Viet Dragon Securities Corporation (VDSC) has released a note forecasting the pre-tax profit of state-run Joint Stock Commercial Bank for Foreign Trade of Vietnam (VietinBank) to reach VND10.1 trillion (US$430 million) in 2018.
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Customer loans and deposits grew 9.7% year-to-date (YTD) and 13.2% YTD, respectively, during the period. The trend is in contrast with last year (when deposits grew slower than loans). Including corporate bonds, credit growth was a mere 7.6% YTD as investing in corporate bond was slowdown.
In line with the sector's trend, VietinBank has been reducing the proportion of SOE loans and to free up credit room for the SME and retail segments.
In the January - June period, VietinBank's SME and retail loan grew 11% YTD and 13.5% YTD respectively. These two groups is targeted to account for 30% and 25% of VetinBank's total loan books by 2020.
Meanwhile, VietinBank issued around VND8.6 trillion (US$365.62 million) worth of VND-denominated long-term bond in the first half of 2018, making its funding cost rose higher than its assets yield. Therefore, VietinBank's NIM decreased 6 bps to 2.7%. VDSC expected the bank can maintain this margin level for the whole year of 2018.
The non-performing loan (NPL) ratio increased to 1.3% in June 2018 (versus 1.1% in 2017). Hence, bad debt grew by 25% year-on-year. It should be noted that although VietinBank bought back all the amount of Vietnam Asset Management Company (VAMC) special bond in the first quarter of 2018 (around VND500 billion or US$21.25 million), the bank made around VND4.4 trillion (US$187 million) in new provisions for on-balance sheet bad debts.
Therefore, VietinBank's loan loss reserve (LLR) ratio increased to 111% by the end of the second quarter, from 92% by the end 2017.
High provision charge for on-balance sheet bad debt made the bank's earnings lower than VDSC's forecast in the first quarter. Therefore, VDSC expected the bank's provision expense will continue to be high in next five to six quarters and undermine its earnings.
VietinBank's capital adequacy ratio (CAR) almost approached the minimum ratio under Circular 36's requirement and shortfall under Basel II's criteria. Therefore, the Vietnamese lender has been under urgent need to raise its Tier 1 capital. Increasing its general provision fund will also help, though it is not enough.
Meanwhile, raising charter capital will play a key role. Investors all know that such method has not been easy for VietinBank due to the State's ownership is at the minimum of 65% and the government doesn't intend to allocate any State budget into commercial banks.
Decision 986 on August 8, approving the development strategy of Vietnamese banking sector, mentions the government's plan to reduce its ownership in state-owned banks to 51%. Though VDSC expected the processing will not work until 2020 or later, it brings a new hope for VietinBank's capital raising ability.
Currently, Bank of Tokyo-Mitsubishi UFJ is the largest strategic shareholder of VietinBank with 19.73% strategic stake, or equivalent to 734.6 million shares. Meanwhile, IFC Capitalization Equity Fund and International Finance Corporation hold 5.39% and 2.63% shares, respectively. The State Bank of Vietnam (SBV) representing the government in holding state fund of 64.46% shares of VietinBank, or 2.4 billion shares.
