The unsuccessful merger with another bank has made Petrolimex Global Commercial Joint Stock Bank (PGBank) to be in “a dilemma” in business activities.
After failing to merge into Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), by April 2018, PGBank signed a merger agreement with HCM City Development Commercial Joint Stock Bank (HDBank) and was approved in principle by the State Bank of Vietnam (SBV). However, the deal has so far not yet been implemented.
PGBank’s financial statement in the first nine months of 2019 showed that the bank’s pre-tax profit was 164 billion dong, up by 53.5 percent compared to the same period of last year. This result was mainly thanks to the bank’s reduction in risk provisions to 216 billion dong compared to the 294 billion dong recorded in the same period of last year.
Meanwhile, the bank’s operating income was not as expected as revenues simultaneously fell across business segments. Specifically, the net interest income of PGBank was only 632 billion dong, down by 2.6 percent compared to the same period. The income from service activities, foreign exchange trading, and securities business of the bank were respectively 16 billion dong, 26 billion dong, and 11 billion dong; down by respectively 34.6%, 4.8 percent and 56 percent over the same period. The income from other activities increased by 26 percent to 55 billion dong, and income from capital contribution was 14 billion dong.
Thus, the total operating income in the first three quarters of PGBank was only 789 billion dong, down by two percent compared to the same period of last year. Meanwhile, the operating costs rose by 1.5 percent to 408 billion dong. Accordingly, the net profit from PGBank’s business activities only reached 381 billion dong.
The first nine-month business results of PGBank showed that the bank was still making efforts to avoid losses rather than focusing on growth.
In 2011, PGBank’s bad debts started to strongly increase to three percent. Its bad debts continued soar to 8.4 percent in 2011 and 9.5 percent in 2013. By September 30th, PGBank’s bad debt ratio declined, but remained high compared to other banks in the system. Specifically, PGBank’s on-balance sheet bad debts were 694 billion dong, up by 6.2 percent compared to the beginning of the year. In particular, the bank’s debt group five irrecoverable debts accounted for 72 percent of the total bad debts, reaching 694 billion dong. Accordingly, the ratio of bad debts on total outstanding loans to customers rose from 2.96 percent to 3.07%.
According to PGBank’s explanation, its high bad debts is because many corporate borrowers have badly forecasted market trends and demands, leading to overinvestment, excessive capacity, and large inventory, etc. Some customers even recorded imbalance when using loans. They used short-term loans to invest in medium and long terms and encountered shortage in repayment source. Some customers used capital for the wrong purpose, borrowing money to pour into real estate and got stuck.
In the meetings with shareholders, PGBank’s leaders once acknowledged that the after-lending control was not good, the management of mortgaged inventory was not tight enough, etc.
Vietnam National Petroleum Group (Petrolimex) is currently PGBank’s largest shareholder with 40 percent ownership. It is known that Petrolimex has started to build a divestment roadmap in PGBank since 2015 after signing agreement with VietinBank. However, in April 2018. PGBank signed agreement to merge into HDBank. Under the plan, this deal will be completed in June 2020.
As planned, after being merged into HDBank, Petrolimex will own 5.8 percent stake of HDBank, and record an extraordinary profit of nearly 800 billion dong (according to the current price of HDBank of over 26,400 dong per share), helping the bank’s profit in 2020 increase by 10-15%.
According to PGBank’s leader board, both banks have prepared for the merger and hand-over process. However, until now, HDBank has not made any move related to this deal.
Dr Nguyen Tri Hieu a financial and banking expert said that the not very positive business results of PGBank is the main reason why HDBank and any large bank are not very interested to merge with. “PGBank’s growth has not shown any positive signs, thus the merger will be a difficult task for the bank that PGBank merges into” said Dr Hieu.
PGBank’s leaders said that since HDBank’s merger takes longer time than expected, it has negatively affected the business development in general as well as the credit growth of PGBank. The unsuccessful merger has even made a quarter of the bank’s employees to quit in recent years. In the context when healthy banks are still worried about raising capital to meet Basel II standards, it is a dilemma when PGBank, a small-scaled bank, is still struggling to find its direction.
