On November 11th, BIDV and KEB Hana Bank officially signed a strategic cooperation agreement and BIDV announced KEB Hana Bank to be the foreign strategic shareholder which holds 15 percent of the bank’s stake.
Accordingly, based on the approval of the government and competent authorities of Vietnam and South Korea, BIDV and KEB Hana Bank completed procedures and legal documents as prescribed by laws of the two countries so that KEB Hana Bank can officially become BIDV’s first strategic shareholder.
Specifically, BIDV carried out a private placement of over 603.3 million shares to KEB Hana Bank, equivalent to a total trading value of 20.3 trillion dong. After the share issuance, BIDV’s charter capital increased from 34.187 trillion dong to 40.220 trillion dong, the highest in the Vietnam’s banking system.
The more than 20 trillion dong fund received from KEB Hana Bank is expected to help BIDV make an acceleration, after a long time of slowing down to handle the issues arising since the merger with Mekong Housing Bank (MHB) in 2015.
In the end of 2015, BIDV’s on-balance sheet bad debt ratio was 1.68%. However, if including the bad debts located at Vietnam Asset Management Company (VAMC), the bad debt ratio was 4.68%.
In 2016, BIDV had to sharply increase risk provisioning by 62 percent compared to 2015 to handle bad debts, but the bad debt ratio (both on-balance sheet and off-balance sheet) could only fall to 4.05%, showing a huge amount of bad debts that needed to be settled. Due to the overly large provisions for risks, BIDV had to sacrifice its 2016 pre-tax profit, which decreased by three percent compared to 2015.
In 2017, the bank’s provisions for risks continued to rise by 61%, helping reduce bad debt ratio (both on-balance sheet and off-balance sheet bad debts) to 2.54%. The bad debt coverage ratio of BIDV was estimated to improve from a low level of 34 percent to an average of 48%.
In the first nine months of 2019, BIDV’s risk provisioning continued to go up by 15%, showing the bank’s determination to drastically handle bad debts. The bad debt ratio (both on-balance sheet and off-balance sheet bad debts) was estimated to fall to 2.43%, and the bad debt coverage ratio increased to a good average of 67%. Meanwhile, the bank’s accrued interests were fairly healthy, mainly with maturity of no more than one year, showing less risks from the debts which potentially become bad debts.
To being bad debt ratio to a healthy level, which is below two percent for most banks, and to increase bad debt coverage ratio to about 70-80%, BIDV perhaps needs to continue setting aside a considerable amount of risk provisions in 2020, in order to thoroughly settle bad debts before accelerating strongly in profit from 2021.
The prospect of accelerating profit of Commercial Joint Stock Bank for Investment and Development of Vietnam (BDIV) is based on several foundations, in which capital is prerequisite. The raising of Capital Adequacy Ratio (CAR) helps BIDV solve the problem of credit growth room, thereby increasing room for market share development, facilitating the maintenance of the leading position in market share. That is also to maintain the profit growth foundation which has been established for a long time.
In addition, the considerable CAR increase also helps BIDV have more room to increase “risk-weighted assets”, thereby increasing profit margin, such as increasing medium and long-term credit. The bank’s currently ratio of medium and long-term loans is only 37 percent (as of the end of September 2019), much lower than the common level, and even significantly lower than that of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank, 47%) the bank which is well-known for being safe with low risk preference.
The third factor driving the future profit of BIDV is the prospect of reducing risk provisioning for two reasons. The first is that there is no pressure of provisioning for risks to settle the existing bad debts. The second is the ability to have reversal of provisions for the bad debts which were strongly handled in the previous time.
In fact, BIDV’s revenue from the settled debts is fairly large, reaching nearly 4.5 trillion dong in 2018, showing that the bad debts handled by provisions were not too bad, meaning that there is potential for reversal.
The fourth factor is the profit prospect in service segment. Statistics from 2016 to the first nine months of 2019 showed that BIDV’s average growth of net service income was 16 percent per annum, never exceeding 20%. It shows that this segment of BIDV still lacks of breakthrough, in the context when the service income of many other banks has sharply risen in the last few years thanks to the exclusive contracts of distributing insurance products through banks (bancassurance).
Looking at the case of Vietcombank (which will receive an advance of 400 million US dollars from the bancassurance contract with FWD Group, equivalent to eight to nine trillion dong, according to Bloomberg’s information), it can be seen that BIDV still has a lot of potential to exploit bancassurance exclusively.
BIDV currently owns a subsidiary in insurance sector which is BIDV Insurance Corporation (BIC) and an insurance joint venture (37.55 percent ownership) which is BIDV Metlife, similar to the model Vietcombank once owned: Vietcombank Cardif Life Insurance (VCLI).
In addition, BIDV still has potential to make investment in subsidiaries and affiliate companies. The bank owns up to 12 subsidiaries and three joint venture (including Vietnam Russia Joint Venture Bank (VRB), BIDV Tower, and BIDV Metlife) and an affiliate company (Vietnam Aircraft Leasing Joint Stock Company VALC) with 18.52 percent ownership.
On the stock market, BID shares of BIDV has recorded fairly sharp rise in the recent time. Considering the last six months, BID’s market price has increased by about 30%. Based on the bottom level recorded in July 2018, investors have doubled their accounts.
