in the banking and financial sectors. This ratio reflects the ratio of
equity capital to total assets, indicating the organization's capability to fulfill its debt
commitments and maintain operations during tough times. Usually, the capital adequacy ratio
includes components such as equity capital, reserves, and retained earnings, and can be
calculated using both tier 1 and tier 2 capital. Tier 1 capital is a fundamental indicator of a bank's
financial robustness since it comprises the bank's own capital. The minimum Tier 1 capital ratio
is 4%, which is calculated by dividing Tier 1 capital by total risk-weighted assets. On the other
hand, Tier 2 capital serves as a gauge of a bank's financial strength in relation to less dependable
forms of financial resources compared to Tier 1 capital. It encompasses hybrid instruments, loan
loss provisions and revaluation reserves, as well as retained earnings. In addition, another
indispensable component to calculate the capital ratio is risk-weighted asset (RWA) and it is

22
calculated by multiplying total assets by the corresponding risk weight. In summary, the CAR
ratio is calculated with the following formula:

The table below provides capital ratios for recent years:

2021 2022 2023 2024

CAR (%) 11.0 11.2 12.8 13

Tier 1 Capital ( %) 11.26 12.69 12.94 12.41

RWA 395.081 457.049 545.025 599.318

Figure 9: The capacity ratios

Based on the above calculations, ACB Bank has generally met Basel requirements, with its total
risk-based capital ratio (CAR) being higher than it was four years ago (Tier 1 capital ratio> 4%,
CAR> 8%). It is clear that ACB had sufficient capital, an effective business strategy, and was
able to quickly address its term debts and other risks. In 2023, ACB Bank's capital adequacy
ratio (CAR) reached a peak of 12.8%, driven by strong growth in owner's equity. However, by
2024, Vietnamese banks must meet Basel II standards for equity capital, which is challenging
given the underdeveloped state of the Vietnamese financial market. While the CAR has slightly
increased over the last two years, from 11.2% to 12.8%, it still shows a gradual upward trend.
Additionally, ACB Bank's Tier 1 Capital has generally risen between 2021 and 2024, reflecting
effective capital management and profit retention to strengthen its financial position.. The
highest Tier 1 Capital ratio was recorded in 2022 at 12.69%. This suggests that the bank may
have implemented strategies to bolster its capital base during that year. While the Tier 1 Capital
ratio remains above its 2021 level, it experienced a slight decline in 2024. This could be
attributed to various factors, such as loan growth, dividend payouts, or regulatory changes.

The RWA of ACB Bank has consistently increased over the four-year period. This suggests that
the bank has either expanded its asset base or taken on riskier assets, leading to a higher overall
risk exposure. The rate of increase in RWA appears to have accelerated in recent years,

23
particularly from 2022 to 2023. This could indicate that the bank has been actively pursuing
growth opportunities or adjusting its risk appetite.

As RWA increases, banks need to maintain a higher level of capital to meet regulatory
requirements. A higher RWA ratio can put pressure on a bank's capital adequacy if it doesn't
increase its capital base accordingly. A higher RWA suggests that the bank is exposed to a
greater level of risk. This could make the bank more vulnerable to economic downturns or credit
losses.

V. Analysis of bank loans

1. Liquidity management

To ensure its continued health and stability, a bank must effectively manage its liquidity. This
involves carefully assessing and managing its financial resources to balance both profitability
and the ability to meet its financial obligations. Liquidity refers to a bank's capacity to fulfill its
financial commitments promptly and fully. This includes meeting demands for withdrawals, loan
repayments, and other financial transactions. A liquid bank possesses sufficient readily available
funds and assets that can be quickly converted into cash.

Bank managers employ various methods to measure and manage liquidity. One common
approach involves examining the supply and demand of liquidity. By analyzing the balance
between a bank's available funds and its anticipated needs, managers can assess its overall
liquidity position. A higher supply relative to demand indicates a stronger liquidity position.
However, this method primarily focuses on future trends and may not provide immediate insights
into a bank's short-term liquidity needs. To address this limitation, the liquidity indicator
approach is widely regarded as the most effective method. This approach relies on specific
metrics to measure a bank's current liquidity position, providing a more accurate and timely
assessment of its ability to meet its financial obligations. By utilizing these indicators, bank
managers can make informed decisions to optimize their liquidity management strategies.

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 Ending period Current Current Liabilities Current Ratio
Assets

31/12/2022 80339048 458063215 0.17

31/12/2023 85454648 466782492 0.18

The current ratio has improved slightly over the past two periods, increasing from 0.17 to
approximately 0.18 in the third quarter of 2022. However, a ratio below 1 suggests that the bank
may not have enough liquid assets to cover its immediate debt obligations, potentially indicating
financial stress. While widely used, the current ratio has limitations as it only considers the
quantity of assets, not their quality or how easily they can be converted to cash. This can lead to
an incomplete picture of the bank's liquidity position, making it a less precise measure.

2. Lending management

Figure 9. Amount of loans in five years ago (billion VND)

a. Overview

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The loan products of ACB Bank cover a wide outreach to retail and SME segments. Its corporate
loans involve services from working capital financing and project financing to trade finance and
syndicated loans, each carefully crafted for various larger corporate client needs.
Due to ACB’s annual reports in the recent five years, 2019 to 2023, we collect the data on total
loans and form the chart below:
The report on the loan amounts of ACB Bank from 2019 to 2023 shows a strong upward trend in
lending activities. Specifically, the total outstanding loans to customers increased from 226.165
trillion VND in 2019 to 482.245 trillion VND in 2023.
This growth reflects the positive recovery of the economy as well as ACB's efforts to expand its
market share and improve its financial services. Notably, from 2021 to 2022, there was a rapid
increase with another spike of 52.806 trillion VND.
Such continuous increase may be interpreted as a result of multiple factors, including better
lending strategies, improved loan approval processes, and financial products that seem to
diversify and meet the increasing needs of the customers. Especially in a highly competitive
market and post-pandemic recovery of borrowing needs, ACB has further ascertained its position
on this list of leading banks in Vietnam, contributing to the development of the whole economy.

b. Corporate Loans

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From 2019 to 2020, ACB Bank's total loans jumped by 36% from 226.2 trillion VND to 308.5
trillion VND due to its strategic action of enhancing lending products and services that had
allowed easy access for businesses in a fast-changing economic environment. The trend of
growth continued in 2021 when corporate loans expanded by 19%, while loans to SMEs grew by
16%. This is an illustration of ACB's commitment to relationship building with business
customers and the capital required to finance growth and operational stability.

In 2022, growth rates moderated slightly, but the bank still recorded strong increases in corporate
loans, up 14%, and SME loans, by 12%. This means that all was done with a strategic view to
ensuring quality lending, hence maintaining asset quality while at the same time ensuring
business development. With corporate loans up 19% and SME loans up 16% in 2023, strong
growth resumed, boosting the total outstanding credit amount to 482.2 trillion VND. The
improvement in the overall state of the economy and ACB's proactive customer service and
support are responsible for this turnaround.

ACB Bank has implemented a number of strategic initiatives to drive business loan growth,
including competitive interest rates and an efficient process of loan approval; it also applies
customer-centric approaches to meet the diversifying needs of its corporate clients. It has also
affirmed the bank's commitment to FDI customers through specialized services in trade finance,
project finance, and risk management solutions.
Looking ahead, ACB aims at credit growth of 16% in 2024, which is in line with the forecasted
growth of the Vietnamese economy. The strategy of the bank does not lie only in growing the
loan portfolio but also in maintaining a healthy balance sheet by keeping the NPL ratio
controlled. With the development prospects in both the corporate and SME sectors, ACB can
certainly take a top position in the Vietnamese banking system and thus contribute to economic
growth in Vietnam.
This is a comprehensive focus on business loans, and ACB Bank really acts as a necessary
partner for businesses looking to find solutions in financing; this reinforces its position as one of
the leading banks in Vietnam.

c. Individual Loans
ACB (Asia Commercial Bank) has established itself as a key player in the personal loan market,
offering a diverse array of financial products tailored to meet the varying needs of customers. Its

27
offerings include consumer loans, which cater to individuals looking to finance personal
expenses such as travel, education, or healthcare. These loans are designed with flexible
repayment options, making them appealing to a broad audience. Additionally, ACB provides
home loans that support customers in purchasing, renovating, or building residential properties.
With competitive interest rates and extended terms, these loans serve as vital tools for those
investing in real estate.

Unsecured loans, another cornerstone of ACB’s offerings, allow borrowers to access funds
without the need for collateral, relying instead on their creditworthiness. This feature increases
accessibility for many potential borrowers, particularly those who may not have significant
assets. Furthermore, ACB's credit card products enhance financial flexibility, providing
customers with immediate purchasing power.

Currently, interest rates for ACB's personal loans range from 8% to 12% per annum, positioning
the bank competitively within the market. This range can vary based on several factors, including
the loan amount and the borrower’s credit profile. ACB has experienced notable growth in its
lending portfolio, driven by increased consumer confidence, targeted marketing initiatives, and
the implementation of digital banking solutions that simplify the application process.

In summary, ACB’s robust suite of personal loan products, combined with attractive interest
rates and a focus on customer needs, positions the bank for continued growth in the evolving
financial landscape. The bank's ability to adapt to market trends and customer preferences will be
crucial as it seeks to maintain its competitive edge and expand its footprint in the personal
lending sector.

CONCLUSION

ACB Bank has contributed to the growth of the most civil banking structure in Vietnam for a
better part of its existence and is one of the best Banks existing in Vietnam currently, with
effective and long lasting business strategies. For this reason the bank has continued to invest in
technology especially with respect to digitizing its services, improving convenience, speed and
security for its customers. Another differentiator for ACB is its stringent albeit efficient risk

28
management approach, which allows for financial stability and strength in all economic climates.
This is mirrored in its healthy financial figures which indicates the banks resolve to promis for
the flow of capital and improve service delivery without making losses to the stakeholders. The
upsides however, are that ACB has dangerous challenges in the very near future stemming from
ever intensifying local and external competition. Such pressure and dynamics are desirable for
internal growth, however, in order to fully embrace them, ACB will have to transform and
reinvent itself in the scope of technologies, business processes, and organizational structure,
which will cater for the changing demands of the market but also retain intact values and image
built over the years. Starting off with such a good base and because the bank possesses
qualitative resources for further innovations, ACB has great chances to keep and enhance its
bank’s supremacy in the banking sector of Vietnam in the years to come.

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