Banks win big from services

13-Apr-2021 Intellasia | Dau tu Chung khoan | 5:02 AM Print This Post

The credit growth in 2020 is a hot issue for the banking industry when the State Bank of Vietnam (SBV) offers three scenarios for credit growth, in which the lowest is eight percent, the highest is 12%, and the target is 10-12%. The credit limit is allocated to each bank at no more than 12%.

The credit growth in the lowest scenario is likely to become the direction of the regulator. However, many banks propose high credit growth plans such as Vietnam International Commercial Joint Stock Bank (VIB) with 31%, Maritime Commercial Joint Stock Bank (MSB) with 25%, Orient Commercial Joint Stock Bank (OCB with 20%, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) with 12%, etc., due to their “ambitious profit plans”. Specifically, Orient Commercial Joint Stock Bank (OCB) expects to achieve more than five trillion dong of pre-tax profit, while this number is 10.6 trillion dong for Asia Commercial Joint Stock Bank (ACB), 7.5 trillion dong for VIB, 3.280 trillion dong for MSB, 25.2 trillion dong for Vietcombank, 13 trillion dong for Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), etc. significantly higher than the realised figures in 2020.

Until now, since credit activities have accounted for a large proportion in the profit structure of banks, with the tightening credit move of the management authority, shareholders questioned banks’ leaders at the annual shareholders meeting (AGMs) about the feasibility of the profit plans as well as the credit growth targets. Leaders of banks confidently said that the credit growth assignment will be flexibly implemented by the SBV as in 2020, which means that banks’ credit growth limit will be loosened.

For example, from early 2020, VIB was assigned a low credit growth limit but it then was extended, based on factors such as credit quality, compliance, and transparent governance. Chair of the Board of directors (BOD) of VIB said that in recent years, the bank has set credit growth targets of 23 — 30%, much higher than the industry’s general target, but they have been achieved.

According to general director of OCB Nguyen Dinh Tung, the interest rate level in 2021 will be stable at a low level and this is a condition to stimulate credit demand. Thus, the credit growth goal of OCB this year will be equal to that of last year, which is no less than 20%.

In the context when the economy is heavily affected by the Covid-19 epidemic, the SBV temporarily assigned low credit growth limits in the first quarter of 2021, showing the flexibility and suitability in the management of the authority. This does not affect the credit granting activities of banks, because the demand for loans is often low in the first quarter of the year and will gradually increase afterwards.

Expectation for non-interest income

In 2021, Military Commercial Joint Stock Bank (MB) aims to expand pre-tax profit by 25 — 30 percent compared to 2020; develop credit accordingly to the assigned limit, striving to reach the highest level; control bad debt ratio of the consolidated bank below 1.3%; promote the cross-selling capacity of the group, increasing the revenue by 40 — 50%.

Meanwhile, BIDV targets a more than 40 percent growth in consolidated pre-tax profit in 2021, and bad debt ratio of no more than 1.6%. The bank’s general director shared that the driving force for growth will come from the net interest income and non-interest revenues, recovery of off-balance sheet bad debts, cost savings, etc.

For VIB, the bank’s leader said that the pre-tax profit target of the bank is set at 29 percent this year. the bank not only focuses on the traditional credit segment which are home loans and car loans, but also concentrates on fee collection segments, and non-credit and digital banking services.

VIB and many other banks also have expectation for the “bancassurance pie”. Last year, bancassurance channel was the main growth driver of VIB’s service segment with more than 41 percent contribution to the total revenue (revenue from insurance commissions in 2020 was more than 1.217 trillion dong, up by 9.5 percent compared to 2019). With the signing of an exclusive life insurance distribution cooperation with Prudential in late 2015, the revenue from bancassurance channel of VIB has continuously increased over the past four years.

For Vietcombank, Saigon Securities Incorporation (SSI) assessed that the bank is likely to expand its income from bancassurance by 60 percent this year. In 2021, Vietcombank plans to expand its total assets, deposits and credit by respectively six percent, eight percent and 12%. The bank also aims to control the ratio of bad debts on total outstanding loans below one percent and Net Interest Margin (NIM) of 3.1%, and achieve pre-tax profit growth of 12%.

Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) is also highly appreciated by SSI for its ability to make profits from bancassurance channel. In mid-2020, VietinBank and Manulife Vietnam signed a 16-year exclusive cooperation contract on distributing life insurance products via the bank. SSI estimated that the upfront fee that VietinBank receives from the deal is about 350 million US dollars. The bank’s income from bancassurance will grow by 30 — 50 percent compared to the same period in the next five years.

By the end of November 2020, Asia Commercial Joint Stock Bank (ACB) and Sunlife signed an exclusive insurance contract with an upfront fee of 370 million US dollars (equivalent to 8.5 trillion dong), much higher than the upfront fee that banks with similar asset scale received from their exclusive insurance contracts. According to Vietcombank Securities Company, the high upfront fee earned by ACB is thanks to the bank’s insurance sales of 939 billion dong in 20219, ranking the 6th in the whole banking system.

Over the past year, many banks reaped huge profits from cross-selling insurance products. For example, the income from insurance business and services brought nearly 5.850 trillion dong to MB in 2020, an increase of 39 percent compared to 2019, and accounted for more than 71 percent of the total service income of the bank. Similarly, insurance business and services earned an income of 2.575 trillion dong for Vietnam Prosperity Commercial Joint Stock Bank in 2020.

Some banks also won big from investment securities in 2020 and continue to expect positive results in 2021.

In addition to boosting non-interest income, banks also pay attention to strengthening the settlement of bad debts to reduce provisions for risks, thereby completing the profit plan. For example, in 2021, BIDV targets to handle about 24 trillion dong of bad debts.

Concerning bad debts, Circular 01/2020/TT-NHNN is being revised in the direction that restructured debts have to be provisioned. Many people believe that bad debts will increase according to the number of businesses in the category of debt restructuring and rescheduling in accordance with Circular 01. That is the reason why banks had to increase the bad debt coverage ratio in late 2020. Vietcombank recorded the highest bad debt coverage ratio in the system which was 377%. The bank’s risk reserve fund by the end of 2020 was 19.344 trillion dong.


Category: Finance, Vietnam

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