Private banks coming strong against state-owned banks
It is being seen that private banks have now put in place many breakthroughs in business plans and are even preparing to overtake the strong performances of commercial banks in the Big 4 Group.
Race for profits
Vietcombank has just released its consolidated financial statement for the first quarter of the year, showing a pre-tax profit of more than VND9.95 trillion, which is an increase by 15.3 percent. However, in the first quarter, Vietcombank lost its former place as the number one champion. The private joint stock commercial bank, Vietnam Prosperity Joint Stock Commercial Bank (VPBank), has managed to push Vietcombank to second position. According to its consolidated financial statement for the first quarter, VPBank showed a profit before tax of VND11.14 trillion, up by 178 percent over the same period last year.
The third and fourth positions are now being held by Techcombank which showed a profit of more than VND5.52 trillion, and Military Commercial Joint Stock Bank (MB Bank), which showed a profit of VND5.91 trillion, respectively. The follow up positions are being held by VietinBank with profits of VND5.82 trillion, and Bank for Investment and Development of Vietnam (BIDV) which showed a profit of VND4.51 trillion. In 2020 and 2021, BIDV profit before tax was lower than that of private banks such as Techcombank, MB Bank, and VPBank.
Earlier, three banks in the Big 4 Group, namely, Vietcombank, BIDV, and VietinBank were usually among the top three to lead in profits, and in 2014, 2015, and 2016 this group followed each other in a close tie of only a few hundred billion dong. Since 2018, Vietcombank has accelerated in pace and is far ahead of any other bank. At the same time, a few private banks such as Techcombank, MB Bank, and VPBank, gradually began to overtake the other two banks in the Big 4 Group. VPBank profit increased sharply to VND7.11 trillion in the first quarter with net profit from other activities, mainly from cooperation with insurance partners.
The group of private banks mentioned above have all set a profit target of over VND20 trillion for this year. Specifically, VPBank expects high credit growth of 35 percent in its parent bank. The bank also expects a profit of over VND23 trillion, up 66 percent over the same period. At Vietcombank, this year's profit before tax will increase at least 12 percent, exceeding VND30.67 trillion.
Following closely is Techcombank with a target of VND27 trillion in consolidated Earnings Before Tax (EBT). BIDV has a target to reach VND20.6 trillion in 2022, while VietinBank is expected to reach VND19.3 trillion. MB Bank has set a profit target at VND20.3 trillion and is building strategic financial targets with higher growth than the industry average, with revenue and profit expected to increase five times by 2026.
At the last Annual General Meeting (AGM), VPBank submitted a plan to its shareholders to sharply increase charter capital to nearly VND80 trillion, through two options of private placement for foreign investors and payment of dividends and bonus shares from equity sources. VPBank currently has a charter capital of VND44.45 trillion, ranking fourth after Vietcombank with VND47.32 trillion, VietinBank with VND48.06 trillion, and BIDV with VND50.58 trillion. VPBank is a private bank with the highest charter capital.
It is expected that Vietcombank will issue nearly 856.6 million shares to pay dividends at the rate of 18.1 percent, raising the charter capital to VND55.89 trillion. BIDV also plans to increase its charter capital by VND10.62 trillion, to reach VND61.21 trillion this year, a rise by 21 percent. VietinBank has been approved by shareholders to increase capital from nearly VND48.06 trillion to VND53.75 trillion, through the issuance of shares to pay dividends from profit after tax, fund deduction, and cash dividend in 2020.
With the above plan, VPBank will be a private bank that will rise to the top of the charter capital ranking in the banking system, while Techcombank is not racing to increase charter capital. This year the latter bank only plans to issue around 6.3 million Employee Stock Ownership Plan (ESOP) shares at VND10,000 per share for its employees. After a successful issuance, the charter capital of the bank will increase to over VND35.17 trillion.
Techcombank leaders said that currently the State Bank of Vietnam or international organizations evaluate the bank equity not the charter capital. However, the Capital Adequacy Ratio (CAR) of Techcombank is also high at 15 percent compared to the requirement of 8 percent. In addition, Techcombank also has a goal of being in the top ten banks in ASEAN by 2025 and has started a five-year strategy plan since 2021.
When comparing the group of commercial banks with state capital and the leading group of private commercial banks, the credit growth of the private banks shows stronger because of a higher stronger capital buffer, i.e., a high CAR. Besides Techcombank, MB Bank has a CAR of 11.2 percent and Vietnam International Commercial Joint Stock Bank (VIB) of 11.7 percent, which is helping these banks to maintain a remarkably high credit growth rate.
The private banking group has great business acumen which they apply in their growth strategy. For several years they have been competing fiercely in the digital banking segment, resulting in constant increase in the proportion of demand deposits. At the end of 2021, Techcombank Current Account Savings Account (CASA) ratio was at 50.5 percent, and MB Bank at 49 percent. As such, maximizing operational efficiency is more important than ever, and digitization is key for the private banking group to grow.
With a digitalization strategy, banks can significantly reduce operating costs, mobilization costs, and increase service revenue. Currently, the advantage of maintaining a high CASA ratio has been recognized by state-owned banks. Except for Vietcombank, which is continuously expanding CASA, now other state-owned banks have also started promotional campaigns to attract individual customers, as well as increase their online transactions.