Vietnam VIB Hsng

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26762
Company name	Vietnam International Commercial Joint Stock Bank
Country	Vietnam
Sector	Finance & Insurance
Environmental category	C
Department	Global Financial Markets Group
Status	Pending Disbursement

Date SPI disclosed	February 19, 2008
Projected board date	March 20, 2008
Previous Events	Signed: July 23, 2008 Approved: July 15, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed investment involves a financing package of up to $50 million local currency equivalent senior loan to Vietnam International Bank (VIB) to support VIB’s housing finance activities. The investment with a tenor of up to 10-years will be disbursed in Vietnamese Dong (VND) and will be used to support VIB’s existing housing finance operations of origination long-term residential housing finance loans as well as expansion into new housing finance products.

VIB is a rapidly growing private commercial bank in Vietnam with $2.46 billion in assets, $125 million in equity. The Bank registered net profits of $19 mln as of December 2007, and continues to experience rapid growth. VIB Bank was established in 1996 with the founders comprising the Bank for Foreign Trade for Vietnam, Vietnam Bank for Rural and Agricultural Development as well as private individuals/businessmen. Soon after its establishment, VIB has become one of the leading joint stock commercial banks of Vietnam. VIB currently has 2,130 employees, strong branch presence with 81 branches and transaction offices in 22 provinces, and effectively competes in the local market in providing commercial and personal banking services.

IFC investment in Vietnam will be complemented by advisory services program which will consist of the following components:

- Customization and Implementation of the IFC Mortgage Toolkit for Vietnamese banks to be delivered under the already approved Mekong Bank Advisory Project, the use of which IFC will require as a condition of utilizing its funding. Through IFC Mortgage Toolkit, participating lenders will have access to a standardized set of mortgage products, loan file documentation, underwriting, servicing and closing manuals to organize and guide their mortgage lending practices. This initiative is expected to set the ground work for the eventual development of a secondary market.

- Capital Markets Development:

This component is expected to be delivered under the Vietnam capital markets project that is still in design stage; its focus is anticipated to be on improving the links between primary and secondary markets including mortgage finance.

Project sponsor and major shareholders of project company

VIB is a privately-held company. VIB is owned by individuals, private companies, and state-owned enterprises including Agribank and Vietcombank who have minority stakes. Main shareholders of VIB are: Mr. Dang Khac Vy (14.08%), Mr. Trinh Van Tuan (11.11%), Network Trading & Investment Corporation (Netra) (9.52%), Mr. Nguyen Xuan Hoang (6.34%), and Bank for Investment and Development of Vietnam (3.41%).

- Mr. Dang Khac Vy:

Founding shareholder, with major business interests in garment trading and food processing. Mr. Vy owns the majority stake in Future Generation Group, a food/noodle production company, listed in the top 200 companies in Russia by the Forbes magazine in terms of profit generation, Mr. Vy hold a Ph.D in economics. Future Generation Group has operations in newly independent states of the Soviet Union, South Africa, and Vietnam, and is considered to be a well known food chain in Russia. Mr. Vy also has other business interests in Vietnam, which include investment in real estate. Through his family members and Netra, the real estate investment and development company, he owns more than 30% shares of VIB.

- Trinh Van Tuan:

Founding shareholder and Chairman of the Board, who led the Bank during its initial years of operations, and served on the Board of the Bank since 1996, Mr. Tuan holds a Bachelor in Electrical Engineering. He is well known in Vietnamese business circles as a dynamic and successful entrepreneur.

- Netra:

A recently set up (in 2006) privately held company based in Hanoi with main business in real estate investment and development. Mr. Vy and his family own a majority stake.

- Mr. Nguyen Xuan Hoang:

Key shareholder and Vice Chairman of the Board. Mr. Hoang is a close business associate of Mr. Vy. Mr. Hoang earned his doctorate degree in Economics in Russia, and currently serves as CEO of Future Generation Group, of which Mr. Vy owns a majority stake. Mr. Hoang is active in political and economic spheres in Vietnam and is a member of the Committee of Vietnam Fatherland Front, Chairman of the Vietnamese Association in Russia, and Member of the Community Support Fund under the auspices of the Ministry of Foreign Affairs in Vietnam.

- Bank for Investment and Development of Vietnam (BIDV):

One of the five state owned commercial banks in Vietnam, which is planning to go through a capital raising exercise. BIDV tends to focus on project finance and long term corporate finance.

Total project cost and amount and nature of IFC's investment

IFC’s investment will be for up to $50 million equivalent in local currency in the form of a senior loan for IFC’s own account with a tenor of up to 10-years.

Location of project and description of site

VIB’s headquarters are based in Hanoi, Vietnam. VIB has over 80 branches across Vietnam.

Anticipated development impact of the project

The proposed IFC investment will strengthen VIB’s ability to compete in an emerging housing finance market in Vietnam, will reduce its asset-liability mismatch and will make housing finance in Vietnam more affordable for a greater number of Vietnamese. In addition, the investment will stimulate still nascent housing finance market in Vietnam and, through the implementation of IFC Mortgage Toolkit, improve standards and practices for origination, underwriting and servicing of housing loans thus decreasing the risks and leading to greater efficiency in the market.

IFC's expected development contribution

The market currently does not provide long term funding to the banks in Vietnam. Most funding is through short-term deposits, the inter-bank loan market is primarily for tenors below one year, and the corporate bond market is minimal. IFC’s loan, which is long term and which, unlike most funding from other development finance institutions will be commercially priced, will demonstrate how housing business could be funded commercially and viably in the Vietnamese market. Reliance on short-term deposits to fund their lending activities has curtailed the Vietnamese banks’ mortgage activities and forced them to keep tenors low (typically under 10 years). This invariably limits affordability and reduces access to housing finance. Recently, banks have begun increasing the tenors of their mortgage lending, but this has the effect of exposing them to maturity mismatches, and increasing their financial risk. IFC’s investment would provide funding of the required tenor needed for the prudent risk management of VIB and will lengthen maturities offered to home buyers. As a result, the project will provide more affordable funding to households, with secondary stimulus to overall economic activities.

Environmental and social issues - Category C

This project entails IFC support for the business of mortgage finance and has been classified as a Category C project according to IFC’s Environmental and Social Review Procedure. No further review is required.

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