Insurer’s shrinking profits lead to strategy rethink

Vietnam’s largest insurer will be hoping for a better 2011 after last year’s disappointing results

It is a bad result the company blames on its multi-million dollar losses to its financial investments.

And Bao Viet’s tiny profit came despite a 22 per cent rise in revenue, according to the group’s consolidated financial report. In 2010, pre-tax profit was posted at VND1.26 trillion ($61 million), making up 9.8 per cent of the VND12.86 trillion ($620 million) in

gross revenue.

“Profit growth was low because of losses to our financial investments,” said Bao Viet chairwoman  Nguyen Thi Phuc Lam.

Starting with insurance as its core business, Bao Viet Holdings is now a conglomerate with two additional main operations - financial investments and banking services. Last year, the insurance and banking services arms saw stable profit growth but financial investments performed very poorly.

Profit from Bao Viet’s funds management plummeted 41 per cent year-on-year to VND23 billion ($1.1 million), against 2009’s VND39 billion ($1.9 million).

More importantly, according to the company, losses for its securities arm, Bao Viet Securities Company (BVSC), ran at more than VND92 billion ($4.4 million) last year.

However, according to Saigon Securities Inc. (SSI),  stock trading was only a modest contributor to Bao Viet’s financial investments.

The main component was the firm’s bank lending and bond investments, said SSI senior analyst Nguyen Thi Thuy Giang.

Late last year, government inspectors discovered that the insurance firm had bought VND680 billion ($35 million) worth of non-guaranteed corporate bonds in the state shipbuilder Vinashin several years ago.

The firm was also found to have also signed 34 credit contracts worth VND406 billion ($19.6 million) in 2009 with Vinashin Financial Co., one of Vinashin’s subsidiaries. Vinashin teetered on the brink of bankruptcy in early 2010 with more than more than VND86 trillion ($4.1 billion) worth of debt. If the shipbuilder had gone under, Bao Viet could have suffered huge losses.

Bao Viet’s business plan set for 2011 shows its financial investment operations heading for a 14 per cent reduction in revenue. Both revenue and pre-tax profit are targeted to grow by a modest 15 per cent to VND14.8 trillion ($715 million) and VND1.4 trillion ($67.6 million), respectively.

That target might actually be lower as it was set in the fourth quarter of last year before the government introduced tightening policies, Lam added. The government’s efforts to curb inflation by reducing credit and public investment this year are expected to challenge Bao Viet and other businesses in the financial sector. Early this year, BaoViet Bank downsized its credit growth plan from 100 per cent to 20 per cent in response to these government policies.

Lam indicated that the group would cut back on management costs and low-profit investments.