ACBS: banks’ capital costs to remain low by the year-end

23-Jul-2021 Intellasia | NDH | 5:02 AM Print This Post

ACB Securities Company (ACBS) has released an update report on the banking industry, mentioning that one of the positive factors affecting the profit prospect of this group is the abundant and stable system liquidity, which keeps savings interest rates at a low level.

In 2020, the growth of mobilisation was 14 percent while the credit growth was lower at 12 percent due to the Covid-19 pandemic, causing a liquidity surplus in the banking system in the second half of 2020. Some banks such as Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Tien Phong Commercial Joint Stock Bank (TPBank) and Maritime Commercial Joint Stock Bank (MSB) took advantage of their abundant liquidity to increase borrowing in the interbank market at low interest rates, thereby reducing capital costs and improving the Net Interest Margin (NIM).

The excess of liquidity eased in the first six months of 2021 as savings interest rates remained low, causing the mobilisation growth to be less than the credit growth. As of June 21st, credit increased by 5.47 percent while the mobilisation of credit institutions only increased by 3.13%.

The lower growth in mobilisation than credit has resulted in a 100 trillion dong decline in the difference between mobilisation and lending compared to the peak of excess recorded last year. However, according to ACBS, this is appropriate with the trend of improving the Lending to Deposit Ratio (LDR) to optimise the balance sheet of most banks, and is not yet a sign showing that the system is under stress.

The overnight interest rate in the interbank market, despite rising by one percentage point from nearly zero percent, is still very low compared to the previous years. Meanwhile, the government bond yields are still at low levels since the beginning of the year. This shows that the system liquidity remains abundant and stable.

ACBS also saw a number of factors supporting the liquidity of the banking system in 2021. The first is the trend of retaining profits instead of paying cash dividends. Listed banks retained 92.6 percent of profit in 2020, much higher than the 42.4 percent recorded in 2013/

The liquidity was also supported by unexpected revenues, such as the sale of 49 percent stake in FE Credit of Vietnam Prosperity Commercial Joint Stock Bank (VPBank) which was valued at 32 trillion dong, and the upfront fees from the exclusive bancassurance deals of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) with nine trillion dong, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) with 8.5 trillion dong, Asia Commercial Joint Stock Bank (ACB) with eight trillion dong, etc.).

On the other hand, banks are continuing to supplement their long-term capital source by issuing certificates of deposits, bonds and shares. The credit demand, despite increasing sharply, is unlikely to be much higher than the mobilisation growth because the State Bank of Vietnam (SBV) is still controlling the credit growth limits of banks.

In addition, the purchase of seven billion US dollar six-month forward of the SBV in the first quarter and an injection of 150 trillion dong expected in the third quarter will also help the savings interest rate level to be maintained at low level at least by the end of 2021.

 

Category: Finance, Vietnam

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