The unfamiliar capital structure of Tien Phong Commercial Joint Stock Bank (TPBank) became even more different in the first quarter (Q1) of 2020. However, it is not the only unfamiliar structure.
TPBank has recently published its financial statement in Q1 2020 with pre-tax profit growth of 18.4 percent compared to the same period of last year. Although it is a fairly good level in the sector, there is a very significant slowdown.
The average pre-tax profit growth in the period of 2017 2019 of TPBank was up to 76%. Notably, the growth was very steady at above 70 percent each year. This is a remarkable achievement.
Increasing provisions for risks was a relatively big impact factor. TPBank’s credit risk provisioning costs in Q1 2020 doubled compared to the same period of 2019. If excluding provisions, the bank’s profit growth was more than 32%.
In fact, under the impact of the Covid-19 epidemic, the increase in risk provisions is also understandable. In addition, maintaining the momentum of high profit growth in a long time is also very difficult because the credit growth room is getting smaller and smaller. The pre-provisioning profits of 32 percent was also a good increase, in terms of figures.
The special point in TPBank’s Q1 financial statement is not the significantly lower profit growth than the previous period but the “unfamiliar structure” of the bank.
In Q1, TPBank’s customer deposits fell by up to three percent only after three months, equivalent to a decrease of 2.7 trillion dong to nearly 90 trillion dong. Meanwhile, the bank’s deposits and loans at credit institutions (interbank capital) rose by nearly 27%, equivalent to an increase over 10 trillion dong, reaching over 50 trillion dong.
Very few banks have a capital structure that is skewed towards interbank capital like TPBank. Normally, in the majority of banks, customer deposits are always the main source of capital for its stability and sustainability.
For example, for a typical bank like Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), the interbank capital is only less than five percent of the customer deposits, while this ratio at TPBank reaches up to 57%.
TPBank’s development for many years have been associated with this “unfamiliar structure”. In Q1 2020, this structure became even more different when the proportion of interbank capital of TPBank increased from about 44 percent of customer deposits in late 2019 to 57 percent only three months later.
Not only possessing a “different structure” in terms of capital source, at TPBank, the lending structure is also different from most commercial banks when the proportion if very high in medium and long-term loans.
By the end of Q1, 73 percent of the bank’s outstanding credit were medium and long-term loans. Simply speaking, out of four mobilised dong, nearly three dong were used for loans of over one year.
The longer the loan terms, the greater the potential risk. In many cases, the large fluctuations in lending also significantly affected the capital structure if there is liquidity risk. Due to the high potential risks, the longer the loan terms, the higher the interest rates, which means that the bank will make more profits on every dong it uses for lending.
For most Vietnamese banks, the proportion of medium and long-term loans is around 50%, and very few banks have this ratio at more than 70%.
In addition, TPBank is also among banks that have high proportion of corporate bonds in the total credit balance (estimated at over eight percent at the end of Q1 2020), in order to increase the profitability.
The question is whether TPBank’s different structure in terms of both capital source and lending will be really sustainable, in the context when the economy is developing increasingly negatively not only in the short term of the Covid-19 epidemic but also the consequences in the medium and long term.
In Q1 2020, TPBank’s bad debts increased fairly sharply by up to 50%, causing its bad debt ratio to soar from 1.29 percent in late 2019 to 1.87%. This is the reason for the bank’s skyrocketed provisioning costs. As mentioned, this is not uncommon in the context of the complicated Covid-19 epidemic. The notable point is that TPBank possibly has a different bad debt structure when looking at receivables.
Note 15.1 in TPBank’s 2019 audited financial statement mentioned receivables from bond and debt sale contracts amounting to over 5.2 trillion dong. Commonly, TPBank sold bonds and debts to one or more legal entities, causing these bonds and debts to be removed from the bank’s balance. However, they were sold on credit at a scale of over 5.2 trillion dong.
In 2019, TPBank announced that it had cleared all bonds of Vietnam Asset Management Company (VAMC). In fact, in the last few years, many banks have dramatically reduced bad debt ratio but the receivables from bonds and debt sales increased sharply, raising doubts about the unsubstantial bad debt reduction by using buying and selling activities to swap bad debts with other items in the balance sheet. The sale of bad debts to VAMC itself is basically this type of activity. VAMC is only a legal entity, and banks can completely replace it with one or many other legal entities.
