But when and how it recovers will depend significantly on the portfolio of outstanding loans and the current balance sheet structure of each bank, according to the latest report by JP Morgan.
It can be seen that Covid-19 is directly affecting every components of the economy. Banks are trying to provide maximum support for their customers, because banks can only develop if their customers are able to survive difficulties.
Banks such as Vietcombank, Vietinbank, and Techcombank have actively followed the direction of the Prime Minister and the State Bank in offering credit support packages in order to fully meet sufficient and timely capital needs to serve production and business activities of enterprises by applying measures of debt rescheduling, debt extension or reduction of interest rates to support customers who are in difficulties due to Covid-19.
A series of support packages have been launched from the internal resources of banks. However, banks themselves are also burdened because of the indirect impact of the epidemic. According to the State Bank of Vietnam (SBV), in the first 2 months of the year, the credit growth of the whole system was only 0.06%, a sharp decrease from the 1% increase in the same period last year. This is also the lowest growth rate in the last 6 years.
The latest figures from the General Statistics Office, Ministry of Planning and Investment, show that as of March 20, 2020, the credit growth of the economy increased by 0.68% (the figure was 1.9% in the same period last year). Credit rating agency Moody’s recently confirmed a negative outlook on the banking systems of countries in the region, including Vietnam. Accordingly, economic and market disruptions will affect the banking system, resulting in rising bad debts and falling profits. Meanwhile, Fitch’s is questioning the asset quality of consumer loans which will significantly be impacted when people's income is reduced.
A report by JP Morgan in early April 2020 showed that new forecasts were somewhat pessimistic as the pre-tax profit of many banks this year would drop significantly. However, JP Morgan also forecast that the banking industry will soon recover in 2021 with profits increasing again.
Earlier, some Vietnamese banks also expected that the epidemic situation would soon be controlled by June this year, and the remaining half-year period is for the economy and the bank to accelerate and minimize the impact of the epidemic.
In fact, the effect of Covid-19 on the whole banking system is clearly visible, but the effect is not consistent because each bank has different portfolio and asset structure: some banks choose to focus on loans to corporate customers, while some pay attention to retail and other related services. Therefore, how rapid the recovery will depend not only on the general changes of the market, but also on the intrinsic factors and growth strategies of each bank.
JP Morgan's Asia-Pacific equity research division has used Techcombank as an example because it is a rare regional bank capable of "making money" on both sides of the balance sheet, generating long-term returns. In fact, for many years, Techcombank has followed its own path with a special portfolio. The first is the ecosystem financing strategy (including businesses and individuals in the same chain) across 6 economic sectors (accounting for about 48% of GDP, with the growth rate of more than double GDP growth, nearly 16%).
As a result, Techcombank meets the needs of users from long term ones such as buying houses to stay, cars to go, to everyday needs such as shopping, payment for services or travel. According to Mr. Pham Quang Thang - Deputy General Director of Techcombank, the banking industry is always considered the lifeblood of the economy, so when every economic sector is affected, the banking industry will also be affected. “Yet because each bank has a different customer structure, management capacity and level of technology application, the levels of influence also vary.
As for Techcombank, focusing on digital banking and building excellent risk and human resource management platforms are the basis for Techcombank to accompany customers to overcome difficulties and minimize the impact of the epidemic.” said Mr. Quang Thang. This is a typical example to explain why Vietnam's banking industry in general is still highly appreciated by foreign investors. Although profits have decreased, profit margins remain high compared to other countries in the ASEAN region, according to JP Morgan.
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