Finance & Banking

Last updated: Wednesday, February 20, 2019


Banks’ Meeting Season: Appeal of Earnings

Posted: Monday, April 09, 2018

The season of annual shareholders’ meetings of Vietnamese banks has a warmer atmosphere this year as most achieved better result than last year and looked forward to brighter prospects in 2018.

High profit margins and alluring dividend pay-outs are hot topics this year. In addition, noisy cases relating to unexpected disappearance of deposits worth hundreds of billions of Vietnamese dong pose new administration requirements to banks on path to a more sustainable development.

High profits
VPBank, Techcombank, MB, HDBank and ACB boasted profit growths of over 30 per cent, even above 40 per cent and above 60 per cent. This has excited their shareholders.

Some shareholders raised the question: Why was the State Bank of Vietnam, assigned credit growth for the year at 15 - 16 per cent and total assets growth of some 20 per cent, while profit growth is expected at many times higher than these two criteria?

Giving an insightful analysis into lenders’ profitability this year, consumer credit and retail credit with thick net margins play a vital role in profit growth. Another important source will come from bad-debt settlement. From 2016 to 2017, some banks completed their debt bond sales to the Vietnam Asset Management Company (VAMC) like Vietcombank, Techcombank, MB and VietinBank. Settling accrued bad debts will reduce provisioning burdens and banks are able to reverse provisions and increase profits.

Securities and insurance are also important contributors to banks’ huge earnings. For example, VPBank has financial arm FECredit; Techcombank earns a lot from affiliated securities members; and HDBank enjoys more returns from HD SAISON. Many commercial banks have reaped insurance commissions. Techcombank, SHB, Sacombank, VietinBank and other lenders signed big insurance deals with foreign life insurers, a driver for their vigorous service revenues in 2017.

Dividends not for all
HDBank, VPBank and VIB have often led the banking system by dividend payout ratio in recent years.

According to an information source from HDBank, its profit was much higher than that of previous years. It will continue to pay high cash and stock dividend rates to its shareholders, expected at 30 per cent. In previous years while many banks did not pay dividends or paid less than 5 per cent, mostly in stock, HDBank still paid 10 per cent in cash.

Large State-controlled commercial banks such as Vietcombank, BIDV and VietinBank had impressive business results, but profit distribution plans are still open. As they are controlled by the State, their dividend plans will affect State budget revenue, making it hard for them to decide. For example, Vietcombank obtained a record profit last year, but a greater cash and stock payout ratio to shareholders needs to have their plans approved by competent authorities. Therefore, their dividends are forecast to be moderate, unlikely to be very high.

However, some commercial banks persist in not paying dividends even though they work efficiently. Techcombank is a special case: Eight consecutive years without dividends. Its Annual General Meeting of Shareholders also approved not to pay dividends for continued growth and capital base consolidation.

After the first year of being restructured under the new scheme, Sacombank obtained profits beyond the target and settled a large amount of bad debts. Nevertheless, looking at financial indicators, it does not come as a surprise if Sacombank continues to not pay dividends in the next few years.

Overheated deposit safety debates
The sudden disappearance of customers’ deposits worth tens or hundreds of billions of Vietnamese dong stirred up the public, fuelling up suspicions of banks’ reputation on deposit security. In fact, both customers and shareholders need safety. Depositors are wary of their money security while shareholders fear of direct impacts from such cases as a result of compensation.

Since previous meetings, many shareholders raised concerns over deposit security. They urged banks to apply Basel II substantially instead of using this standard as a means of polishing their image.

To this effect, the State Bank of Vietnam (SBV) announced that it will officially issue a circular on deposit transactions in Vietnamese dong and foreign currencies between credit institutions and individuals with the main objective of ensuring safety for customers. In addition to forcing lenders to carry out savings transactions at banks, the SBV is considering some new contents.

In general, each bank has its own business story in 2017 but all have enjoyed a successful year. In 2018, net earnings of listed banks are projected at over 20 per cent and their returns on equity (ROE) are estimated at 14 per cent. In addition, more of their bad debts will be settled in 2018 as well. Profitability is still a story of interest in 2018.

Bao Chau

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