Few takers for ESOP
In mid-August, the Board of Directors of TPB announced a plan to issue hundreds of million shares to pay off dividends and increase charter capital from VND 8,565.8 bn to VND 10,716.7 bn. Under this plan, TPB would issue 163.31 million shares to pay dividends at the rate of 20%, and issue about 17.8 million shares to existing shareholders at the rate of 2.18%, to increase charter capital. At the same time, TPB planned to issue 33.97 million ESOP shares, equivalent to 4.16% of charter capital. With an offer price of VND 10,000 per share, the bank expected to collect approximately VND 340 bn. As a rule, this number of issued shares are restricted from transferring for at least nine months from date of issuance and upto two years, depending on the program.
However, by the end of November, which was the deadline for registration and payment for ESOP shares, the number of TPB shares registered and paid by employees were only around 33.2 million. Thus, the number of shares rejected by employees were 705,400 shares. This is a very unusual phenomenon because at this time TPB is trading on HOSE at around VND 20,000 per share, two times higher than the offer price. More unusual is when the bank announced business results of the third quarter with quite impressive figures. Specifically, according to the third-quarter financial report, the total operating income of TPB reached VND 7,103 bn, up by 22.79%, and profit before tax was at VND 3,024 bn, up by 25.7%. This also completed 74.3% of the plan for the whole of this year, with bad debt controlled below 2%. The third-quarter business results will be the main driving force for bank stocks to have a strong surge from below VND 19,000 per share to touch more than VND 25,000 per share, equivalent to an increase of more than 35%.
Modest in scale
The Tien Phong Commercial Joint Stock Bank was established in 2008 with the original shareholders being the DOJI Jewelry Group, FPT Group Joint Stock Company, Vietnam National Reinsurance Corporation (Vinare), SBI Ven Holding Pte. Ltd (Singapore), IFC International Finance which is under the World Bank, and the PYN Elite Investment Fund. As the newly established bank was quite modest in scale, TPB faced many difficulties when the banking system fell into crisis in 2010. After a rather effective restructuring period from 2012 to 2014, TPB has grown with pre-tax profit growth of upto 42% per year for the period 2014 to 2019. TPB profitable assets also changed positively with a significant increase in customer loan ratio. In particular, TPB after-tax profit increased sharply from 4.67% in 2012 to 26.1% at the end of 2019.
According to investors, despite this positive growth, TPB is still rated as a smaller retail bank due to its assets size. By the end of the second quarter, TPB total assets were only at VND 181,000 bn, ranking 14th in the banking system. Compared to listed banks, it is only ranked above Vietnam Export Import Commercial Joint Stock Bank (EIB), Kien Long Commercial Joint Stock Bank (KLB), North Asia Commercial Joint Stock Bank (BAB), and Ban Viet Commercial Joint Stock Bank (BVB).
On the other hand, if compared to listed joint-stock commercial banks, it is quite far behind, such as the Saigon-Hanoi Commercial Joint Stock Bank (SHB) with VND 391,000 bn, Vietnam Technological and Commercial Joint Stock Bank (TCB) with VND 395,000 bn, Asia Commercial Joint Stock Bank (ACB) with VND 396,000 bn, Vietnam Prosperity Joint Stock Commercial Bank (VPB) with VND 399,000 bn, Military Commercial Joint Stock Bank (MBB) with VND 421,000 bn, Saigon Thuong Tin Commercial Joint Stock Bank (STB) with VND 481,000 bn, HCM City Development Joint Stock Commercial Bank (HDB) with VND 242,000 bn, and the Lien Viet Post Commercial Joint Stock Bank (LPB) with VND 213,000 bn.
Despite being far behind in terms of size and assets, the share price of TPB is equivalent or even much higher than other banks such as TCB at VND 25,000 per share, HDB at 22,000 per share, MBB at VND 21,000 per share, SHB at VND 18,000 per share, STB at VND 15,000 per share, and LPB at VND 12,000 per share.
Underestimated bank
TPB is not only modest in size and assets but also underestimated by investors in terms of its transaction network, including the number of branches and transaction offices. By the end of 2019, TPB had only built a network of 35 branches and 40 transaction offices. With the number of branches and transaction offices across the country only at 75, TPB's brand awareness is quite low, reducing competitiveness in attracting deposits, and leading to low balance in current account and savings account deposit (CASA).
CASA accounted for 15.5% in TPB, down to only 14.7% at the end of the second quarter of 2020 due to the Covid-19 pandemic. In contrast, CASA of other listed banks still increased despite the impact of the Covid-19 pandemic such as at MBB by 32.6%, TCB at 32.6%, ACB at 17.5%, and STB at 16%.
The strategy of operating under the retail banking model focuses on lending to small and medium enterprises, and buying houses and cars. However, car loans also bring risks to TPB. By the end of 2019, outstanding loans on cars had reached VND 17,578 bn, up 16.6% and accounting for 18.2% of total outstanding loans. This is a record number if compared to the end of 2015, when the car loan balance was only VND 1,724 bn, accounting for 6.1% of the total loan balance. Notably, the increase in outstanding loans leads to an increase in the risk of bad debt. By the end of 2019, bad debt from car loans increased to 2.7% compared to 0.7% at the end of 2015.
Compared to home loans, car loans are of shorter term and result in lower yield. Since the value of a car depreciates faster, this type of loan is much riskier than a home loan. This factor shows that the car loan market in Vietnam is only a niche market, where small-scale banks take advantage to promote credit growth. For this reason, since mid-2019, TPB has actively focused on restructuring loan balance and shifting to more secure forms of lending such as mortgage loans.
