However, although the overall picture paints SeABank as a pretty good bank, in specific terms, operating efficiency of the bank is still relatively low due to special bond provisions, accrued liabilities, and high interest expense.
Bad debts
According to the reviewed interim consolidated financial statement of SeABank for nine months of 2019, by the end of the third quarter, SeABank showed an increase in its charter capital to VND 9,369 bn; total assets had reached VND 152,559 bn; total outstanding loans in market 1 were at VND 93,318 bn; total mobilization of market 1 was VND 90,754 bn; and net profit before credit risk was VND 1,253 bn. Non-performing loans (NPL) according to outstanding loans of the bank in the past nine months also decreased from 1.51% at the beginning of the year to 1.31% (absolute value was over VND 1,220 bn). However, due to the provisions for credit losses of more than VND 570 bn, profit before tax was only at VND 570 bn. In spite of the low NPL ratio, NPL in the bank was at VND 1,220 bn, with most in group 4 and group 5 debt at VND 477 bn and VND 419 bn, respectively.
The financial report of the third quarter of 2019 also recorded an accrued liability of VND 435 bn. According to SeABank, these are loans from Vietnam Shipbuilding Industry Corporation (formerly Vinashin) and Vietnam National Shipping Lines (Vinalines) that are classifying debts and making provisions under the direction of the State. However, for the last seven years, these outstanding loans have become a burden for SeABank.
Recalling that in 2012, dozens of banks recorded bad debts of Vinashin and Vinalines, including SeABank. However, specific information on these loans is still unknown, even at SeABank. In financial statements of SeABank for 2012, 2013, 2014 and 2015, auditors noted that for these loans banks did not disclose the debt data.
By 2014, in the announcement for divestment of SeABank by MobiFone, SeABank 2014 consolidated financial statement recorded outstanding loans with Vinashin and Vinalines. These loans have been classified and set up for risk provisions under the direction of the state management agencies.
The bank also tracks the loan of Vietnam Petroleum Transportation Joint Stock Company (Falcon-a subsidiary of Vinalines) on "Loans to customers" item. According to the Vinalines Restructuring Project for 2012-2015 period, approved under Decision 276 of the Government on 4 February 2013, Falcon belongs to the list of enterprises under bankruptcy. The recovery amount of this loan depends on the liquidation value of collaterals for this loan and other assets of Falcon, and the bank participating in the division according to the Bankruptcy Law.
In 2016, SeABank announced its full financial statement and for the first time it said an accrued liability that was awaiting resolution was VND 745 bn. At the same time, SeABank processed a part of Vinashin debt by buying special bonds from the Vietnam Debt and Asset Trading Corporation (DATC). The overbalance of these bonds is VND 319.4 bn. Thus, the loan debt to Vinashin and Vinalines was initially over VND 1,000 bn.
Burden of input costs
Along with risk provision, input costs are also an influence on the bank operating profits. Specifically, interest income reached more than VND 7,666 bn, but interest expense accounted for VND 5,411 bn, leading to a net interest income of only VND 2,255 bn. In the first nine months, customer deposits were at VND 90,754 bn, up 7.5%. The highest mobilizing interest rates in recent months are still below 8% per year. However, the valuable paper item recorded VND 15,191 bn, up 87% compared to the beginning of the period. These are always high interest rates of banks.
For example, in nine months of 2019, SeABank issued VND 5,166 bn of bonds, which is one of the largest amounts in the market. These are bonds with terms of 7-10 years and interest rates ranging from 6.7-9.9 % per year. In addition, this year, the bank also mobilized nearly VND 1,800 bn through certificates of deposits with interest rates from 8.3-8.6 % per year.
However, the demand for capital mobilization through valuable papers has not decreased, when the bank recently informed shareholders about the plan to issue bonds to the international market. It is expected that the maximum amount of issuance will not exceed USD 400 mn (about VND 9,300 bn) in non-convertible international bonds, with no collaterals and no warranty attached. The bank stated that the reason for issuing international bonds is that it cannot meet the demand for foreign currency loans of customers due to restrictions from the State Bank of Vietnam on regulations on foreign currency capital mobilization. In addition, SeABank is also the bondholder of many real estate companies. SSI statistics show that in eight months of 2019, SeABank purchased VND 600 bn of real estate bonds.
