The profit growth plan of Vietcombank in 2021 seems to be modest

27-Jan-2021 Intellasia | Vietnam Finance | 7:22 AM Print This Post

At the recently announced Q4/2020 consolidated financial statements, Vietcombank had planned to grow pre-tax profit by 12 percent in 2021, which seemed to be ‘conservative’.

At the conference on business operation in 2021 that took place about two weeks ago, the Board of directors of Vietnam Joint Stock Commercial Bank for Foreign Trade (Vietcombank, HoSE: VCB) had announced that the bank’s profit before tax growth plan in 2021 was 12%.

However, at the recently announced Q4/2020 consolidated financial statements, it could be seen that this plan of Vietcombank was ‘conservative.

First, business was slowly improving. The total operating income of Vietcombank for the whole year 2020 was 48.998 trillion dong, up 7.1 percent compared to 2019. However, in Q4 alone, the bank’s total revenue was 14.393 trillion dong, increasing by 35%.

One of the important reasons leading to strong growth in Q4/2020 was the prepayment fee from FWD insurance company under the exclusive insurance distribution cooperation contract (bancassurance). This would be an important driving force for Vietcombank’s profit in 2021.

Even considering the credit segment alone, the bank’s Q4/2020 business results also improved markedly when net interest income grew by 20 percent over the same period in 2019, mainly thanks to the decline in mobilisation costs, much higher than the annual growth rate of 4.8%.

In 2021, revenue from credit activities was expected to increase strongly because in Q4/2020 alone, there were more than 56 trillion dong of additional loan balance at Vietcombank, higher than the cumulative increase in the first three quarters of the year (over 49 trillion dong). This increase helped the growth of outstanding loans soar from 6.7 percent (accumulated in three quarters) to 14.3 percent (accumulated for the whole year).

The sharp increase in outstanding loans in the last quarter of 2020 would generate a large amount of revenue that was expected in the first half of 2021 to become a big driver for Vietcombank’s profit growth this year.

Second, the quality of loans in the context of the Covid-19 epidemic was not as bad as expected. According to Vietcombank’s leaders, the total value of restructured loans under Circular No. 01 as of the end of Q4/2020 was about over 5 trillion. This figure was about 5 trillion lower than the total value of restructured loans as of the end of Q3/2020, indicating an improvement in outstanding loan quality.

Along with that, according to the financial report, in 2020, the amount of provision used to handle Vietcombank’s bad debts was only 2.805 trillion dong, much lower than in 2019 (4.502 trillion dong), showing that the pressure on declining property quality was not really great.

Third, provisioning no longer created pressure. In 2020, Vietcombank had set aside a rather extreme risk provision. The yearly cost of provisioning for credit losses was 9.916 trillion dong. However, when excluding the risk provision reversal of 2 trillion dong for loans to credit institutions, the total cost of provisioning was up to nearly 12 trillion dong. In particular, 159 billion dong was the general provision for unlisted corporate bonds, 612 billion dong had been used for general provision for customer loans and 11.144 trillion dong was for specific provision for lending risks.

As a result, the balance of provision for customer loan risks skyrocketed from 10.416 trillion dong at the end of 2019 to 19.367 trillion dong by the end of 2020, equivalent to an increase of 86%.

Meanwhile, the total bad debt decreased from 5.803 trillion dong to 5.229 trillion dong. The bad debt ratio decreased from 0.79 percent to 0.62%. The non-performing loan (NPL) coverage thereby increased from 179 percent to a utopian level of 370%. Even if all restructured debt under Circular 01 at the end of 2020 became bad debt, Vietcombank’s NPL ratio would only be at about 1.3 percent and the bad debt coverage ratio would still be at a very high level, around 170%.

The above factors, along with the measures to promote business in 2021, could be the evidence to consider the 12 percent pre-tax profit growth plan as ‘conservative’ in the expectation that Covid-19 epidemic would continue to be under control.

In fact, the target of six-percent growth in total assets, the expected eight-percent increase in market capital mobilisation of economic institutions and individuals, the planned 12 percent rise in credit balance in 2021 of Vietcombank, could also contribute to this ‘conservative’ view. In 2020, despite beiing heavily affected by the Covid-19 pandemic, Vietcombank’s total assets had still increased by 8.6%, market capital mobilisation of economic institutions and individuals had risen by 11.2 percent and outstanding credit increased by about 14%.


Category: Finance, Vietnam

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