Basic Banking

MBM7

Banking Overview

December 17th, 2008By Tran Van Hoanh

@ letshareit.ning.com@ www.letshareit.com,

a MBA community in Vietnam

MBM7Balance SheetACB Example

MBM7 Incom

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MBM7

Liability and Equity Approach

MBM7

LiabilitiesLiabilities

Due to Government and State Bank of Vietnam

€ Borrowing from Govt. secured by valuable papers. Ex: Govt Bonds, Treasury Bill, etc (short term, long term) P8,

€ Borrowing from Govt. by means of:

• discounting of valuable papers or

• refinancing (rarely use).

E.g: Base rate 10%

Refinancing rate 11%

Discount rate 9%

MBM7


Deposits and Borrowings from other credit institutions

Borrowings: Bank grant credit line to each other by both:

• Secured by valuable papers

• Or unsecured (by credit worthiness)

E.g: VCB grants a credit line of VND300B to ACB secured by Govt Bonds

Deposits: banks uses available/free sources to place at other banks

Inter-bank Offer Rate

SIBOR, LIBOR

MBM7


Deposits from customers

Deposits from individual customers

Current account/checking account/demand account

• Immediate withdrawal without prior notice

• Low interest rates

• Can link to other products/services: debit card, bill payment

Term deposits: specific term designed in the contract

• Time deposits: fixed amount, fixed term, fixed interest rate, no early withdrawal.

• Savings: amount can be added up, interest can be changed

• Banc assurance: period savings linked to assurance products

• Structured deposit: used for Private Banking and Wealth Management. Ex: deposit linked to VNIndex, Gold price, etc

MBM7

Liabilities

• Current account/checking account/demand account Big amount Linked to overdraft• Term deposit: Deposit contract

Deposits from corporate customers

MBM7Deposits from customers

• Deposit insurance• Prudence (regulatory reserve): related to monetary

policy• More stable• Accounts for most of bank’s sources

MBM7 Liabilities

• Derivatives liability

• Fund received from Govt, International institutions

MBM7 Liabilities

• Bill: short term

• Notes: medium term

• Certificate of Deposits: CDs

• Bonds: medium long term Callable bond/noncallable bond Puttable bond Floating bond Bond secured by assets

Governed by Regulations on issuing Valuable papers

Bonds and CDs

MBM7

Shareholder’s equity

MBM7

Paid- in capital

Reserve funds

Retained earnings

EquityEquity

CAR (capital adequacy ratio)= equity/risk assets

ROE

MBM7

Assets

MBM7Cash and Balances with SBVCash and Balances with SBV

Cash and cash equivalent

• Cash

• Gold

• Securities with terms less than 3 months

Balances with SBV

• Deposit as prudent reserve

• Deposit for transactions

MBM7 Investment in securities

• Trading securities• Available for sales• Held to maturity

• Debt securities Bills

Bonds, etc

• Equity: stocks

Related services

• Advisory

• Underwriting (debt, equity)

• Issuing

MBM7 Loan and advances to customers

• Primary products/services

• Bring most of profit

• Most risky

MBM7 Loan and advances to individual

• Consumer loan Auto/car loan Unsecured consumer loan Secured consumer loan Overseas study/local study loan Stocks loan

• Mortgage loan/home loan• Overdraft (linked to current account)• Credit card

MBM7 Loan and advances to corporate

• Credit line: short term, less than 12 months Working capital

• Short term loan (bullet installment)• Long term loan Finance capital expenditure Amortization

• Overdraft (linked to current account)• Syndication

MBM7 Conditions

• 5Cs Character Capacity Capital Conditions Collateral (Cashflow)

• Credit rating

MBM7 Credit default- Credit risk

• Debt classification: 5 groups• Provisions General provision Specific provision

• Write-off• Bad debt recovery• Credit risk management Credit rating Credit granting Credit monitoring Credit default resolution

MBM7 Other banking services• Other individual products/services Assets management Current account services Card services Internet banking/sms/homebanking Custody services Others

Other commercial bank services• Current account services

• Discount valuable papers

• Financial advisory services

• Commodity trading

• IRS- interest rate swap

• CDS- Credit Default Swap

MBM7 Contingency and commitment

• Trade finance L/C (at sight/standby/deferred/revolving) Collection: D/P, D/P

• Guarantees Payment Contract

• FX Spot Swap Forward Swaption

MBM7 Equity investment

• Investment in subsidiaries

• Investment in other company

MBM7 Liquidity

• Assets management

• Liability management

• Matching principles

• Other means

MBM7

Good luck!

Basic Banking

Economy & Finance

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