The 14 percent credit growth target set in 2019 by the State Bank of Vietnam (SBV) has become a headache for many banks because low credit growth also means that banks will have to boost revenue from services.
At the press conference that took place earlier this week, the SBV provided three reasons for tightening credit growth targets in 2019.
Firstly, in 2018, the credit growth of the system only increased by 14 percent, but Gross Domestic Product (GDP) growth reached 7.08 percent, the highest level in the last 10 years.
Secondly, although credit growth slowed down, the total credit scale in the economy has become bigger and bigger and reached over 140 percent of GDP.
Thirdly, credit is only one of the many channels directing capital for the economy. In addition to this channel, businesses also need to mobilise capital via bond and share channels, etc.
Along with the introduction of a low credit growth target for the entire system, the SBV’s deputy Governor Nguyen Thi Hong also said that the agency will continue to grant specific credit growth limit for each bank, based on their own financial capacity and health. Accordingly, banks that meet the Basel II standards (only Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam International Commercial Joint Stock Bank (VIB) and Orient Commercial Joint Stock Bank (OCB) have been recognised), will have the advantage in the assignment of credit growth limit.
Thus, the monetary policy scenario in 2019 of the SBV is clear. Previously, in the end of 2018, many banks still expected an expansion of credit growth room from SBV’s. With tight credit growth room, banks will have to reconsider the strategic direction towards gradually reducing the income from credit source.
Focusing on lending to “super profit” segments
Surprisingly, although the credit growth was only 14 percent, many banks still reported huge profits in 2018. For example, Vietcombank expects its pre-tax profit at 18 trillion dong and BIDV announced that its 2018 profit to increase by about 18 percent in 2018. For smaller banks, the profit is also positive, such as TPBank attaining a pre-tax profit of 2.258 trillion dong, nearly double 2017; and Sacombank achieves a profit of above 2.2 trillion dong, 20 percent exceeding the plan.
However, according to analysis of experts, banks recorded sudden increase in profits (such as Vietcombank) largely thanks to the capital divestments or expansion of credit growth limit (such as Techcombank and Military Commercial Joint Stock Bank, etc.) or the large insurance market share. Meanwhile, the number of banks attaining high profit from services is not much.
Currently, when facing the pressure to reduce income from lending, many banks are aiming to develop service sector. However, the undeniable fact is that the ratio of service income in total revenue of most banks only account from 10-20 percent and the shift is very slow. Major changes in banking service field cannot be seen early in 2019. Thus, in the context of the tight lending, in addition to boosting service charges, retail (consumer lending, lending to households and small and medium enterprises) will be a fierce rival of banks in 2019 because it is the highest Net Interest Margin (NIM).
“There are two solutions that banks are making to increase profits in 2019. The first one is to focus lending on high-profit areas. Secondly, costs must be minimised”, said a deputy general director of a bank.
According to experts, as banks’ income is still heavily dependent on credit, the profit picture of banks in 2019 can hardly see major changes and will be clearly differentiated. Healthy banks which have basically settled bad debts and managed to increase capital to meet the Basel II standards will be assigned high targets and will see breakthroughs. In reverse, other banks will have to make efforts to raise capital, handle bad debts, and also face the pressure of restructuring revenue in order to maintain profitability in the context when the assigned credit growth is modest.
