Banks’ profit may decrease at least 17 tr dong

17-Sep-2020 Intellasia | Dau tu Chung khoan | 6:02 AM Print This Post

Vietnam was controlling well the Covid-19 epidemic, but many businesses still faced difficulties, creating less optimistic forecasts on banking sector profits for the rest of 2020.

For eight months, credit increased only by five percent.

In an interview with the Securities Investment Newspaper, a leader of a small-scale joint-stock bank said that every day the bank was busy with a series of these main issues, including whether to loan or not, some loan was lacking some standards, how to handle it, how to recover the debt to expand credit, and so on. Because the profit of Vietnamese banks came mainly from the credit, only a small part was from service fee collection, investment.

In fact, the demand for credit seemed to have flourished in June after the first COVID wave. Then the newly born hope was quickly extinguished by the emergence of the second wave of plague and the forecast that the economy would continue to weaken.

Meanwhile, banks were unable to lower the credit granting criteria to increase capital mobilisation. In contrast, the retail credit growth was not as strong as before, but then did not dare to lend to large corporate customers.

Talking to Securities Investment Newspaper, Le Xuan Nghia, an economist, said: “The most important measure that the State Bank of Vietnam (SBV) and monetary policy could take at this time to create a double effect was dropping interest rates and injecting money towards buying government bonds to support fiscal policy, prompting the government to increase sponsorships, including capital support for large state-owned enterprises such as Vietnam Airline, Vietnam Railways, as these businesses must not fall into a problematic situation, lose market share.

According to the General Statistical Office, there were about 34,300 enterprises temporarily suspending their business in the first eight months of 2020, an increase of 70.8 percent over the same period in 2019. The domino effect occurred when more and more businesses closed; more workers would lose their jobs, along with no income. Lacking money led people to limit spending, goods could not be sold, demanding businesses piled up, and banks were affected.

The economy was swirling in a vicious cycle because difficult businesses would not borrow money, let alone old unpaid loans. Sharing with the reporter, a senior leader of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) said that the dong deposit lending gap tended to expand strongly, estimated at over 70 trillion dong in August when the economy’s credit activities still faced many difficulties due to the effects of the Covid-19 pandemic.

It was estimated that by the end of August, credit growth would only reach about five percent, significantly lower than the increase of more than seven percent of capital mobilisation growth, the leader of BIDV said.

Low credit growth, quantifying profit also declined

Nguyen Tri Hieu, an economist, forecasted, credit growth in 2020 would fluctuate in the range of 7.5 percent to 8.5%, lower than the initial target of SBV of 11 percent to 14%.

Sharing with the reporter, Hoang Minh Hoan, Acting general director of Sai Gon Joint Stock Commercial Bank (SCB), said that the story of credit growth could result in the issue of reducing deposit rates, debt structure, interest rate exemption and reduction, also the increase in provision, which made the profit of banks decrease.

As of the end of July, information from listed banks said that the deposit rates had been reduced by 0.9 percentage points to 2.1 percentage points compared to the beginning of the year. In which the most significant reduction was in the 12-month deposit interest rate (the reference rate for long-term lending interest rate), which had been implemented since June. In the past five months, it had been about 50 percentage points for the term above six months and 70 percentage points for the term less than six months.

This situation was mainly due to weak credit demand, a senior leader of the Credit Department for Economic Sectors (SBV) commented.

According to the calculation of SSI Securities Company, bad debts and restructured loans would increase rapidly at the end of the year because of a prolonged epidemic, the number of customers having cash flow difficulties would continue to increase. Banks would have to list these loans on restructuring, or reclassify them as bad debts. As a result, the loss of interest income related to restructuring debt and bad debt could be at a more significant level. Furthermore, a part of interest income recorded in the second half of 2020 could be withdrawn due to the downgrade of this debt.

The adverse effects of interest rate cuts and interest free would last in the second half of 2020, longer until the first half of 2021. Therefore, the net income margins (NIM) of banks could decrease further by 60 percentage points in the second half of 2020, said SSI’s analysts.

Calculations showed that profits would decline from highs in the second half of 2019, as many banks planned to increase provisioning to reduce profits further. It was estimated that banks would accelerate the provisioning for a new and restructured non-performing loan (NPL). However, the application deadline of Circular 01/2020/TT-NHNN might be extended to delay the time limit of bad debt recognition.

Nevertheless, the general director of a joint-stock bank calculated, assuming that in 2019, the bank had 1 trillion dong in loans and that in 2020 the credit growth was granted by 10%, meaning that the bank could borrow 100 billion new copper. If credit growth dropped to five percent, the bank would only have 50 billion dong of new loans and the expected profit increase would decrease.

According to Nguyen Tri Hieu, the credit balance of the economy was currently 8.5 quadrillion dong. If the credit growth decreased by 10%, equal to a decrease of 850 trillion dong compared to the expectation, multiplied two percent of the average interest rate, as a result, the credit growth of the entire banking system would decrease, resulting in a loss of profit from lending the whole banking system at 17 trillion dong due to not reaching the target credit growth. That was not to mention the decrease in profit due to increased provisioning.

SSI research estimated that, compared to the end of 2019, the system’s pre-tax profit in the second half of 2020 decreased by 22.1 percent due to a four percent decrease in operating income and an increase of 47.8 percent in provision costs. In which the decrease in profit from state-owned banks (VCB, BID and CTG) was 35.7%, mainly due to the increase of 58.8 percent in provision expense in the second half of this year.

Notably, in 2020, state-owned banks would be under more pressure by SBV to support customers during the pandemic, while private joint-stock banks still had a certain room to balance customer support and ensure reasonable profitability. Therefore, profit growth in 2020 of the dominant state-owned banks was forecast to decrease by 15.9%, while that of private banks would decrease by only 3.3%.

The small joint-stock bank leader expected credit in the last four months of the year would improve compared to the first eight months of the year. However, the level of improvement would not be great, especially in the context that the Covid-19 epidemic had just returned to Vietnam, making businesses continue to be cautious about their business prospects, thereby limiting investment expansion.

Recalling the economic crisis nine years ago, at the end of each day seeing the data sent up was to know how to lose money, the only problem was that it lost a lot or a little. Nevertheless, every morning, whenever founding himself still breathing, which meant he was still alive, he still had to be optimistic and did not need to be stingy with his dreams, this person said.


Category: Finance, Vietnam

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