Needless to say, the current ongoing complicated developments of the Covid-19 pandemic will continue to bring about endless challenges for the banking industry in the second half of the year.
Unrealistic numbers
In the first six months of the year, profits at VietinBank were estimated to increase by 75% to touch VND 13,000 bn. This information was shared by VietinBank leaders at a business review meeting at the end of June. This is also the highest six month pre-tax profit in the history of VietinBank. A notice released at the end of June by Vietnam Maritime Commercial Joint Stock Bank (MSB), said that in the first six months of the year, pre-tax profit reached VND 2,800 bn, three times higher than in the same period last year, reaching 85% of the whole year plan. According to the set plan, the bank pre-tax profit target this year is at VND 3,280 bn, up 30% compared to the previous year.
TPBank is also among the group of banks that announced preliminary business results of last six months, with a pre-tax profit of VND 3,007 bn, up 47.8% over the same period last year, equal to 54% of the whole year plan, while the Return on Assets (ROA) reached 2.15%, and Return on Equity (ROE) reached 26%. By the end of June, total assets of TPBank were estimated at around VND 242,000 bn, within the target of VND 250,000 bn for the whole year. Total assets are forecast to increase far beyond the plan by the end of the year.
LienVietPostBank also recently revealed that profit in the first five months of the year reached around VND 1,700 bn, with an average monthly profit of about VND 370 bn. Currently, profits at LienVietPostBank in the first six months are about VND 2,000 bn, equal to 80% of the whole of 2020. Last week, SSI Securities Company Analysis Center (SSI Research) announced the second-quarter business results of 33 listed companies. This report estimates second quarter pre-tax profit at HDBank at VND 2,400 bn, up 45% over the same period, BIDV at VND 3,850 bn, up 51%, Techcombank at VND 5,700 bn, up 57.6%, and ACB with pre-tax growth of 58%.
As noted, the positive business results of banks were mainly due to the credit recovery in the past six months. Data from the General Statistics Office shows that the credit growth of the economy in the first six months of this year reached 5.47% compared to the same period in 2020, only increasing by 2.45%. At banks, the credit growth rate also had a significant breakthrough over the same period. VietinBank credit balance in six months reached around VND 1.06 mn bn, up 4.8% compared to the end of 2020. In the same period last year, VietinBank credit balance had increased by only 0.66%.
Some sources said that within the first five months of the year, MSB hit the credit ceiling of 10.5% previously granted by the State Bank of Vietnam, and proposed for extension of credit limit. TPBank also recorded credit growth at 11%, nearly touching the credit limit granted by the State Bank of Vietnam. Similarly, BIDV profit came from credit growth of 7% compared to the beginning of the year, higher than the growth of 2.35% in the first six months of 2020, and NIM expansion over the same period. Techcombank also increased credit to 11.9%, while ACB increased 19% to 20%. Credit recovery, low cost of capital raising the Net Interest Income ratio (NIM) were the important factors that pushed the bank profit to increase rapidly in the first half of the year. Other banks have not announced their profits yet, but the data is forecast to be positive.
Credit Institutions worried
Optimism about earnings may continue in the second half of this year. Credit demand of businesses recovered in the first months of the year, but the fourth outbreak of the Covid-19 pandemic caused business and production activities to be significantly affected. By the end of June, 70,200 enterprises had left the market, up 24.9% over the same period. In May, the Ministry of Planning and Investment also said that a number of large-scale enterprises withdrawing from the market had increased, reflecting the reduced resilience of businesses under the ongoing pandemic. In such a situation, lending activities of all banks will certainly be affected.
In a business trend survey report in the third quarter of 2021 by the Department of Forecasting and Statistics (SBV), credit institutions said that at the end of the second quarter, overall customer demand was at a modest level. In this, the demand for loans and payments improved stronger than in the previous quarter, while the demand for deposit continued to improve though the speed slowed down. In general, the business situation has improved but not as expected.
Looking to the second half of the year, credit institutions have revised their forecast of credit balance growth for the whole year compared to the survey period announced at the end of the second quarter. Specifically, it is expected that this year's credit balance will only increase by 13.1% as compared to previous 14.7%. Credit institutions also reduced their credit growth forecast compared to the previous survey period due to the devastating impact of the pandemic in the second half of 2021. This result showed that credit institutions are worried about the situation in the third and fourth quarters.
According to forecast by securities companies, due to increased credit demand for economic recovery, inflation pressure is higher in the second half of the year than in the first six months. Therefore, in order to maintain an attractive deposit interest rate in the context of high competition from investment channels such as real estate and securities, bank deposit interest rates are expected to increase by 0.25% to 0.3% in the second half of 2021. When deposit interest rates increase, the bank NIM will shrink and affect profitability. Capital inflow into real estate and securities is forecast to be more tightly controlled, as these are attractive NIM sectors due to higher lending rates than average.
Currently, there are many opinions that profits on books of banks are not substantial, and not showing insider potential problems. According to Circular 03/2021 of the State Bank of Vietnam, credit institutions are allowed to restructure the repayment term with debts arising from the period from 23 January 2020 till the end of 2021, which means that debts that are likely to become bad debts have been circled. At the same time, the provisioning for this amount is also extended with a term of three years. Accordingly, the provisioning rate is at least 30% at the end of the year, increasing to at least 60% and 100% at the end of 2022 and 2023, respectively. Many bad debts that should have been set aside were not set up. Therefore, the current profit does not necessarily reflect the realistic health of the bank.
