Military Commercial Joint Stock Bank (MB, HoSE: MBB) recently released its consolidated financial statements for Q2/2020. One of the most prominent points in this period’s report was the sharp opposite of outstanding loans and customer deposits (deposits mobilised from economic organisations and residents), which was the primary source of banks’ mobilisation.
Accordingly, while MB’s outstanding loans (including outstanding loans and outstanding corporate bonds) in the first six months of 2020 increased by eight percent to approximately 283.5 trillion dong, customer deposits decreased by 5.6 percent to nearly 257.4 trillion dong.
Thus, the situation that customer deposits were larger than credit balance (272.7 trillion dong compared to 262.5 trillion dong), after six months, had reversed. The size of credit outstanding of MB was then significantly larger than the deposit customer scale. It was likely that MB’s LDR (loan-to-deposit ratio) ratio had increased a lot, which meant that the room for increasing LDR, which was a factor that could support profitability, had become narrower (due to LDR being imposed by the State Bank of Vietnam).
In more detail, the reason for the decline of MB’s customer deposits was since economic organisations had withdrawn their deposits sharply, with a net withdrawal scale of over 27.8 trillion dong (equivalent to nearly one-fifth of total deposits of economic organisations at MB at the end of 2019).
Previously, MB had used to depend heavily on deposits of economic organisations (the proportion of deposits of economic organisations tp residents at the end of 2019 was 56/44). It was not difficult to understand when MB was a bank of the army, backed by many economic organisations in the military. The complicated Covid-19 epidemic might have sharply increased the need to use the reserves of financial institutions to cover the costs necessary to maintain operations and business position, resulting in bank deposits intense net withdrawal.
Contrary to the decline of customer deposits, MB’s outstanding loans increased significantly compared to the average level. In fact, estimating outstanding loan alone, the increase in the first six months was only 4.4%. However, the bank had stepped up buying corporate bonds in the period, so credit outstanding just gained by eight percent.
The opposite movement between outstanding loans and customer deposits was one of the reasons that helped MB achieve five percent pre-tax profit growth in the first half of 2020. Specifically, in the period, credit activities used to earn MB more than 15.8 trillion dong of interest income, only 6.6 percent higher than the same period last year. However, because interest expenses (or deposit costs) increased by only 2.9 percent (partly due to a sharp decline in customer deposits), the difference in interest income and interest expenses, also known as net interest income, of MB increased by 9.3 percent to over 9.3 trillion dong.
In addition to the significant increase in credit income, non-credit activities also yielded great net interest. The calculation showed that MB’s total non-credit net profit was 3.593 trillion dong in the period, growing by nearly 28%.
As a result, MB’s total operating income in the first six months of 2020 reached over 12.9 trillion dong, an increase of over 11 percent compared to the same period last year. Along with the control of operating expenses, which increased by 2.6 percent in the period, reaching nearly 4.5 trillion dong, the difference between operating revenues and expenditures, or net profit, of MB reached over 8.4 trillion dong, with the growth of 16.4%.
Therefore, despite an increase of 40 percent in provision expenses to cope with the effects of the Covid-19 epidemic, MB’s profit before tax in the first six months of this year still increased by five percent compared to the same period last year, reaching above 5.1 trillion dong.
Despite increasing provisions, the bad debt coverage ratio of MB remained at a very high level, up to 121 percent although the non-performing loan (NPL) ratio increased to 1.37 percent (from 1.16 percent at the end of 2019).
