The analysis department of SSI Securities Company has just updated on the impact of the Covid-19 pandemic on the banking industry. The analysis team said that the disease would make the Q2/2019 business results less satisfactory.
As the situation of the Covid-19 has become complicated since the second week of March, SSI estimated that the impact of the disease on the business results of most banks in Q1/2020 was not large, except for some banks that choose to take the initiative in setting up credit risk provisions in advance to have more reserves in the future. “However, in Q2/2020, we expect interest income, fee income, and bad debt collection to decline as banks meet customer needs through offering preferential interest rate packages and cut transaction and payment costs,” the SSI report said.
SSI has reduced the pre-tax profit forecast for the studied banks by 11.1 percent and 16.4 percent compared to the previous forecast to reflect the impact of the covid-19 pandemic on the base and stress scenarios.
It should be noted that the former assumes that the disease will be controlled by the end of Q2/2020, while the latter expects that the disease will not be over by the end of 2020. The banks’ profit before tax are forecasted to have a growth rate of 7.2 percent and 0.8 percent for the two scenarios mentioned.
For consumer credit activities of banks under the scope of SSI’s research, the analysis team thinks that the impact will take place in two stages. For phase I, demand for borrowing from popular and low-income segments remains, as customers still need cash to cover living costs. However, for phase II when the pandemic is complicated and peaks, in theory, the income of the low-income customer segment will be affected first, and the borrower’s ability to repay the debt in this scenario will decrease rapidly at this time.
The difference between the base case and the stress case will be more evident in the banking business results of 2021, we predict at that time, the rate of bad debt formation will be higher and the bad debt ratio will increase, which may stem from the Covid-19 outbreak worldwide.
Asia Commercial Joint Stock Bank (ACB) and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) are the two banks identified by SSI as having the most prudent strategy to overcome the pandemic, and own the best asset quality among the banks studied by SSI. Therefore, the analysis team expects that these two banks will perform better in this difficult period.
For ACB, the list of government bonds accumulated in recent years has allowed this bank to borrow from the State Bank of Vietnam (SBV) at preferential interest rates. This also gives investors a second benefit, meaning that the bank has more flexibility to be able to sell these bonds and record profits.
Meanwhile, Vietcombank’s leading position will bring the bank more business opportunities to increase profits and fee income.
From 2021 onwards, SSI believes that these banks will be least affected by the bad debt formed when the stress case scenario occurs.
