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Banking & Finance

Guarded stance

Released at: 23:34, 05/02/2015

Guarded stance

The Top 4 State-owned banks enjoyed improved profit figures in 2014 but remain cautious about 2015.

by Thong Dat

Following average results in 2013, 2014 was a much stronger year for Vietnamese banks. The country’s four-largest banks recorded higher profits, driven mainly by credit expansion, but coming with questions over whether credit quality has actually improved. 

Vietnam is currently experiencing a period of economic recovery, registering 5.98 per cent GDP growth last year. This was also the product of carefully-managed strategic development in monetary and fiscal policies. The country’s economic situation is now stable, with Moody’s raising its outlook for the banking system to stable from a negative assessment, noting improvements in economic stability and operating environment for lenders. Meanwhile, Fitch Ratings upgraded Vietnam’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to “BB-” from “B+”.

Strong profits signal that, for banks at least, the economic hardship has eased somewhat, said Mr. Le Xuan Nghia, Director of the Business Development Institute (BDI). “As in the past, the main driver of profit was the banks’ stronger credit growth and the resurgence wasn’t limited to the four largest banks either,” he said. “The industry as a whole is expected to announce better profits for 2014.”

Soaring numbers

In fact, the recent clean up in the banking system has, to some extent, produced results for Vietnam, with its top four lenders reporting solid profits last year. The Bank for Foreign Trade of Vietnam (Vietcombank) kicked off a slew of bank announcements, reporting pre-tax profits growing by 2 per cent compared to 2013, to VND5.68 trillion ($270.47 million). Its business activities saw relatively high growth, while non-performing loans (NPLs) were well controlled at 2.3 per cent compared with 2.7 per cent in 2013. Lending surged 18 per cent. 

As at December 31, 2014, the bank’s NPLs were calculated at VND7.407 trillion ($352.71 billion), or 0.4 per cent less than at the end of 2013, after offloading bad debts worth VND2.6 trillion ($122.2 million) to the Vietnam Asset Management Company. Balance sheet debt collection in 2014 was VND1.905 trillion ($90.47 million), 147 per cent of the plan and more than double the figure in 2013. Vietcombank’s ROE stood at 10.5 per cent, while operating margins reached 107.17 per cent of the plan. Total assets were VND419.97 trillion ($20 billion), 25.94 per cent higher than in the previous year, while credit growth since mid-March was 17.68 per cent. 

It was a similar story at other leading banks, which also pointed to strong credit growth as the main reason for stellar earnings. The Vietnam Bank for Agriculture and Rural Development (Agribank) announced that pre-tax profits were up 6 per cent year-on-year, standing at VND3.23 trillion ($152.1 million) and meeting 101 per cent of the target. As at the end of last year its total assets were VND762.8 trillion ($35.8 billion), an increase of 10 per cent against 2013. Total deposits rose 10 per cent to VND690.1 trillion ($32.4 billion), while total outstanding loans amounted to VND605.3 trillion ($28.4 billion). Loans for agriculture and rural areas were VND411.2 trillion ($19.3 billion), accounting for 74 per cent of the total. 

Agribank’s total revenue from services reached VND2.8 trillion ($131.6 million), increasing 19 per cent compared with 2013 and surpassing the target by 4 per cent. With these results the bank led the domestic banking sector in terms of total assets in 2014. 

Meanwhile, the Bank for Investment and Development of Vietnam (BIDV) also reported a 20 per cent year-on-year rise in pre-tax profits in 2014, amounting to VND6.06 trillion ($285 million). As at the end of last year its total assets were more than VND655 trillion ($30.7 billion), increasing 18 per cent against the previous year. Outstanding loans were more than VND461 trillion ($21.6 billion), a 19 per cent rise. Mobilized capital met demand for capital and operational security, with customer deposits of VND502 trillion ($23.9 billion), an increase of 20 per cent. Interbank trading stood at over VND55 trillion ($2.61 billion). Notably, BIDV’s NPL ratio fell to only 1.8 per cent, well under the prescribed 3 per cent. Its ROE was 14.4 per cent and ROA 0.8 per cent. 

For its part, VietinBank made gross profits of VND7.3 trillion ($342 million) last year, slightly above its annual target, according to Mr. Le Duc Tho, CEO of the bank. Total assets of the Hanoi-based lender, which is 19.73 per cent owned by Japan’s Bank of Tokyo-Mitsubishi UFG Ltd, rose 14.6 per cent in 2014 to VND660 trillion ($31.4 billion).

Likewise, smaller joint stock banks also celebrated a successful financial year. Tien Phong Bank’s pre-tax profits stood at VND536 billion ($25.1 million), surpassing the target by 22 per cent. Total assets amounted to VND51.5 trillion ($2.4 billion), while outstanding loans rose by 50 per cent. The bank’s NPLs were at 1 per cent and total deposits were VND47 trillion ($2.2 billion). 

MBBank’s pre-tax profit reached over VND3 trillion ($140.19 million) and it managed to drive its bad debts to under 2.73 per cent. Nam A Bank achieved an estimated pre-tax profit of VND243 billion ($11.4 million), an increase of 15 per cent over the target. It plans to be listed on the stock market this year. 

Although a number of smaller banks have not released their figures, Mr. Vu Viet Ngoan, Chairman of the National Financial Supervisory Commission, was quoted as saying that their 2014 profit figures were also promising. “Deposits, NPLs and loans all moved in the right direction,” he observed.

This is not a full data set by any means but is striking nonetheless and foreign banks are watching closely. Analysts said the results are an indication of the economy’s recovery. Higher bank profits also means higher dividends for shareholders, and once a local bank posts a higher dividend ratio it will catch the eye of foreign investors. This is why profit figures, among all other figures, are the most awaited by foreign investors.

As is the case with many large financial institutions in various developing markets, the State controls Vietnam’s most recognizable banks. Apparently noting that this can be a turn-off for foreign investors, local authorities are mulling over an increase in foreign ownership limits in the country’s so-called “bad” banks.

From February 2015 foreign investors looking at purchasing shares in Vietnam’s weaker banks are asked to provide a written commitment that their investment will be long term, under Circular No. 38 issued on December 8 by the State Bank of Vietnam (SBV). The new circular states that foreign investors must prepare a detailed purchasing plan and a restructuring strategy for the bank. The SBV require scenarios on reorganizing the banks’ network, increasing financial capacity, managing bad debt ratios, strengthening administration and management activities, applying modern technology, developing products and services, and what corrective action would be taken to resolve immediate problems. Institutional investors must confirm they will acquire at least 10 per cent of a bank’s charter capital. The PM will decide on the proportion of shares to be owned by foreign investors after receiving an evaluation from SBV.

Looking forward

It seems that 2014 was a better year for the banking industry and many believe that banks can head towards 2015 with optimism. However, despite the profitable results for 2014, banks seem to be cautious in their ambitions for 2015. Although Vietcombank targeted VND6 trillion ($280.37 million) in pre-tax profit for 2015, bank leaders revealed that they would continue to prioritize monitoring their two-year initiative to engage with risky businesses and provisions for NPLs. As at the end of 2014 Vietcombank’s total provisions for NPLs was said to be sufficient to cover the entire volume held.

For banks, according to BDI’s Mr. Nghia, profit figures may have secondary importance to their handling of NPLs. In this context, Vietcombank targeting to recover around VND2 trillion ($93.46 million) in NPLs this fiscal year hints at their performance and priorities.

For its part, BIDV confidently targets growth of a minimum 20 per cent in pre-tax profit in 2015, set after a successful 2014 that saw $285 million in pre-tax profit. MBBank, meanwhile, has cautiously set almost zero profit growth. 

Mr. Nghia pointed out that provisions for NPLs would be the biggest drawback on banks’ earnings figures. “The amount of provisions set aside for NPLs directly determines the profit figure,” he said. “However, the nature of these provisions is to make allowances for the future, so any of the unused amounts will be added back to the profit figure later on.”
Over subsequent years the efforts of banks in setting up and managing provisions for NPLs will bring benefits in the future. Once NPLs are resolved, profit will not be held back. This was true in the case of Vietcombank, when in 2014 it successfully recovered VND1.9 trillion ($88.79 million) in NPLs. 

  • The Japan Bank for International Cooperation (JBIC) has proposed it support the Vietnamese Government in issuing bonds in Yen on the Japanese market. JBIC has introduced the Ministry of Finance to a number of Japanese consulting agencies, including SMBC Nikko Securities, to evaluate the financial feasibility of the issuance and various criteria such as terms, issuance costs, and Yen and US dollar conversion costs.
  • VietinBank has been permitted by the State Bank of Vietnam to convert its branch in Laos into a 100 per cent owned subsidiary, with total chartered capital of $50 million. The new bank is called the Vietnam Trading Joint Stock Bank in Laos. VietinBank must begin operations within 24 months. 
  • MBBank has received a long-term debt rating of “B” from Fitch Ratings, with a stable outlook. The agency also assigned it a Viability Rating (VR) of “b”.
  • HDBank has inked an agreement to provide a credit package worth $14.3 million for Cotec Asia Company to develop the Blue Sapphire Resort project in Ba Ria Vung Tau province. The bank will offer preferential loans at an interest rate of 3.8 per cent per annum in the first six months to customers buying villas and luxury apartments at the project if they meet certain requirements.
  • PVcomBank and the PetroVietnam Insurance Corporation (PVI) signed a comprehensive cooperation agreement last month. The two parties committed to providing and using each other’s services, including deposits, payment account management, and capital arrangement, along with financial consultancy and individual and corporate finances. 

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