Bank 2017: "Eat and watch the pot, sit and watch the direction"

It is estimated that by the end of September 2017, the entire system continued to increase credit risk provisioning costs, up about 22% compared to the end of 2016, with a balance of about 110 trillion VND.

Illustration photo. Source Internet.

On October 21, the Bank for Foreign Trade of Vietnam (Vietcombank) held a conference to review the first 9 months of the year, reporting the highest profit among banks in Vietnam.

For the second consecutive year, Vietcombank is expected to set new profit records, but its operating direction is changing.

Sustainable orientation

Speaking with VnEconomy, Mr. Nghiem Xuan Thanh, Chairman of the Board of Directors of Vietcombank, said that the bank has approved a restructuring plan until 2020. Although the direction of operations in recent years has been producing good results, Vietcombank is determined to make stronger changes.

Mr. Thanh said that with the lowest interest rate in the market in recent years, Vietcombank has the conditions to reduce lending interest rates, sharing with customers instead of concentrating profits on credit. In the first 9 months of the year, despite applying low interest rates, Vietcombank's deposit growth still reached 18.6%, while credit growth was lower at 15.6%.

“In the restructuring project, we identified a strategy to strongly develop retail banking, shifting revenue sources to services instead of relying on credit,” said Mr. Thanh, and a recent specific step was to recruit foreign experts to take charge of an important link in the structure.

Regarding credit, Vietcombank continues to show a cautious approach by increasing reserve resources; the total reserve fund balance by the end of September 2017 has reached 136.4% of total bad debt balance. According to Mr. Thanh's explanation, to have sustainable profits, we must first look at our potential risks, be proactive so that future profits will be more substantial.

The above proactive approach is also the viewpoint that Mr. Nguyen Duc Huong, Chairman of the Board of Directors of Lien Viet Post Bank (LienVietPostBank), explained in a close way about this year's profit prospects: "eating while watching the pot, sitting while watching the direction".

Mr. Huong said that after 9 months, LienVietPostBank has almost completed the annual profit plan of 1,500 billion; at the end of 2017, the level of over 2,000 billion VND is within reach, but the bank determined it to be around 1,700 billion.

“Our view is to eat and watch the pot, sit and watch the direction. Economic growth has been improving since the third quarter, but many businesses are still facing difficulties, and bad debt in banks in general is still a big problem. Accordingly, we have determined a moderate profit level, and further consider reducing interest rates to share with customers,” said Mr. Huong.

At the end of 2016, LienVietPostBank had a provision/bad debt ratio of 112%. With positive business results in 2017, and the same viewpoint, this bank focused on buying back all bad debts sold to VAMC in 2018.

Special selection

As above, Vietcombank and LienVietPostBank are expected to create their own profit records this year, along with a high ratio of bad debt provisions.

So, in cases where profits are reported high but the provision ratio for bad debt is low, is it virtual or not?

The answer lies in the specific choice, as well as the direction that is attracting many commercial banks to participate, which is also a prominent trend in 2017.

In 2016 and 2017, many members increased retail banking activities, promoted consumer credit, and loans to individual customers. This direction is clearly shown in the shift in asset structure and revenue structure such as at Techcombank, Vietnam Prosperity Bank (VPBank)... And these are also members that are forecast to have extraordinary profits this year.

However, initially the provisioning ratio on bad debt of this group is not necessarily as high as the above cases, even low. Here there is a special choice.

VPBank has just announced its consolidated pre-tax profit as of September 30, reaching VND5,635 billion, up 79% over the same period last year. It is expected that this will be the first member of the private joint-stock commercial bank sector to have profits equal to, or even surpass, some state-owned commercial banks (including those that have been equitized but the State still holds a controlling ownership ratio) by the end of this year.

However, recent updates show that VPBank's provisioning ratio compared to bad debt is quite low, only around 40%. So does this affect profit quality?

Responding to VnEconomy, Mr. Nguyen Duc Vinh, General Director of VPBank, said that the bank has a different risk appetite, going deeper into segments with higher risks but with higher profit efficiency; the product structure and debt structure are also different from other banks.

First of all, all commercial banks must comply with regulations on risk provisioning, be supervised by the State Bank, and undergo periodic audits. The difference in the rate and level of provisioning is related to the specific business choices of each bank.

“The structure of most state-owned banks and other joint-stock commercial banks has 90-97% of secured debt. The provisioning regulation is after deducting the collateral value ratio. But VPBank is the largest unsecured lending bank in the market. For unsecured loans, there is no collateral so there is a different provisioning mechanism. That provisioning amount can be used immediately, enough to handle risky situations,” Mr. Vinh explained.

Accordingly, VPBank's General Director said that, from a certain perspective, it is necessary to look at the total cost of provisioning. As in 2016, VPBank had the largest provisioning cost among private joint stock commercial banks, with VND5,500 billion; this year it is expected to increase to VND7,500 - 8,000 billion.

That is also the general trend that continues to be shown this year. Many banks' profits have increased, but we still have to look at the problem of bad debt.

And according to the updated report of the National Financial Supervisory Commission, it is estimated that by the end of September 2017, the entire system continued to increase credit risk provisioning costs, up about 22% compared to the end of 2016, with a balance of about 110 trillion VND.

According to Vn Economy