MBS Securities has just had a strategic report for the last six months of 2019, including the outlook of the banking industry this year. The analysts say that banks are slowing down their growth, which is necessary at the moment.
Credit growth in 2019 was set at 14 percent by the State Bank of Vietnam (SBV) at the beginning of the year, lower than 2018. MBS said that reducing credit growth at the moment is necessary to balance long-term growth when the dong credit ratio on GDP reached approximately 130 percent in 2018, at the same high level in 2011. In addition, the credit gap in 2018 was still at a safe level but deceleration was required.
In the banks that this analysis group tracks, credit is also projected to be lower than 12.5 percent (13 percent in 2018). The reason is that interest rates tend to anchor at high levels and more cautious credit management policies of the government and SBV.
Not only will credit slow down, banks’ profit growth will face more difficulties when Net Interest Margin (NIM) is forecasted to be difficult to improve this year. MBS believes that pressure to raise interest rates, compete for retail loans, raise capital from secondary debt and from changing Circular 36 will put pressure on NIM. Low-cost inter-bank capital will not be abundant due to some recent monetary tightening measures, inflation is also on the rise and government bond interest rates are hard to fall deeply.
However, MBS said that NIM would be able to improve in some banks such as Military Commercial Joint Stock Bank (MBMBBank), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam Technological and Commercial Joint-Stock Bank (Techcombank).
MBBank and Vietcombank have a competitive dominance in low-cost capital thanks to their unique advantages and high Current Account Savings Account ratio (CASA). Meanwhile, Techcombank has built a good ecosystem, so it can mobilise an abundant amount of demand deposits.
Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) and HCM City Development Joint Stock Commercial Bank (HDBank) are strong in consumer finance, so it is difficult to maintain high NIM due to credit slowdown and fierce competition.
While the NIM is difficult to improve, credit growth is low, MBS believes that the income growth of banks will depend largely on the revenue of non-interest payment and cutting costs. Banks have a huge potential from Bancassurance, new service fee programmes applied by most banks and boosting retail and digital banking.
The analysis team noted that the bad debt ratio after adding VAMC bonds did not decrease significantly in 2018 and the ability to handle bad debts this year might be more difficult than before because of bad movements from the real estate market. MBS is concerned about the urgent capital raising issue of some banks today and believes that private banks have high Capital Adequacy Ratio, high room for secondary bonds and remaining foreign ownership rate, the ability to apply Basel II will also be higher.
