Shrewd activities resulting in banking bonuses for 2021

OCB’s pre-tax profit saw a rise by over 42 per cent in the first half of the year, compared to 2020, Photo Le Toan

Banks are being seen as more ideally positioned and resilient amid the pandemic than other institutions, as their latest financial statements in the first half of 2021 reveal optimistic results.

According to its latest report, VPBank (HSX: VPB) in H1 achieved a consolidated pre-tax profit of more than VND9 trillion ($391.3 million), up 37.2 per cent on-year, in which individual bank’s services created 88 per cent of the whole consolidated profit.

VPBank saw its return on assets ratio attaining 3.3 per cent for the first time, and its return on equity reach 25.7 per cent. The bank, as a result, beats analysts’ expectations thanks to its leading performance indicators compared to other domestic peers.

Likewise, MB (HSX: MBB) targets to gain VND13.2 trillion ($573.9 million) in consolidated profit, up 20 per cent on-year, with total assets and credit growing 11 per cent and bad debt ratio controlled below 1.5 per cent.

Specifically, MB is now enjoying a boost in its popularity thanks to upbeat business results so far this year. Net interest income increased by approximately 42 per cent on-year, and the bank’s pre-tax profit experienced a 56-per-cent increase on-year, reaching almost VND8 trillion ($347.2 million)

“2021 is the last phase of the bank’s 2017-2021 strategic development plan and would set the tone for the next five years. We are striving to deliver seamless, top-notch diverse financial services for our customers while strengthening our risk mechanism and human resources management. These initiatives significantly improve MB’s labour productivity and minimise costs,” an MB representative said.

Meanwhile, by the end of June, TPBank (HSX: TPB) boasted its pre-tax profit of more than VND3 trillion ($130.7 million), up 47.8 per cent on-year and equivalent to 54 per cent of the whole year’s ambition.

As one of the most digitally-led commercial lenders, TPBank has successfully diversified its income sources by rolling out a full suite of activities to optimise operational efficiency and alleviate operating expenses. The cost-to-income ratio (CIR) has also fallen sharply from 43 per cent at the end of June 2020 to only 36 per cent at the end of the second quarter of 2021 thanks to the bank’s optimal labour productivity approach and tech-heavy initiatives.

Net income from TPBank’s services, including payment activities, treasury, insurance and consulting services in H1 increased by 117 per cent on-year.

The lender is executing new banking propositions that uphold its role as the leading financial institution in Vietnam.

Delivering the best

Elsewhere, southern-based lender OCB (HSX: OCB) reported its CIR is among the lowest in the industry, falling to 28.1 per cent from approximately 30 per cent in the same period of 2020. Since then, the bank’s pre-tax profit increased by 42.7 per cent over the same period last year, reaching VND2.66 trillion ($115.7 million), equivalent to 48 per cent of the year’s target.

“OCB aims to achieve a credit growth target of 25 per cent, and pre-tax profit of VND5.5 trillion ($239.1 million), up 25 per cent on-year. We are extremely determined to maintain our position as one of the most trusted, professional banks in Vietnam. We aspire to be one of the top five most prestigious privately-held commercial banks in Vietnam and deliver the best-of-its-kind banking services to our customers,” Trinh Van Tuan, chairman of OCB, told VIR.

Techcombank recorded the pre-tax profit in H1 reached VND11.5 trillion ($498.8 million), up 71.2 per cent on-year. The non-performing loan (NPL) ratio was 0.4 per cent as of June 30, against 0.9 per cent last year.

“Techcombank’s ultimate goal is to become a top 10 bank in the Southeast Asian region, to have scale and capacity to deliver the best customer journey,” Jens Lottner, CEO of Techcombank told VIR.

As of June 30, SeABank (HSX: SSB) saw its pre-tax profit reaching approximately VND1.56 trillion ($67.7 million), 2.3 times higher than the same period in 2020. This figure equals 115 per cent of the bank’s financial target plan and profit of the whole last year. The CIR plummeted significantly to 38.3 per cent, in comparison to H1 last year of 52.1 per cent. SeABank’s NPL ratio also diminished to 1.76 per cent. The bank is accelerating digitisation, with an emphasis on retail customers and small- and medium-sized enterprises to gain agility.

In the same vein, Viet Capital Bank (HNX: BVB) reported its pre-tax profit in H1 of VND337 billion ($14.7 million), which is a fivefold increase on-year.

The bank growth’s driving forces stem from its broader business scale leading to higher net income, revenue from diverse services increasing by 58 per cent from insurance and card businesses. Furthermore, Viet Capital Bank has bought back all of the special bonds from Vietnam Asset Management Company, thus contributing to its provision ratio.

Other major commercial lenders, including ACB, Sacombank, HDBank, SHB, An Binh Bank, VIB, and MSB are also witnessing a profit bonanza due to their efficient business strategies and expense reduction measures.

Banks’ critical efforts

According to Nguyen Xuan Thanh, senior lecturer in public policy at the Fulbright School of Public Policy and Management at Fulbright University, financial institutions deliver huge contributions to the national budget. Despite the adverse impact of the pandemic, macro stability and the banking sector’s health have been maintained – which is a breakthrough milestone and a positive sign of Vietnam’s economy.

“In the previous crisis, the highly volatile banking sector has dragged the whole economy into unexpected chaos. However, the current resilience of the domestic banking industry is not just a stroke of luck – the SBV is more well-positioned to adopt flexible and effective policies, and Vietnam’s economy is in a more robust shape than ever before,” Thanh said. “We have succeeded in ensuring stable, healthy growth over the past five years whilst avoiding the hot, excessive credit growth, along with controlled inflation. Banks are also evolving with international standards.”

On the flip side, he added, heated debate has cast doubt on banks’ strong growth and large profit while many industries are facing great challenges due to the pandemic. However, it was noted that banks are the lifeblood of the economy. If the bank stands strong and ensures liquidity, healthy banks will continue to provide much-needed capital for businesses.

Besides that, revenue from services and income from fees also make an important contribution to the huge profits of banks recently.

Nguyen Quoc Hung, general secretary of the Vietnam Banks Association, stated, “Banks’ diverse sources from new services, particularly tech-affine products, have reduced their dependence on traditional lending activities. In addition, minimising cost is one of the top priorities for lenders, thus improving capital efficiency. The higher level of operating expenses and CIR clearly illustrate this statement.”

Economist Le Xuan Nghia, on the other hand, explained that banks reported rosy performance partly because they did not make provision for NPLs due to debt restructuring and debt provision extension schemes. On April 2, the SBV promulgated Circular No.03/2021/TT-NHNN, announcing additional conditions for debt restructuring and extending the roadmap for restructuring debts provisions until 2023.

By loosening the schedule for provision, banks’ provision cost will not increase too substantially this year, thereby creating room for banks to retain earnings growth, supporting capital safety and promoting lending activities for business, brokerage VNDIRECT noted.

“However, this also carries potential hazards when the Circular 03 expires and the SBV requires commercial banks to fully set up risk provisions, causing banks’ profits to plummet,” said Nghia. “Commercial banks, therefore, should create more favourable conditions and relief measures to assist individuals and businesses to ride out the bump.”

On top of that, HSBC noted that Vietnam needs to progress its recapitalisation plans and accelerate its adoption of Basel II requirements, which have been delayed to early 2023. While robust economic growth may prevent a sharp deterioration in the health of banking, it is time for the banking sector to restore reforms and build strong capital buffers against potential risks.