In the end of the second quarter (Q2) of 2018, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank, HoSE code: CTG) finalised and cleared off all the bonds of Vietnam Asset Management Company (VAMC). In the last three months of 2018, VietinBank recorded notable changes in its asset structure although the bank’s total assets only declined by 0.7 percent (nearly 8.2 trillion dong) compared to Q3.
The bank’s lending to customers dropped by nearly 26.7 trillion dong. The value of available-for-sale securities saw a reduction of nearly 33.5 trillion dong, and accrued interests also fell by 8.4 trillion dong. In the opposite direction, the value of capital deposited at/ lent to other credit institutions (CIs) rose by 26.5 trillion dong. The value of bonds held to maturity increased by 13.427 trillion dong of new corporate bonds, involving an additional provision of 2.230 trillion dong.
VietinBank did not specify this item in the Q4 financial statement, but analysis of HCM City Securities Company (HSC) stated that the large number of new corporate bonds added in the bonds held to maturity was likely the new VAMC bonds. It means that more than half of VietinBank’s net decline of outstanding credit in Q4 were sold to VAMC.
Considering the term structure, VietinBank’s outstanding loans significantly plummeted on short terms with 25.867 trillion dong of net reduction after the last three months of 2018. Thus, the ratio of short-term loans on total outstanding credit fell from 57.6 percent to 56.4 percent.
The value of customer loans of VietinBank by the end of 2018 reached more than 864 trillion dong, continued to rank the second in the banking system although its growth rate in the year was much lower than the sector’s average.
As forecasted by HSC, the credit of VietinBank will still growth by about 10 percent, much lower than the expected average level of the sector of 14-16 percent, due to the requirement to meet the Capital Adequacy Ratio (CAR).
The low CAR and limitation in raising capital are the two main issues of VietinBank, according to HSC. The current CAR of VietinBank is lower than other banks’. HSC estimated that VietinBank needs to increase its capital by 20 percent, equivalent to about 7.5 trillion dong, in the next two years. However, increasing Tier-2 capital currently becomes more difficult for VietinBank, while increasing Tier-1 capital is a fairly “complicated” problem.
Decision 986 of the prime minister on the Banking Industry Development Strategy until 2020 requires the minimum ownership rate of the State at state-owned commercial banks to be 51 percent in the period of 2021-2025 and 65 percent in the time before 2021. At present, the state ownership at VietinBank is 64.5 percent, lower than the minimum required limit. Recently, leader of Mitsubishi UFJ Financial Group (MUFG) VietinBank’s big shareholder said that it is willing to help VietinBank raise its capital, but it will be difficult to realise due to the foreign ownership restriction as well as the requirement on the minimum state ownership ratio.
Year 2018 is the first year VietinBank left the top five banks in profits. According to the bank’s leader, the reason was due to the reclassification of some loans. The most obvious thing on VietinBank’s financial statement was the disappearance of 7.618 accrued interests. At the same time, the bank’s interest expenses recorded more than 6.5 trillion dong of expenses for other credit activities.
The accrued interest is the income that belongs to the bank but has not been received at the time of accounting, usually including bond interest (paid periodically every year instead of quarterly), the loans which were graced, extended, or the bad debts which were not reclassified. HSC believed that the high balance of accrued interest at VietinBank mainly came from the above reasons.
The higher bad debt ratio, the new VAMC bond arising, the reclassified loans and the decline in accrued interests are the signals pointed out by HSC. They show that VietinBank has been drastically settling the existing bad debts. In addition, some expenses soared significantly, such as the provisions for VAMC’s bonds or other credit expenses.
HSC predicted that the pre-tax profit of VietinBank will increase by 39.9 percent in 2019, reaching 9.435 trillion dong, up slightly compared to the business results in 2017.
