Bad debt skyrocketed
According to the 2023 audited semi-annual financial report, the total assets of An Binh Commercial Joint Stock Bank (ABBank - code ABB) as of June 30 reached VND 154,449 billion, an increase of nearly 19% compared to the beginning of the year. Of which, outstanding loans to customers at the end of the second quarter were over VND 84,020 billion, a slight increase of 2.4% compared to the beginning of the year.
Notably, ABBank's credit quality has clearly declined. As of June 30, the bank's total bad debt on the balance sheet was VND3,820 billion, an increase of nearly VND1,455 billion, equivalent to an increase of 61.5% compared to the beginning of the year. The ratio of bad debt to total outstanding customer loans also increased from 2.88% at the beginning of the year to 4.55%.
Analysis of ABBank's loan quality (Source: Reviewed semi-annual financial statements 2023)
In ABBank's debt structure at the end of the second quarter, group 3 debt (substandard debt) increased 2.5 times compared to the beginning of the year to VND1,385 billion. Group 4 debt (doubtful debt) also increased 3.1 times to VND1,311 billion. On the contrary, group 5 debt (debt with the possibility of losing capital) was at VND1,124 billion, down 20% compared to the beginning of the year.
ABBank is a member of the ecosystem of a multi-industry corporation in real estate, energy, manufacturing, etc. under the leadership of businessman VVT (originally from Thai Binh). Before 2018, he was the highest leader in the bank's Board of Directors. In April 2018, he left this position and handed it over to his brother-in-law, Mr. Dao Manh Khang, to comply with the provisions of the amended and supplemented Law on Credit Institutions.
A decade ago, under the Chairman of the Board of Directors of VVT, ABBank's bad debt/customer loan balance ratio was as high as 7.63%. After many years of restructuring, this ratio had dropped below 3% before the above transfer. The bank's credit quality was tightly managed before showing clear signs of decline from 2022.
ABBank's bad debt/customer loan balance ratio at the end of 2022 increased to 2.88% before continuing to climb to 4.55% at the end of the second quarter. This is also the bank's highest bad debt ratio since 2014.
At the 2023 Annual General Meeting of Shareholders, Chairman of the Board of Directors Dao Manh Khang said that ABBank is implementing restructuring associated with bad debt settlement in the 2021-2025 period. This shows that bad debt is once again causing a "headache" for the upper echelons of this bank.
Profits plummet
The swelling bad debt forced ABBank to increase its provisioning, significantly eroding profits. In the first 6 months of the year, the bank's credit risk provisioning was 4 times higher than last year, equivalent to nearly VND815 billion. According to the explanation, the increased provisioning is in accordance with Circular 11/2021/TT-NHNN and will help the bank be more proactive in handling risks in the coming time.
As a result, ABBank recorded pre-tax profit in the first 6 months of the year reaching nearly 679 billion VND, down 59% compared to the first half of last year. In the second quarter alone, ABBank's pre-tax profit was 67 billion VND in the second quarter, down 94% compared to the same period last year. With this result, the bank has only completed nearly 1/4 of the journey after the first half of the year.
Thus, after a period of continuous growth every year from 2013 to 2022, ABBank is facing the risk of breaking its 2023 plan. This year, the bank set an ambitious target of pre-tax profit of VND 2,826 billion, an increase of 68% compared to 2022. However, the pressure from rapidly increasing bad debt is making this goal distant, and it may even have negative growth.
In 2023, ABBank aims to have total assets of VND 136,816 billion, an increase of 5% compared to 2022; outstanding credit balance of VND 97,382 billion, an increase of 10% compared to 2022; mobilization from individual customers and economic organizations of VND 93,508 billion, an increase of 2% compared to 2022. The credit growth rate will be adjusted according to the permission of the State Bank of Vietnam (SBV) and bad debt on total outstanding debt will be controlled at below 3%.
To achieve the 2023 profit target, ABBank said it will focus on solving 3 main goals. First is to increase the scale by at least 10%, prioritizing the retail segment and priority areas according to the Government's orientation. Increase operational efficiency by: increasing income from core activities, non-credit activities, service fees; strictly control and optimize operating costs, minimize risk provision costs. Enhance the capacity to collect and handle bad debts.
Continuously borrow bonds
In August, An Binh Commercial Joint Stock Bank (ABBank - code ABB) issued VND6,000 billion worth of bonds with a face value of VND100 million/bond. These are non-convertible bonds, without warrants and without collateral. The bond term is from 1-5 years, the issuance period is from August 1 to December 31, 2023.
The principal of the bond is paid once on the maturity date or on the date ABBank buys back the bond. Bond interest is paid periodically once a year. The source for paying the principal and interest of the bond comes from ABBank's revenue sources and/or revenue from loans due and/or capital mobilization from organizations, individuals and other legal capital.
The mobilized amount will be allocated by ABBank to lend 4,500 billion VND to individual customers and 1,500 billion VND to corporate customers. It is expected that the capital will be fully disbursed by this bank before March 31, 2024. In case of disbursement according to schedule, the capital collected from the issuance of temporarily idle bonds will be used to deposit at the State Bank and other credit institutions.
In the second quarter of 2023, ABBank bought back bonds before maturity 6 times with a total value of VND 4,800 billion. The bonds were all issued in June-July 2021 with a term of 3 years. The purpose of the issuances is to supplement medium and long-term capital to meet the lending needs of ABBank's business and corporate customers.
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