PGBank faces uncertain future

SGI
According to the latest disclosure by Petrolimex Group Commercial Joint Stock Bank (PGBank) and HDBank, a merger between the two banks will be complete by June 2020.

Illustrative photo.

Illustrative photo.

Conflicting viewpoints

In 2014, when PGBank first informed via relevant documents on their website prior to the annual general shareholders meeting (AGM), there was already talk of a merger plan between PGBank and VietinBank. Accordingly, PGBank would continue to maintain its operating system and brand name, and merge as a unit of VietinBank under the model of bank in bank.

In 2015, the merger information between the two banks was officially announced when both banks submitted their plans to shareholders for approval. VietinBank planned to issue swap shares in the third quarter of 2015, including 270 million shares for PGBank shareholders, and 30 million shares for existing shareholders of VietinBank.

At the AGM in 2018, the Board of Directors of VietinBank submitted the termination of merger with PGBank to shareholders for approval. The reason for this termination was given as both sides having conflicting viewpoints on various issues, and to protect the interests of the bank and the shareholders.

When Vietinbank released this information, the Board of Directors of HDBank submitted to shareholders an approval for merger with PGBank with a swap ratio of 1:0.621, meaning 1 share of PGBank against 0.621 shares of HDBank. The merger roadmap was also detailed. In May 2018, HDBank would submit to the State Bank of Vietnam an approval in principle, then register to issue shares at the State Securities Commission, and at the same time finalize the merger plan. In July 2018, HDBank would close the list of shareholders to carry out distribution of shares that shareholders would receive from the merger transaction.

However, in fact, until October 2018, the State Bank had approved only in principle to this transaction, and from 2018 until now, the merger has not yet been completed. At the extraordinary general meeting of shareholders in October 2019, PGBank leaders said that PGBank had finalized the dossier to submit to the State Bank for official approval but it had not been approved and that the process was moving far too slowly.

Operations at standstill

When the merger of PGBank and VietinBank was prolonged, PGBank shareholders questioned the Board of Directors of the necessity of the merger. To which, Mr. Bui Ngoc Bao, former Chairman of Board of Directors replied that the reason for the merger was not because of bad operations at the bank, but because of State Bank of Vietnam regulations on maximum ownership by credit institutions. Hence, PGBank must reduce Petrolimex ownership from over 40% to 20%. The purpose of the merger was to make the bank stronger and more robust, which did not mean that the bank was currently weak.

However, as seen by many experts, in 2012, PGBank NPL ratio was up by 8.4% with overdue debt rate at 20.5%. From 2013, PGBank started to transfer bad debts to Vietnam Asset Management Company (VAMC) until the end of 2014, selling a total of VND 1,252 bn and bringing the NPL ratio to 3% in 2013 and 2.5% in 2014. However, including the bad debt sold to VAMC, the bad debt ratio of PGBank rose to 8% in 2013 and 10.2% in 2014. The NPL ratio is currently high and the existing shareholders cannot increase the charter capital at the bank. In addition, the Government has asked Petrolimex to divest from the bank. Therefore, PGBank must find the best plan to merge with a large commercial bank.

The inability to complete the merger has pulled PGBank into a deep recess of ongoing and unsolved difficulties. In 2016, the bank leaders acknowledged that business activities at the bank had been heavily affected by the continued delay in the merger plan with VietinBank, leading to unresolved delays and more attrition of personnel which also led to shortage of staff. Total assets at the end of 2016 stood at VND 24,824 bn and total outstanding loans were over VND 17,500 bn with capital mobilization being more than VND 21,000 bn. As a result, total bank income reached only around VND 982 bn. For the entire year, the bank saw profit before tax at VND 153 bn only, equal to just 55% of the plan.

In 2017, the bank's business results continued to be gloomy when the provision for credit losses increased nearly 2.3 times, making the profit before tax in 2017 at only a little over VND 80 bn, down 47.7% compared to VND 153 bn achieved in 2016. In addition, the bad debt increased by 65.2% compared to the beginning of the year, after which the possibility of capital loss increased by 93%, reaching VND 525 bn and hence accounting for 73.4% of bad debt. The bank NPL ratio stood at 3.34% of total loans, compared to 2.47% at the beginning of the year. Receivables also soared 3.6 times, from VND 72 bn to over VND 255 bn, of which Petrolimex Trade Union Investment Joint Stock Company accounted for over VND 180 bn. Interest and fee receivables also increased by 7.7% to nearly VND 729 bn.

In 2018, total bad debt only decreased by 2.3% compared to 2017. NPL ratio decreased by 0.16%, accounting for 3.06% of total outstanding loans. At the same time, PGBank has to buy back VND 650 bn of debt at VAMC and make provision of over VND 1,000 bn for the remaining VAMC bonds. Accordingly, EBT was at VND 159 bn, down by 24% YoY and reaching 87% of its target.

In the first nine months of 2019, the bank was still in the process of awaiting the merger, and during this time, operations at the bank were being conducted unsatisfactorily. Total income in the third quarter was only at VND 789 bn, down 2% compared to the same period last year, while operating expenses increased by 1.5% to touch VND 408 bn, dragging the net profit of PGBank to a negative growth of 5.2% at VND 381 bn. Capital mobilization encountered difficulties too and only increased by 4.4% to reach VND 24,381 bn. Outstanding loans suffered the same fate and were up by only 2.6% as compared to the same period last year, but non-performing loans continued to increase by 6% to VND 694 bn. Sub-standard debt (Group 3) decreased by 35% and doubtful debt (Group 4) decreased by 16%, but possible debt loss (Group 5) increased by 26%. Therefore, the ratio of bad debt to outstanding loans stood at 3.07%.

A PGBank report also said that the employee turnover rate in 2018 was around 23.88%, a very high percentage compared to recent years, basically caused by negative impact of an expected forthcoming merger, which all has affected the running operations of PGBank.

Translated by Francis

Cat Tuong

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