Banks under pressure despite positive credit recovery

Customers at a bank in Hà Nội. The small gap between deposit and lending rates will cause the banks’ net interest margin (NIM) and net profit to reduce. Photo baochinhphu.vn

HÀ NỘI — Though credit demand is recovering quickly, banks still have to face big challenges related to rising bad debts, provisions and deposit interest rates.

According to Lê Xuân Nghĩa, former deputy chairman of the National Financial Supervisory Commission, the US Federal Reserve (Fed) will continually increase interest rates this year, which will force Vietnamese banks to raise deposit rates.

Despite the high increase in saving rates, domestic banks will not be able to raise lending rates accordingly to support the economy as directed by the Government. The small gap between deposit and lending rates will cause the banks’ net interest margin (NIM) and net profit to reduce, Nghĩa explained.

Besides, for a long time, many banks have gained good profits from real estate credit, and investment in and issuance of corporate bonds. However, the tightening of cash flows into the two channels in the near future may affect the banks’ income.

In fact, many banks recorded high credit growth in Q1/2022 thanks to the strong increase in corporate bond investment.

By the end of Q1/2022, the largest corporate bond balance numbers were recorded in Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Military Commercial Joint Stock Bank (MB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Tien Phong Commercial Joint Stock Bank (TPBank) and Saigon Hanoi Commercial Joint Stock Bank (SHB), baodautu.vn reported.

According to Nghĩa, banks are also under great pressure in terms of bad debts in the last months of this year as the Government’s regulations on debt rescheduling will expire from June this year.

Due to the adverse impacts of the pandemic, the Government has allowed COVID-19-affected customers to delay the loan repayment while allowing banks to maintain the debt classifications. Therefore, a significant amount of debts can become bad debts when the regulation is no longer effective.

Financial statements of banks in Q1 2022 also showed the bad debts at most banks worsened in the quarter.

In the past two years, though banks have sharply raised their provisions for risky loans, the provisions at many banks are under pressure to rise significantly when a large amount of debts are not allowed to be rescheduled.

Analysts of Saigon Securities Incorporation (SSI)’s Research said though the asset quality in Q1/2022 of banks is not a concern, the pressure of provisioning remained high, up by 18 per cent over the same period last year.

According to experts, the biggest prospect for banks in the last months of the year is the acceleration of digitalisation and the rise of current account savings account (CASA) ratio, which will help lower the negative effects of the increasing input costs.

Moreover, the recovery in credit demand is also expected to partly offset the NIM decrease.

In addition, the revenue from insurance and divestment activities are predicted to bring huge profits for banks.

In the recent season of annual general meetings (AGM) of shareholders, most banks set positive pre-tax profit growth targets at 31 per cent on average. Business performance results of banks in Q1/2022, except Orient Commercial Joint Stock Bank (OCB), surpassed the set targets.

However, according to SSI Research, the Q1/2022 business results of banks have not fully reflected the impacts of the recent moves to tighten real estate lending and corporate bond issuance.

The short-term risks for banks remain  until the impacts of the corporate bond market become clearer, SSI Research said. — VNS