In Q1/2020, the profit before tax of Military Commercial Joint Stock Bank (MB, HoSE: MBB) reached 2.195 trillion dong, declined by 9.4 percent compared to the same period last year. The Bank was still in doubt about the growth in total income, but the provision expense of up to 2092 trillion dong (up to 117%) was the reason for the drop in profit.
According to the assessment of Vietcombank Securities Company (VCBS), bad debt increased rapidly in Q1 with potential risks being a challenge for MB and the whole banking industry. MB’s asset quality was better than the industry average, and MB had started the process of setting up bad debt right in Q1/2020. VCBS appreciated the cautiousness from the Bank, and MB might be one of the banks having the fastest process to handle bad debts after the disease, said VCBS expert.
This securities company expected that MB would continue to be assigned credit growth target higher than the industry average in the coming years. According to VCBS, MB’s credit still had the capacity for long-term growth when the Bank had satisfied Basel II following Circular 41/2016 and assessed the capital adequacy ratio (CAR) in 2019 at 10, 68%. MB belonged to the group having safety ratios in the optimal region to balance credit growth and profit targets.
It was known that in 2020, MB was granted a credit growth limit of 11.75%. Besides the credit growth limit, VCBS also highly appreciated MB’s profitability index. According to this securities company, despite the risk of increasing risk provision expenses, MB’s profitability ratios continued to remain positive. They helped the book value of the Bank continue to grow.
However, in parallel with the pressure of bad debt, MB was also facing another difficulty related to capital costs. Demand deposits in the customer mobilisation (CASA) portfolio had been the biggest advantage of MB for many years as the Bank was a member of the military enterprises. This advantage gave MB the lowest capital cost in the industry.
However, during the difficult period of the economy, VCBS said that it would be harder for military enterprises to optimise costs than private enterprises, leading to higher cash demand and making demand deposits at MB declined faster than the whole industry. The declining CASA ratio could shorten the capital cost gap between MB and other banks. However, VCBS expected that the demand deposit would increase again in the recovery phase of the economy.
Regarding business results in 2020, VCBS estimated that MB could reach 9.228 trillion dong of profit before tax, down 8 percent compared to 2019. This forecast was based on several key assumptions, including credit growth at 7.9 percent and deposit mobilisation growth of 6.9%; profitability of profitable assets in 2020 decreased from 8.46 percent to 8.4 percent while capital costs increased slightly; bad debt ratio at the end of the year was 2.16 percent (an increase of 1.0 percent compared to 2019); the risk provision ratio for bad debt coverage was 96.5 percent (14 percent lower compared to 2019).
