The Forecasting & Statistics Department of the State Bank of Vietnam (SBV) has just announced the results of investigating the business trends of credit institutions in the first quarter of 2019, showing a very optimistic psychology of banks.
Accordingly, up to 79.3 percent of credit institutions expect that the business situation will “improve” in the first quarter and 88.4 percent of credit institutions expect the overall business situation in 2019 to “improve” than in 2018, in which 24-35 percent of credit institutions expect to “improve significantly”.
In particular, they expect customers’ demand for their products and services to continue to grow in 2019, in which borrowing demand continues to be anticipated to grow at the highest level; Demand for deposits, payments and cards is also expected to increase at a higher rate in the first quarter of the year.
Specifically, the credit balance of the banking system is forecasted to increase by 4.1 percent in the first quarter and 15.27 percent in 2019 (significantly lower than the actual increase of 18.24 percent in 2017 and expected increase of 17.71 percent in 2018). Meanwhile, capital mobilisation of the entire credit system is expected to grow by 3.71 percent in the first quarter and 13.9 percent in 2019 (lower than the actual increase of 14.98 percent in 2017 and the expected increase of 16.66 percent in 2018).
Due to the positive expectation on business situation, 59.3 percent of credit institutions are likely to continue recruiting more workers in the first quarter of 2019.
Credit institutions also identified and predicted Non-performing loan over total outstanding loan ratio to be kept at a low level and to decrease in 2019 compared to 2018. Deposit and lending interest rate are also forecasted to remain stable in the first quarter and the full year of 2019.
Banks’ optimistic sentiment is understandable when they have just closed the year 2018 with quite satisfactory results. Accordingly, most banks met or exceeded the profit targets set for the year. For example, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) ended the year 2018 with pre-tax profit of over 18,000 billion dong, which increased by 63.5 percent compared to that of 2017. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) also achieved pre-tax profit of 8,959 billion dong, up 12 percent compared to 2017. As for Vietnam Joint Stock Commercial Bank of Industry and Trade (VietinBank), although in the last quarter of 2018, this bank had to reduce its outstanding balance to maintain good capital adequacy ratio, but the whole year profit also reached 6,800 billion dong. Other Joint stock banks also have impressive business results in the year.
According to experts, banks’ optimistic expectation is party resulted from the survey carried out by the Forecasting & Statistics Department in the period from November 24, 2018 to December 14, 2018, before the Directive 01/2019/CT-NHNN of the Governor of SBV was issued. This Directive mainly focuses on the task of inflation control as well as bank financial capacity strengthening to meet Basel II standards.
Therefore, credit growth in 2019 will be controlled at 14 percent, the lowest in the last five years. Consequently, it will significantly affect the revenue and profit of banks as credit segment still contributes to 70-80 percent of their total revenue.
Moreover, Basel II will be soon applied. Many banks might consider to narrow credit growth target if they cannot increase capital, except the case of VietinBank in late 2018.
Furthermore, banks’ net interest margins (NIM) are expected to decline compared to 2018 when deposit rates are still increasing and many forecasts show that the 2019 interest rate level will continue to stand at a high level due to high inflation pressure this year. Meanwhile, the lending interest rate cannot keep up as it is now under pressure to reduce. Noticeably, four biggest banks have announced to decrease interest rates right at the beginning of this year.
In addition, according to Bao Viet Securities Joint Stock Company (BVSC), some banks’ NIMs are contracted due to the negative impact of reduced short-term capital ratio for medium and long-term loans to 40 percent and decreased cheap capital from the treasury in 2019.
As a result, many experts say that banks’ profits have peaked in the past year and are unlikely to remain at such a high level this year unless banks promote financial services and lower their dependence on credit growth.
