2019 continued to be a successful year for the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV, code BID) when fulfilling 105.6 percent of the annual plan. Specifically, BIDV’s total operating income reached 48.2 trillion dong, up 8.8%. The profit before tax was more than 10.8 trillion dong, an increase of 15.8 percent compared to 2018.
Retail lending was the main driver of BIDV’s credit growth over the past year, with individual and small and medium-sized loans (SMEs) increasing by 21.5 percent and 18%, respectively. Meanwhile, corporate bonds (calculated as a credit following regulations in Vietnam) decreased by 11.3 percent compared to 2018, thereby bringing the total credit growth of BIDV to 12.4%, lower than the 13.56 percent of the whole industry. However, BIDV continued to lead the industry in total credit market share as well as individual lending market share.
A concern of BIDV came from the Bank’s loan net interest margin (NIM) that continued to narrow. BIDV’s NIM had decreased to 2.67%, making net interest income in 2019 decline to only 36 trillion dong despite good credit growth. The reason was that BIDV’s cost of capital increased by 29 basis points while asset yield was almost unchanged, only inching slightly up.
BIDV was still in the process of handling bad debts. In 2019, the Bank recorded 5.78 trillion dong in written off of bad debt, the highest in the industry, while this index decreased in most other banks. Also, in the past year, BIDV had set aside 20 trillion dong of provision for bad debts, equivalent to 41.5 percent of total operating income. The Bank also erased 16.02 trillion dong of bad debt, down 2.7%.
By the end of 2019, overall asset quality improved, with the non-performing loan (NPL) ratio at 1.74%, while the proportion of bad debt provision (LLC) grew to 74 percent from 66 percent in the year before. The consolidated bad debt ratio decreased from 1.93 percent in 2018 to 1.78 percent in 2019. The bad debt ratio of subsidiaries also reduced.
BIDV had also shown positive signs in cost management in the past year. The Bank had well controlled operating expenses, only increasing by 7.9 percent in 2019 thanks to the low cost of assets-related. The cost-to-income ratio (CIR) would also be reduced to only 35.9 percent in 2019. Meanwhile, although credit costs were still among the highest in the industry, this cost had also decreased from 1.88 percent in 2018 to 1.86%.
In Q4/2019, BIDV completed the procedure of issuing 603.3 million new shares (equivalent to 15 percent of the Bank’s capital after raising capital) to a strategic investor, KEB Hana Bank. This deal contributed 20.2 trillion dong to the Bank’s equity. The increase in the capital raised BIDV’s reserves and financial health, increasing capital adequacy ratio (CAR) Basel I and Tier 1 capital of the parent bank to 13 percent and over eight percent, respectively. As of December 31, 2019, BIDV’s total assets reached 1.45874 quadrillion dong, up 13.7 percent compared to 2018, continuing to be the largest joint-stock commercial bank in Vietnam. In 2020, BIDV targeted an consolidated profit before tax of 12.5 trillion dong; NPL ratio below 1.6%; the expected dividend rate at seven percent.
New arises
With the worry of bad debt still there, the outbreak of COVID-19 would certainly affect BIDV when the risk of new bad debt generation, as well as the higher provision costs for the Vietnam Asset Management Company (VAMC) bonds, increased. Not only that, although the CIR of this Bank had decreased in the past four years, Viet Dragon Securities Company (VDSC) thought that CIR would increase sharply in the next two years due to the focus on upgrading their core banking system.
Another challenge of BIDV in 2020 came from the effective implementation of Circular 22. Accordingly, the credit on the loan-to-deposit ratio (LDR) was limited to 85 percent for all commercial banks instead of 80 percent for commercial joint-stock banks and 90 percent for State-owned commercial banks as before. As a result, State-owned banks such as BIDV, which had an LDR of over 85%, were forced to shift capital into the interbank business more to meet the new regulations.
Besides, the State Bank’s orientation on reducing lending interest rates together with stricter management regulations might negatively affect and further narrow NIM of BIDV. Also, the fact that the construction and real estate industries were in a period of low growth or recession would be a severe problem for the banking industry in general and BIDV in particular.
With a gloomy outlook in 2020, SSI Securities Company had lowered its recommendation for BID shares from ‘positive’ to ‘suitable market’ with a one-year target price of 53,300 dong per share. Meanwhile, Viet Capital Securities Company (VCSC) also set a much lower target price of only 33,000 dong per share due to concerns over BIDV’s bad debt settlement speed to profitability.
