Asia Commercial Bank on Listing
Asia Commercial Bank on Listing
The Asia Commercial Bank (ACB), which debuted on the bourse
this week, is the top among commercial joint-stock banks in term of profitable
Since the beginning of this year, ACB earned a pre-tax profit of VND545 billion
(more than US$34 million) by November 20. The bank has a more ambitious target
for 2007, at VND1,200 billion for the whole year, or VND100 billion a month,
VND3.33 billion a day, and VND2.3 million a minute.
ACB is likely to be the most conservative bank in credit, as over the past
years, its outstanding loans have never surpassed 55% of mobilized funds. This
year, total outstanding loans are estimated to be less than 46% of mobilized
capital. The remaining funds are deposited at local and foreign banks, and
invested in securities and government bonds. As a prudent creditor, ACB only
offers credits to selected clients, such as individuals, which make up 46.5% of
its outstanding loans, and small and medium enterprises (40%). Lending for
State-owned enterprises accounts for only 10% of its outstanding loans.
ACB credits are channeled mainly to production, trading and consumer spending.
Lending for agriculture, real estate and construction is insignificant. As a
result, its overdue debt is always restricted to 0.2-0.5% of total outstanding
loans. This prudent lending, together with good service quality, helps the bank
mobilize funds at a low cost. Its interest rate for deposits is always lower
than those of other banks, but its mobilized funds are usually at the top among
commercial joint-stock banks. Its total asset value is VND42.5 trillion, nearly
double that of other banks. Thanks to the lower cost of mobilization, the bank
can lend at an interest rate lower than those of rivals and earn larger profit.
In terms of the credit market share, ACB made up only 1.72% of the banking
sector in 2005, but its capital mobilization accounted for as much as 3.5%. This
year, the mobilization soared to 6.5%, equivalent to US$2.3 billion, against the
total US$35 billion of the whole sector.
However, the conservative credit policy, together with its advantages, will turn
out to be a challenge to the bank. The most visible point is its total equity is
expected to increase to VND60 trillion and pre-tax profit to VND1.2 trillion
next year as compared with an estimated VND660 billion this year. Despite its
efforts to diversify operations and increase profit from services, credit
remains the principal profit earner for the bank, and it must seek ways to
develop this operation. How to increase lending and at the same time control
risk poses a big question to the bank�s management.
Two years ago, ACB attracted VND50 billion in savings deposits just one day
after opening its Hoi An branch in Quang Nam Province. However, the branch did
not aim only at attracting savings, it also wanted to trade in foreign currency
from foreign tourists. It is near hotels and the ancient town of Hoi An, a
favorable location for tourists to exchange currency and use check and credit
ACB is not in a hurry to expand its network. Seventy branches and offices of the
bank are located mainly in the southern key economic region, with 42 in HCM
City. Branches are usually opened in developed districts targeting the
middle-income group. However, opening branches is only part of the bank�s
strategy of fast growth, close risk control that aims to keep the return on
equity ratio at 30% in the coming years.
Over the past year, ACB has tried to bring more value to its shareholders, with
its effort to raise capital from retained earnings and from the revenue earned
from selling shares to foreign investors. The bank will continue to pay dividend
with shares. Last year, the rate of payment is 16% in shares and 12% in cash.
The respective rates this year are 30% and 8%.
One problem for ACB at present is to ensure profit growth to catch up with
capital growth. After converting VND1.1 trillion worth of convertible bonds into
shares and raising capital from the profit this year, the bank�s charter capital
in the first quarter of next year will increase to VND2.35 trillion. One relief
for the bank to maintain the profit growth is the VND400 billion it will enjoy
as the tax incentive for listed enterprises.
Three days before listing, ACB received licenses to establish the real estate
company ACB Hanoi and the Asia Joint-Stock Company in HCM City where it has a
20% stake. The bank is proceeding with the establishment of companies engaged in
card services, finance leasing and fund management. These efforts are part of
its move to become a financial group.