Vietnam is one of the most leveraged countries in Asia when the credit to GDP ratio was more than 130% in 2019. This has put Vietnam's banking industry in a difficult position when the Covid-19 pandemic broke out, leading to an economic recession.
It is forecasted that banks would really experience the negative impacts of the Covid-19 pandemic in the second quarter of this year.
In a recently released report, experts of Viet Dragon Securities Corporation (VDSC) warned of a risk to the banking industry, which is the credit crisis. VDSC said that, historically, financial crises were often accompanied by recession.
There are many causes of financial crises such as mass withdrawals, currency devaluations, speculative bubbles and national defaults, etc. This securities firm said that after two recent financial crises, risks of bank liquidity and currency devaluation have been well controlled when money "floods" in banks' safes and emerging countries have a large reserve of foreign currencies.
In Vietnam, foreign exchange reserves are USD 83 billion, equivalent to 3.7 months of imports. However, VDSC experts emphasized that the credit crisis is still at risk if the economic damage caused by Covid-19 seriously affects the financial health of households and businesses.
This company believed that the epidemic has been changing people's expectations and the economy's self-recovery mechanism is not really effective. World economy, especially economies of developed countries, will hardly be able to avoid the post-pandemic recession. More importantly, the recession can lead to irreparable economic loss due to slow recovery.
The decline in aggregate demand will lead to a negative reaction from the supply, leading to prolonged stagnation. The main feature of this period is associated with the chronic decline of demand while monetary policy becomes less effective due to reaching the zero level.
Vietnam is one of the most leveraged countries in Asia when the credit to GDP ratio is more than 130% in 2019. Since the post-crisis period in 2008, credit growth of Vietnam, especially consumer loans, has increased significantly.
The real estate price bubble has been formed. "Although credit growth has slowed since 2018, we believe that the process of dismantling financial leverage has not been not complete and debt levels are still too high" said VDSC experts.
"We are living in an early stage of economic recession, in which governments, including that of Vietnam, have decided to trade economic growth to stop the pandemic. At this point, let's focus on pandemic and credit crisis!" warned VDSC experts.
According to the General Statistics Office, credit growth in Vietnam's banking system which was partly affected by Covid-19 epidemic recorded a modest rate of 0.68% from the beginning of the year to March 20.
This is the lowest level when compared to the period from 2015-2019 (ranging from 1.25% to 2.81%). In a recently updated banking industry report, SSI Securities Company said that credit growth was slow in three state-owned commercial banks including Vietcombank, VietinBank and BIDV, as well as in commercial banks such as MB and ACB. SSI believed this may stem from the fact that these banks are more cautious when making new disbursements to limit credit risk in the future.
Meanwhile, VPBank, HDBank and TPBank have "broken the pattern" and boomed with a high credit growth rate: about 4.8% as of the end of February 2020 for VPBank and 5% for HDBank while TPBank witnessed a 9% credit growth rate at the end of March 2020. "VPBank and TPBank are particularly active in buying corporate bonds. For HDBank, the relatively high credit growth was due to loan agreements with a number of corporate customers, which had been signed before the end of 2019" said an SSI expert.
SSI believed that business results of most Vietnamese banks would not be greatly affected by the Covid-19 epidemic that has just started to become complicated since the second week of March, except for some banks which decided to proactively set up credit risk provisions in advance to have more reserves in the future.
However, in the second quarter of 2020, SSI expected that interest income, fee income and bad debt collection would decrease when banks meet customers' needs by providing preferential loan interest packages and cut transaction and payment costs.
Regarding consumer credit activities, SSI believed that the impact would take place in 2 phases. In phase 1, the demand for loans from popular and low-income segments remains as customers still need cash to cover living costs.
However, in the second phase when the epidemic is complicated and peaks, in theory, the income of the low-income customer segment will be affected first, and chances are high that they can barely pay the debts.
However, SSI is still quite optimistic on the business results of many banks in 2020. Accordingly, in the worst case when the disease cannot be controlled in 2020, 10 banks including Vietcombank, VietinBank, BIDV, MB, Techcombank, VPBank, ACB, HDBank, TPBank, Lien Viet Post Bank are all expected to record a loss of 5% compared to 2019.
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