After three impressive years of growth, VPBank’s total operating income and pre-tax profit in 2018 increased by respectively 25 percent and 13 percent, fulfilling 85 percent of the year’s profit plan. According to Viet Dragon Securities Company (VDSC), the slowdown in income growth is mainly due to the deceleration in lending activities, the segment which contributed more than 80 percent to VPBank’s income in the period of 2012-2017.
The slowdown of FE Credit
VPBank’s consolidated outstanding credit expanded by 21.5 percent in 2018, slightly lower than 2017. In addition, while the outstanding credit of the parent bank maintained a growth rate of above 20 percent, the outstanding consumer loans of FE Credit only increased by approximately 20 percent, much lower than the 40 percent growth rate recorded in 2017.
Notably, according to VDSC, about 80 percent of the outstanding credit arose in 2018 of FE Credit were disbursed in the fourth quarter (Q4). In addition, the outstanding credit was disbursed not only to individual customers (FE credit’s main customers) but also to joint stock companies. Excluding the outstanding loans to joint stock companies, the outstanding loans of FE Credit actually grew by only 11.5 percent, a fairly low growth rate compared to the previous time.
In late 2018, the bad debt ratio (lending to customers) of the parent bank stood at 2.7 percent, slightly down compared to 2017 but considerably higher than other commercial banks’. With the main customers being individuals, households, small and medium-sized enterprises and micro-enterprises and a large proportion of unsecured loans, the bad debt ratio of VPBank was also higher than other banks in the same group.
To control bad debt ratio below three percent, the parent bank cleared more than 3.2 trillion dong of bad debts in 2018, nearly doubled 2017. VPBank used more than 30 percent of its Pre-provision Operating Profit (PPOP), equivalent to 3.7 trillion dong to provision for lending risks, 34 percent higher than 2017.
The quality of FE Credit’s loans also went down in 2018. The company’s bad debt ratio rose to 5.9 percent while it was five percent in 2017. In 2018, FE Credit cleared off more than 7.4 trillion dong of bad debts (50 percent higher than 2017) and used 65 percent of its PPOP to provision for lending losses (55 percent in 2017), up by 44 percent.
VPBank’s recovery of bad debts related to Vietnam Asset Management Company (VAMC) special bonds recorded positive results in 2018. The balance of VAMC bonds which were not provisioned by the end of 2018. VPBank sets plan to settle all of this bond balance by 2020.
VPBank is assessed to have a rather strong capital base. After the private placement in 2017, the total equity of VPBank reached more than 30.5 trillion dong, the highest among commercial banks. With a strong capital base, VPBank has actively invested in digital banking, focusing on all strategic segments such as consumer loans ($NAP), SMEs (SME Connect), individuals (YOLO, Timo), etc.
VDSC believed that the active development in digital platform will help VPBank access customers more easily and significantly reduce operating costs. However, this takes a long time to get such positive results.
In 2018, VPBank acquired more than 73.2 million preferred shares, making its Capital Adequacy Ratio (CAR) to go down compared to 2017. However, the bank’s CAR still satisfies the requirements of both Circular 36 and Circular 41. Currently, VPBank is waiting for approval of the State Bank of Vietnam (SBV) regarding the application of CAR Basel II (Circular 41). The bank retains its profits in 2018 to strengthen its capital sources.
In 2019, VDSC forecasted the lending to customers of the parent bank and FE Credit to be respectively 19 percent and 14 percent. The parent bank will provision more for VAMC bonds, making the provisioning expenses to be similar to 2018, while the provisioning expenses of FE Credit will slightly increase. The bank’s consolidated pre-tax profit will be about 9.3 trillion dong, if excluding the extraordinary income of 856 billion dong recorded in 2018 (from the exclusive insurance with AIA), and its pre-tax profit in 2019 will increase by 11 percent.
