Where do the huge profits of six listed banks come from?

22-Feb-2020 Intellasia | Vietnam Finance | 6:02 AM Print This Post

In 2019, seven commercial banks in the Vietnam’s banking industry had pre-tax profit of more than 10 trillion dong, of which six are listed banks, including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Vietnam Prosperity Commercial Joint Stock Bank (Techcombank), Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and Military Commercial Joint Stock Bank (MB).

Among these six banks, Vietcombank takes the lead with pre-tax profit reaching up to 23.1 trillion dong, followed by Techcombank with 12.8 trillion dong, VietinBank with 11.7 trillion dong, BIDV with 10.8 trillion dong, VPBank with 10.3 trillion dong and MB with 10 trillion dong.

Considering profit growth, VietinBank is in the first position with 75%. However, this is a special case because the profit base in 2018 was unexpectedly low. Considering the growth in two years, the rate is only 14 percent per annum.

It can be said that the leader in profit growth in 2019 is MB with an increase of 29.2 percent compared to 2018, followed by Vietcombank with 26.6%, Techcombank with 20.4%, BIDV with 14.8 percent and VPBank with 12.3%.

In terms of profit components, credit investment segment still brings an overwhelming profit amount.

In 2019, the net interest income from credit-investment accounted for up to 83.9 percent of the total operating income of VPBank. VietinBank also heavily depended on this segment with a proportion of 81.9%.

Vietcombank, BIDV and MB were less dependent on credit-investment, with proportions of net interest income of this segment of the total operating income reaching respectively 75.6%, 74.7 percent and 73%.

Techcombank was least dependent with 67.7 percent proportion.

However, the above “ranking” will have a certain change if including the income from the debts which were brought out of the balance sheets by provisions. In essence, this is still a source of income from credit activities.

In general, if including the income from the off-balance sheet debts, credit-investment segment still brought over 80 percent of operating income to the above-mentioned banks, except for Techcombank.

In contrast, Techcombank has the highest proportion of non-credit income. Specifically, the net profit from non-credit activities of Techcombank (after excluding net interest income from other activities mostly off-balance sheet debts) accounted for 23.7 percent of total operating income.

MB is also fairly positive with the proportion of net profit of total operating income reaching 18.5%, followed by Vietcombank with 17.7%, VietinBank with 14.4%, BIDV with 13.9 percent and VPBank with 10.6%.

The revenue sources that make up the total operating income play an important role generating profits, but there are still two other factors that are also strongly influencing, including operating costs and the provision expenses for credit losses.

For these top six banks, the operating costs only “consumed” 40 percent of their total operating income (this ratio of most other banks is higher than 40%).

The best case is VPBank with only 33.9 percent in 2019, followed by Vietcombank with 34.6%, Techcombank with 34.7%, BIDV with 35.9%, VietinBank with 38.8 percent and MB with 39.4%.

While operating costs eroded a fairly similar proportion of the operating income of the six banks, the provision expenses eroded a very different proportion of the total operating income of the six banks. It is only 4.4 percent at Techcombank, but 14.8 percent at Vietcombank, 19.8 percent at MB, 32.1 percent at VietinBank, 37.6 percent at VPBank, and 41.5 percent at BIDV.

If this proportion is high, it, on one hand reflects that the bank is using a lot of resources to deal with the outstanding bad debts, and on the other hand reflects that the bank’s risk-taking business portfolio. However, it is not really positive if this proportion is very low, because it means that the bank is approaching the minimum threshold of risk provisioning, the room for lowering provision expenses is limited, and the provision is likely to increase high in the future and could significantly impact profit growth.

 


Category: Finance, Vietnam

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