According to FiinGroup, by the end of the second quarter (Q2) of 2020, many banks have maintained good growth in profits, completing an average of about 52 percent of the profit plan in 2020. However, many challenges have been named in the context of the complicated epidemic situation.
In the recent report on “Enterprises after Covid-19: Profit prospects in 2020 and results in the first six months of 2020″, FiinGroup analysed the real profits and the profit prospects of commercial banks.
Accordingly, the profit prospects of banks have changed positively compared to the original business plan. Banks aim for a pre-tax profit growth of 4.9 percent compared to 2019 despite the effect of Covid-19 and experts’ forecast of a 11.9 percent decline in pre-tax profit.
In addition, major banks set a fairly high after-tax profit growth target of more than 10%, including Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV, 17%) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (VCB, 10%). Some smaller banks with good profit growth goals include Export Import Commercial Joint Stock Bank (Eximbank, 21.7%), HCM City Development Commercial Joint Stock Bank (HDB, 12.6%) and Vietnam International Commercial Joint Stock Bank (VIB, 10.2%).
Currently, only Commercial Joint Stock Bank for Industry and Trade of Vietnam (CTG) has not finalised its profit plan for 2020 while 18 other banks still forecast an average profit growth of 4.9%, and are calculated to grow at 0.8 percent after adjustment.
FiinGroup’s report assessed that this is a positive sign, a “very bright” change of the banking industry. This partly shows confidence in the industry’s business outlook, on the basis of banks’ policies in accounting for outstanding loans due to the epidemic’s impacts.
This prospect is completely grounded when FiinGroup analysed data of banks’ profits. Accordingly, in the first six months of 2020, banks have completed 51.9 percent of the profit plans in 2020, except for Military Commercial Joint Stock Bank (MBB) and Saigon Hanoi Commercial Joint Stock Bank (SHB) which recorded a slight decline. Other banks have announced maintenance of good growth in profit compared to the same period of last year.
Many banks recorded high growth in pre-tax profits of over 20 percent in Q2 2020, including VIB (41%), HDB (39.7%), CTG (38.9%), Tien Phong Commercial Joint Stock Bank (TPB, 30/4%) and Vietnam Prosperity Commercial Joint Stock Bank (VPB, 20.6%). Most of them have fairly large proportion of retail or consumer credit in their credit balance structure.
In addition to maintaining the profit from the old credit portfolio, banks have continued to benefit from securities investment, especially bond investment and trading. Particularly, TPB has recently emerged as a “star” in issuing and trading of corporate bonds.
“This is thanks to the continuously low government bond yields, thereby helping banks gain unrealised profits from the bond portfolio,” said FiinGroup’s research team.
However, banks are facing challenges when their accounting policies have a two-way impact on this outlook. According to Circular 01 of the State Bank of Vietnam (SBV), the outstanding loans affected by the epidemic are still accounted as standard debts and not subject to risk provisions. This is the basis for the profit growth prospect but also influences the provisioning costs for credit quality when these policies change.
In addition, the financial health and ability to pay interests of businesses go down while the effects of the epidemic on consumer income, especially in some industries directly hit such as tourism, transportation, export, etc. of Vietnam will affect banks’ credit quality in the near future.
FiinGroup’s experts believed that the impact of Covid-19 on the credit quality of the banking industry in Vietnam will have a certain lag.
Giving proof for this statement, the report mentioned about the 2008 crisis. Experts found that the provisioning costs had a lag of about four quarters.
In the report, experts expected that the current high growth and the room for the coming years of the banking industry will contribute to absorbing credit costs for a number of industries dependent on export or international trade tourism in the future.
