Keywords for banks’ profit expectation in 2019

30-Jan-2019 Intellasia | NDH | 7:30 AM Print This Post

The targets of banks’ business plans are officially specified until the annual shareholder meeting season in April. However, VnEconomy consulted and found optimism from many leaders of the sector.

Currently, only two commercial banks estimate some basic indicators in 2019. Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) set a profit growth rate of 12 percent in 2019, corresponding to about 20.5 trillion dong. HCM City Development Commercial Joint Stock Bank (HDBank) expects its pre-tax profit this year to be 5.077 trillion dong, up by over 26 percent over 2018.

Both Vietcombank and HDBank recorded high profit growth in 2018, reaching about 64 percent. Nevertheless, banks seem to set cautious growth targets this year.

In 2019, the credit tightening policy of the State Bank of Vietnam has been soon set at an overall credit growth limit of only 14 percent.

There are three most basic points that lead to banks’ more cautious bank profits in 2019, including (1) the credit growth continued to be limited at low level, (2) the results achieved in 2018 created a high reference background, and (3) the external world still has many potential instabilities and disturbances and can cause adverse effect.

Nevertheless, talking to VnEconomy, most bank leaders were optimistic about year 2019. Nguyen Dinh Thang, Chair of the Board of directors (BOD) of Lien Viet Post Commercial Joint Stock Bank expected that with numerous major trade agreements that Vietnam signed which gradually took effect, foreign capital will continue to flow strongly, facilitating domestic production and business activities.

Regarding the external world, Thang calculated that major trade conflicts in the world will likely to cool down from the beginning of 2019, when big countries sit together.

In general, Thang said that if in 2019, businesses and banks grasp the opportunities well, the prospect of production and business can be better than 2018.

Nguyen Le Quoc Anh, general director of Vietnam Technological and Commercial Joint Stock Bank (Techcombank) expressed his optimism to VnEconomy. Firstly, even in the context when there were many fluctuations in the world like last year, Vietnam still achieved a high Gross Domestic Product (GDP) growth and internal factors and the resistance of the economy remained good.

Techcombank’s general director said that banks are pursuing a potentially big market which is associated with banks’ retail and service development orientation.

Previously, Quoc Anh said that there is no pressure for Techcombank in 2019. The system with strategies, market share and models that have been built over the years is currently working well. The bank’s revenue has been confirmed through consecutive 13 growth periods, and the remaining task is to make profit be go closely with revenue and minimise the middle buffer.

The buffer between revenue and profit concentrates mainly on bad debts, expenses for risk provisioning, and operating costs.

Along with credit, bad debts and risk provisioning are the fixed keywords when talking about the profit expectation of Vietnamese banks. A large volume of bad debts sold to Vietnam Asset Management Company (VAMC) is expected to mature in 2019.

However, like in 2018, the major part of the difficult period has gradually been handled, many member banks have significantly and substantially lowered the bad debt and accumulated a corresponding source of provisions for risks.

CIR (Cost-to-Income Ratio) is becoming a prominent keyword to calculate profit this year.

Banks recording high profit in 2017 and 2018 such as Techcombank and Vietnam Prosperity Commercial Joint Stock Bank (VPBank) all succeeded in lowering CIR and are managing CIR at a fairly good zone in the system, ranging around 28-35 percent. For the case of Vietnam International Commercial Joint Stock Bank (VIB) of which profit grew by up to 95 percent, CIR was also cut by about 13 percent to about 44 percent. Tien Phong Commercial Joint Stock Bank (TPBank) nearly doubled its profit last year and also cut CIR from nearly 50 percent to 43 percent.

However, the CIRs of most Vietnamese banks are at high level of around 50 percent. The reason for this is said to be market characteristics, with the requirement for continuous expansion of network and workforce.

In 2017 and 2018, banks stepped through a peak period of investment. Many members opened dozens of branches in the past two years, and accordingly, the profitability lag of those new units and the burden of investment costs will start to be better in 2019.

However, in the long-term strategy, Do Minh PhuChair of TPBank, digital banking will play a major role in reducing operating costs and increasing the efficiency of banks’ CIRs, contributing to improve profit.

Phu analysed that the biggest costs in banking operation are the costs in network investment and development, along with the costs for personnel. Digital banking can solve these issues, while competing and attracting customers to promote services and service fee collection is and will be the trend.

Accordingly, digital banking continues to be the main keyword of 2019. Digital banking is not only seen in Mobile Banking, Internet Banking and e-wallets, it is also spreading in the links of each commercial bank’s apparatus. This spread helps reduce costs and personnel compared to traditional development orientation.

Nghiem Xuan Thanh, Chair of the Board of directors of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) also said that 2019 will be the year of digital banking. In the past three years, Vietcombank focused on investment and implementation of the new core banking system, so as to boost service development and continue to shift the revenue structure instead of relying heavily on credit as before.

As developing digital banking combined with retail banking in a potential market of 95 million people with high percentage of young people, commercial banks are quickly accumulating customer base and large payment needs.

In the past three years, the number of individual customers of Vietcombank, Techcombank, HCM City Development Commercial Joint Stock Bank (HDBank), etc. has been increasing rapidly. This is one of the foundations to create another important keyword: CASA (Current Account Savings Account).

Report in 2018 showed that some members have raised CASA to 28-30 percent in the total structure of deposits. The large proportion of low-interest rate deposits has become an advantage which helps reduce the mobilisation and operating costs, increasing profits with the contribution to improve marginal interest in lending.

The increase of CASA is also a result of a real trend, associated with market movements and the economy. While the total export-import turnover of Vietnam was only 200-250 billion US dollar about five years ago, it reached nearly 500 billion US dollars in 2018.

A comparison shows that the economy and market are always moving and expanding, with the demand for transaction and use of services increasing sharply. The market share and profit of banks, accordingly, have no limit. The point is how banks make use of the above keywords.


Category: Finance, Vietnam

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