In the recent analysis report on Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Saigon Securities Incorporation (SSI) pointed out three factors that made the bank’s pre-tax profit in the fourth quarter (Q4) 2018 to decline by 9.7 percent to 2.886 trillion dong.
Firstly, according to SSI, the Net Interest Margin (NIM) of Techcombank has fallen by about 0.23 percentage point over the same period of 2017 as the outstanding loans to customers remained unchanged, while deposits and deposit certificates increased by 13.8 percent.
Secondly, Techcombank received about 1.446 trillion dong of upfront fee in Q4 2017, creating a high comparison basis.
Thirdly, the operating costs of the bank increased by 0.39 percent in the same quarter.
These factors were offset by a small amount of provision expenses of only 59 billion dong in Q4 2018 compared to the one trillion dong in Q4 2017, mainly because the bank did not record provision expenses for the bonds of Vietnam Asset Management Company (VAMC).
Closing the year 2018, Techcombank became the number one private commercial bank in terms of pre-tax profit with 10.661 trillion dong (up by 32.7 percent) in 2018. The growth of the bank’s pre-tax profit was mainly thanks to the 24.6 percent increase in Net Interest Income (NII) and the 48 percent reduction of provision expenses compared to 2017.
Although Techcombank’s growth of lending to customers was almost the same, the bank’s credit growth still reached 20 percent. The bank is building and storing corporate bond products for individual customers in the form of Available For Sales (AFS) debt instruments. The value of AFS bonds and Held To Maturity (HTM) debt instruments of businesses at Techcombank accounts for about 36 percent of the total customer loans.
For year 2019, SSI estimated that Techcombank has no extraordinary income from divestment, and the main drivers for profit growth from lending activities and activities creating non-interest income such as the fees for distributing corporate bonds and bancassurance.
SSI assessed that the bank has sufficient tools to support income growth in the context of a tighter management of credit growth. This is mainly thanks to the abundant capital, mortgage lending and strong bond and bancassurance distribution.
However, according to SSI, the profit growth and Return on Asset (ROA) and Return on Equity (ROE) of Techcombank may have reached the peak and the bank is unlikely to have a high valuation in the short term. In the long term, this valuation needs to meet the sustainable growth thanks to the bank’s strong business model.
