Bank leaders are planning profit targets to submit shareholders at the coming Annual Shareholders Meetings (ASMs). With the credit growth limit of only 14 percent, pressure is the story mentioned by many banks.
A bank leader shared that his bank expects a pre-tax profit of 3.5 trillion dong compared to the realised figure of above two trillion dong in 2018.
This is considered a difficult task for the bank’s Management Board. However, the leader said that there are reasons to be confident with the figure because the bank has invested heavily in technology, applied international standards, and is now waiting for good results in the near future.
With a record high pre-tax profit of above 18 trillion dong in 2018, Commercial Joint Stock Bank for Foreign Trade of Vietnam (VCB) aims to attain about 20 trillion dong of pre-tax profit this year. However, according to the bank’s leaders, this target creates high pressure to the bank.
In fact, the profit VCB attained in 2018 is equivalent to the total profits of three joint stock banks in the leading group. VCB has also been promoting retail, increasing revenue from services in order to gradually lower the dependence on lending.
Despite being in the Top five banks with the highest profit in 2018, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) also sets a pre-tax profit target of 9.5 trillion dong this year. Since the challenge for VietinBank in 2019 is raising capital, the bank is unlikely to expect high profit if it fails to increase its capital.
When capital is thin, the reduction of Capital Adequacy Ratio (CAR) makes banks to lower its credit growth target. This happened in VietinBank when the bank cut its outstanding loan target by up to 26 trillion dong in the fourth quarter (Q4) of 2018, because it could not raise its charter capital.
Not only VietinBank, Commercial Bank for Investment and Development of Vietnam (BIDV) and many other banks are also racing to increase capital in order to improve CAR thereby increasing the credit growth targets.
Although the pressure is significant, banks are still optimistic about the business prospects in 2019, according to the latest survey results of the Forecasting and Statistics Department of the State Bank of Vietnam (SBV).
It is forecasted that this year, 77.6 percent of credit institutions (CIs) expected that the demand for using banking services of customers will increase compared to 2018, in which the demand for loans is expected to see sharp rise by most CIs.
Based on objective and subjective factors, 86 percent of CIs assessed that their business situation much improved in 2018 compared to late 2017; and about 88 percent of CIs forecasted that the business situation will continue to be better than 2018, in which 35 percent of CIs believed to see much improvement.
Specifically, analysts also gave positive assessments for some banks. HCM City Securities Company (HSC) predicted that the pre-tax profit of Asia Commercial Joint Stock Bank (ACB) could reach 7.772 trillion dong this year, up by 21.7 percent compared to last year.
In particular, ACB’s lending to customers and mobilised capital from customers are estimated to both rise by 14 percent. The bank’s Net Interest Margin (NIM) is forecasted to increase by 0.1 percent to 3.75 percent. The net interest income, accordingly, will grow by 17.1 percent to 12.136 trillion dong.
The provisions for risks of ACB are forecasted to decline by 715 billion dong, down by 23.2 percent compared to 2018 with the ratio of settled bad debts on total outstanding loans reaching one percent, because ACB has managed to handle all the bad debts in G6 group and cleared off all the bonds of Vietnam Asset Management Company (VAMC).
HSC also offered positive profit prospect to HCM City Development Commercial Joint Stock Bank (HDBank) in 2019 with profit growth of 27.3 percent, reaching above 5.098 trillion dong compared to more than four trillion dong realised in 2018. This plan was build based on the assumption that HDBank’s lending will grow by 18.2 percent compared to 2018, reaching 145 trillion dong; in which the lending to customers growth of HDBank will be 18 percent and that of HD Saison will be 20 percent.
For Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Saigon Securities Incorporation (SSI) forecasted that the bank will attain more than 10 trillion dong of pre-tax profit in 2019, up by 10.5 percent compared to 2018. In addition, VPBank will see 14.3 percent growth in total assets, 16.2 percent in mobilisation growth, and 16.3 percent growth in lending.
In a recent analysis, Moody’s said that the Vietnamese banks which have been rated by the agency are likely to see higher profitability thanks to the increase in net interest difference and decrease in lending costs. From that, the asset quality of banks will also be improved because they use profits to set provision for risks and handle the bad debts formed in the past.
Specifically, those banks have recorded higher profitability on total assets in the last two years, from 0.9 percent in 2017 to 1.1 percent in 2018. The net income of banks increased by 35 percent and reach 70 trillion dong in 2018, although adjustments on lending growth were made.
Nevertheless, experts of Moody’s assessed that most Vietnamese banks will still lack of capital to meet the strict requirements of the Basel II standards which are about to take effect from 2020.
Therefore, the mobilising capital, mainly from foreign investors, will be the focus of Vietnamese banks in 2019, because the Vietnam’s capital market development is not strong enough.
