Non-interest income ‘saves’ banks’ profits

16-Oct-2021 Intellasia | Dau tu Chung khoan | 5:02 AM Print This Post

Since the Covid-19 epidemic occurred until now, the digital transformation in the banking industry has been increasingly promoted in order to meet the need of customers when they gradually shift their habits to non-cash payments. Notably, in the prolonged social distancing in the third quarter (Q3) of 2021, most people’s payments were made in the contactless form. Even buyers and sellers refused to give and receive cash in order to limit the risk of Covid-19 infection.

The digital transformation has helped banks overcome difficulties during the pandemic. This is proven by the business results of banks when the proportion of revenue from service fees and insurance sales, etc. in total banks’ profits is a significant number.

Tien Phong Commercial Joint Stock Bank (TPBank) is the first bank to disclose its business results in the first three quarters of 2021 with a pre-tax profit of nearly 4.4 trillion dong, completing 75.76 percent of the year plan.

TPBank’s general director Nguyen Hung said that the bank has made positive adjustmenets in the direction of diversifying revenue sources, reducing dependence on interest income from credit. The bank’s net income from services in the first nine months of 2021 increased by approximately 30 percent year-on-year, reaching 1.052 trillion dong. In particular, the service income from payment activities, insurance and consulting services still accounted for the largest proportion.

Similarly, at Asia Commercial Joint Stock Bank (ACB), the number of transactions doubled in the first eight months of 2021, although the bank had to temporarily close up to 100 transaction points due to the epidemic. ACB expects that the service fee income will contribute to the bank’s Q3 total profit as well as the first three banks of 2021. ACB’s target is to increase revenue from services by 30 40 percent annually in terms of proportion.

In the first half (H1) of 2021, ACB’s net service profit was 1.511 trillion dong, nearly doubling compared to the same period of 2020, mainly from the insurance segment when the bank officially started to distribute life insurance products of Sunlife Vietnam. The upfront fee for this contract is 370 million US dollars, equivalent to 8.5 trillion dong. Thus, ACB aims to collect an addition of 1.3 trillion dong from service fees in the second half of 2021.

The H1/2021 consolidated financial statements after reviewing showed that most banks recorded high after-tax profit, but mainly from service activities. Specifically, the net profit from services of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) was 3.175 trillion dong, while that of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Maritime Commercial Joint Stock Bank (MSB) were respectively 2.639,9 trillion dong and 2.197 trillion dong.

Bank leaders said that the reason for the increase in profit in H1/2021 is mainly thanks to service activities, digital banking, and expected that the income from fees will be the “salvage” for profits in the last two quarters of the year.

Yuanta Vietnam Securities Company has released a report analysing the profitability of the banking industry in Q3/2021, mentioning that the credit growth of the entire industry slowed down under the impact of the Covid-19, but this is not too surprising. The securities company forecast that the net profit margin will decline as banks have lower interest rates to support customers affected by the pandemic. accordingly, the net interest income in Q3/2021 of banks fell by about two percent over the previous quarter.

Nevertheless, Yuanta Vietnam Securities Vietnam expected the fee income of banks to increase in Q3, becoming the main driver to help boost profits this quarter. It is likely that the State Bank of Vietnam (SBV) will continue to ease the monetary policy, at least by the end of the year, helping improve net profit margin in Q4, when credit grows again during the peak business season at the end of the year.

To share the difficulties with customers, 16 banks have agreed to lower lending interest rates applicable from July 15th to the end of 2021 with a total interest cut for customers estimated at 20.613 trillion dong; reaching 1.032 trillion dong at Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), 857 billion dong at VietinBank, 943 billion dong at Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), 550 billion dong at Military Commercial Joint Stock Bank (MB), 155 billion dong at Vietnam Technological and Commercial Joint Stock Bank (Techcombank), 83 billion dong at ACB, etc.

Thus, the Q3/2021 profit of the banking industry is said to really feel the Covid-19 epidemic impacts and many banks have expressed this concern in the investigation of business trends of credit institutions (CIs) in Q4/2021 by the Department of Forecasting and Statistics (the SBV). For the first time since the SBV conducted a quarterly business trend survey (from Q1/2014), the system of CIs predicted the net interest income, net income from fees and services and income from proprietary activities in Q4 to decline compared to the previous quarter.

It is forecast that in the future, banks’ profits will significantly fall because the pandemic is causing difficulties for even group 1 debts debts which banks are allowed to account accrued interests in income and must withdraw if they are not collected. Meanwhile, in addition to large-scaled banks, for small and medium-sized banks, the main contributor to their profits is still net interest income. In addition, in 2021, banks must make a risk provisions of at least 30%, which is a great pressure.

According to Dr Le Xuan Nghia, an economic-financial expert, since the Covid-19 outbreak, the banking industry has quickly come up with supportive solutions to share difficulties with customers hit by the epidemic. The reduction in interest rates and the rescheduling of debt repayment terms have helped reduce financial obligations for businesses, creating a source of money for production and business activities. However, as banks themselves are also businesses, cutting interest rates means reducing banks’ profits and shareholders’ dividends.

Chair of a bank said that for the economy, the capital market provides the main capital. As the capital market has not developed as expected, the money market is still operating and providing the main source of capital to the economy. Therefore, banks must be healthy, and having good profit is a positive factor.

In fact, banks’ profits are contributed significantly by non-interest income, especially for banks that have financial products and services based on modern digital technology, attracting users in the current wave of digital transformation.

The H1 financial statements in 2021 of banks pointed out that the strong growth of banks’ service income is partly thanks to entrusting service and insurance agency service fees. The income from this business of many banks in H1grew sharply compared to the same period of last year. In addition, the revenue from treasury services and other services also recorded strong growth.


Category: Finance, Vietnam

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