In the recent update report, analysts of Viet Dragon Securities Company (VDSC) assessed that the prospect of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) will continue to heavily depend on the private placement for the bank’s strategic partner KEB Hana Bank. If successful, the capital pressure will be relieved and the competitiveness of BIDV in retail banking, small and medium-sized enterprises (SMEs) and Foreign Direct Investment (FDI) expected to be improved, supporting the bank’s strategic direction in this period.
However, the issuance deal has so far not been implemented due to price and procedural problems. This year the State Bank of Vietnam (SBV) has proposed the Ministry of Finance to consider using the state budget to increase capital for state-owned banks, such as paying dividends in shares and retaining profits. For the case of BIDV, the completion of the strategic issuance, which was approved in principle in October 2018, is the top priority.
VDSC said that BIDV’s profit growth will be modest compared to 2018 as the bank is facing many problems.
Firstly, in 2019, BIDV aims to expand credit by 12%, slightly lower than the 14 percent in last year. Nevertheless, VDSC said that maintaining Net Interest Margin at the current level will be difficult because both asset yields and capital costs are under pressure. Therefore, the growth of interest income is forecasted to be low.
Specifically, by the end of March 2019, the outstanding customer loans of BIDV reached 1,024 trillion dong, up by 3.6 percent compared to the beginning of the year, while total mobilisation was 1,057 trillion dong, up by 2.7 percent compared to the beginning of the year. VDSC estimated that the 12-month consolidated NIM of BIDV declined to 2.8 percent in the first quarter of 2019, while it was 2.9 percent for the whole year 2018, due to the slight decline in asset yields and capital costs. Accordingly, the net interest income of BIDV fell to 6.8 percent compared to the same period of 2018, reaching 8.545 trillion dong. BIDV was the only listed bank recording negative interest income growth in the first three months of 2019.
Analysts also found that BIDV is under much pressure of capital mobilisation. By the end of the first quarter, while other valuable papers saw no change, certificates of deposits (CDs) increased by 19.4 percent compared to the beginning of the year, mainly focusing on terms from 12 months to less than five years. CASA dropped to 14.4 percent from 17 percent in the first quarter of 2018, and 16.4 percent in the end of 2018.
In addition, VDSC also believed that BIDV’s non-interest income is unlikely to see major growth compared to 2018. In addition, the bank’s operating income is forecasted to increase rapidly due to both personnel and technology investment costs. The risk provisioning costs will continue to be a burden when the on-balance sheet asset quality is still worrisome and the bank has the goal of finalising all debts at Vietnam Asset Management Company (VAMC) this year.
BIDV’s on-balance sheet asset quality is still noticeable with bad debt ratio of 1.7 percent (1.6 percent in the first quarter of 2018) and the provision for bad debts declined to 70.2 percent (80.7 percent in the first quarter of 2018). According to BIDV, after the financial statement was audited, some debts were required to be transferred from group two to group three and four, leading to the reduction in the group two debts and increase in bad debt ratio.
In the first three months of 2019, BIDV cleared off 4.9 trillion dong of debts, less than the 7.8 trillion dong recorded in the first three months of 2018. The bank’s risk provisioning costs decreased by 13.7 percent compared to the same period, accounting for 48.5 percent of the total operating income and 67.3 percent of net profit before provisioning.
However, while the risk provisioning costs in the first quarter last year accounted for two third of the year’s provisioning costs, the costs in the first quarter this year has only accounted for a quarter of the 20.2- trillion dong plan (up by 8.1 percent in 2018, with the aim to clear off all VAMC bonds in 2019). Thus, the risk provisioning costs in the last three quarters of the year are expected to increase faster and put greater impact on the profit growth over the same period of 2018.
