BIDV, known for its large state ownership, remains one of the leading banks in terms of assets, but challenges in maintaining asset quality and increasing profitability have raised concerns about its long-term financial health.
Net Interest Income Stagnates Despite Profit Growth
As of the end of 2023, BIDV stood as the largest bank by assets in Vietnam, with total assets reaching VND 2.3 quadrillion (approximately USD 96 billion). Retail lending continues to be the bank’s largest contributor, accounting for 44% of its total credit portfolio.
According to BIDV’s second-quarter 2024 financial report, pre-tax profit rose 18% to VND 8.16 trillion (about USD 342 million), driven by a 16% increase in total operating income and effective cost control. For the first half of 2024, the bank reported pre-tax profit of VND 15.55 trillion (USD 652 million), representing a 12% year-on-year increase. This growth was primarily fueled by a 28% rise in non-interest income, while provisions for credit losses remained stable, increasing by only 0.3%. BIDV’s credit growth was 5.9% in the first half of the year, on par with the industry average of 6%.
Despite these positive profit numbers, BIDV’s net interest margin (NIM)—a crucial metric for banks—has shown no significant improvement. Like most state-owned banks, BIDV’s loan portfolio has a high proportion of short-term loans, which tend to generate lower returns compared to private sector banks. Analysts have noted that BIDV’s NIM recovery has been slower compared to other state-owned banks, and they predict continued pressure on NIM during the second half of 2024. This is due to rising funding costs and the bank’s decision to extend low-interest loan programs through the end of the year.
Rising Bad Debts
At BIDV’s 2024 Annual General Meeting, the bank set ambitious targets, including credit growth of 14.04% and a non-performing loan (NPL) ratio capped at 1.4%. However, despite improved profitability, BIDV’s asset quality remained a concern in the first half of 2024.
As of the end of June, BIDV’s total bad debts reached VND 28.69 trillion (about USD 1.2 billion), a 28% increase compared to the beginning of the year. Notably, substandard loans surged to VND 7.11 trillion, marking an 81% rise, while doubtful debts totaled VND 6.28 trillion. The bank’s most significant bad debt category—loss loans—amounted to VND 15.29 trillion. Consequently, BIDV’s NPL ratio increased from 1.26% at the beginning of the year to 1.52% by the end of June. This rise in bad debts underscores the fact that BIDV’s asset quality has yet to improve, largely due to the sluggish recovery in key sectors to which the bank lends. The NPL ratio in BIDV’s wholesale and retail lending segments also increased by 60 basis points from 2023, reaching 2.3% in the first half of 2024.
BIDV has attributed much of its bad debt to the construction sector, which has been adversely affected by the prolonged downturn in Vietnam’s real estate market. However, with signs of recovery emerging in the property sector, the bank expects this risk to gradually diminish.
Investors should also take note of BIDV’s advantageous access to low-cost funding from the State Treasury. BIDV received nearly VND 75 trillion (approximately USD 3.1 billion) in term deposits from the State Treasury, equivalent to the total deposits raised in Vietnam’s interbank market during the entire quarter. This low-cost funding is a benefit typically only accessible to state-owned banks like BIDV.
Nearly half of BIDV’s newly raised funds in the second quarter came from these low-interest Treasury deposits, which limits the bank’s ability to further reduce its funding costs in the upcoming quarters. Unless BIDV secures additional deposits from the Treasury, the bank will face challenges in lowering its cost of funds (COF) going forward. Moreover, BIDV’s ongoing interest rate reduction programs, intended to support borrowers, are likely to reduce its yield on earning assets, further squeezing its NIM.
This scenario has led analysts to believe that BIDV may struggle to sustain the profit growth it achieved in the first half of 2024 through the remainder of the year.
Capital Raising Plans Face Setbacks
The increase in bad debts was one of the reasons BIDV’s stock price suffered a sharp decline at the end of June, dropping from VND 50,000 per share to below VND 44,000 per share. Although the stock has since rebounded to around VND 50,000, several securities firms have downgraded their recommendation on BIDV’s stock from “buy” to “hold.”
According to analysts, BIDV currently lacks a compelling short-term investment story, especially with its capital raising and share issuance plans encountering difficulties. The bank’s share issuance price will also serve as a reference for regular investors, adding uncertainty to the stock’s near-term performance. The bank’s capital raising plan has become a risk for BIDV shares, given the uncertain growth prospects in the short and medium term.
BIDV aims to reduce state ownership from 81% to around 65% by the end of 2025 through a share issuance to foreign investors. However, this goal now seems difficult to achieve, especially with ongoing concerns about a global economic slowdown prompting capital outflows from stock markets. Additionally, the procedures required for a major capital increase at a state-owned bank like BIDV are complex and time-consuming.
Earlier, BIDV’s Annual General Meeting approved a plan to increase the bank’s charter capital by VND 13.62 trillion (USD 571 million) in 2024, a 23.9% increase. This capital raise would come from two sources: VND 11.97 trillion in 2022 dividends paid in shares and a private placement of shares, representing 2.89% of outstanding shares, to raise VND 1.65 trillion. Shares sold through this private placement will be subject to a three-year lock-up period for strategic investors and a one-year lock-up for professional investors.
BIDV’s financial performance in 2024 has been a mixed bag. While the bank has posted robust profit growth and has access to low-cost funding from the State Treasury, challenges remain. Rising bad debts, pressure on net interest margins, and difficulties in capital raising efforts are significant concerns for the bank’s future growth. As BIDV navigates these challenges, investors will need to closely monitor its ability to maintain profitability and improve asset quality in the coming quarters.
