Rong Viet Securities Company (VDSC) has just updated its banking industry report, forecasting profit growth of banks in 2019 will be lower than the previous year, but still at a positive level.
According to VDSC, the interest income will slow down and the net interest income (NIM) ratio will continue to improve selectively in some banks as one of the factors that cause lower bank’s profit results.
The increase in NIM has become more limited due to four reasons. The first is the pressure to raise medium and long-term capital. Secondly, the proportion of retail lending is high and the competition in retail lending increases. Thirdly, the loan-to-deposit (LDR) coefficient is pushed close to the threshold. Last but not least, the consumer finance industry has encountered difficulties in mobilising medium and long-term capital.
Banking group including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Military Commercial Joint Stock Bank (MBMBBank), Vietnam International Commercial Joint Stock Bank (VIB), Tien Phong Commercial Joint Stock Bank (TPBank), and Asia Commercial Joint Stock Bank (ACB) (strongly expanding to retail) NIM will continue to increase positively in banks. In particular, MB and Vietcombank (high Current Account Savings AccountCASA ratio) tend to be less affected when competition on mobilisation increases. On the other hand, NIM movements at banks are likely to differentiate due to lendingmobilisation situation and liquidity pressure in each bank are different.
NIM of HCM City Development Joint Stock Commercial Bank (HDBank) and Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) is expected to be sideways or down slightly due to the impact of the consumer finance segment.
Meanwhile, BIDV is expected to reduce NIM due to slower expansion into retail segment and pressure on mobilisation. Particularly VietinBank forecasts NIM increase because the bank does not account additional credit costs into net interest income.
The second factor affecting the slower profit growth is that banks’ provision expenses continue to be high, especially in Vietnam Assets Management Company (VAMC) outstanding units such as BIDV, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), VPBank, Tien Phong Commercial Joint Stock Bank (TPBank) and HDBank. Except for VietinBank, the remaining banks are expected to clear all VAMC debts in 2019. On the other hand, the two banks including TPB and MB have the bad debts increased from 1.1 percent to 1.5 percent and 1.8 percent respectively.
In addition, according to VDSC, irregular non-interest income (signing life insurance contracts and divestments) is no longer abundant, which also affects the profitability of the bank, in spite of a sustainable revenue structure.
Three risks of the banks
According to VDSC, the policy of tightly controlling credit growth and strict regulations on capital reduces the ratio of short-term capital to medium and long-term loans, applying Basel II will affect the net profit margin and interest income growth of banks.
On the other hand, the proportion of retail outstanding loans continues to increase, in which the housing loan is still dominant, leading to risks when the real estate industry falls into a downward cycle.
Consumer finance is a sector that shows saturation in demand that makes loan growth difficult, increasing competition due to new entrants, and tightening management regulations of competent authorities.
