CHAPTER 2: REAL SITUATION OF OWNERSHIP STRUCTURE AND FINANCIAL
2.1. Overview of ownership structure and financial performance of Vietnamese commercial banks
2.2.2. Financial performance of three Vietnamese Joint-stock Commercial banks with the State
Table 2.2: Changes in some indicators before and after the equitization of BIDV, Vietinbank and Vietcombank (Unit: billion VND)
Bank BIDV Vietinbank Vietcombank
2011 2021 Change
(%) 2008 2021 Change
(%) 2007 2021 Change
(%) Total assets 405,755 1,761,696 334.2% 193,590 1,531,587 691.15% 197,408 1,414,673 616.62%
Total equity 24,390 86,329 253.9% 12,336 93,650 659.16% 13,552 109,117 805.17%
Charter
capital 12,948 50,585 290.7% 7,717 48,058 522.75% 4,429 37,089 737.41%
Loans to
customers 293,937 1,354,633 360.86% 120,752 1,130,668 836.36% 97,531 960,750 885.07%
Deposit from
customers 240,508 1,380,398 473.95% 121,634 1,161,848 855.20% 141,589 1,135,324 701.84%
Profit before
tax 4,220 13,548 321.04% 2,436 17,589 622.04% 3,192 27,389 758.05%
Source: Author's own calculation
Total assets:
During the period, the above banks have positive growth year by year. In general, Vietcombank has had the smallest size while BIDV has been the biggest bank. Notably, in 2015, MHB merged with BIDV, making BIDV the bank with the largest total assets in the Vietnamese banking system. 2015 is also the year witnessing the strong rise of Vietinbank and Vietcombank in terms of total assets. By the end of 2021, BIDV's total assets reached more than VND 1.76 million billion, up 16% compared to the beginning of the year. VietinBank reached VND 1.53 million billion, up 14%. Vietcombank reached more than 1.4 million billion VND, up 7% compared to the end of 2020.
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Chart 2.1: Total assets growth of BIDV, Vietinbank and Vietcombank over the period 2009 -2021 (Unit: billion VND)
Source: Author's own composition
Total equity:
The equity of the three joint-stock commercial banks with the State ownership of over 50% charter capital has risen steadily over time. In contrast to the total assets target, BIDV does not lead the three banks in terms of total equity, and its growth pace is very moderate. Vietinbank's charter capital grew to 37,234 billion VND in 2013, with total equity reaching 54,074,666 billion VND, thanks to the completion of the sale of shares to strategic shareholder BTMU and the issuance of extra shares to current shareholders (up 61% compared to 2012). On this basis, Vietinbank became a joint-stock commercial bank with the greatest charter capital and equity among state-owned commercial banks in general and the whole Vietnamese commercial banking sector until 2018.
200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
BIDV Vietinbank Vietcombank
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Chart 2.2: Total equity growth of BIDV, Vietinbank and Vietcombank over the period 2009 -2021 (Unit: billion VND)
Source: Author's own composition
After the State Bank issued Circular 41/2016/TT-NHNN "prescribing the capital adequacy ratio for operations of banks and/or foreign bank branches" effective from January 1, 2020, Vietnamese banks, including state-owned commercial banks, were urgent to come up with plans to meet the Basel II minimum capital adequacy ratio of 8%. 2019 witnessed strong growth in equity through the increase of charter capital of Vietcombank with the private placement of shares and BIDV with the strategic cooperation with KEB Hana Bank. However, charter capital remains insufficient, undermining the resilience of government-owned banks and reducing their market dominance.
From 2020, on the legal basis of Decree 121/2020/ND-CP, big banks expedite the expansion of charter capital by suitable forms with a preference given to the issuing of dividend-paying shares to both increased capital and raise capital adequacy ratio so that
0 20,000 40,000 60,000 80,000 100,000 120,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
BIDV Vietinbank Vietcombank
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it can be granted a better credit growth rate. Agribank, on the other hand, is a 100%
State-owned bank that can only raise capital from the state budget. In fact, the race to increase charter capital does not stop within the large banks but in the whole banking system. According to the data of the State Bank of Vietnam, the charter capital of four current state-owned commercial banks and three banks with the dominant State capital reached VND 169,690 billion as of September 30, 2021, accounting for 24% of the total credit institution system's charter capital.
Loans to customers and Deposit from customers:
Along with the decline in State ownership in the banking system, the credit and deposit market share of commercial banks with the State ownership of over 50% charter capital has steadily decreased over time, although it still holds a overwhelming advantage over other banking groups in the system.
Chart 2.3: Credit growth of BIDV, Vietinbank, Vietcombank over 2018-2021
Chart 2.4: Deposit growth of BIDV, Vietinbank, Vietcombank over 2018-2021
Before 2020, limitations due to small equity capital, high financial leverage, frequent distribution of retained earnings to support the SBV's macro objectives, and limited space to dilute the government ownership ratio made Vietinbank's credit growth unsatisfactory (below 10%) and had a larger shrinking of market share than other banks.
Because of the progressive decline in the favorable effect of private bond issuance, credit
6%
8%
10%
12%
14%
16%
18%
2018 2019 2020 2021
BIDV Vietinbank Vietcombank
6%
8%
10%
12%
14%
16%
18%
2018 2019 2020 2021
BIDV Vietinbank Vietcombank
Source: Author's own composition
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growth at BIDV has slowed. Vietcombank, on the other hand, is the only state-owned commercial banks bank with loan growth that exceeds the system's average.
Decree 121/2020/ND-CP, which was released in 2020, has given “Big 4” banks the opportunity to boost capital and promote lending development in the medium and long term. If four state-owned commercial banks accounted for approximately 53% of the credit market share in 2009, by mid-2020, these banks would account for roughly 46.8%, where three banks, Vietinbank, Vietcombank, and BIDV would account for about 34%
of the credit market share. The impact of Decree 121 was first seen in 2021, with the state-owned commercial banks having a total loan amount of almost VND 4.75 million billion, a rise of 11.14%, accounting for more than 45.8% of the economy's outstanding loans. BIDV has a total outstanding loan of 1,354,633 billion VND, which keeps it in first place in the banking system (more than 13% market share), although growth is slow.
Meanwhile, Vietcombank has the smallest outstanding customer loan in the 3 banks, at VND 960,750 billion, but the highest outstanding loan growth rate, at over 14%. In 2021, Vietinbank will have a greater total loan balance than Vietcombank, but it will increase at a slower rate (11% ).
Regarding capital mobilization, customer deposit growth at these banks always followed the same trend as loan balance growth at different points in time to optimize profit margins. The discrepancy in deposit growth, on the other hand, is more visible than the divergence in credit growth. In the midst of the complex Covid-19 pandemic, Vietnamese banks cut interest rates to boost the economy, causing consumers to shift their investment directions to other profitable channels.
Althought the deposit interest rate has consistently been the lowest in the market for many years, customer deposits at the "Big 4" banks have grown at a rapid pace, especially throughout the Covid 2 years. This is due to the fact that big banks have a nationwide network, a strong brand recognition, and are where significant corporations deposit money. Furthermore, these banks are competing for demand deposits (Current Account Savings Account- CASA) which helps to reduce capital costs. If the bank can
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sustain a strong demand deposit growth rate relative to total mobilization, it will be able to offset the cost increases from term deposits and bond issuance. Vietinbank's customer deposit growth rate will reach 17.3% by the end of 2021, the highest in the past four years, with the proportion of CASA deposits/total capital exceeding 20% in 2021. The growth rate of capital mobilization of BIDV and Vietcombank are 12.53% and 10%, respectively, compared to the industry average of 9.2%.
Profit before tax:
Chart 2.5: Profit before tax of BIDV, Vietinbank and Vietcombank over 2018-2021
Source: Author's own composition
Vietcombank's profit before tax always leads the group of 3 joint-stock commercial banks with the State ownership of over 50% charter capital in the period 2018-2021, with an average growth rate of 27%, followed by Vietinbank and BIDV with 24% and 14% respectively. In 2018, while most banks announced increased profits, Vietinbank's pre-tax profit was VND 6,730 billion, a decrease of 27% compared to the previous year due to the implementation of the restructuring plan associated with bad debt settlement,
14%
24%
27%
0%
5%
10%
15%
20%
25%
30%
0 5,000 10,000 15,000 20,000 25,000 30,000
BIDV Vietinbank Vietcombank
Unit: billion VND
2018 2019 2020 2021 4 year average growth
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at the same time running out of "room" for credit growth and not being approved to increase capital.
Due to the low profit background in 2018, Vietinbank recorded a sudden increase in profit in the next 2 years at 75% and 45%, then a slight increase in 2021. BIDV's pre-tax profit in 2020 reached VND 9,026 billion, down 16 % for implementing debt restructuring, lowering interest rates and exempting interest and fees for businesses and people because of Covid-19. In 2021, due to the reduction of risk provisions, BIDV achieved a profit of 13,548 billion dong, a record growth of 50% compared to the previous year. After a flat profit in 2020 because of pushing bad debt provision to a record level, in 2021, Vietcombank's consolidated pre-tax profit is nearly VND 27,400 billion, up 19% - continuing to hold the top position in the industry.
Profitability and bank efficiency:
Banks' financial performance is reflected in net profit margin (NIM), return on total assets (ROA) and return on equity (ROE).
Chart 2.6: NIM of BIDV, Vietinbank and Vietcombank over 2018-2021
Source: Author's own composition
2.75%
2.94%
2.83%
3.13%
2.0%
2.5%
3.0%
2018 2019 2020 2021
BIDV Vietinbank Vietcombank
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The year 2020 witnessed a decline in NIM of Vietcombank and BIDV due to increasing credit balance and lowering lending interest rates to support the economy.However, this year is also the year Vietinbank has a strong growth in operating results due to the promotion of service activities, and non-interest income increases sharply.
Table 2.3: ROA and ROE of BIDV, Vietinbank and Vietcombank over 2018-2021
ROA ROE
2018 2019 2020 2021 2018 2019 2020 2021 BIDV 0.59% 0.61% 0.48% 0.66% 14.48% 12.94% 9.18% 13.11%
Vietinbank 0.47% 0.79% 1.07% 0.99% 8.05% 13.1% 16.9% 15.88%
Vietcombank 1.39% 1.62% 1.45% 1.6% 25.49% 25.99% 21.11% 21.37%
Source: Author's own selection
Vietcombank holds the top position of 3 banks in business performance when the indexes are always leading, followed by Vietinbank and BIDV. By 2021, Vietcombank's ROA will reach 1.6%, 2.4 times higher than BIDV and 1.6 times higher than Vietinbank.
Capital adequacy:
On December 30, 2016, the State Bank of Vietnam issued Circular 41/2016/TT- NHNN (effective from January 1, 2020) stipulating the consolidated capital adequacy ratio (CAR) determined on the basis of Consolidated financial statements of banks must reach least 8%. According to World Bank statistics, the CAR ratio at three joint-stock commercial banks with the State ownership of over 50% charter capital in the first six months of 2021 was only approximately 9.17%, lower than the system average of 11.1%.
As the first state-owned bank to be equitized, Vietcombank had several challenges due to a shortage of capital in the 2009-2010 period, resulting in a failure to meet the minimum capital adequacy ratio set forth in Circular 13/2010 /TT-NHNN. After receiving approval for the plan to increase charter capital and finding a foreign strategic shareholder Vietcombank was able to assure the whole capital project and strengthen its capacity to bear risks. Vietcombank was the first bank in Vietnam to be licensed by the
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SBV to implement Basel II standards under Circular 41/2016/TT-NHNN in November 2018. This bank was also the first of the state-owned commercial banks to achieve all three pillars of Basel II ahead of schedule in July 2020. In 2021, Vietcombank’s CAR reached 9.31%, decreasing by 0.25% compared with 2020.
The CAR of BIDV and Vietinbank in recent years has been relatively low, even failing to meet the minimum requirement of 8% when computed according to Basel II regulations. For BIDV, the promotion of credit growth, the debt structure to support customers during the epidemic and the space to issue tier-2 bonds are about to run out, making the pressure to raise capital a permanent problem. In addition to comparable challenges, Vietinbank finds it difficult to raise tier 1 or tier 2 capital due to a lack of
"room" for international investors and a state ownership proportion below the required 65%. After a 5-year effort, the bank was permitted by the State to enhance charter capital in July 2021, and this is also the year Vietinbank formally implements Circular 41. The bank's CAR was regulated at 9.14% by the end of the year, keeping Vietinbank in the group with the lowest capital adequacy ratio in the banking sector.
Nonperforming loans ratio:
Table 2.4: Non- performing loan ratio of BIDV, Vietinbank and Vietcombank over 2018-2021
2018 2019 2020 2021
BIDV 1.9% 1.74% 1.54% 0.81%
Vietinbank 1.6% 1.2% 0.94% 1.3%
Vietcombank 0.97% 0.78% 0.62% 0.63%
Source: Author's own selection
While the "Big 4" banks are the most profitable, they also have the largest bad loans in the system. Vietcombank's bad debt ratio has steadily fallen over the years, reaching a record low of 0.62 percent in 2020, while the bad debt coverage ratio reached 380 percent. With a bad debt ratio of 0.63 percent in the fourth quarter and a bad debt coverage ratio of 424 percent, Vietcombank continues to declare that it is the finest credit
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quality and risk management bank in the system in 2021, assuring the safety of operations against market fluctuations.
In 2020, thanks to the settlement of all 13 trillion dongs of bad debt at VAMC, Vietinbank's bad debt ratio reduced to only 0.94 percent and the bad debt coverage ratio reached 132%. However, owing to a roughly 2.8-fold increase in group 3 debt in 2021, Vietinbank overtakes Agribank as the bank with the second-largest bad debt scale. In the fourth quarter of 2021, VietinBank's bad debt ratio was roughly 1.3%, with a bad debt coverage ratio of 180 percent. By the end of 2021, BIDV, the bank with the most bad debt in the system, has reduced its bad debt on the balance sheet by more than 38 percent to 13,245 billion dongs. The NPL ratio for BIDV was also reduced to 0.81 percent, with a bad debt coverage ratio of 219%.