House of the Year, Vietnam – BIDV

Asia Risk Awards 2012 winner: BIDV – House of the Year, Vietnam

vo-dieu-thuy
Vo Dieu Thuy, BIDV

Vietnam is one of the newer emerging markets in Asia, and right at the forefront of its rapid economic expansion is Bank for Investment and Development of Vietnam (BIDV), one of the key derivatives market-makers in the country. For breaking new ground in the country for providing hedges in areas such as energy and for pushing forward in its efforts to modernise its risk management, BIDV has been awarded the inaugural Vietnam House of the Year.

BIDV provides forex, interest rate and commodity derivatives to Vietnamese corporate and retail clients. Among these, interest rate swaps, cross-currency swaps, commodity futures and commodity options are key areas in which the bank has regular trade flows.

“It is hard to have flows in Vietnam because the market is still very small compared with the rest of the world. The products are still new to the clients here and it takes time to educate them and let them get to know the benefits of the products before you can trade with them,” says Vo Dieu Thuy, head of the treasury’s derivatives and commodities division. “Despite this, we are one of the leading banks with regular flows and the biggest volume of trading in these areas in Vietnam.”

As part of its role as one of the country’s major market-makers, BIDV accounts for 40% of the commodity futures market share. Using its experience and strong local and global counterparty connections in commodities, the bank was able to obtain a specific licence from the State Bank of Vietnam in order to trade over-the-counter commodity derivatives. As a result, the bank was able to transact Vietnam’s first energy derivatives hedge.

Vietnam’s government has in place fuel subsidies for various players in the energy sector, which means many currently have no need to hedge. This does extend to end-users. As such, one of the largest airlines in Vietnam had approached BIDV looking for a solution to the high volatility in fuel prices. The bank entered into an agreement with the firm during the second quarter of 2011 to perform a zero-cost collar hedge covering 360,000 barrels of Singapore jet kerosene.

“The commodity derivatives business brings us revenue from trading with clients and exchanges or financial institution partners. It increases our profit and helps us stand out from other banks that cannot offer it. It also helps us provide solutions to corporate clients in helping them hedge their commodity risks. It is a differentiation strategy,” says Vo.

In the interbank market, BIDV has signed Isda agreements with major international players such as HSBC and Standard Chartered. The bank has also been able to design and develop a US dollar/Vietnamese dong cross-currency swap, a highly effective hedging tool for companies forced to buy relatively scarce onshore dollars at high rates.

BIDV structured a deal for an industrial park management company, when the firm was looking for a 12-month $10 million loan. Although many firms renting the client’s properties could be classed as exporters and thus allowed access to dollar loans, the client itself is not. In addition, the firm is exposed to forex risk when some of its revenue streams are in dollars if it has to borrow in Vietnamese dong. As such, during the second quarter of this year, BIDV provided the firm with a cross-currency hedge and ultimately reduced the borrowing costs of the loan by 6.3%.

In terms of risk management, the bank is in the midst of efforts to meet Basel II requirements. BIDV is one of the first banks to have an internal ratings-based approach for its clients in Vietnam using a standardised internal ratings system.

For market risk, the bank has separate limit control systems for forex, money market, and fixed-income trading activities, including stop-loss limits and intra-daily limits for traders. For credit risk, the bank has in place counterparty limits for every client in their transactions with the bank, and the calculation methodology incorporates both international and local standards as much as is currently possible.

“There is a gap between local and international standards and we also need to comply with the local standards here, but we are still doing our internal calculations to improve our ratings and other ratios to the Basel II standards,” says Vo.

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