Banks earn increasing profits from services

December 24, 2018 - 09:00

In the first nine months of the year, the Joint Stock Commercial Bank for Foreign Trade of Việt Nam (Vietcombank)’s pre-tax profit exceeded the full-year 2017 figure and closed in on the year’s target.

In the first nine months of the year, the Joint Stock Commercial Bank for Foreign Trade of Việt Nam (Vietcombank)’s pre-tax profit exceeded the full-year 2017 figure and closed in on the year’s target. — Photo

Compiled by Thiên Lý

In the first nine months of the year, the Joint Stock Commercial Bank for Foreign Trade of Việt Nam (Vietcombank)’s pre-tax profit exceeded the full-year 2017 figure and closed in on the year’s target.

Thanks to a decline in provisioning for risky loans from 36.2 per cent to 29.9 per cent, the profit surged by 47 per cent year-on-year to VNĐ11.68 trillion (US$516 million).

Notably, its net profit from services was up 34 per cent to VNĐ2.63 trillion.

Explaining the reasons for the impressive results, a bank executive said profits from non-credit activities increased sharply and contributed 30 per cent of the profits.

In addition, the lender’s investments became more selective, focusing on effective products, the executive said.

Military Bank had also reported a very impressive performance in the first three quarters with pre-tax profits doubling year-on-year to VNĐ6 trillion. Services accounted for VNĐ1.69 trillion, half of which came from bancassurance, which rose by 3.2 times.

In recent years, Techcombank has also pursued a policy of diversifying its income sources to reduce reliance on income from credit activities and fee collection while also reducing risks at the same time.

As a result, the profits the bank earned from insurance services accounted for 26 per cent of its total profits from non-credit activities.

Not only big banks but also many small banks have managed to increase the share of their profits from activities other than lending.

VietBank for instance invested $14 million in core banking to shift from providing only credit services to non-credit services.

Core (centralised online real-time exchange) banking refers to networking a bank’s branches enabling customers to access their accounts and perform basic transactions from any branch.

In the past, VietBank’s revenues from non-credit services accounted for only 3 per cent, but they are expected to reach 10 per cent this year and 20 per cent by 2020.

Experts said however the main source of income outside of credit activities is from service fees.

Many banks wanted to increase the fees for many of their services to improve revenues from this segment but the State Bank of Việt Nam shot down the plan.

Bankers said however that they increased fees so that they can afford to develop infrastructure and maintain ATMs.

Experts said banks should focus on offering products and services with financial solutions to collect fees instead of increasing fees for services such as ATM cash withdrawals and mobile banking. 

Why do shares of big public companies have low liquidity?

In May this year, Hapro registered to have 180 million shares listed on the Unlisted Public Company Market (UpCOM) at a reference price of VNĐ12,900 per share ($60 US cent).

After that, nearly 64 million shares were traded in just three sessions on May 18, 23 and 25.

However, things have turned on their head in recent months with only 17,000 shares being traded per session on average.

Notably, the price of the share dropped to VNĐ8,500 on November 30, a 34 per cent decrease from the reference price.

Thăng Long Wine Joint Stock Company, a subsidiary of Harpo, also saw a sharp drop in liquidity when only 100 or 200 shares were traded in nearly a year.

Việt Nam Textile Research Institutions (VDM) also saw liquidity dry up, with only 500 shares traded since July.

Many other listed public companies with huge capitalisation like Hà Nội Construction Corporation (Hancorp-HAN), Hải Phòng Thermal Power Joint Stock Company (HND) and Bà Rịa Rubber Joint Stock Company (BRR) have suffered similar fates.

What is significant here is that all of these companies are ostensibly attractive to investors.

Hapro’s initial public offering last March, for instance, saw 93.18 million shares being snapped up, 22.7 per cent more than the number the company had proposed to sell.

The most attractive aspect of Hapro for investors was its permission to use prime lands in downtown Hà Nội.

Thăng Long Wine Joint Stock Company has had very impressive business results. In April-September this year, the company reported VNĐ47.14 billion in consolidated revenues, a year-on-year increase of 60 per cent and VNĐ11 billion in profit.

The question is why such profitable companies are suffering from low liquidity?

Analysts said one of the main reasons is that they have concentrated shareholder structures and very few free floating shares that could be traded on the market.

For instance, Hapro’s shareholder structure comprises one strategic shareholder and two major shareholders who own 98 per cent of the company’s charter capital. The remaining shareholders, the company’s employees and others, own only 2 per cent.

The Ministry of Construction owns nearly 9.4 million HAN shares, equivalent to over a 90 per cent stake.

After being equitised, the Việt Nam Textile Research Institute had legal capital of VNĐ50 billion, of which the company retained 9.48 per cent and sold 45.26 per cent to a strategic shareholder, with only the remaining 45.26 per cent sold in its initial public offering.

But at the IPO early this year, just eight investors, two institutional and six individual, bought up almost of the shares, meaning the company’s free float is very modest.  

It is a fact that many public companies list their shares merely as a formality so that they meet legal requirements.

Besides, many public companies do not pay much attention to the trading in their shares on the market because most of their shareholders are company executives and employees.

Another reason for managements of public companies not caring much for having their shares traded prolifically is the lurking suspicion the company would then become an easy target for hostile takeovers. VNS