VietnamCredit
VietnamCredit About Us Cafe€redit Contact Us API
Login Register
0
USD
Go to cart
Checkout
Domestic banks and a gloomy future

Domestic banks and a gloomy future

Friday 10, 04 2020
Contrary to 2019, domestic banks are facing significant slowdown, even negative growth this year because of COVID-19.

The recent update of SSI's banking industry estimates that the impact of the COVID-19 epidemic on its business results in the first quarter of 2020 is not great, except for some banks that chose to proactively set aside credit risk provisions.

This is because the COVID-19 epidemic has become more complex since the second week of March. However, the preferential interest rate packages, cutting transaction costs and payment will affect the profits in the next quarter of the banks.

Accordingly, SSI has adjusted a decrease of 11.1% and a decrease of 16.4% of profit before tax compared to the previous forecast to reflect the impact of COVID-19 epidemic in 2 scenarios: disease control at the end of the second quarter of 2020 and the end of 2020.

The Profit before tax of banks is expected to grow by 7.2% and 0.8% over the same period, in the two aforementioned scenarios.

The possibility of increasing bad debt in the near future

According to the General Statistics Department, the credit growth of the banking system by 20th March was 0.68% over the same period last year, which has been the lowest level when compared to the indexes in the period from 2015 to 2019 with a fluctuation ranges from 1.25-2.81%, according to SSI.

This leads to more difficulties for banks in the next quarter of the year. However, the situation may be worse in 2021, as the bad debt formation rate will be higher and the number of bad debts will increase, starting from the global outbreak of COVID-19, according to SSI.

After the State Bank's Circular 01 took effect on March 13, banks have continued to launch new support packages for customers, including businesses and individuals affected by COVID-19.

It is expected that the current interest rate support packages will also significantly affect the revenue of banks. For example, according to the estimation of Vietcombank, if the support packages are established at the scale of 120,000 billion VND, the expected income will be reduced by 300 billion VND.

Currently, regulators also require banks not to pay cash dividends, to retain income from the previous year to support the economy. However, the State Bank also has many measures to support credit institutions in particular and the economy in general, such as the reduction of executive interest rates and short-term deposit rates ceiling, or 50% reduction of interbank transaction fees (according to Circular 04/2020), and the extension of tax payment time (according to the proposed draft revision of Decree).

At the beginning of 2020, many banks reported big profits, not only in the number of growth but also in the absolute number of new records. However, after the first 3 months of this year, these plans have been influenced by COVID-19, forcing many of them to recalculate their business targets this year, after fully determining the possible effects of COVID-19.

BIDV Bank, in its annual general meeting of shareholders in early March, announced a planned profit of VND 12,500 billion, but that was in the scenario that the disease would be controlled by the end of March.

Documents from the South Asia Commercial Joint Stock Bank recently has also set a target for the consolidated profit this year to decrease by 14% compared to the figures made last year.

In the downward trend, the outlook is negative

Domestic banks and a gloomy future

The banking system of Vietnam and 11 other countries in the Asia-Pacific region have been downgraded to negative prospects in the context of the COVID-19 epidemic and the rapid economic recession spreading worldwide.

Credit rating agency Moody's recently released a negative outlook on the banking systems of regional countries, including Vietnam, reflecting its forecasts on the scope of economic disruptions and the market due to the spreading disease strongly affecting the environment and business activities of banks.

With the fact that the bankruptcy of many businesses and the restriction on social interaction will affect economic activities in 2020, Moody’s predicts that global growth will slow down. “The economic and market disruption caused by the COVID-19 virus is quite serious in the Asia-Pacific region. Therefore, we expect that many economies here will face negative GDP growth or very low growth in 2020.

The effect on the banking system is that bad debt will increase and profit will decrease,” Eugene Tarzimanov, a Moody’s analyst for Southeast Asia financial institutions, said. According to Moody's, if the disruptions from the disease outbreak last for the first half of this year, the impact on lending activities of banks will be huge.

The outlook for the banking systems in Australia, China, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand, and Vietnam has therefore been changed to negative, in addition to two other banking systems, Hong Kong and Japan, which have also received a negative outlook from Moody since the previous review.

According to Moody, the operating environment for the banking systems in the region will be significantly reduced by COVID-19 with the risk of covering banks' assets and increasing lending costs.

Along with that, the operating interest rate will be lowered by the central banks of the countries, and the profitability of the banks will, therefore, decrease in 2020. Eugene Tarzimanov explains that banks will face new irrecoverable debts coming from small and medium enterprises, and companies operating in the fields most affected by the epidemic such as aviation, retail, tourism, etc.

"We believe that the problem of the decline in profits at banks will come from higher lending costs and lower net margins due to the governments' policy of cutting interest rates." The banks that are most affected are those that focus on regional works, as well as have weak or undercapitalized capital.

​>>  Vietnam’s banking industry 2020

Source: https://www.thesaigontimes.vn

Categories
Banking & Finance

You may also like

HCMC: Up To 100 Bank Branches Have No Bad Debt
Tuesday 10, 12 2019

HCMC: Up To 100 Bank Branches Have No Bad Debt

The overall bad debt ratio of banks in the city is very low.
Vietnam’s banking industry 2020
Thursday 25, 06 2020

Vietnam’s banking industry 2020

MBKE has raised its assessment for the banking industry in 2020 from neutral...
0
0
+84 981861066