Invest in Vietnam: Vietnam’s Banking Updates

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June 15, 2016

Disclaimer: the opinions expressed herein are that of RongViet Securities and not of VietnamAdvisors.  This is NOT a solicitation to buy or sell securities.

Listed banks’ 1Q2016 business result: Driven by credit growth

The 1st phase of banking restructuring project ended with some encouraged results in resolving NPL. Total NPL of all system reduced to 2.55% by the end of 2015. NPLs were split out from balance sheets of commercial banks and divided into different parts to handle time to time. Not to mention the ability to recourse, which depends on both internal and external factors, banks in Vietnam at least could now concentrate on improving operation instead of worrying about negative effect of NPL on CARs and assets. To some extend, NPLs and relevant issues must be resolved in 5 or 7 more years (since 2013). Today writing in Analyst Pin-board will be an overview on Q1/2016 of listed banks to assess the recovery of banking profit in a year when there is less fear of bad debts.

Credit to drive total operating income growth
Total operating profit after Q1/2016 recorded at VND26,795 billion (+16% y-o-y), in which income from services increased 28% y-o-y but only contributed 8% to total operating earning (data from 9 listed banks). Net interest income, which is the main source of banking operating activities as it accounted for 82% of total earning in 1Q/2016, grew 12% y-o-y.


Since income interest accounted for approaximately 81% total banking income in 2010-2015 period, credit growth was still the main source of banks’ profit. At the end of Q1 2016, credit growth of the whole banking system was 1.54% YTD, while that of 9 listed banks was 3.9% YTD, highest growth since 2012. However, the growth level of each bank on the list was not the same. EIB and NVB grew slower than the average rate, while VCB and ACB achieved the highest number, 6.3% and 7.6% YTD respectively.


Although most of the banks achieved good growth in credit and interest income, their NIM ratio did not show any improvement compared to Q12015. Contrary to what should be the consequence of the market interest movement since end2015, Income statement of many banks (ACB, BID, CTG, MBB, SHB, STB and VCB) in Q12016 actually shown decrease trend in interest cost and interest yield on operating asset, though at different level and different speed. For example, ACB and VCB had input expenses decrease at higher rate than output expense, leading to the improvement in their NIM p-o-p. EIB is the only exception with slightly increasing in both input and output expense p-o-p. This helped boost EIB’s NIM considerably, from 2% Q12015 to 2.78% Q12016


Operating income was used for operating cost as well as provision expense
Total profit-before-tax (after provisions) in 1Q2016 of nine listed banks reached VND8,599 bn, up by 7% yoy but lower than the growth of operating income. It can be considered that the operating costs and provisions have increased dramatically in Q1/2016 and accounted for the majority of banks income.


The ratio of operating expenses/Total operating income remained over 40% and particularly strong in Q1/2016. According to our research, banking activities cost increased sharply due to two reasons (1) technology investment. With the orientation focusing on the development of retail banking, banks have improved significantly investment in core banking system and operational paradigm shift. Some banks are quite aggressively implementing this orientation, for example: CTG and ACB; and (2) Expenses for staff salaries. The implementation phase of restructuring results in the fact that banks have to decisively cut costs, with employee income are reduced / no increased expense in these years.

Total provision expense of listed banks was about VND5,765 billion (+8% yoy), accounting for c. 40% of operating profit. In which, provision to operating profit ratios of BID and EIB were higher than the average. Whereas the group having this rate fall sharply over the same period in 2015 were ACB, CTG, MBB, STB and VCB. Although footnotes on provision expenses were not presented in the banks’ financial statements, we believe that most of that amount links to VAMC’s special bond. Based on our statistic, an average of 40 – 50% the listed banks’ bad debt were sold to VAMC in 2015. Consequently, with a 5-year-period to make provision, we think provision on VAMC’s bond would peak in 2016 – 2018.


Efficiency did not come along with profit growth
Along with the slight decline in NIM, the performance of banks has shown no improvement. The ROAE and ROAA indicators (*) (trailing 4 quarters) in the banks also declined y-o-y except for ACB, SHB and CTG, which have improving ROAE.

(*) ROAE: return on average equity; ROAA: return on average assets


In brief, credit growth is the key driver for banking segment at this moment when earning is mainly contributed by net interest income. On the other hand, with high demand on investing in retailed banking as well as high cost of resolving issues relating to restructuring project (NPL, quality of management etc.), it is hard to expect efficiency to improve.

Considering government’s high determination on stimulating economic growth (shown by their great supports for businesses recovering), we expect the solutions for banking system will be executed properly as plan. If this is the case, our view is that the recovery rate will not be the same for every bank. Instead, only banks that already completed restructuring program can operate and grow normally, while those still in the middle of restructuring will need more time to recover.

In the next few years, banks need to use their income for technology and labor investments, along with reserve maintaining. Their profit, accordingly, should be growing at stable rate only. Extraordinary growth might be obtained only at some time before 2019.



This report is prepared in order to provide information and analysis to clients of Rong Viet Securities only. It is and should not be construed as an offer to sell or a solicitation of an offer to purchase any securities. No consideration has been given to the investment objectives, financial situation or particular needs of any specific. The readers should be aware that Rong Viet Securities may have a conflict of interest that can compromise the objectivity this research. This research is to be viewed by investors only as a source of reference when making investments. Investors are to take full responsibility of their own decisions. VDSC shall not be liable for any loss, damages, cost or expense incurring or arising from the use or reliance, either full or partial, of the information in this publication.
The opinions expressed in this research report reflect only the analyst’s personal views of the subject securities or matters; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or opinions expressed in the report.
The information herein is compiled by or arrived at Rong Viet Securites from sources believed to be reliable. We, however, do not guarantee its accuracy or completeness. Opinions, estimations and projections expressed in this report are deemed valid up to the date of publication of this report and can be subject to change without notice.
This research report is copyrighted by Rong Viet Securities. All rights reserved. Therefore, copy, reproduction, republish or redistribution by any person or party for any purpose is strictly prohibited without the written permission of VDSC. Copyright 2016 Viet Dragon Securities Corporation.

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