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 VND 9,950 bn, which is an increase by 15.3%. 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 VND 11,146 bn, up by 178% over the same period last year.
The third and fourth positions are now being held by Techcombank which showed a profit of VND 5,518 bn, and Military Commercial Joint Stock Bank (MB Bank), which showed a profit of VND 5,909 bn, respectively. The follow up positions are being held by VietinBank with profits of VND 5,822 bn, and Bank for Investment and Development of Vietnam (BIDV) which showed a profit of VND 4,513 bn. 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 VND 7,110 bn 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 VND 20,000 bn for this year. Specifically, VPBank expects high credit growth of 35% in its parent bank. The bank also expects a profit of over VND 23,000 bn, up 66% over the same period. At Vietcombank, this year's profit before tax will increase at least 12%, exceeding VND 30,675 bn.
Following closely is Techcombank with a target of VND 27,000 bn in consolidated Earnings Before Tax (EBT). BIDV has a target to reach VND 20,600 bn in 2022, while VietinBank is expected to reach VND 19,300 bn. MB Bank has set a profit target at VND 20,300 bn and is building strategic financial targets with higher growth than the industry average, with revenue and profit expected to increase five times by 2026.
Competing positions
At the last Annual General Meeting (AGM), VPBank submitted a plan to its shareholders to sharply increase charter capital to nearly VND 80,000 bn, 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 VND 44,455 bn, ranking fourth after Vietcombank with VND 47,325 bn, VietinBank with VND 48,058 bn, and BIDV with VND 50,585 bn. 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%, raising the charter capital to VND 55,891 bn. BIDV also plans to increase its charter capital by VND 10,623 bn, to reach VND 61,208 bn this year, a rise by 21%. VietinBank has been approved by shareholders to increase capital from VND 48,057 bn to VND 53,751 bn, 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 VND 10,000 per share for its employees. After a successful issuance, the charter capital of the bank will increase to over VND 35,172 bn.
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% compared to the requirement of 8%. 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% and Vietnam International Commercial Joint Stock Bank (VIB) of 11.7%, 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%, and MB Bank at 49%. 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.
