In the recent report, Bao Viet Securities Company (BVSC) stated that Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank VCB) still has a lot of room for growth in the coming years.
According to BVSC, the Net Interest Margin (NIM) of VCB will continue to increase thanks to the high proportion of profit-generating assets and higher Lending to Deposits Ratio (LDR). The lower lending rates are partly offset by the increasing proportion of personal loans.
Since VCB has lowered corporate lending rates by 0.5 percent across all terms, BVSC estimated that the average lending rate of VCB will fall from eight percent in the first three quarters of 2019 to 7.8 percent in the whole year 2019, and 7.6 percent in 2020, assuming that VCB will continue to apply the lowered lending rates in 2020. The bank’s average output interest rates are expected to see slight decline in 2020 then gradually increase due to the high proportion of customer loans in total assets.
Meanwhile, the bank’s average mobilisation interest rate is forecasted to slightly fall in 2020 and will increase gradually in the following years, because the mobilisation structure is forecasted to gradually shift to individual segments.
“Since VCB’s LDR is currently 72%, much lower than the latest ceiling requirement of 85 percent according to Circular 22/2019/NHNN, BVSC predicted that VCB will gradually increase this ratio in the near future, thereby helping the bank improve NIM.
Large revenue from bancassurance
VCB’s growth room also comes from the insurance distribution contract with FWD. BVSC’s analysts believed that the bancassurance revenue will contribute about one trillion dong to Net Fee Income (NFI) in 2020, and gradually increase to two to three trillion dong in the following years.
BVSC estimated that VCB committed to sell at least six billion US dollars of insurance premium revenue to FWD over the entire 15 years of exclusive agreement.
Assuming that VCB records 400 million US dollars advance from the exclusive agreement with FWD evenly divided in 2020 and 2021. The revenue from insurance in 2020 therefore grows by 80 percent (39 percent if excluding extraordinary income).
The provisioning costs of VCB will not increase significantly in the coming years thank to the good control of bad debts. The bad debt ratio will continue to fall in the near future as VCB increases the proportion of personal loans the segment with lower bad debt ratio than corporate loans. The bank’s ratio of provisioning costs on bad debts is forecasted to continue being maintained at 180%.
BVSC expected that VCB will successfully increase capital as submitted at the 2019 shareholders meeting (raising charter capital from 37 trillion dong to 55 trillion dong via issuing shares to existing shareholders at a maximum rate of 40 percent from equity source, and then carrying out a private placement of 6.5 percent with the issuance price determined on the market price principle, assuming at 60,000 dong per share after the issuance, equivalent to 84,000 dong per share before the issuance).
If the capital increase is successful, VCB’s CAR under Basel II will increase from 9.4 percent in 2019 to more than 11 percent in the following years, a very safe level to support growth. If the bank fails to increase capital, it is estimated that VCB is still able to maintain CAR under Basel II at about 10 percent thank to the high profits in the coming years.
Based on calculations, BVSC predicted that VCB’s pre-tax profit in 2019 may reach 22.566 trillion dong and exceed 32 trillion dong in 2020.
