State-owned lenders maintain positive run

Among the big four, Agribank and BIDV are the leaders in credit market share, Photo: Le Toan

The latest financial statements of four state-owned joint-stock lenders showed that they continued to maintain their profit growth rate at 24-82 per cent in H1 2021, a relatively good figure given the market turbulence.

Regarding pre-tax profit growth rate, BIDV led the pack with a rise of 82 per cent, Vietcombank came last in the “big four” group with a profit growth rate of only 24 per cent.

BIDV’s profit increased sharply by 86.3 per cent thanks to its tough approach on handling non-performing loans while taking advantage of cheap mobilised capital and expanding revenue from a variety of banking services. Moreover, BIDV and Agribank spent a larger number on risk provision compared to VietinBank and Vietcombank.

However, in terms of absolute numbers, the individual commercial banking arm of Vietcombank (compared to its group scale) is the largest beneficiary, with VND13.57 trillion ($590 million) in pre-tax profit.

VietinBank, Agribank, and BIDV ranked second, third, and fourth respectively, while BIDV’s individual banking unit recorded VND7.581 billion ($379.1 million). Overall, BIDV ranks sixth in terms of profit in the whole banking system in Vietnam. BIDV is also one of the least efficient lenders in terms of return on assets ratio.

Among the big four, Agribank and BIDV are the leaders in terms of credit market share. However, in terms of total assets, Agribank is currently the largest bank in the system thanks to its largest customer deposits pie. VietinBank and Vietcombank ranked third and fourth, respectively.

According to Mirae Asset Securities, the bank credit to the private sector as per cent of GDP remained at approximately 140 per cent, said to be a warning level of the economy’s high dependence on credit. However, GDP growth will slow down in H2 due to the impact of more widely applied social distancing measures, especially in key major cities. Thus, credit growth for the whole industry in 2021 is predicted to be in the range of 9–10 per cent, higher than the SBV’s expected growth rate in the worst-case scenario of 7–8 per cent.

Asset quality is not expected to see significant changes, as banks are still allowed to restructure debts for customers affected by the ongoing pandemic until the end of 2021.

“The banking sector is still a bright spot in terms of profitability amid the pandemic, with sector profits generally expected to maintain double-digit growth in 2021, thanks to positive business results in H1,” Mirae Asset Securities noted. “With banks starting to cut interest rates to support customers in the last five months of 2021, as requested by the State Bank of Vietnam, we expect to see strong divergence between banks, with small and medium-sized commercial banks with good asset quality forecast to have more impressive profit growth.”

Among the four state-owned banks, BIDV’s asset quality is predicted to be significantly improved. Due to the low Tier 1 ratio, more capital would have been useful and the capital calls will enable the bank to lower the average funding cost. Additionally, BIDV is among the most active issuers in the primary bond market, and its relatively high long-term debt also facilitates low funding cost visibility.

Notwithstanding, the four state-owned banks are facing fierce competition from both private lenders and foreign banks. Emerging bad debts due to the prolonged pandemic could also hurt banks’ benefits. Given their state root, their significant task at the moment is to support vulnerable government-prioritised sectors, which will consequently impede their revenue from lower lending yields.

VietinBank said that it is expected that the total amount of the bank’s income reduction to assist customers affected by COVID-19 this year could be more than VND6 trillion ($260.9 million).

BIDV also said that this bank has lowered its income by VND2.5 trillion ($108.7 million) in H1 to support customers by a number of relief measures, such as interest rate reduction. In the second half of the year, BIDV plans to continue to support customers facing difficulties due to the impact of the pandemic, with a total support resource of up to VND3.6 trillion ($156.5 million).

“BIDV is committed to address the much-needed multifaceted demands of businesses across all sectors and contribute to the spectacular growth story of Vietnam’s economy. We are also rolling out relief measures such as rates reduction and debt rescheduling as the crisis continues to take its toll on the country,” a representative of BIDV told VIR.

Some major foreign investors are also looking for further collaboration with state-owned banks. Mizuho Bank, the largest strategic foreign investor holding more than a 15 per cent stake in Vietcombank, is closely monitoring the latest initiatives from state equitisation.

“We would like to focus on business opportunities through mergers and acquisitions. We are also capturing the latest trends in the banking sector through Vietcombank, which we invest in,” explained Motokatsu Ban, manager and head of Japanese Corporate Department No.2 at Mizuho Bank Vietnam in Hanoi.