A lucrative year for Vietnamese banks

Profitability ratio improves

Preliminary data announced in early 2018 show impressive increases in profits by many banks in 2017. A National Financial Supervisory Commission (NFSC) report shows that the after-tax profits of the entire banking sector grew 44.5 percent compared with 2016. The Return on Assets (ROA) and Return on Equity (ROE) ratios also increased, reaching an estimated 0.69 percent and 10.2 percent, respectively (in 2016, these were 0.56 and 8.05 percent). “While the profitability ratio of credit institutions in some other Asian countries increased just slightly or continued a downward trend since 2012, that of Vietnamese credit institutions has grown strongly,” NFSC observed.

The Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) currently takes the lead in terms of profitability. Nghiem Xuan Thanh, Chairman of the Board at Vietcombank, said the bank’s pretax profits, including provisions for credit losses, totaled more than VND17.2 trillion in 2017, a rise of 17.5 percent compared with 2016 and equivalent to 111 percent of the annual plan. After deducting provisions, its pretax profits reached nearly VND11.02 trillion, up 32.9 percent compared with 2016 and exceeding the annual plan by 16 percent. This was the highest level of pretax profits ever achieved by a Vietnamese bank.

The Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) ranked second, with 2017 profits exceeding VND9 trillion. At a recent meeting held to summarize the bank’s 2017 results and develop its tasks for 2018, VietinBank General Director Le Duc Tho said total merged assets reached more than VND1,100 trillion in 2017, up 15.3 percent compared with 2016 and equal to 101 percent of the annual plan. Outstanding credit balance reached VND839 trillion, up 18 percent; total capital resources reached an estimated VND1,000 trillion, up 16 percent and equal to 102 percent of the annual plan. Pretax profits totaled an estimated VND9.2 trillion, equal to 105 percent of the annual plan; the ROE and ROA ratios reached 12 percent and one percent, respectively.

Profits of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), also exceeded the target set by its annual shareholders meeting, reaching a record pretax level of VND8.8 trillion. Profits by the Military Commercial Joint Stock Bank (MB) totaled more than VND5.35 trillion, up 44.3 percent compared with 2016 and equal to 124.5 percent of the annual plan. This was also the highest profit growth achieved by this bank so far, ranking MB among the leading commercial joint stock banks in Vietnam in terms of profitability. The 2017 pretax profits of the Tien Phong Commercial Joint Stock Bank (TPBank) topped VND1.2 trillion, up 70.5 percent compared with 2016 and exceeding the annual plan by 55.6 percent.

Expectations for 2018

Economists attributed the profit growth to increases in business demand for loans. According to NFSC, earnings from credit activities continued to account for a large percentage of credit institutions’ net operating incomes. Specifically, 2017 net profit from credit activities of the entire banking sector was up 33.1 percent compared with 2016 and accounting for 79.1 percent of its net operating incomes (against 76.4 percent in 2016). The net income margin ratio increased from 2.74 percent in 2016 to nearly three percent in 2017. Incomes from capital contributions and stock purchases grew 3.4 times. Net incomes from service activities rose 34.7 percent.

In 2018, the financial system’s capital supply for the economy is forecast to grow about 19.3 percent compared with 2017. It will be restructured in a way that will lessen the dependence on credit institutions and increase medium and long-term supplies from the capital market. These are expected to grow 22.5 percent compared with 17.5 percent from credit institutions. Credit growth is predicted to remain stable and equal the annual growth rate of the past three years, 18-19 percent. The percentage of medium and long-term loans is forecast to decrease while short-term loans are expected to grow. Deposit and loan interest rates are forecast to fluctuate within a range of 0.2 percentage point.

NFSC released optimistic forecasts about credit institution profits in 2018. Bad debts are expected to be dealt with more quickly and their incomes are predicted to grow, paving the way for credit institutions to lower lending interest rates.

The results of the latest business trend survey conducted by the State Bank of Vietnam’s Monetary Forecasting and Statistics Department in December 2017 show that credit institutions have great expectations for their profits in 2018. Specifically, 56.3 percent of those surveyed said their current business situation is “good” (the percentage was 52.2 percent in the late third quarter of 2017 and 54 percent at the same time in 2016), 11.5 percent of which said their situation is “very good”. Most credit institutions spoke about positive changes in the fourth quarter of 2017 and expected further improvements throughout 2018.