Influenced by the monetary tightening policy, credit growth in 2018 was the lowest level in recent years. Accordingly, the banking industry copped with many difficulties last year, including: deceleration of credit growth, slow deposit mobilisation and decreasing demand deposit on total customer deposits ratio (CASA). However, the listed banks still had a positive year of growth when the profit before tax reached more than 85 trillion dong, of which, non-interest income became an important contributor. Looking at the last months of 2018, with the sustainable growth, the “golden age” of banks is gradually returning if they grasp the right strategy of growth.
Due to the credit tightening policy, the outstanding growth rate of banks listed on the stock market reached 13.4 percent. The disbursement of new loans was quite stressful in the mid-2018 period when many banks had used more than half of the credit growth limit and others had exceeded the limit granted for the year.
However, some banks were allowed to loosen the limit at the end of the year when inflationary pressures were reduced, in order to achieve the credit growth target of 17 percent after a period of strong control. The group of banks with the largest market share, including Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) (code: BID, 22.2 percent), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) (code: CTG, 20.5 percent) and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) (code: VCB, 14.4 percent).
According to the decline in credit growth, deposit mobilisation also increased slowly, reaching 12.1 percent in 2018. Credit factors put the banks under considerable pressure. At the end of the year, the demand for capital of commercial banks increased to meet some financial safety criteria. Leading market share of deposits mobilised from 2015 has belonged continuously to a group of three state-owned banks (BIDV, VietinBank and Vietcombank), accounting for more than 50 percent of market share among listed banks.
In addition, the industry’s rate of demand deposits (CASA) declined slightly from 18.7 percent at the beginning of the year to 18.2 percent at the end of 2018. In many aspects, CASA is an important factor to improve the profit margin from interest of the banks thanks to the low capital costs. The group of bank stocks with high CASA ratio includes: MBB (33.5 percent), VCB (28 percent), TCB (27 percent)which contributed to the outstanding growth of banks.
Another important focus of the banking industry is the decline in Non-performing loan (NPL) ratio. According to statistics on listed banks, NPL ratio has gradually increased from the beginning of the year to the end of the third quarter but dropped again in the last quarter of the year, reaching 1.63 percent. For the Basel II project, there are currently six out of ten pilot stocks, namely VCB, ACB, TCB, MBB, VIB and CTG, which have been cleared, most of which are dealt with by reserve fund.
Compliance with Basel II’s risk management standards will certainly have a direct impact on the performance of banks, as more funds must be spent to prevent risks, increasing operating expenses. Therefore, most banks set a lower profit growth target in 2019.
However, according to Phu Hung Securities, because the net interest margin (NIM) tends to expand the structure, along with the improvement of information technology and strict risk control, the growth of the banking industry will become more sustainable. In addition, the Basel II standard also shapes bank profit margins to become more secure and stable, when the safety index is raised according to international standards. On that basis, some banking stocks have sharp strategies in the future including VCB, TCB and ACB.
With its position as one of the first two banks to apply Basel II standards before the effective date, Vietcombank is likely to receive its own mechanism, in which threshold for credit growth will be higher. According to the forecast of PHS, Vietcombank may reach 23.5 trillion dong of pre-tax profit, up 28 percent.
Techcombank has its own operating model, exploiting customer ecosystem with core businesses, and applying technology to core activities. In addition, revenue from securities underwriting is expected to continue to grow.
Recognising the strongest growth, ACB had a successful year when pre-tax profit reached 6.389 trillion dong (up 140 percent), exceeding 12 percent of the plan. Customer loan portfolio growth also increased sharply at 16.1 percent, ACB’s pre-tax profit increased significantly apart from the increase in revenue, also because the banks reduced the cost of credit risk provisioning (as it has almost completely dealt with bad debts from Vietnam Assets Management Company -VAMC)
Banks such as Tien Phong Commercial Joint Stock Bank (TPBank) and Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) also achieved certain results. In 2018, VPBank’s revenue was 49.463 trillion dong, profit before tax was 9.198 trillion dong (up 13.1 percent). VPBank’s earnings per share ratio (EPS) in the first quarter is estimated at 2,724 dong per share, with a return on equity of 4.01. At TPBank, revenue in 2018 reached 10.387 trillion dong, profit before tax was 2.257 trillion dong (growth rate of 87.3 percent). TPBank’s EPS in Q1/2019 is estimated at 2,827 per share and growth rate is two percent.
