Banks’ income to differ in H2

16-Sep-2021 Intellasia | NDH | 5:02 AM Print This Post

In a report on the banking industry, Viet Dragon Securities Company (VDSC) forecast the net interest income (NII) growth to slow down towards the end of the year. the securities company believed that the low base of comparison for interest income will still be favourable in the third quarter (Q3) and increase sharply in Q4 of 2021. The trends of Net Interest Margin (NIM), credit growth, and balance sheets are similar. The NIM of banks that have announced new preferential interest rate packages will be under more pressure due to the limited room to adjust savings interest rates. VDSC expected that the State Bank of Vietnam (SBV) will soon assign higher credit growth limits due to the serious impact of the pandemic and banks accepting to lower lending interest rates.

For the positive credit growth expectation, NIM may slightly decline and the balance sheets expand more cautiously, the NII in the second half (H2) of the year is predicted to grow more slowly than in H1. The difference will be in NIM, when banks of which lending interest rates are not affected and the Current Account Savings Account rate (CASA) improves will benefit.

In H1/2021, the NII was an important growth driver thanks to the NIM expansion, the low base of credit comparison, and the changes in portfolio structure. The NIM has strongly increased since Q4/2020, similar to the NII. The shift to retail banking also contributed to the improvement of NIM. NII is the main driver of the operating income growth in most banks.

Regarding non-interest income, VDSC forecast that the income of bancassurance segment will remain good thanks to the digitisation process which facilitates the consultancy of insurance purchase without being affected by the social distancing situation. However, the strength and growth of this segment is differentiated between banks and their partners.

In the first two quarters of 2021, the banking industry recorded good growth in the operating income. The main driving force was payment activities, including card, Letter of Credit/Letter of Guarantee Usance Payable At Sight (UPAS), and bancassurance segments. The change in customer behaviour with the tendency to prefer online transactions along with competitive transaction fees is the supporting factor. The growing bancassurance market is increasingly supported by the macro environment. Bancassurance has gained popularity due to the pandemic impact and the higher penetration rates on a low base, so the potential has become a new growth engine.

On the other hand, some banks developed service income from unusual items, notably the upfront fees of Maritime Commercial Joint Stock Bank (MSB) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank). Without the upfront fee, Vietcombank would have dropped to the third or fourth position in the group of banks with the largest net service income. The situation is similar for MSB.

Differentiation in income growth

Overall, according to VDSC, the total bank income grew significantly in H1 with the leading role of NII. Banks with NII growth lower than the average also had lower profit growth such as Orient Commercial Joint Stock Bank (OCB), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank).

The growth rate that was usually considered positive (10-25%) in the previous years is seen as below average during this period of time. Consumer credit has been hit hard, leading to a low operational efficiency of banks focusing on this field. Although the explosive growth of NII, the income structured still witnessed an improvement in the proportion of non-interest income, partly thanks to unusual items.

In H2/2021, VDSC said that the growth prospects will be different among banks and led by the non-interest income, in the context when the SBV is cautious with credit limit granting. The total income will continue to grow well but at a lower rate than H1. Although there is expectation of the credit limit, the time of granting the new credit growth room will affect the growth rate of the balance sheets compared to the same period, thereby influencing the total quarterly income. The non-interest income growth will remain sustainable thanks to the stable trends of bancassurance and payments, the growth bond business and the potential of bad debt recovery.


Category: Finance, Vietnam

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