Profits Over Prudence for Commercial Banks...
The State Audit report unequivocally states that when it comes to ensuring the stability of the credit institution system, the audit conducted at the State Bank of Vietnam in 2022 indicates that the liquidity situation of the banking system remains precarious at times. Some credit institutions face a shortage of available capital, leading to breaches of the required reserve ratio, necessitating borrowing for liquidity support. Furthermore, the financial situation of banks remains challenging due to high levels of bad debts, outstanding assets, negative equity, and increasing accumulated losses. They fail to meet safety regulations in their operations, with some commercial banks presenting high risks, threatening the system's security.
The audit results reveal that the maximum ratio of short-term capital used for medium and long-term loans throughout the system, as of December 31, 2022, is 25.6%, just shy of the allowed threshold. However, this rate is on an upward trajectory. By December 31, 2022, apart from weaker commercial banks that still do not meet the required ratio of short-term capital used for medium and long-term loans (such as Oceanbank, GPBank, CBbank, DongAbank, and SCB), some commercial banks have this ratio quite high, approaching the allowable threshold. This poses potential risks related to term imbalances and liquidity.
The State Audit Agency also highlights that the State Bank has fallen short of its target to reduce lending interest rates, as per its commitment. Specifically, in 2022, the State Bank initiated measures to lower lending interest rates for credit institutions. However, these measures proved ineffective and failed to achieve the goal of reducing lending interest rates as stipulated in Resolution 43/2022/QH15. The margin between lending interest rates and average deposit interest rates remains substantial, exceeding 4%.
In a short period, the State Bank of Vietnam adjusted operating interest rates twice, in September 23 and October 25, 2022, with a total increase of 2%, resulting in higher average deposit and lending interest rates. In the final months of the year, the entire system experienced sudden increases, with deposit interest rates exceeding 11% in some months, and lending interest rates exceeding 13%.
In addition, rather than lowering costs and interest rates to support businesses, many commercial banks chose to raise interest rates. Pre-tax profits of banks increased, with revenue from credit activities accounting for the majority and continuing to rise. Operating costs also increased, and the ratio of operating costs to outstanding credit debt in 2022 exceeded that of 2021.
Is the State Bank Still Subjective?
The assessment of debt repayment term restructuring and the maintenance of the same debt group, along with the exemption and reduction of loan interest for customers affected by the Covid-19 pandemic, as required by Resolution No. 43, revealed that by the end of June 2022 (the conclusion of the debt restructuring support policy for Covid-19-affected customers), credit institutions had successfully restructured debt repayment periods, preserving the debt group for more than VND 722,334 billion across nearly 1.1 million customers.
Additionally, they exempted and reduced interest and fees, maintaining the same debt group and accumulating more than VND 92,425 billion for nearly 562,000 customers. As of January 2023, the outstanding debt with restructured repayment terms, while keeping the debt group unaltered throughout the entire credit institution system, amounted to about VND 87,826 billion. The outstanding debt that benefited from exemption and reduced interest while maintaining the debt group was approximately VND 10,174 billion.
However, the audit results also indicate that the credit structure in 2022 did not align properly with priority areas according to the Government's policy, and there was a lack of strict control over credit allocation to potentially risky sectors. This suggests that the market-oriented role of the State Bank may not be as effective as desired. Specifically, when compared to 2021, the credit structure for priority sectors in 2022 showed the following trends:
Export credit balances decreased in both outstanding value (down 5.5%) and proportion relative to the economy (down 17.41%), primarily due to the impact of the Covid epidemic. Although priority areas experienced an increase in outstanding debt compared to 2021, the growth rate was lower than the overall growth rate of the entire industry (14.18%). Furthermore, the proportion of outstanding debt in these sectors relative to the overall economy decreased compared to 2021.
In contrast, credit allocation to potentially risky sectors, such as credit extended to the real estate sector, reached VND 2,581.000 billion by the end of 2022, reflecting a 23.9% increase compared to the end of 2021 (1.7 times higher than the overall growth of the entire industry).
The situation outlined above suggests that, in addition to objective factors, there may be subjective reasons stemming from both the State Bank and commercial banks. Notably, the State Bank's slow reaction to economic dynamics, leading to a sudden increase in interest rates, may have contributed to these challenges. Additionally, the inspection and supervision function of the State Bank's supervisory agency exhibits weaknesses, failing to analyze and clarify several key issues and potential risks associated with micro-supervisory subjects. Commercial banks, driven by profit-oriented objectives, have not effectively reduced costs or proactively lowered lending interest rates to support businesses in economic recovery and development.
The State Audit Agency recommends that the State Bank of Vietnam collaborates with relevant agencies to expedite the process of compulsory transfer for three compulsory purchase and sale banks and one specially controlled bank, including DongABank.
