Six-month profit hikes: Banks cautious with bad debts

Illustrative image (Photo: VNA)

Hanoi (VNA) - A highlight of the banks' business performance in the first six months was their impressive before-tax profit.

However, apart from the profit of trillions of VND, experts expressed their concern over growing bad debts.

Disorder in top 10 rankings

The list of top 10 most profitable joint stock banks in the first six months of 2019 has so far been revealed with their before-tax profit surpassing 45.5 trillion VND (1.97 billion USD), up over 6.5 trillion VND, or a 16.7 percent growth year-on-year. Familiar names are still in the list like the same period last year, but their rankings have changed significantly.

Topping the list, Vietcombank set a record with a before-tax profit of over 11 trillion VND, up 43 percent annually. It has made strides for many years at a formidable speed since 2017.

The second place came to Techcombank with a before-tax profit of 5.7 trillion VND and revenue of 9.1 trillion VND, up 32 percent and 19 percent, respectively.

Notably, its provisional expense decreased by 77 percent, the operating expense-to-income rate remained at 35 percent, contributing to a record profit.

Before-tax profits of top 10 banks in six months (Unit: billion VND) (Photo: VietnamPlus)

Additionally, net profit reached 6.5 trillion VND, up 28 percent year-on-year. Fee income increased by 19 percent annually thanks largely to strong growth in insurance and bond consulting services, up 34 percent and 82 percent, respectively.

The next place went to VietinBank but it has yet to show recovery when its before-tax profit hit only over 2.1 trillion VND, down 2.5 percent annually. Generally, the six-month figure topped 5.33 trillion VND.

In particular, its provisional expense soared 63 percent to more than 4.23 trillion VND in the second quarter because its charter capital has not increased in recent years, thus constraining credit growth.

Clients at HDBank (Photo: VietnamPlus)

MBBank unexpectedly surpassed BIDV in the ranking to the fourth place from the sixth place in the same period last year, with a before-tax profit of over 4.8 trillion VND during the period, up 27 percent year-on-year. Deposits topped 260 trillion VND while loans were worth over 229 trillion VND. Return on equity reached 21.24 percent, making the lender among the top banks in terms of profitability.

As for BIDV, it slipped to the fifth from the fourth place with a before-tax profit of over 4.7 trillion VND, down 4 percent annually. Even during the second quarter, the figure was only more than 2.2 trillion VND, down 9 percent due to a 38 percent rise in provisional cost to over 5.5 trillion VND.

Though falling slightly compared to the same period last year, VPBank was still among the top five with a before-tax profit of over 4.3 trillion VND, but it no longer earned considerable income from insurance.

The last four banks include ACB, HDBank, VIB, TPBank with rankings unchanged. ACB earned a profit of over 3.6 trillion VND, much bigger than those by the remainders.

Boosting retail

Experts said the banking landscape saw clear differentiation among lenders. Top banks' profits have risen sharply thanks to growing credit and service income.

The point that earned Vietcombank "magical" profits is that it has shifted from wholesale to retail, increasing from 45.4 percent in late 2018 to 48 percent as of June 30, along with income through customer base expansion and other products.

Moreover, Vietcombank stepped up shift from capital business in the interbank market to other segments with higher profit margins or profitability such as increasing lending for retail customers and businesses, and investing in valuable papers of credit institutions, among others.

Therefore, its outstanding loans reached over 697 trillion VND, up 9.7 percent from 2018, much higher than the sector’s average of 7.3 percent.

At Techcombank, the service segment brought about many “achievements” such as credit cards up 43 percent and debit card transactions up 26 percent in volume. The total value of Visa payment transactions reached 13 billion VND, up 80 percent annually while debit card transactions surged by over 60 percent to 23 trillion VND. The average per customer transaction growth was 56 percent year-on-year. The bank also offers housing loans worth about 62 trillion VND, 1.9 times higher than that in 2016 and about 10 trillion VND for existing clients.

Retail segment brings big revenue to banks (Photo: VietnamPlus)

Techcombank General Director Nguyen Le Quoc Anh said apart from loans for housing, the lender will continue tapping other retail segments such as lending for automobiles and aviation that will yield fruits in the next 1-2 years.

At SHB, net profit went up 60 percent to over 1.7 trillion VND in the second quarter. The figure hiked 46 percent to more than 3.1 trillion VND in the first half.

It was attributable to a 39.2 percent growth in private lending that accounted for 31.16 percent of the total. Profit from services rose four folds year-on-year.

Similarly at VIB, its leader said profit has kept growing significantly in recent years. From the focus on corporate customers, outstanding loans in retail banking activities now account for the majority.

Retail banking has become a key contributor to VIB's profit with high growth and quality. Retail loan growth hit 21 percent in the first half of this year, while outstanding loans for retail banks accounted for 78 percent of VIB's total loan portfolio.

As the State Bank regulates low credit growth, commercial banks will step up the retail service segment to offset credit income, with a focus on personal loans. This is also a common trend of banks in the world, focusing on retail and providing short-term capital for the economy, experts said.

Caution needed

However, experts said many problems need to be fixed in the banking system, especially bad debts and capital adequacy rate.

Vietcombank made a surprise when its debts of Group 3 (sub-standard group) suddenly soared six folds as of the second quarter of this year. Though debts of Group 4 and Group 5 slightly decreased, the total non-performing loans rose by over 900 billion VND, thereby raising the rate of bad debts to over 1 percent out of the total.

Chairman of Vietcombank’s Board of Directors Nghiem Xuan Thanh said bad debts are not a concern because Vietcombank now has a 6-month provision coverage rate of up to 180 percent, meaning 100 VND of bad debt has a provision for 180 VND.

Meanwhile, BIDV had a large bad debt balance, amounting to over 21.1 trillion VND as of June 30, up 12.3 percent from early this year. Loan default rate surged 46 percent to more than 10.4 trillion VND, accounting for nearly half of BIDV’s non-performing loans. The rate of bad debts also went up to 1.98 percent from 1.9 percent.

Other banks also recorded significant fluctuations in debt groups, such as LienVietPost Bank up from 1.41 percent to 1.48 percent, Kien Long Bank from less than 1 percent to 1.15 percent, and TPBank from 1.12 percent to 1.5 percent.

Rate of bad debts in six months of 2019 (Photo: VietnamPlus)

It also coincided with the State Bank's report that the whole credit system handled 937.5 trillion VND of bad debts from 2012 to the late June 2019, including over 163.1 trillion VND in 2018 alone.

A representative from VNDirect Securities Corporation said the past bad debts were mainly used for speculation and non-core business areas such as banking, securities and real estate, as well as inefficient investments by State-owned enterprises. New non-performing loans are mainly personal investments and consumer loans, especially in retail banks.

Therefore, bad debts will grow mostly in banks that expand the retail segment, especially consumer finance which is of high risk and grows slowly at banks with strict lending requirements.

Finance and banking expert Nguyen Tri Hieu said on the one hand, credit growth is good but it should be managed closely to achieve sustainable growth, otherwise banks will have to pay high for bad debts in the future.

Other experts are also worried that part of the bad debts of banks 5 years ago were sold to the Vietnam Asset Management Company (VAMC) in special bonds. If the bonds mature but bad debts have yet to be handled, they will return to the banks soon. From the time of the strongest sale of debt by credit institutions to VAMC in 2015, the 5-year period is about to pass by./.