Credit growth increasingly close to nominal GDP growth

15-Jan-2020 Intellasia | Vietnam Finance | 6:02 AM Print This Post

In the recently released strategy report of 2020, MB Securities Joint Stock Company (MBS) pointed out many trends that might govern the banking industry in 2020.

According to MBS, credit growth in 2020 would decrease compared to 2019 and increasingly be closer to the nominal gross domestic products (GDP) growth rate.

MBS stated that the prudent policy of the State Bank of Vietnam (SBV) and the rising interest rates would be two factors making credit growth more cautious than in 2019.

Along with that, competition from other capital channels would also be a trend when the corporate bond market grew (scale had reached over nine percent of GDP), partly would result in the more modest credit growth than previous years.

Besides, the ratio of credit to GDP of over 130 percent was also a factor that drove SBV’s credit growth to slow down. In addition, Circular 22 was tightening lending to the real estate sector due to the reduction of short-term mobilisation rates for medium and long-term loans.

According to MBS, credit growth would be weak in state-owned banks and stronger in private banks by 2020, due to the uniform regulation of loan to deposit ratio (LDR) of 85 percent instead of 90 percent for state-owned banks and 80 percent for private banks as before.

In the credit structure, MBS believed that retail credit would be gradually decelerating.

The securities company said retail credit was being fully exploited by banks thanks to the golden population structure. However, competition in retail credit was increasingly fierce because the growth rate had been high in the past time, while the macroeconomy had grown less hot as well as the SBV’s tightening policy for the consumer finance sector.

In addition to the downward trend of credit growth and fierce competition in retail credit, MBS also forecasted that the capital demand in 2020 would be deficient in each banking group.

MBS cited the rating of the credit rating agency Fitch, the Basel II standard (applied from January 1, 2020) would increase the risk assets of Vietnamese banks by 60 percent compared to 2017, the total of 463 trillion dong for the whole system. As a result, the banking system would be in shortage of Tier One capital, taking place mainly in unlisted banks.

Statistics showed that the profit of the system had reached a record of 79 trillion dong (increasing by 22.3%) as well as raising capital from strategic partners to improve Tier 1 capital quite positively. However, MBS believed that the application of a higher credit risk factor to corporate and retail loans was a fundamental factor in increasing risk-weighted assets.

Meanwhile, 18 banks that had reached Basel II standards were mostly listed commercial banks. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) had 9also applied Basel II after selling capital to Korean Exchange Bank KEB Hana Bank). Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) was a state-owned bank that was not expected to apply Basel II due to the restructuring of the loan portfolio as well as the high LDR.

Another noteworthy trend forecasted by MBS in 2020 was that net income margin (NIM) growth would be less favourable than last year, due to the four following reasons. Firstly, the deposit interest rate level tended to increase. Secondly, the competition was becoming more and more fierce in consumer loans. Thirdly, the government bond interest rates continued to fall. Finally, banks would orient their investments to safer (lower interest rates) to meet Basel II standards.

Besides, MBS also forecasted that systemic liquidity would continue to be abundant and not to cause external pressure on interest rates, thanks to secure foreign direct investment (FDI) and export sources creating trade surplus.

MBS expected that by 2020, the valuation of banks in the stock market would be more advanced. This securities firm preferred banks with abundant and sustainable customer ecosystems to allow capital mobilisation with competitive costs, high profitability, reasonable valuation, and other factors, boosting stock prices like capital sales or Bancassurance cooperation.


Category: Finance, Vietnam

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