The impact of the Covid-19 pandemic in Vietnamese banking

 Affected aspects

The Bank's operations are closely related to all changes in organizations and individuals in society. Especially when Vietnam's financial market is still in its infancy, the capital channel from the equity and bond markets is still weak, leading to the fact that banks are the main source of capital for the economy (accounting for more than 60 % of total capital).
 
With the development and impact of the Covid-19 pandemic considered serious, complicated, and unpredictable, the influence of Covid-19 on banking operations has been clearly revealed. can be recognized up to this point in a number of aspects: Daily operational activities, Credit balance growth, Profit, and Bad Debt. Specifically:

• With daily operational activities

The exponential rapid spread of the epidemic affected the operational activities as well as the operational structure of all banks from the Head Office to branches/transaction offices. As long as a bank member infected with Covid-19 (F0), either intentionally or spontaneously with someone in group F0, the whole bank can be affected. When the bank has an employee infected with Covid-19 or is quarantined, the work and professional activities of the individual immediately stall, thereby affecting the chain of other bank activities, affecting the psychology and working performance of other employees and the whole system. On the other hand, when banking information with employees infected with Covid-19 or quarantined is spread to the outside, this will certainly affect the psychology of customers transacting at banks, especially customers. Personally, they will be afraid to contact directly at the bank, since then, deposit receiving/opening accounts/opening cards/loans / and other banking services will inevitably undoubtedly affected.

• With credit growth

Statistics of the State Bank show that the credit growth of March 16, 2020, increased by 0.43% compared to December 31, 2019, lower than the 1.52% increase in the same period last year. Also the lowest growth rate in the last 6 years. The demand for credit decreases due to the lower demand for credit of the household. As of this moment, the worse scenario predicted by the Ministry of Planning and Investment has happened, the translation is not controlled in the second quarter, so the annual GDP is expected to increase by about 5.8 - 6%, even 4.8 % if the disease lasts longer. As of mid-March 2020, the whole system of credit institutions has restructured the repayment term for customers with a total outstanding balance of 21,753 billion dongs, and at the same time, exempted or reduced interest rates for about 8000 customers with the amount of more than 350. billions dong. Banks are also considering reducing interest rates for 34,350 customers with outstanding loans of VND 185,000 billion; At the same time, continue to complete new documents, give new loans to about 5,493 customers with estimated loan sales of about 24,000 billion VND. In addition, under the impact of the Covid-19 pandemic, the sectors most severely affected include: 

• Medical expenses in epidemic prevention and control;
• Tourism, travel, hotels;
•  Transportation; 
• Commerce;
• Investment;
• Chain manufacturing; and 
• Financial services. 

Along with that, this epidemic could cause global GDP to drop by about 0.3 - 0.5% in 2020, causing our exports to continue to decline by 20% and imports down 16% in the second quarter, thus, credit growth target of 14% in 2020 is difficult to achieve the plan.
 
With consumer debt balance, the current total consumer loan to Vietnam's outstanding loans is 11.4%, about 0.93 million VND. According to a report by Infocus Mekong, Covid-19 will reduce household spending by an average of 15% in areas such as education, housing, food, and entertainment ... People decline, demand for consumer loans will also decrease correspondingly. So, with a significant decline in household spending of 15%, the target of reaching 1 million billion in consumer loans in 2020, then moving towards the further goal of increasing the proportion of loans. consumption on outstanding loans to 40-50% of total outstanding loans to reach developed countries' share is not possible.
 

• With bank profits

This is an inevitable consequence when the proportion of credit revenues still accounts for the majority of the bank's total revenue. On March 12, 2020, the State Bank issued Circular 01/2020 / TT-NHNN guiding credit institutions to restructure the repayment period, exempt and reduce interest rates, and keep the loan group to support customers. The product is influenced by the Covid-19 pandemic. Along with that, a series of basic interest rates operated by the State Bank decreased from March 17, 2020. Therefore, the amount of money reduced due to the application of these incentives will reduce the profitability of banks. Such supportive policies and sharing risks with customers will certainly significantly reduce income from credit. In addition, the banks' income source is not only affected by the decline in credit activity but also the fee collection is also negatively affected when all transactions in the economy slow down.
 

• With bad debt

According to the State Bank, the total outstanding loans affected by the Covid-19 pandemic, according to preliminary statistics from credit institutions, are estimated to be about 900 trillion VND. The Covid-19 pandemic broke out, causing goods to become congested, production and business were stagnant, exported goods could not be sold or if there was an output, there was a shortage of input materials due to raw material import markets all stopped working. Thus, it can be seen that, with the economy falling into a stagnant state, the supply chain is interrupted, businesses are the first ones to face difficulties, thereby affecting the ability to repay loans for banks. Up to now, the number of businesses temporarily suspending their business and waiting for dissolution skyrocketed over the same period last year, leading to the inability of customers to repay their debts on time, and thereby increasing the overdue debt ratio, increasing bad debt. Many industries such as agriculture, forestry & fishery, import-export business, accommodation service, catering, food, beverage, transportation, textiles, footwear, electronics, refrigeration, oil gas, tourism, education, and enterprises with main export markets and imported raw materials from China ... are all groups heavily affected by the epidemic. Enterprises in these sectors account for a large number of customers of banks, so the risk of an increase in bad debt is unavoidable.

Challenges and solutions for Vietnamese banks

Given the unpredictable developments of the epidemic situation, banks need to consider plans to maintain business operations and respond to the difficulties that have been and will be faced, and at the same time turn the risk into a risk. The opportunities presented by the Covid-19 pandemic include:
 
Firstly, the Covid-19 pandemic is an opportunity for banks to test the effectiveness of their policies on risk management, including operational risks. This is a good opportunity for the bank to know if its current business processes and HR systems are working effectively, and is there a place to be adjusted for more optimization. Especially in terms of human resources, at present, we have always considered a country with low labor productivity, a lot of labors in the system are ineffective, so this will be an opportunity for banks The product determines who is a good human resource, which personnel can cut, thereby optimizing operating costs. In addition, the epidemic is also an opportunity for the Board of Management to re-evaluate the policies to deal with risks, proactively adjust or rebuild the possible scenarios, thereby forming the Operational judgment more effectively coping with crises or unexpected events.
 
Second, the Covid-19 pandemic is the driving force to accelerate the process of transforming the number of banks. The digitization of documents, procedures, working methods, and transaction methods internally as well as with customers through this epidemic phase is seen as a very urgent job. Accelerate the completion of the big data system and quickly put into use digital banking products and electronic banking transactions, especially with the retail banking group serving individual customers and SMEs. to reduce direct transactions with this group of customers. Vietnam's internet usage and online transactions currently outperform. As of January 2020, Vietnam had 145.8 million mobile phone subscribers, of which 93% used smartphones, 68.17 million internet subscribers, 65 million were using social networks. Therefore, in the epidemic context, it is appropriate to take risks to turn into muscle in order to promote faster and more strongly the development of digital transactions based on internet banking and mobile banking.
 
Third, the reduction in credit growth is a good opportunity for banks to adjust their lending portfolios towards a new, safer, and more sustainable risk appetite. Even this is an opportunity for banks to adjust their asset portfolios, gradually reduce the proportion of credit and increase other assets, although this is not easy because credit is always considered. The most fundamental asset of the banking business, but it also brings the most damage if credit risk occurs. Therefore, reducing the proportion of credit, reducing interest income from the credit, increasing the proportion of service activities, thereby increasing revenue from non-credit activities has always been the goal of many banks.
 
Fourthly, in order to minimize bad debts, banks need to persistently comply with the State Bank's instructions in rescheduling the loan repayment period, reducing interest rates for borrowers at banks. This will cause banks to sacrifice their profit targets, but sharing their backs with businesses and individuals is in trouble because Covid-19 will help them recover soon, and since then, not only customers. where both the bank and the economy will recover sustainably. On the contrary, if banks pursue profit targets, do not maintain customer support policies when they are in trouble, the bank and the whole economy will be affected a lot when solving the problem. handling bad debts in the post-service years.

Complied by Vietnam Credit