The total provisions for risks of Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank) in the last four years were 65.141 trillion dong, the highest in the banking system. This huge provisioning amount is 1.34 times larger than that of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), 2.5 times larger than that of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) and 2.52 times larger than that of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank).
After years working hard in provisioning for risks, achievements have come to Agribank. By the end of December 31st 2018, the value of Vietnam Asset Management Company (VAMC)’s unsettled bonds at Agribank remained only 2.355 trillion dong, and its on-balance sheet bad debt ratio was just 1.6 percent. If including the on-balance sheet bad debts and the unprovisioned bad debts at VAMC, the actual bad debt ratio of Agribank was only 1.83 percent, much lower than the three percent threshold regulated by the State Bank of Vietnam (SBV).
Agribank seems to be able to rid of the risk provisioning burden and the result will be the high profit growth in the following year.
In 2018, of the bank’s 21.718 trillion dong of provision expenses, 9.678 trillion dong were provisioned for VAMC bonds, and the remaining were provisioned for customer loans.
In 2019, if Agribank deducts 2.355 trillion dong to provision for VAMC bonds and there is no new debt at VAMC (the bank plans to clean off all debts at VAMC in 2019), it means that the total provisions for risks of VAMC bonds in 2019 is 2.355 trillion dong, this number is about 7.3 trillion dong lower than 2018 (9.678 trillion dong).
This means that simply by reducing the provisions for VAMC bonds, Agribank’s pre-tax profit in 2019 may increase sharply by 7.3 trillion dong, reaching above 14.6 trillion dong. The bank’s pre-tax profit in 2018 was above 7.3 trillion dong.
From the above assumption, it can be seen that the pre-tax profit target of 10 trillion dong set by Agribank in 2019 is fairly modest. In fact, in the first four months of 2019, Agribank attained up to 4.1 trillion dong of pre-tax profit, completing 41 percent of the annual plan after just four months.
Similar to Agribank, BIDV has also made strong provisions for risks over the year. Statistics in the last four years showed that the total provisions for risks of BIDV is 48.617 trillion dong, ranking the second after Agribank. This amount nearly doubles that of Vietcombank and Vietinbank.
By the end of December 31st 2018, BIDV’s on-balance sheet bad debt ratio was 1.9 percent. IF including the unprovisioned bad debts at VAMC, the bad debt ratio of BIDV was still below the regulated level, staying at 2.64 percent.
In 2019, BIDV also aims to clear off all the debts at VAMC. To complete this goal, BIDV will have to spend a relatively large amount (at leat 6.461 trillion dong, equivalent to the unprovisioned bad debts at VAMC, if assuming that the deductible value of the secured assets is zero). Nevertheless, the bank still targets a 10.5 trillion dong pre-tax profit this year, showing a huge potential for profit growth.
Similar to the case of Agribank, if assuming that in 2020 BIDV no longer has to make provision for VAMC bonds, meaning that its pre-tax profit will increase by at least 6.461 trillion dong simply by reducing the provisions for VAMC bonds.
It can be seen that Agribank and BIDV are on their way to return to their golden age of profits. Together with the “king of profit” Vietcombank these three state-owned banks may soon re-establish the profit gap with private joint stock banks, in the context when leading private joint stock banks such as Vietnam Technological and Commercial Joint Stock Bank (Techcombank) or Vietnam Prosperity Commercial Joint Stock Bank (VPBank) seem to experience slowdown in growth.
