Credit directed to large corporate customers

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

To limit the bad debt rise, credit is being directed to large corporate customers with a strong financial foundation, instead of small and medium enterpirses (SMEs) or unsecured consumer segment.

General director of Asia Commercial Joint Stock Bank (ACB) Do Minh Toan said that the bank has restructured its loan portfolio this year to ensure support for businesses, and focus on the development of retail credit. However, by the end of the first six months of 2020, ACB’s bad debts still increased by 32 percent to 1.918 trillion dong although its outstanding loans only rose by 5.6%. The ratio of bad debts on total outstanding credit increased from 0.54 percent to 0.68 percent by the end of June.

Due to the Covid-19 pandemic, the credit demand this year is slow, bad debts increase, while the room for lending is still available (ACB’s credit growth target is about 11.75 percent this year), so ACB did not ask for an extension in credit growth limit. Similarly, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Commercial Joint Stock Bank for Agriculture and Rural Development of Vitnam (Agribank) also did not ask for more credit growth room.

Financial and monetary analysts said that the demand for credit in the last months of the year is unlikely to see strong rise compared to the first half of 2020. Credit will be directed to customers with good resistance and high repayment ability, and limited to risky areas.

Chair of the Board of directors (BOD) of a bank shared that the difficulties caused by the pandemic forced banks to restructure their credit portfolios to control the risks of bad debt increase. The bank has currently stopped unsecured consumer and car lending. According to this representative, although they are potential credit segments, but the current situation has affected customers’ income, not to mention that the unemployment makes customers’ repayment ability to decrease and even be lost. The risks, thus, will be high. On the other hand, cars are assets that quickly lose value, and this is the reason why banks have promoted the same of secured assets being cars in the recent time, in addition to real estate.

Not only domestic banks, many foreign banks have also stopped car loans and shifted to home loans or issuance of credit cards such as HSBC Vietnam.

In the outlook report for the third quarter (Q3) of 2020 of the banking industry, BIDV Securities Company (BSC) stated that banks have lowered lending to SMEs, consumer loans and focused on large businesses.

According to BSC, SMEs are the most affected units due to the social distancing order and the decline in consumer demand. Many SMEs have had to suspend operation and even gone bankrupt. In Q1 2020, the number of SMEs that faced difficulties and had to stop operation as well as dissolved increased by 10.8 percent over the same period of 2019; while the number of newly established businesses and resumed operation also decreased by 1.5%. This is the reason why banks are hesitant to pour credit into SMEs.

In addition, BSC also said that the sharp rise of unemployment rate has affected the borrowing needs and the ability to repay debts of individual customers. In fact, from the first half of 2020, banks have lowered the proportion of lending to individual and SME customers and focused on large businesses with good resistance during the pandemic. The concentration on lending to less-risky areas will help banks avoid bad debt shocks.

However, BSC said that the level of change will not be high, as the decrease in the proportion of SME loans only falls from 24.9 percent in 2019 to 24.5 percent this year, and the proportion of personal loans declines from 44 percent to 43%, and the proportion of lending to large businesses increases from 31.2 percent to 32.5%.

Meanwhile, according to Saigon Securities Incorporation Research (SSI Research), the credit demand may continue to weaken in the last months of the year as the country is facing the second wave of Covid-19, while banks can hardly lower their credit granting criterias amid excess liquidity. Therefore, lending to large businesses and issuing corporate bonds will be the main drivers of credit growth, while retail credit will not be as strong as it used to be, although this may result in a sharp fall of Net Interest Margin (NIM).

Research on the banking industry under the impact of the Covid-19 recently released by Vietnam Report showed that 69 percent of banks rated their credit growth outlook in 2020 lower than in 2019, 15 percent of banks said that they would maintain the growth rate of the previous year, and only eight percent of banks saw a positive growth prospect.

Results of the survey on business trends in Q3 2020 of credit institutions (CIs) conducted by the Department of Forecast and Statistics (the State Bank of Vietnam (SBV)) also pointed out that CIs have lowered the forecast on the growth of outstanding credit in 2020 in two consecutive survey periods. The outstanding credit balance of the banking system is expected to rise by 3.5 percent in Q3 2020 and 10.5 percent for the whole year, sharply down compared to the expectation of the two previous surveys.

Particularly, Export Import Commercial Joint Stock Bank (Eximbank) adjusted the credit growth target in 2020 to negative four percent, but in the first half of 2020, the outstanding credit growth was already negative eight percent. Acting general director of Eximbank Nguyen Canh Vinh explained that due to the impact of the disease, customers’ demand declines, so the credit of both corporate customers and personal consumption is unlikely to rise.

On the other hand, Eximbank has also focused on restructuring and rescheduling debts for customers affected by the Covid-19 pandemic according to the State’s policy, cautiously disbursed into risky areas in the context when bad debts tend to increase, causing the growth of outstanding credit to continuously fall.

Many other banks are also recorded negative credit growth in the first half of the year such as Agribank (negative 1.3%) Southeast Asia Commercial Joint Stock Bank (SeABank, negative one percent), Saigon Commercial Joint Stock Bank for Industry and Trade (negative 2.97%), etc. or saw no increase in credit such as Bac A Commercial Joint Stock Bank (BacABank).

Statistics of the SBV showed that as of July 28th, the credit growth of the entire banking industry was only 3.45 percent (7.13 percent in the same period of last year), while the capital mobilisation growth was 5.31%. In addition to the absence of transactions on the open market operations (OMO) in the first half of August, the system liquidity continued to be abundant.

Nguyen Hoang Minh, deputy director of the SBV HCM City branch said that in the first eight months of 2020, the city’s credit growth was 3.68%, lower than the same period of last year. In the same period of the recent three years, the credit of the city grew by up to 8.5 12.5%.

General director of a bank said that credit contributes the largest source of revenue to the total profit. Nevertheless, the bank will not lower the lending standards to increase credit because this can easily lead to an increase in bad debts, thereby affecting profits. Instead, the bank will be more cautious in new disbursements.

Regarding loosening room for credit growth, some banks did not ask for more room, but some other banks ask for an extension. The credit growth limits of Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Vietnam International Commercial Joint Stock Bank (VIB), Military Commercial Joint Stock Bank (MB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and Tien Phong Commercial Joint Stock Bank (TPBank) were respectively raised by the SBV by six percent, 8.25%, 10%, 10.7 percent and 12.5 percent in the second half of the year. In which, Techcombank and VPBank were granted the highest credit growth room of respectively 19 percent and 23%. The credit growth limit of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) was also extended to 14%.

According to the SBV, the extension of credit growth limit for some banks to facility healthy growth has been implemented from early July 2020, thereby promoting the growth of the economy. However, with the credit growth in the first seven months of the year and the current market situation, Dr Tran Du Lich, a member of the National Monetary and Financial Policy Advisory Council said that the capital absorption capacity of the economy will hardly increase sharply in the second half of the year and banks do not necessarily use up the credit growth room, and even have to be more cautious in lending to avoid bad debt increase.


Category: Finance, Vietnam

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