Banks have great opportunity in 2021

20-Jan-2021 Intellasia | Dau tu Chung khoan | 6:02 AM Print This Post

2020 was considered a particularly difficult year for the economy in general and for the banking industry in particular due to the Covid-19 epidemic. Under the direction of the government, right in the early stage of the Covid-19 outbreak, the State Bank of Vietnam (SBV) had cut interest rates to support people and businesses facing difficulties.

In 2020, SBV had made three decisions to synchronously reduce the operating interest rates with a total reduction of 1.5 percent to 2 percent per year. Accordingly, the ceiling interest rate for deposits with terms of less than six months had decreased to four percent per year. The short-term maximum lending interest rate in dong for priority areas also decreased to 4.5 percent per year. In spite of the reduced interest rates, excess bank liquidity, credit increased slightly in the first half of 2020 and only improved over the last months of the year, due to weak demand for capital from the economy. As of December 21, 2020, credit increased by 10.14 percent compared to the end of 2019, which of the whole year 2020 was estimated to increase by 11%, lower than the target set at the beginning of the year about 14%.

Credit increased slowly, but the rise of bad debt was much stronger. Nguyen Trong Du, deputy of Inspection and Supervision Agency (SBV), said that the on-balance-sheet bad debt ratio of credit institutions since August 2020 had started to increase to more than two percent, while maintaining below 2 percent from the end of 2017 to July 2020. According to data from listed banks, the non-performing loan (NPL) had risen by about 30 percent and the on-balance-sheet NPL might be at three percent by the end of 2020 and likely to increase further in 2021 due to the impact of the economy. There was a delay to the banking industry.

Analysts said that 2020, though had been a difficult year, still created opportunities for banks to grow credit and control cost of capital. According to SBV, in the past year, the lending interest rate decreased by 0.6 percent to 0.8 percent per year and the deposit interest rate decreased by 1.5 percent to 2.5 percent per year compared to 2019, showing the rate of decline. The interest rate was not corresponding to the mobilisation, but some banks still maintained the special interest rate for loans with terms of 13 months and at least 500 billion dong of deposits. This was considered as the basis for the interest rate at a high rate of seven percent to eight percent per year, so that banks could take advantage of the capital with low costs.

VNDirect Securities Company (VNDirect) said that, in 2020, thanks to timely adjustment of business strategies, most banks had improved their net income margin ratio (NIM), along with the increase from external income. Interest had contributed positively to the profits of many banks. Currently, there had been no results for the whole year, but many banks had reached their profit targets in 2020 at one month to two months in advance such as Vietnam Maritime Joint Stock Commercial Bank (MSB), An Binh Commercial Joint Stock Bank (ABBank), Asia Commercial Joint Stock Bank (ACB), Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank), Vietnam International Commercial Joint Stock Bank (VIB), even three months in advance like Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank). Notably, many banks had signed exclusive bancassurance cooperation with life insurance companies, bringing upfront fees of up to several hundred million dollar, which was considered as savings for banks in the coming years.

Sharing about the credit growth plan for 2021, deputy Governor of SBV, Dao Minh Tu said that the target was about 12 percent and might increase to 13 percent to 14 percent depending on the actual market conditions.

Of course, this was not a mandatory indicator, but a guideline for operating monetary policy.

According to the base assumptions, VNDirect expected the global economy to gradually recover in relation to the current trend of Vietnam’s economic recovery. As a result, trade, production and service activities, including tourism, would gradually return to normal operations, boosting credit demand in 2021. On that basis, VNDirect forecasted that credit growth in 2021 would reach about 13 percent to 14%. With the expectation that the gross domestic product (GDP) in 2020 and 2021 would increase by 2.8 percent and 7.1%, respectively, the credit-to-GDP ratio would increase to 117 percent and 124%, from 110 percent in 2019.

According to the analysis of Vietcombank Securities Company (VCBS), in 2021, the net profit margin of the large-scale banks would not be able to fully recover, of which four banks with state capital dominated, Vietnam Bank for Agriculture and Rural Development (Agribank), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), would continue to be under pressure to reduce output interest rates as SBV had not changed its operating policy. Accordingly, VCBS expected credit growth in 2021 to reach 11 percent to 12%.

On the banking side, the overall outlook of the industry this year was assessed positively. Le Hai, general director of ABBank said, based on the updated data at the end of November 2020, it was likely that ABBank would exceed the business targets set at the general Meeting of Shareholders in June 2020. This was an optimistic signal, creating a good foundation for ABBank to enter 2021 with a strong belief that all immediate difficulties would be conquered and a willingness to catch up when the economy entered the recovery section, Hai said.

Agreeing, a senior leader of ACB said that difficulties in 2020 would gradually pass, especially when credit activities had increased again since Q4/2020. In 2021, it was expected that demand for personal credit would increase strongly, leading to an increase in NIM. Economic recovery and banks’ profitability would likely generate enough retained earnings to support short-term growth, helping stabilise capitalisation rates.

Regarding bad debt, SSI Securities Company (SSI) noted that the high provisioning would be the biggest impact on profitability and credit risk would exist from 2021 onwards. The profitability of banks would be affected by many factors such as a higher ratio of newly formed NPL, a slower economic recovery than expected, the impact of the Covid-19 outbreak, and so on.

According to calculations of Can Van Luc, a finance and banking expert, by the end of 2020, the on-balance-sheet bad debt of the commercial banking system would be at three percent by the end of 2020 and increase to 3.5 percent to 4 percent in 2021. However, this figure had not yet fully reflected the current bad debt situation at banks due to the restructuring regulations and the permission to keep the debt group of Circular No. 01/2020/TT-NHNN. According to the latest data at the end of December 2002, the credit institutions had rescheduled the repayment terms for about 270,000 customers affected by the epidemic with a loan balance of nearly 355 trillion dong. To avoid potential risks in the future, banks had to actively increase provisions for potential bad debts, and bad debts that had been restructured. Because after the expiration of Circular 01, if customers were still unable to repay their debts, bad debts of banks would increase dramatically, banks that had not prepared a reserve source would not manage in time, Luc emphasized.

At the recently held review of the banking industry, Governor of SBV, Nguyen Thi Hong asked credit institutions to urgently summarise and evaluate the restructuring results associated with bad debt handling from 2016 to 2020, draw lessons learned and actively build plans for the period from 2021 to 2025. At the same time, credit institutions had to build a business plan for the year 2021 in accordance with the orientation and objectives of monetary policy, credit, banking operations in the government’s resolutions as well as instructions of SBV. Banks were asked to continue to reduce operating costs, reduce profit targets in order to reduce lending rates for businesses and people, especially with old loans, medium-term and long-term loans.


Category: Finance, Vietnam

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