Most banks have announced the drafts of their 2019 business plans, and some of them have even finalised their business targets at the Annual general Meetings (AGMs). The most common point is that while big banks are fairly cautious when setting business goals, many other banks are very optimism.
Being the first banks in the Big 4 group to hold the 2019 AGM, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) is perhaps the most prudent state-owned banks in making business plan, in the context when the bank’s Capital Adequacy Ratio (CAR) is very close to the minimum limit after many years failing to raise capital. It is understandable when the bank even had to narrow down the credit scale and accept loss in the fourth quarter (Q4) 2018 because it could not increase capital.
Closing the year 2018, the credit growth of VietinBank was only 6.1 percent, not completing the plan (eight to nine percent). The bank’s consolidated profit reached 6.730 trillion dong, down by nearly 27 percent compared to 2017. Therefore, VietinBank’s business plan in 2019, despite being built on the basis of retaining all 2017 and 2018 profits for raising capital, remains fairly modest with total asset growth target of two to five percent, outstanding credit growth target of six to seven percent, and pre-tax profit target of 9.5 trillion dong.
Not only VietinBank, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) is also very cautious. Despite taking the lead in 2018 profit and being approved to carry out the Basel II standards (which offers the bank the chance to be granted with higher credit growth limit), Vietcombank only aims to expand credit by 15 percent in 2019, just slightly higher than the 14.6 percent in 2018; and grow pre-tax profit by 12 percent, much lower than the 61.1 percent increase in 2018.
Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) also set a lower credit growth this year (12 percent) while it was 13 percent in 2018. BIDV also cautiously sets a pre-tax profit growth target of 10.8 percent in 2018, reaching 10.5 trillion dong.
Meanwhile, many other banks are showing their optimism with relatively high business goals this year. For example, as being one of the first three banks to be recognised by the SBV as meeting the Basel II standards, Vietnam International Commercial Joint Stock Bank (VIB) does not hide its intention to take advantage of this opportunity to boost operation. VIB’s AGM on March 28th has approved the 2019 business plan, in which the bank’s total assets are expected to increase by 31 percent to 182.908 trillion dong, and total outstanding credit and pre-tax profit are expected to increase by 35 percent and 24 percent to respectively 136.509 trillion dong and 3.4 trillion dong.
For Military Commercial Joint Stock Bank (MBBank), immediately after being approved to apply the Basle II standards, the bank has announced the set of document for the AGM to be held on April 27th. Accordingly, MB aims to attain pre-tax profit of 9.560 trillion dong in 2019, up by 23 percent compared to the realised figure in 2018. To achieve this target, MB expects to develop credit by 15 percent in 2019.
Perhaps the most common point of banks is to raise capital. For example, despite starting to apply the Basel II from late 2018 after being approved, Vietcombank still consider raising capital is one of the key tasks in 2019, in order to ensure compliance with the Basel II.
Accordingly, the bank aims to carry out necessary procedures to get approval from competent state authorities on the plan to increase charter capital, and then raise charter capital from owners’ equity and issue shares through appropriate forms.
In the AGM to be held on April 27th, MB’s BOD will submit the plan to increase charter capital from 21.604,5 trillion dong to 25.840,9 trillion dong (equivalent to about 20 percent). According to MB, the further increasing charter capital is necessary and important for enhancing the bank’s financial and operating capacity and the bank’s competitiveness.
Specifically, the capital increase of MB will ensure compliance and satisfaction of safety standards in banking operation; improve risk management capabilities, investment capacity and ability to expand network; supplement investment capital for other business activities, etc.
For banks which have not met the Basel II, raising capital is more urgent. Speaking at the AGM on April 23rd, VietinBank’s chair of BOD Le Duc Tho said that the bank is proposing the authorities to speed up the process of increasing charter capital.
In the short term, VietinBank will ask the authorities to allow distributing dividends in share in 2017, 2018 and 2019, or retaining all profits for the capital increase. For the 2018 profit, the bank plans to pay dividends at a ratio of 8.03 percent or retain all of the amount.
BIDV also sets a goal to improve financial capacity in 2019, with focus on increasing charter capital from issuing shares to foreign investors and financial investors; and implementing other capital raising solutions such as issuing secondary bonds and increasing capital from the bank’s internal sources, striving to raise equity according to the Basel II standards and meet the requirements according to the roadmap stipulated in Circular 41/2016/TT-NHNN.
Commenting on this issue, a banking expert said that banks’ caution in setting business plan in 2019 and focus on capital raising are understandable as the Circular 41/2016/TT-NHNN will take effect soon.
“Increasing capital is a leading requirement of banks to meet the Basel II if they do not want to narrow the scale of operation. However, in the context when the capital increase still faces numerous difficulties along with the strict capital requirements of the Basel II, banks cannot set high growth targets like previous years,” said the expert.
