Hanoi University

FACULTY OF MANAGEMENT AND TOURISM

____🙢🕮🙠____

BANK MANAGEMENT
Military Commercial Joint Stock Bank

Group: Flyhigh
Class: Tutorial 02
Tutor: Nguyễn Thị Minh Hằng
Students: Nghiêm Đàm Khánh Vân - 2004040118
Nguyễn Thị Vân Anh - 2004040010
Nguyễn Trường Thương - 2004040100
Trần Thị Thu Hương - 2004040051
Date: 12th November, 2022

Hanoi, 12th Nov 2022

 PEER EVALUATION FORM

Task given Task given Mark

Team members ID
(written form) (%) perform
- Task 1: Introduction to

Nghiêm Đàm bank; Main services of

2004040118 100%
Khánh Vân bank
- Task 2: Analysis of
bank performance
- Task 3: Analysis of
Nguyễn Thị
2004040010 bank risks: Interest rate 100%
Vân Anh
risks, Liquidity risks
- Task 4: Analysis of
bank capital: risk-

Nguyễn Trường weighted assets

2004040100 100%
Thương components, CAR
ratios, Tier 1, 2 Capital
- Task 5: Analysis of
bank loans: Corporate
Trần Thị
2004040051 100%
Thu Hương loans, Individual loans
(Bad debt level)
 TABLE OF CONTENTS

ABSTRACT...............................................................................................................................1

I. INTRODUCTION .................................................................................................................2

II. STRUCTURE OF MB BANK .............................................................................................2

III. PERFORMANCE OF MB BANK .....................................................................................7

1. Consolidated financial statements .........................................................................................7

2. Profitability analysis .............................................................................................................9

3. Assets & Fund Management Efficiency .............................................................................. 12

IV. REPORT ON INTEREST RATE RISK MANAGEMENT ............................................ 14

1. GAP Analysis .................................................................................................................... 14

2. Management tool ............................................................................................................... 16

V. REPORT ON CAPITAL .................................................................................................... 18

1. Basel I ............................................................................................................................... 18

2. Basel II .............................................................................................................................. 20

VI. LIQUIDITY AND LENDING MANAGEMENT ............................................................ 22

1. Liquidity management: ...................................................................................................... 22

2. Lending management......................................................................................................... 25

VII. CONCLUSION: .............................................................................................................. 27

REFERENCES ........................................................................................................................ 28
 ABSTRACT

Military Commercial Joint Stock Bank (MB), is a Joint Stock Commercial Bank
under the Ministry of Defense established in 1994. Currently, MB is considered as a
stable, reliable financial institution with safe and sustainable development and a high
reputation. By 2021, MB Bank has now become one of the most prestigious banks in
Vietnam with its success in managing and maintaining banking-related operations.
So how are the profitable business activities and management practices of this bank
carried out? This report will provide important information and analysis about MB
Bank in three recent years: 2019, 2020 and 2021. The article will be based on the
following aspects: Structure of the bank, financial performance report, interest rate
risk management, capital management, the liquidity and lending management in a
Consolidated report.

1
I. INTRODUCTION

Military Commercial Joint Stock Bank (MB), is a joint-stock commercial bank of Vietnam, an
enterprise under the Ministry of National Defense established in 1994 with a charter capital of
VND 20 billion. By 2018, MB Bank's charter capital had reached 21 trillion VND and MB Bank's
total assets were more than 300 trillion VND. After nearly 25 years of construction and growth,
MB has grown stronger and stronger, becoming a multi-functional financial group with its parent
bank MB in Vietnam & abroad (Laos, Cambodia) and member companies in many fields such as
securities, insurance, consumer finance, fund management, asset management, life insurance.
Along with many effective business activities, MB has been asserting its brand and reputation in
the financial services industry in Vietnam. MB has diversified product and service activities on
the basis of outstanding risk management, modern information technology infrastructure, and
strongly develops and expands operations in new market segments besides the market tradition of
a commercial bank. From the very beginning, MB had a vision to make its bank the most
convenient bank for customers. MB's mission was also shaped from the beginning as "For the
development of the country, for the benefit of customers". Because of setting goals, vision and
mission from the beginning, MB's business activities are very effective, thereby showing prestige
in the financial industry in Vietnam. During its operation, Military Bank has achieved many great
achievements, such as: Top 10 prestigious Vietnamese commercial banks in 2018; MBBank App
is the only digital banking App for customers in Vietnam to win the title of “Sao Khue 2019”; Top
40 most valuable brands in Vietnam… Currently, MB is considered as a stable, reliable financial
institution with safe and sustainable development and a high reputation. This report, with the
purpose of giving an analysis of Military Bank, will discuss the bank performance in financial
activities, the risk management, the capital management, and the bank loans in recent years.

II. STRUCTURE OF MB BANK

1. Overview

MB Bank is a strong financial institution in terms of management, transparency in information,

pioneering in providing services to fulfill its mission of being a solid and reliable financial partner
and organization. During the process of formation and development, the bank has always received
the enthusiastic support of agencies and units inside and outside the military. The bank is always
interested in customer experience, therefore constantly improving technology, improving product
and service quality to best support customers with a variety of products and services that can be
mentioned. such as: MB bank savings deposit products; Electronic banking services; Mortgage

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loan products; MB Bank life insurance… MB Bank has well promoted the glorious tradition of
the Vietnamese people's army soldiers on the economic development front.

2. Organizational Structure

Figure 1: Organizational Structure Model

In terms of organizational structure, MB Bank consists of 3 main divisions: Board of Directors

(BOD), Supervisory Board and Board of Management (BOM)
- Board of Directors (BOD): The highest responsible authority of MB Bank, with the
authority to make decisions on matters concerning MB's medium and long-term development
guidelines and orientations, investment programs, and operational issues. The Chairman of the
BOD is Mr. Le Huu Duc who has been holding this position since 2011. Besides, BOD has 3
Vice Chairmans, 6 members, and 1 independent member (Annual report, 2021).
- Supervisory Board: Acting as a supervisory agency for MB's activities in order to
accurately assess MB's business activities and financial status. The Supervisory Board conducts
internal audits, controls and evaluates the observance of the provisions of the Law, internal
regulations, charter and resolutions and decisions of the General Meeting of Shareholders and
the Board of Directors. Tasks and powers of the Control Board shall comply with the provisions
of the charter and the law. The Head of the Supervisory Board is Ms. Le Thi Loi who has been
elected in 2019. Ms. Nguyen Thi An Binh is the Deputy Head of the Supervisory Board and 3
other members (Annual report, 2021).
- Board of Management (BOM): As the management agency of MB, it has full authority on
behalf of MB to decide on issues related to the purposes and interests of MB, except for matters

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 falling under the authority of the General Meeting of Shareholders. They are also in charge of
Assets and Liabilities Management, Risk Management, Management of Capital, etc. In 2017,
Mr. Luu Trung Thai was appointed Chief Executive Officer of MB Bank. The development of
MB Bank is also aided by 5 Deputy Executive Officers, 1 Chief Financial Officer, and 5 other
members (Annual report, 2021).
MB Bank has a wide range of activities, as of December 2021, MB's network system has 1 main
office at MB building No. 18 Le Van Luong, Trung Hoa Ward, Cau Giay District, Hanoi city,
Vietnam and 300 transaction points licensed to operate, including 296 domestic transaction points,
4 foreign transaction points.

3. Ownership Structure

At the end of December 2021, the total number of shares of MB bank is about 3,778,321,777,
which is higher than in previous years such as in 2020 is 2,798,756,872 shares and in 2019 is
2,372,732,280. In general, the number of shares that shareholders are holding tends to increase and
increase quite high in the last year. In which, Foreign shareholders hold the least shares of 0.13%.
The number of shares held by Domestic individual shareholders less than 5% and Foreign
shareholders holding over 5% is nearly equal, 22.3% and 23.11% respectively; Domestic own
shareholders less than 5% of shares is 15.11%. Finally, Domestic shareholders hold over 5%,
which holds nearly half of MB's total shares (39.35%).

Ownership Structure of MB Bank in 2021

0.13%
22.30%
Foreign shareholders

Domestic individual shareholders own less

39.35%
than 5%
Foreign shareholders hold over 5%

Domestic shareholders own less than 5%

of share
22.30% Domestic shareholders

15.11%

Figure 2: Ownership Structure of MB Bank in 2021

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 4. Subsidiary

With the core purpose of productively providing assistance services and reducing the workload in
the bank, MB Bank's subsidiaries were established to help the corporation effortlessly operate,
expand stronger and do business more efficiently. In addition, subsidiaries can also benefit from
the Group's interests in their respective fields. MB Bank consists of six subsidiaries that mostly
focus on the fields of investment, finance, and insurance. By 2021, the total revenue of subsidiaries
reached VND 18,221 billion, up 43% year-on-year (according to the Annual Report 2021).
In the field of financial services, Military Bank Assets Management Company Limited (MB AMC)
is the first subsidiary in which MB Bank owns 100% of the charter capital. Carrying the obligations
of debt management and asset exploitation, playing an important role in MB Bank's credit activities
such as debt recovery, asset appraisal consulting, asset management, and exploitation. In 2021,
MBAMC achieved impressive profit growth, equivalent to 1.7 times of pre-tax profit compared to
2020 and a 17% gain in debt settlement sales of MB (Annual report 2021).

The second is MB Capital Management Joint Stock Company (MB Cap) with 90.77% of charter
capital contributed by MB. A part of the investment sector, its main services are investment fund
management, portfolio management, and investment advice. MB Cap not only achieved
outstanding achievements in the process of building and developing Vietnam's stock market in the
2017-2021 period, but also ranked 6th in terms of profit before tax and stood out with its total net
increase assets under management to VND 4500 billion (December 31, 2021), 3.3 times higher
than a year ago (Annual report 2021).

The next is MB Securities Joint Stock Company (MBS) with 79.42% of the total charter capital
held by MB Bank, holding the function of investment brokerage and securities trading, in 2021
MBS reached a large level of revenue and profit before tax, 2.2 times higher than in 2020. In
addition, the company also achieved the position of the top 7 largest stock brokerage market share
and the top 5 largest derivatives market share (Annual report 2021).

The following is Military Insurance Corporation (MIC) in which MB holds 68.37% of charter
capital. Pertaining to one of the company's core areas, the non-life insurance business continues to
grow gradually following the trend. According to the Annual Report 2021, MIC achieved many
noteworthy figures such as top 5 insurance market shares, top 10 reputable insurance companies,
and top 500 fastest-growing enterprises in Vietnam... In recent years, MIC has also maintained an
ROE of approximately 14% and is among the market leaders.

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The fifth with 61% of MB Bank's charter capital, MB Ageas Life Insurance Co., Ltd (MBAL) is
also engaged in insurance business such as life insurance, health insurance... Achieved many
degrees prestigious awards and commendations in 2021, moreover, it also significantly grew 68%
in premium revenue compared to the previous year (Annual report 2021).

The last one is MB Shinsei Finance Limited Liability Company (MS) owned by Military
Commercial Joint Stock Bank (MB Group) and Shinsei Bank (Japan) each holding half of the
charter capital, operating in the consumer finance market and 2021 has an impressive breakthrough
with pre-tax profit is 1.9 times higher than in 2020 (Annual report 2021).

5. Main services of MB Bank

After many years of establishment and development, MB Bank has become an organization, a
solid and reliable partner for all customers with a variety of services. In particular, MB always
focuses on five main services including: bank cards, e-banking, savings, loan products and life
insurance.

First, a credit card that MB Bank offers both domestically and internationally with a variety of
products for individual or corporate customers such as MB Visa Platinum credit card with a limit
of VND 80 million to VND 1 billion, MB JCB Sakura Gold international credit card from 51 to
100 million VND, MB JCB Sakura Platinum international credit card with no limit, etc.

In addition, MB Bank also provides debit cards for both international and domestic including MB
Visa international debit card, BankPlus domestic debit card, Active Plus domestic debit card, etc.

Besides, It also provides customers with prepaid cards, which are Bankplus Mastercard
international prepaid cards and NewsPlus prepaid cards.

Regarding e-banking services, MB Bank has always been a pioneer bank in the application of
modern technology to banking transactions such as MB Bank app, MB Bankplus, MB SMS
Banking, MB Internet Banking. E-banking services support customers to make online transactions
quickly and conveniently.

Thirdly, for current savings products at MB bank, there are 12 products that can meet all deposit
needs of all customers. The advantage of these products is that the procedure is simple, especially
with a high deposit interest rate of up to 7.4% for term deposits. Customer's deposit term is very
flexible from 1 week to 60 months or no term.

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Another important thing, a loan at MB bank is also one of the products of MB bank that many
customers choose and have placed their trust in MB Bank. Customers can choose 1 of 2 services:
unsecured loan or mortgage loan. Supporting low-interest rates and simple procedures are the
outstanding advantages of MB today, making more customers choose MB bank's products.

Last but not least, MB Bank provides a number of life insurance packages for customers such as
illness, accident, study, etc. MB's life insurance is the main insurance package from the bank, so
customers will not worry about fraud and avoid panic when there are now too many foreign
insurance companies entering the Vietnamese market.

III. PERFORMANCE OF MB BANK

1. Consolidated financial statements

Forward-thinking Military Commercial Joint Stock Bank (MB) ended its fiscal year 2021 with a
positive profit outlook and explored fresh sources of growth despite the pandemic woes pressuring
the industry.
a. Income Statement

Figure 3: Income Statement of Military Commercial Joint Stock Bank from 2019 to 2021

According to the consolidated income statement from 2019 to 2021, net interest income increased
significantly. Net interest income increased over the years 2019, 2020 and 2021 is 17,999.997
million VND; 20,277,795 million VND and reached a peak of 26,199,554 million VND

7
respectively. As we know, an increase in the net interest income of a business will increase the
profit along with the increase in the capital of the shareholders.

In 2021, MB Bank's net income before tax is VND 16,527 billion, an increase of more than 50%
compared to the previous 2 years. MB recorded a record profit of more than 16,500 billion and
usurped the "runner-up" position in the profit of VPBank's private banking group. So, MB Bank
is in the top group of commercial banks in terms of efficiency and quality indicators. To gain this
result, MB Bank has used capital effectively, raised fee income and reduced costs well.

Figure 4: Net Income Before Taxes of Vietnamese banks (2020-2021)

b. Balance Sheet

Obviously, in 2021, the balance sheet shows the strong development of MB in the financial market.
Indicators of total assets increased significantly, in contrast, bad debts were managed at good
value, bad debt ratio decreased from 1.09% in 2020 to 0.90% in 2021.

Figure 5: Balance Sheet of Military Commercial Joint Stock Bank from 2019 to 2021

Specifically, total assets increased slightly from VND 411,487,575 million VND in 2019 to VND
494,982,162 million VND in 2020 and peaked in 2021 with VND 607,140,419 million VND.

8
Thus, total assets of MB Bank in 2021 increased by 22.7% over the previous year, exceeding 5%
of the plan and entering the top 4 listed banks. The total capital of this bank also increased
remarkably, from 47,906,504 million VND in 2020 and reached 59,574,835 million VND on
December 21, 2021. This result shows that MB Bank has effectively implemented its capital
mobilization expansion plan across all potential resources, especially domestic investors (holding
nearly 40% of total of shares). For shareholders, the bank always protects their interests,
transparent information, closely adheres to and cooperates for stable and sustainable development.
Along with this success, MB Bank has also set the next goals in the coming years in the direction
of sustainable development, legal compliance and modernization of its services.

2. Profitability analysis

a. ROA
ROA is calculated by dividing a company's net income by its total assets on average. The result is
expressed by a percentage. A company's net profit is found at the bottom of the income statement,
and its assets are found on the balance sheet.

𝐍𝐞𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
ROA =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

According to the annual report of MB Bank 2021, ROA is 2.09% in 2019, 1 year later ROA
dropped to 1.90%. In 2021, the percentage increased sharply by 0.5% compared to 2020, reaching
2.40%. This figure is significantly higher than the 0.96% ROA for the entire banking system by
2020. The high ROA demonstrates that MB has used assets wisely, has good business policies,
and makes effective asset investments, such as putting customers as the center, using modern
technology to serve individual and corporate customers. At the end of 2020, MB is one of the first
banks to meet Basel II standards, using many credit risk measurement models, and putting
customers as the center. ROA improved, MB Bank maintains the top ranking with only effective
target ROA( top 1 is Techcombank has ROA at 2.8% in 2021). Increased credit, NIM expansion,
and a reduction in provision expenses all contributed to the rapid growth of ROA.

2019 2020 2021

ROA 2.09% 1.90% 2.40%

ROE 21.79% 19.13% 23.49%

ROE/ROA 10.42 10.06 9.79

Table 1: ROA and ROE of Military Commercial Joint Stock Bank from 2019 to 2021

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 b. ROE
Return on Equity (ROE) is the percentage of a company's annual return (net income) divided by
the value of its total shareholders' equity.

𝐍𝐞𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
ROE =
𝐓𝐨𝐭𝐚𝐥 𝐄𝐪𝐮𝐢𝐭𝐲

Similar to the ROA ratio, the period of three years from 2019 experienced a fluctuation of ROE.
In 2020, ROE slightly decreased by less than 1% compared to 2019. According to the State Bank's
2020 report, the overall ROE of the banking system is 12.11%, and MB bank surpassed and
reached 19.13%. By the end of 2021, MB is in the top 10 banks with the largest ROE in the country
and its ROE reached 23.49%, up 4.4% compared to 2020 (Annual report 2021) because of strong
growth in interest and similar income, expanding NIM, and increased non-interest income. “A
return on equity (ROE) of 20+% is considered good” (Yuanta), so MB Bank is in a state of
effective use of equity capital. In the coming three years, MBKE predicts that being able to
maintain NIM and spare margin would enable MB to keep ROE over 20%.

According to Yuanta, for the financial and banking industry, it is normal for financial leverage
(ROE/ROA) to remain at 10 or 15 because the bank's assets account for 70% of customers' savings.
It can be easily seen that the financial leverage of MB gradually decreased over the years from
10.42 (in 2019) to 9.79 (in 2021). It demonstrates that MB has an effective activity both before
and following the Covid-19 pandemic and tends to get better.

(vietnambiz.vn)

Figure 6: ROA and ROE of MB Bank between 2020 and 2021 and ROE of top 10 banks

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Having safe levels of ROA and ROE ratios in terms of efficiency and quality indices, MB ranks
among the top commercial banks.

c. Net interest margin (NIM)

𝐍𝐞𝐭 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐈𝐧𝐜𝐨𝐦𝐞
NIM =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

2019 2020 2021

Net interest income (VND million) 17,999,997 20,277,795 26,199,554

NIM (%) 4.37% 4.10% 4,32%

Table 2: Net Interest Income and NIM of MB Bank (2019 – 2021)

Net Interest Margin (NIM) reflects the growth rate of interest income relative to the growth rate of
expenses. The NIM ratio is also a measure of efficiency as well as profitability, indicating the
ability of the board of directors as well as the bank's staff to maintain the growth of revenues
relative to the growth of accounts receivable costs. MB Bank's total assets have an uneven growth
rate (slightly increased from 2019 to 2020 and very strongly in 2021). At the same time, net interest
income increased significantly by VND 3 trillion in 2019-2020 and VND 6 trillion in 2021.
Changes in these figures resulted in fluctuations in NIM from 4.37% in 2019 down to 4.10% in
2020, then up to 4.32% in 2021. These encouraging signs show that MB Bank is continuing to do
well in turning a profit on capital loans. Obviously, the bank operator in 2021 has had many
advantages.

d. Earnings per share (EPS)

2019 2020 2021

Earnings per share (EPS) 2,758 2,776 3,362

Table 3: Earnings per share of MB Bank (2019 – 2021)

Earnings per share (EPS) is a company's net profit divided by the number of common shares it has
outstanding. EPS indicates how much money a company makes for each share of its stock and is
a widely used metric for estimating corporate value. In 2019, MB's EPS reached VND 2,758, listed
in the top 10 banks with the best EPS in Vietnam. In 2020, the index increased slightly to 2,776
VND. In 2021, this index increased positively to VND 3,362. As a result, banks have higher profits
compared to stock prices and this is also a good signal for profitability analysis.

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 e. Net profit margin
𝐍𝐞𝐭 𝐢𝐧𝐜𝐨𝐦𝐞
Net profit margin =
𝐓𝐨𝐭𝐚𝐥 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐑𝐞𝐯𝐞𝐧𝐮𝐞𝐬

2019 2020 2021

Net income (VND million) 8,069 8,606 13,221
Total operating revenue (VND million) 24,650 27,362 36,934
Net profit margin (%) 32,73% 31,45% 35,79%
Table 4: Net profit margin of MB Bank (2019 – 2021)

Net Profit Margin (also known as “Profit Margin” or “Net Profit Margin Ratio”) is a financial ratio
used to calculate the percentage of profit a company produces from its total revenue. This ratio
decreased slightly from 2019-2020 and tends to increase significantly in 2021 at 35.79%.
Additionally, it demonstrates the bank's capacity to raise profits and shareholder returns through
good cost and revenue control.

3. Assets & Fund Management Efficiency

By observing efficiency ratios of asset utilization and equity multipliers, investors and customers
can gain insight into how a bank generates profits and understand its finances.

2019 2020 2021

Assets Management Efficiency (Assets utilization) 5.99% 5.53% 6.08%

Fund Management Efficiency (Equity multiplier) 10.32x 9.88x 9.72x

Table 5: Asset & fund management efficiency ratio of MB Bank (2019 – 2021)

a. Assets Management Efficiency (Assets utilization)

The degree of asset utilization indicates the extent of efficiency in using assets to generate earnings
and compares a company's efficiency over time. It calculates the total revenue earned for every
dollar of assets a company owns by dividing total operating revenues by total assets, it is described
as follows:
𝐓𝐨𝐭𝐚𝐥 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐑𝐞𝐯𝐞𝐧𝐮𝐞𝐬
Assets utilization =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬

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 Total Operating Revenues and Total Assets of MB Banks
(2019 - 2021)
700,000,000
36,934,498
27,362,173
600,000,000

24,650,448 500,000,000
Axis Title

400,000,000

300,000,000

200,000,000

100,000,000

0
2019 2020 2021
Total Assets 411,487,575 494,982,162 607,140,419
Total Operating Revenues 24,650,448 27,362,173 36,934,498

(Unit: VND trillion)

Figure 7: Total Operating Revenues and Total Assets of MB Banks (2019 - 2021)

According to Table 5 above, it can be seen that the efficiency of asset management of MB Bank
has generally tended to increase in the last 3 years. In detail, total assets in 2020 had a remarkable
leap, in 2019 from VND 411 trillion to nearly VND 495 trillion in 2020 and up to VND 607 trillion
in 2020. Besides, total operating revenue also considerably soared from VND 24 trillion in 2019
and then sharply shot up to nearly VND 37 trillion two years later (half times in 2019). Because
of this positive growth that led to MB Bank's asset index in the past 3 years reaching as expected.

b. Fund Management Efficiency (Equity Multiplier)

The equity multiplier is an evidently measure of financial leverage that measures a company's use
of debt to purchase assets. It is calculated by dividing the total asset value of a company by the
total equity of its shareholders, described as follows:

𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
Equity Multiplier =
𝐓𝐨𝐭𝐚𝐥 𝐄𝐪𝐮𝐢𝐭𝐲

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 Fund Management Efficiency of MB Bank
(2019 - 2021)
70,000,000 10.4
62,486,023
10.3
60,000,000
50,099,495 10.2
50,000,000 10.1
39,885,814 10
40,000,000
9.9
30,000,000
9.8

20,000,000 9.7
9.6
10,000,000
9.5
0 9.4
2019 2020 2021

Total Equity Fund Management Efficiency

(Unit: VND trillion)

Figure 8: Fund Management Efficiency of MB Banks (2019 - 2021)

As can be seen in Figures 7 and 8, both total assets and equity increased from 2019 to 2021, while
the fund management ratio decreased year-on-year, especially falling significantly to 9.72 in the
year 2021. By definition, a low equity multiplier means the company is less dependent on debt.
Therefore, this decline reflects positively on the bank and shows that MB Bank is doing well in
terms of liquidity and profitability.

IV. REPORT ON INTEREST RATE RISK MANAGEMENT

1. GAP Analysis

a. Dollar GAP

2019 2020 2021

RSA 373,648,695 444,878,337 557,911,864

RSL 349,614,319 412,967,730 551,139,463

$GAP 24,034,376 31,910,607 46,772,401

(Unit: VND million)

Table 6: Dollar Gap of MB bank 2019-2021

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Dollar Gap ($GAP) means the difference between total interest-sensitive bank assets (bank loans
by banks to customers) and total interest-sensitive bank liabilities (customer’s deposit at the bank).

Dollar Gap ($Gap) = Interest-sensitive Assets – Interest-sensitive Liabilities

In recent years, the dollar gap of MB bank has always grown positively, continuously increasing
in the period of 2019-2021 (Dollar GAP > 0). This means that the bank has more loans than
deposits. It is important to remember that a financial institution’s gap size is a good predictor of
how changes in interest rates will affect its net interest income. An increase in market interest rates
causes an increase in net interest margins, and vice versa, according to a positive MB bank gap.
Thus, in case the general interest rate of the whole market increases, the net interest income (NII)
of the bank will also increase. Conversely, if the overall interest rate of the market decreases (as
in the period of the 2020: outbreak of covid 19), the dollar gap will be preferred <0 because both
RSA and RSL values will decrease but because RSL is larger, it will drop more and RSA will drop
less.

In short, a positive dollar gap or negative dollar gap will be a bank’s strategy based on fluctuations
in general interest rates. However, for the negative gap, banks will have smaller assets than
liabilities, so they will face higher risks.

b. Duration Gap
“Duration is a value- and time-weighted measure of maturity that considers the timing of all cash
inflows from earning assets and all cash outflows associated with liabilities”. It gauges the typical
age of a stream of anticipated future cash payments (such as the payment streams that a financial
firm expects to receive from its loans and security investments or the stream of interest payments
it must pay out to its depositors). Effectively, duration measures how long it typically takes to
recoup the money invested.

Duration gap = Dollar-weighted duration of asset portfolio – Dollar-weighted duration of

liability portfolio

However, a financial institution that wants to seek to reduce the impact of interest rate fluctuations
would need to account for leverage because the dollar volume of assets typically exceeds the dollar
volume of liabilities (otherwise, the financial firm would be insolvent):

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 𝐓𝐋
Leverage-adjusted duration gap = DA – DL x
𝐓𝐀

DA: Dollar-weighted duration of asset portfolio

DL: Dollar-weighted duration of liability portfolio

TL: Total liabilities

TA: Total assets

In general, the duration gap is similar to the dollar gap, which is an indicator of the link between
RSA and RSL cash flows. Thereby, evaluating the change of assets and liabilities of MB bank
according to the change in interest rates. Approaching the duration gap study was challenging
because the MB's asset and liability durations were not disclosed. However, it can be inferred that
MB bank's duration gaps were negative in 2019 and 2020 based on the increasing amount of MB's
equity capital and the declining interest rates over the previous years.

2. Management tool

a. Change in Net Interest Margin

Net interest margin (NIM) is a measurement comparing the net interest income a financial firm
generates from credit products like loans and mortgages, with the outgoing interest it pays holders
of savings accounts and certificates of deposit (CDs). The NIM, which is a profitability metric
expressed as a percentage, provides an approximation of the chance that a bank or investment
business would prosper over the long term. By offering insight into the profitability of their interest
revenue vs their interest expenditures, this indicator aids potential investors in making an informed
decision about whether or not to participate in a specific financial services organization. A positive
net interest margin suggests that an entity operates profitably, while a negative figure implies
investment inefficiency. NIM is calculated by taking the Dollar gap multiplied by the change in
interest rate:
∆NIM = $GAP × ∆i

The interest rate gap measures a firm's exposure to interest rate risk. The interest rate gap helps
determine a bank or financial institution’s exposure to interest rate risk. A negative gap, which is
an interest rate gap that is less than one, is when rate-sensitive liabilities are greater than rate-
sensitive assets, while a positive gap, which is greater than one, is the opposite.

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 2019 2020 2021
Dollar gap VND 24,034,376 VND 31,910,607 VND 46,772,401
Interest rate 6.00% 5.00% 6.90%
Change in IR 0% -1% 1.9%
Change in NIM VND 0 - VND 319,106.07 VND 888,675.619
(Unit: VND million)
Table 7: Change in Net Interest Margin of MB Bank (2018 – 2020)

Looking at the above statistics table, in general, within the 3 years, the Dollar gaps are positive
while interest rates tend to decrease from 2019-2020 and increase sharply in 2021. Specifically, in
2020, MB Bank witnessed a significant increase in dollar spreads (31,910,607) while interest rates
fell from 6.25% to 5.00%. This caused NIM to decrease by VND 319,106 million. In 2021, the
dollar spread grew significantly along with a sharp increase in interest rates of 1.9%, leading to a
sharp increase in the NIM ratio.
In general, when banks experience a positive Dollar gap, there are two methods to protect NIMs
against the movement in interest rates which are increasing interest-sensitive liabilities or reducing
interest-sensitive assets. Specifically, in 2019, the State Bank approved MB Bank to meet Basel II
standards, stipulating capital adequacy ratios for banks and foreign bank branches. According to
this decision, MB is the pioneer bank to meet Basel II standards in the Vietnam market. The State
Bank's approval for MB confirms that the bank's risk management capacity has met strict
international standards in the financial sector, reaching parity in terms of governance quality with
developed countries. developed in the region and become one of the commercial banks that are
not only dynamic in business but also safe in operation and meet advanced governance standards.
An example of this is MB Bank's equity which has grown by VND 22,600,209 million from 2019
to 2021. Overall, the changes in interest rates hurt the Net Interest Margin of MB Bank during the
3 years from 2019 to 2021. To fix this problem, MB Bank had conducted some solutions including
increasing interest-sensitive liabilities and reducing interest-sensitive assets.

b. Change in Net Worth

Net Worth will know the performance of the business. Based on increasing or decreasing changes
reflecting whether the bank is profitable or losing money. The bank bears the loss if the loss
exceeds the Net Worth.

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 2019 2020 2021

Total Assets 411.487.575 494.982.162 607.140.419

Total Liabilities 371.601.761 444.882.667 544.654.396

Net Worth 39.885.814 50.099.495 62.486.023

Interest Rate 6.00% 5.00% 6.90%

Change in Interest Rate 0% -1% 1.9%

(Unit: VND million)

Table 8: Net Worth and Interest Rate of MB Bank (2019 – 2021)

The formula below depicts the relationship between the elements that cause a change in NW, which
is the valuation of the shareholders' investment across the institution.
∆𝐢
∆ NW = -DGAP × + TA
𝟏+𝐢

MB Bank had a negative duration gap over the last three years, as shown above. In this case, if
interest rates rise, liabilities will fall in value faster than assets, while net worth will increase, which
means bad debt will decrease and vice versa. Because changes in interest rates are positively
related to changes in NW. In 2021 when the interest rate increased by 1.9% compared to 2020,
MB's total assets increased more than 100 million, creating a long distance compared to the total
liabilities. And MB's NW has been positive over the last three years. It can be said that MB Bank
is in an optimistic and safe financial position. The use of financial tools, such as raising capital
from customers and investing in high-quality financial assets, has become a critical activity key to
assisting MB Bank in achieving the necessary interest rate differential. This benefits both the bank
and the customer.

V. REPORT ON CAPITAL

1. Basel I

a. Overview of Basel I

Basel I is the first of three sets of international banking regulations established by the Basel
Committee on Banking Supervision (BCBS) on the minimum capital requirement for banks based
on certain percentages of risk-weighted assets to minimize credit risk. The Basel I accord primarily

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focuses on risk-weighted assets and credit risk and the assets are classified based on risks
associated with them. In the Basel I accord, banks' capital is divided into two categories: tier I and
tier II. At least half of the bank's total capital base is made up of Tier I capital, which is more
durable. Tier-II capital, on the other hand, is erratic and more transient. The Basel I requirement
of having a minimum ratio of capital to risk-weighted assets of at least 8%, a ratio of Tier 1 capital
to risk-weighted assets of at least 4% and a leverage ratio of at least 4% stipulated for a bank to
qualify as adequately capitalized.

Implementing the terms of Basel I brings quite a lot of benefits. Firstly, the Capital adequacy ratios
(CAR) in internationally active banks have significantly increased since the accord's
implementation and contributed to making the global banking system more stable. Furthermore,
due to its widespread adoption, it serves as a benchmark for market participants' evaluations.
However, it also has some limitations. Basel I is based on capital adequacy and depends on credit
risk, while market and operational risk were not considered in the analysis. Moreover, it places
more emphasis on book value than market value. This is a limitation of the great Basel I, which
will make the data skewed and the leader to make incorrect decisions.

b. Applying of Basel I

2019 2020 2021

Tier 1 capital 33,710,585 46,961,584 55,157,121
Tier 2 capital 4,027,370 6,485,729 8,160,821
Total-risk weighted average 37,737,955 53,447,313 63,317,942
Tier 1 ratio 9.04% 9.47% 9.89%
CAR 10.12% 10.42% 11.28%
Adequately capitalized YES YES YES
(Unit: VND million)
Table 9: Data of applying Basel I in MB Bank (2019 – 2020)
Risk-weighted assets are used to determine the minimum amount of capital that a bank must hold
in order to reduce the risk of insolvency. As can be seen from the table above, the average total
risk weight moved up from VND 37,737,955 mil in 2019 to VND 63,317,942 mil in 2021.
According to Clause 1, Article 4 of Circular No. 13/2010 / TT-NHNN regulated prudential ratios,
MB Bank has achieved the goal of greater-than-9% capital adequacy ratios, which were 10.12%,
10.42%, and 11.28% in 2019, 2020 and 2021 respectively. Besides, the MB Bank's index was still
lower than the average annual CAR of the Vietnam commercial banking system, which was

19
roughly 11.5% in 2021, even though it was a safe level reflecting that MB Bank was well
capitalized, however, MB Bank should continue to work to improve their CAR. Furthermore,
given that it has been identified as the ASEAN region's lowest level, CAR should be given priority
in Vietnam's banking system.

2. Basel II
a. Overview of Basel II:

Basel II is a set of international banking regulations first released in 2004 by the Basel Committee
on Banking Supervision. It is an extension of the regulations for minimum capital requirements
defined in Basel I, the first international regulatory accord that established a framework for
regulatory supervision and put in place disclosure requirements for assessing banks' capital
adequacy. The Basel II framework operates under three pillars:
• Pillar I: Minimum adequacy requirements
• Pillar II: Supervisory review
• Pillar III: Greater public disclosure
Pillar I: The relationship between the bank's own capital requirements and risk-weighted assets is
represented by the minimum capital ratio, which is always 8%.
Pillar II: Banks need to have a process in place to assess their overall capital adequacy as well as
a strategy in place to maintain capital levels.
Supervisors’ duties:
1. Reevaluate "the bank's internal capital adequacy assessment process and
strategies."
2. Anticipate that banks will operate above the minimum capital ratio and should
advise banks to maintain capital above the minimum.
3. Find a way to intervene early to keep capital from falling below the minimum.
Pillar III: Banks will be required to disclose information focusing on business profile parameters,
risk exposure, and risk management. Such disclosures are regarded as necessary for the efficient
operation of banking market discipline. Both qualitative and quantitative data must be made
available to the public.
On the positive side, Basel II clarified and expanded the original Basel I Accord's regulations. It
also aided regulators in addressing some of the financial innovations and new financial products
that had emerged since Basel I's introduction in 1988. However, Basel II was not entirely
successful and has been dubbed a miserable failure in its primary mission of making the financial

20
world safer. Despite Basel II's requirements, The subprime mortgage meltdown and Great
Recession of 2008 showed that Basel II underestimated the risks involved in current banking
practices and that the financial system was overleveraged and undercapitalized.

Basel I Basel II

The only risk management More focus on the bank's internal

Structure and content solution focused on "minimum methods, market-based inspection,
capital requirement" supervision, and discipline

A list of methods, measures for

Flexibility One option for all banks
banks

Information about risk sensitivity and

Risk sensitivity Preliminary risk assessment
risk policy must be disclosed.

- Regulations from 0 to 100 - Regulations from 0 - 150 or more

Risk weight - More preferential to OECD - No special rights, including internal
countries and external hierarchies

Better risk-reduction techniques,

Credit risk reduction
Only support and guarantee including support, guarantees, credit
techniques
derivatives, and position netting

Table 10: Advantage of Basel II compared to Basel I

b. MB Bank’s process in applying Basel II:

The State Bank's promulgation of Basel 2 implementation standards is a fundamental decision,

taking steps in accordance with Vietnam's conditions. MB Bank was one of the first Vietnamese
banks to meet Basel II standards in April 2019. In 2020, the bank completed all 3 pillars of Basel
II early, in compliance with Circular 41 on Ratio capital safety for banks, and foreign bank
branches of the State bank. As shown in the table above, in the three years of 2019-2021, MB
Bank's CAR is all over 10%, which shows that MB Bank has succeeded in increasing capital to
meet the first pillar, the CAR ratio must reach at least 8% according to State Bank of Vietnam.
MB focuses on building a scientific internal control system, and intelligent risk management
associated with "models, tools, data" for rapid growth and risk control. The deployment method is

21
uniform; thorough; overview; active research, do an experiment, quickly apply and fine-tune into
business practice. Basel 2 has helped MB achieve its credit growth targets of over 20% in recent
years, ensuring the bad debt ratio is less than 1% (at 0.7%), the bad debt coverage ratio: is 300%).
To achieve this plan, MB Bank has mainly increased to Tier 1. As a result, Tier 1 has increased
significantly from approximately VND 33,710,585 million in 2019 to nearly VND 55,157,121
million in 2021. Besides, MB Bank also adjusted the foreign capital limit from more than 20.90%
to 22.99%, which assists MB Bank in selling more shares to international investors. Regarding
Tier 2, Tier 2 capital must not be higher than Tier 1 capital as required by Basel II. In order to
increase Tier 2 capital, according to the Vietnamplus newspaper, MB Bank successfully issued
VND 80 billion of 10-year bonds in 2019. In the data table, Tier 2 has had fluctuations during the
period: an increase of more than 2 million billion VND from 4,027,370 million VND in 2019 to
6,485,729 million VND in 2020 and continue to increase to 8,160,821 VND in 2021.

VI. LIQUIDITY AND LENDING MANAGEMENT

1. Liquidity management:

a. Liquidity risk:

When conducting business in the financial system, financial institutions are vulnerable to a number
of risks, some of which might cause a business downturn or even insolvency. One of the most
prevalent risk ratios in the financial industry is liquidity risk. When a bank or other financial
institution is unable to pay its short-term loan commitments, it faces a liquidity risk that might
cause large losses. Usually, this issue arises when a bank's assets cannot be converted into cash. A
company's liquidity determines its level of financial stability. High liquidity gives the bank more
options for lending, and investments and can help banks easily to deploy funds. Since the main
objective of managing liquidity risk is to make sure that there will be enough cash flow to make
payments on time, banks must limit credit risk, predict changes in future cash flows, diversify
money sources, and prepare regular reports and liquidity maps.

b. Overview of liquidity management:

There are 2 types of liquidity in a bank. First, it's asset liquidity: the ability to convert assets into
cash, measured in time and cost. The cost here is not the cost of selling the asset for money but the
loss (discount) of the asset. The higher the time and cost, the lower the liquidity of the asset and
vice versa. Second, it is the liquidity of the source. Banks mobilize capital to create assets,
including highly liquid assets. Thus, the ability to mobilize creates the ability to pay for the bank.

22
So, a bank's liquidity is a bank's ability to meet the payment needs of its customers created by the
liquidity of its assets and the liquidity of its resources.
Commercial banks are all involved in the process of term intermediation, short-term borrowing
and long-term lending, so banks are bound to face potential liquidity shortages. As a result,
liquidity management is an area of management aimed at meeting a bank's liquidity, goals are
ensuring the timely solvency of the bank at a reasonable cost and to anticipate the risks of liquidity
risks and possible losses. If liquidity management is not effective, it will cause liquidity risk (Is
the possibility of loss for the bank when liquidity supply does not meet liquidity demand).
Five Bank Liquidity Demands : 1. Customer Deposit Withdrawals
2. Credit Requests form Quality Customers
3. Repayment of Non-deposit Borrowings
4. Operating expenses and taxes
5. Payment of stockholder dividends

Figure 9: Bank Liquidity Demands Model

Two main sources of liquidity:
Asset-side liquidity supply management - reserve strategy. For example, maintaining a treasury
with the appropriate size and structure, adjusting the liquidity of the asset by changing the maturity
structure of the asset, etc. Furthermore, source-side liquidity supply management - a mobilization
strategy. For example, analyzing the factors affecting the time and cost of raising capital, selecting
liquidity sources from the source such as borrowing from the central bank, borrowing from other
banks in the interbank market, issuing short-term debentures such as certificates of deposit, etc.

23
 c. Liquidity management in MB Bank
The supply and demand structure makes the change in banks' liquidity very evident. Liquidity
supply refers to a commercial bank's capacity to deliver funds in order to meet clients' financial
needs, which includes holding liquid assets and the potential to expand new capital mobilization.
On the other hand, commercial banks must meet the payment demand known as liquidity demand.
Its requirement includes the customer's legitimate borrowing and repayment demands. The
simultaneous arrival of these various liquidity supply and demand components forms a net
liquidity position that may be calculated as follows:
Net liquidity position = Total supply of liquidity - Total demand for liquidity
Besides, with the implementation of the modern management model of MB, it is also crucial to
apply the liquidity gap, a fundamental instrument that represents the maturity and settlement
profile. The objective is to calculate the net financial requirement or surplus across several time
periods.

2019 2020 2021

Total assets 411,487,575 494,982,162 607,140,419

Total liabilities 371,152,204 444,882,667 544,654,396

Liquidity gap 40,335,371 50,099,495 71,953,682

(Unit: VND million)

Table 11: Liquidity management of MB Bank (2018 – 2020)

The data in the table clearly indicated that MB's liquidity increased significantly during the three
years starting in 2019, showing that the corporate bank had adequate cash on hand to meet the
demand for credit and was managing liquidity well. Higher liquidity, however, suggests that the
bank is underinvesting in growth and development, which is detrimental to the bank's expansion.

d. Some factors affecting the liquidity management of MB Bank:

There are several subjective factors affecting liquidity management. First, it is the level of staff,
the level of technology and the reputation of the bank in the market which is increasing day by
day. Secondly, it is the bank's development policy in the next stage: improving profitability (or
safety in liquidity).
Moreover, there are also some objective factors affecting the liquidity management of MB Bank.
It is the change in monetary policy of the central bank of Vietnam to promote development and
ensure the safety of capital adequacy management.
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 2. Lending management

a. Lending by credit institutions

According to the financial report, MB Bank's total loan balance in 2021 is 363.555 billion dongs,
an increase of 21.88% compared to 2020. And MB bank's loan to other credit institutions in 2021
is 11,908,860 million VND, a sharp increase compared to 2020. Meanwhile, the interest rate on
deposits and loans to other credit institutions at the time. at the end of the fiscal year 2021 is 0.95
– 4.00% (Lending in VND) and 1.32 – 2.11% (Lending in foreign currencies).

b. Lending by type of customer

Loans to customers are presented at the principal outstanding balance at the end of the financial
year. Short-term loans are those with a loan term of less than 1 year from the date of disbursement.
Medium-term loans have loan terms from 1 year to 5 years from the date of disbursement. Long-
term loans have a loan term of more than 5 years from the date of disbursement.
MB Bank's loans to domestic economic organizations and individuals in 2021 are VND
352,126,413 million, a sharp increase compared to 2020. Meanwhile, MBBank's business loan
package is the first choice of customers with super competitive interest rates of only 5.9%/year
with many outstanding advantages. After the preferential period, the interest rate will be adjusted
according to MBBank's lending policy from time to time. Compared to the current lending market,
MBBank's business loan interest rate is quite attractive compared to many banks. The first is the
Loan Level. Banks lend up to 90% of customers' capital needs with a loan term of up to 180
months. Preferential interest rates are only from 5.9%/year with simple procedures, fast processing
time, and diverse lending methods, suitable for all types of customers' business (Loan by item,
Loan by credit limit, Loan according to overdraft limit,...). Besides, the repayment method is
extremely flexible: principal or final payment; interest paid periodically or at the end of the period
is calculated according to a fixed annuity; according to the initial balance, the balance decreases, ...
Collateral is also extremely diverse: Rights arising from rental contracts of stalls and stalls;
valuable papers, savings books and cards; deposit contracts, cars, real estate independent of loan
capital,...

c. Lending by type of enterprise

In 2021, loans to state-owned businesses totaled VND 23070245 million, or 6.34% of all
outstanding loans. Loans to businesses with foreign investments increased to 2.03%. The
remainder is mostly for corporations, business households, and individuals. 2020 has decreased by
1-3% in each loan category compared to the previous year.

25
 For large enterprises, the loan amount will be evaluated on the criteria set by MB and lend
at the most appropriate interest rate depending on the short-term or long-term loan term.
MB offers the "loan 1 capital, interest 4 interest" program to small businesses (with revenue
below 100 billion USD). Attractive interest rate from 5.8%/year. Simple and flexible application
procedures. Businesses need to wait up to 5 days for short-term loan approval. In addition,
MBBank has developed the MB Biz app specifically for corporate customers, helping businesses
reduce service costs by 40 million VND because most of the transactions are free. The application
can perform all transactions such as cash flow management, supply chain management, employee
payroll, receiving and transferring international money through swift code MB Bank, etc, 100%
online without the need for a hard copy of the certificate words like traditional banking
transactions.
During the COVID-19 period MB has policies to support small and medium enterprises,
which reduce the maximum lending interest rate up to 2.5%/year, with the majority of short-term
loans exceeding 8%/year and medium- and long-term loans exceeding 10%/year.
MBBank is the core bank of INVESFOV (Investment Support Forum for Overseas Vietnamese),
with approximately 2758429 million dongs in loans at overseas branches. In 2021, international
remittance sales to MB customers reached about 3 billion USD, with the company leading the
market in terms of market share; remittances will account for approximately 15% of total sales,
more than doubling that of 2020. Despite facing numerous challenges as a result of the Covid-19
pandemic's impact, remittances via MB continued to grow sustainably.

Figure 10: Analysis of loans by type of enterprise

26
 d. Lending by industry
According to the financial report for 2021, approximately 70% of customers are primarily in the
fields of agriculture, forestry, fishery, electricity and water, wholesale, retail, car and motorcycle
repair, and household employment, down 1% from 2020 because of covid 19 pandemic.
Loans for production and business in priority sectors are eligible for the largest loan interest rate
reduction of 1.5%/year, which applies to individual customers in Ho Chi Minh City and the
southern provinces; clients in other provinces and cities receive a 1% discount.
With consumer loans, MB lowers lending interest rates by 0.5%–1% annually.
In 2021, MB distributed more than VND 4,500 billion to customers in the rice industry in the
Mekong Delta at a reduced interest rate of 0.5-1%.

Figure 11: Analysis of loans by industry

VII. CONCLUSION:

In conclusion, MB Bank in the last three years (2019-2021) has shown clear growth with positive
ratios. This shows the efficiency in managing and operating the company and making decisions
to help the bank maximize its profits. The report also clearly shows how the bank manages its
operations including capital management and liquidity risk. However, this report has some flaws,
including the use of outdated and non-date data. Although 2021 was a difficult year for the
economy, MB completed its development strategy from 2017 to 2021, proactively use of numerous
adaptable technologies with a critical focus on digital transformation, accelerating the transition to
becoming a convenient bank for all customers, and ensuring security and effectiveness in growing
has ranked MB among the Top 4 Banks in Vietnam in terms of size and profitability.

27
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