The analysis centre of Saigon Securities Incorporation (SSI Research) has released an updated report on Military Commercial Joint Stock Bank (MB). The report mentioned that small and medium-sized enterprises (SMEs) are the cause of MB’s bad debt increase.
Specifically, MB’s bad debts rose up by 38 percent to 4.005 trillion dong compared to the beginning of the year, and the group 2 debts increased by 65 percent to 4.785 trillion dong (after MB cleared off 1.368 trillion dong of bad debts). The bad debt ratios before and after recovering debts of MB were respectively 2.15 percent and 1.62%, the highest level since the third quarter (Q3) of 2015. By the end of 2019, these ratios were respectively 1.87 percent and 1.16%. For the parent bank, these ratios also increased to 1.84 percent and 1.46%, respectively, compared to the 1.54 percent and 0.98 percent recorded in the end of 2019. According to MB, the increase in bad debts was due to SME customers, with bad debt ratio soaring to 2.5 percent from nearly two percent in Q4 2019. The bad debts of individual customer segment did not record significant increase.
According to observation of SSI Research, the bad debt ratio of MB has been on an uptrend since the end of 2017 when the bank restructured loans to SME customers. It usually takes three to four years to restructure a group of customers. Therefore, SSI Research’s report estimated that the bad debts of SME customers were mostly handled in 2019. However, due to the pandemic, the bank may need more time to settle this issue.
Nevertheless, SSI Research realised that MB has been making efforts to solve the bad debt problem. The bank’s provisions for risks stood at two trillion dong, up by 117 percent over Q1 2019, of which the provisions of the parent bank were 1.628 trillion dong, up by 126.2%.
MB’s outstanding loans and mobilised capital in Q1 fell by respectively 1.2 percent and nine percent, in contrast to the growth in the same period of 2019 which were 8.8 percent and 2.4%, respectively.
Except the loans to foreign-invested businesses, MB’s loans to all customer groups decreased. The personal loans by the end of Q1 2020 were 100.7 trillion dong, down by 1.4%, of which 8.220 trillion dong were from MB Shinsei, down by 4.4%. the loans to joint stock companies and limited companies as well as state-owned enterprises fell by respectively 0.8 percent and 0.03%.
According to MB, the slow growth is a result of MB’s active move in restricting new disbursements as well as increasing debt recovery whenever customers generate enough cash flows.
Regarding capital mobilisation, when customers’ deposits and valuable papers fall, the bank generated a net borrowing status on the interbank market. Although this cash flow will support the average mobilisation costs in the short term, SSI Research does not appreciate the deep decline in customer deposits.
MB’s deposits from individual customers have steadily increased in the last five months. In Q1 2020, the balance was 125 trillion dong, 4.6 percent higher than the previous quarter, and 16.8 percent higher than the same period of last year. Meanwhile, the deposits from corporate customers dropped by 25 percent over the beginning of the year after rising by nine percent in Q4 of 2019. Although there were strong fluctuations between the quarters in terms of the deposits of corporate customers, the decline in Q1 was the largest in 16 quarters.
MB’s Current Account Savings Account (CASA) in Q1 2020 declined to 33%, equivalent to the first three quarters of 2019. Besides the story of some large corporate customers of MB switching from demand deposits to term deposits, the CASA fluctuations between Q4 2019 and Q1 2020 may have stemmed from a number of professional activities, such as underwriting, which often makes cash flows very large at the end of the year.
However, since these CASA amounts were used for payment obligations of customers, most of that will be used up in Q1 of the next year. Therefore, according to SSI Research, the CASA increase in Q4 2019 was only due to seasonal factors and CASA of about 33 percent is normal for the bank.
