An Binh Commercial Joint Stock Bank (ABBank – code ABB) has just announced unusual information about the approval of an overdraft limit of VND5 billion for a related person of major shareholder Mr. Nguyen Quoc Huy. This individual is currently holding the position of Deputy General Director at a multi-industry corporation - a major shareholder at ABBank.
Bad debt skyrocketed, ABBank continued to overdraft the leaders of the group related to the Chairman's brothers. Photo source: TL
In addition to banking, this group also operates in many fields such as real estate, energy, manufacturing, etc. Before 2018, businessman VVT (originally from Thai Binh) 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.
Bad debt skyrocketed
ABBank’s overdraft lending to “family members” comes at a time when the bank’s credit quality is clearly deteriorating. A decade ago, under Chairman VVT, ABBank’s bad debt/customer loan balance ratio was as high as 7.63%. After many years of restructuring, this ratio has dropped below 3% but is showing signs of increasing sharply again 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.
As of June 30, the total bad debt on the balance sheet of this bank 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%.
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.
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.
At the end of the second quarter, ABBank's total assets reached VND154,449 billion, up nearly 19% compared to the beginning of the year. Of which, outstanding loans to customers at the end of the second quarter were over VND84,020 billion, up slightly by 2.4% compared to the beginning of the year.
In 2023, ABBank aims to have total assets of VND 136,816 billion, up 5% compared to 2022; outstanding credit of VND 97,382 billion, up 10% compared to 2022; mobilization from individual customers and economic organizations of VND 93,508 billion, up 2% compared to 2022.
Continuously borrow bonds
In August, ABBank 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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