Profits of banks in 2018 are forecasted to continue growing thanks to many factors such as the ability to “shine” of consumer lending segment, the capital divestment and recovery of handled bad debts.
*Six major reasons affecting profit growth
Looking at bank profitability in 2017, we can see the “bright colour” when credit increases, bad debt is gradually pushed back, provisioning cost gradually decreases. A good thing in the past year is that the majority of banks recorded strong profit growth, even doubling or tripling compared to 2016.
According to a report by the National Financial Supervisory Commission (NFSC), the Net Interest Income (NIM) of the entire system in 2017 increased nearly three percent, from 2.74 percent in 2016. Another bright spot in 2017 is that the asset quality of the system of credit organisations improved. As per NFSC’s estimates, the non-performing loan (NPL) ratio of credit organisation system at the end of 2017 was 9.5 percent, decreasing strongly from 11.9 percent at the end of 2016.
However, according to the assessment of the banking sector in 2018, SSI Research pointed out six major factors affecting profit growth. Of which, the slowdown of credit growth, favourable conditions to reduce interest rates along with development potential of consumer credit segment are major factors influencing on core business segment.
SSI Research said most banks will maintain growth momentum in 2018 with the average profit growth at 14 major banks to reach an estimated level of 32.9 percent, of which, ACB achieved the strongest growth (with an expected increase of 120 percent, to nearly 5.830 trillion dong), followed by HDBank (with an expected increase of 60.5 percent, to 3.885 trillion dong); VIB, VPB, VCB (with an expected increase of 37-40 percent).
For traditional lending segment, the credit growth is likely to decrease compared to 2017 because concerns about inflation caused the State Bank to lower credit growth target in 2018 to 17 percent, lower than the 18.17 percent implemented in 2017.
The proportion of short-term capital used for medium and long term loans decreased from 50 percent to 45 percent. However, the aforementioned reduction is still easier for banks to “breath” because the previous plan was to reduce this ratio to 40 percent. Relating to lending, the government has repeatedly issued the message asking the banking system to lower interest rates. This also raises the question about the impact of policy on the industry’s Net Interest Margin (NIM).
However, according to the assessment of SSI Research, the average capital cost in 2018 will decrease thanks to government’s support policies along with remarkable improvement of payment balance in 2017 and 2018. Specifically, the operating and lending interest rates via OMO decreased within more than one year. The sale of state capital at state-owned enterprises (SOEs), private companies in this year will continue attracting a large amount of foreign capital, leading to the injection of a large amount of foreign currency into the system. SSI Research forecasts that the profit at 14 major banks in 2018 swelled 32.9 percent.
*Where to look to?
Credit in 2018 is assessed to continue improving positively. Of which, the opportunity to “shine” of consumer lending segment is highly appreciated. According to SSI Research, foreign capital may help liquidity of the banking system increase remarkably, the short-term interest rates may decrease while medium and long-term interest rates maintain at low level. The capital inflow will help the banking system lower interest rates. Lower interest rates allow banks to shift their loan structure by expanding more to retail lending and consumption. This sector has higher NIM, contributing positively to profits while promoting domestic consumption.
As personal credit is still in the early stage of development, SSI Research supposes that overall risk can be managed and diversified within the next 1-2 years. The penetration of retail loans is still low now. According to SSI’s assessment, Vietnam still has special opportunity to “shine” in this sector. The proportion of consumer lending out of the total increased outstanding credit is one of the factors having positive impact on the industry’s growth in 2018.
Along with that, Dr Nguyen Tri Hieu, finance and banking expert said in this year, many banks will increase their earnings remarkably from the divestment of investments and recovery of handled bad debts.
Apart from the recent surge of bank stocks, analysts expect that there will have large revenue from investment activities.
According to the assessment of Dr Can Van Loi, profit of the banking sector in this year will be rather positive. The growth of the banking sector can be lower than 2017 but is still relatively good, forecasted at about 20-25 percent. This growth is also suitable to the good growth momentum of the economy.
Dr Can Van Luc said a satisfactory sign is that the total debt in Group 5 (potentially irrecoverable bad debt) as of the end of 2017 decreased 8.3 percent from the beginning of the year, to 20.725 trillion dong, only accounting for 34.2 percent of total bad debt. ACB is the bank that has the lowest NPL ratio in the surveyed group, only 0.7 percent compared to 0.87 percent from the beginning of 2017. The NPL ratio also fell from 0.64 percent to 0.4 percent out of the total outstanding loans.
