Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank) has recently published its examined separate mid-year financial statement with a more than 13 percent reduction in net profit compared to the same period of 2019.
Specifically, in the first half (H1) of the year, the bank with the largest total assets in Vietnam recorded a total operating income decline of seven percent over the same period of 2019, reaching 25.467 trillion dong.
The main reason for this decline came from a five percent decline in the net interest income and 28 percent decline in the income from other activities. The two activities including gold and foreign exchange and services of Agribank recorded growth in H1 but the profit results from the trading of investment securities turned from profitable to unprofitable.
In the opposite direction, despite maintaining similar staff costs to the same period of last year (Agribank cut nearly 500 employees in H1), the total operating expenses of the bank still increased by 12%, accounting for nearly 12.2 trillion dong.
Thanks to the cut of 25 percent in credit risk provisioning expenses compared to the same period of 2019 (to over 6.5 trillion dong), Agribank’s before and after-tax profit only dropped by 13%, reaching respectively 6.762 trillion dong and 5.414 trillion dong.
Compared to the pre-tax profit plan of at least 12.2 trillion dong for the whole year, Agribank has completed 55 percent of the set target.
By the end of June, the total assets of the parent bank Agribank was 1.467 trillion dong, slightly up compared to the beginning of the year. The bank continued to have the largest total assets in the system.
However, Agribank’s lending to customers only grew by one percent in H1 2020 (reaching 1,135 trillion dong) while its customer deposits increased by four percent (to over 1,324 trillion dong). This is the reason why the parent bank’s spending on deposit interest payment increased faster than the interest income from lending, causing its net interest income in the first half of the year to fall by five percent.
By the end of the second quarter, Agribank had a total of 24.464 trillion dong of bad debts (debt group 3 to five), up by 39 percent compared to the beginning of the year, and accounting for 2.16 percent of the total outstanding credit. Notably, the outstanding bad debts increased mainly in the debt group 4 doubtful debts and group 5 irrecoverable debts, by respectively 95 percent and 39 percent compared to the beginning of the year. Agribank’s debt group 5 alone reached nearly 17.3 trillion dong by the end of June.
However, the positive point in Agribank’s business activities in H1 is the increase in the balance of provisions for bad debts to 23.9 trillion dong, up by nearly 26%. This balance is equivalent to a bad debt coverage ratio of nearly 100%.
Recently, the Governor of the State Bank of Vietnam (SBV) has issued a written document requesting Agribank and the units under the SBV to cooperate with relevant ministries and industries to carry out procedures to increase the bank’s charter capital from the State budget.
At the same time, the SBV also petitioned the authorities to soon submit to the government to issue a Decree amending and supplementing Decree 91/2015 in order to have a basis for increasing capital for state-owned commercial banks, building a roadmap to increase capital for these banks in the period of 2021 2026, including an increase from the State budget, etc.
According to calculation, with the current charter capital of 30.591 trillion dong, based on the Basel II standards, Agribank’s capital adequacy ratio is only 6.9 percent (lower than the minimum requirement of eight percent). If the bank’s charter capital is not raised this year, it will not be able to meet the requirements for providing capital for the economic development, especially the credit for agriculture and rural sector.
If the Agribank’s charter capital is supplemented with 3.5 trillion dong in the third quarter of 2020, the bank’s outstanding credit may increase by 60 trillion dong and the total assets may also increase by a corresponding amount.
