The season for financial reports in the third quarter (Q3) of 2019 has ended with the highlight of banking industry’s profit. Experts of Saigon Securities Incorporation (SSI) made a positive forecast for the profit prospects of many banks in 2019.
Typically, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) announced positive business results with consolidated pre-tax profit of 6.31 trillion dong in Q3 2019, raising the total pre-tax profit in the first three quarters of the year to 17.613 trillion dong. For the whole year 2019, SSI estimated that Vietcombank’s pre-tax profit will reach 23.165 trillion dong, up by 26.8 percent compared to last year.
For Tien Phong Commercial Joint Stock Bank (TPBank), SSI maintained its pre-tax profit growth forecast of 41.8 percent (3.2 trillion dong) in 2019. Vietnam International Commercial Joint Stock Bank (VIB) was also forecasted to reach a high growth rate in 2019 and 2020.
The positive business results of banks were also partly thanks to the reduction in risk provisioning costs of many banks in the recent time, such as Vietnam Technological and Commercial Joint Stock Bank (Techcombank), ACB, etc.
Experts of KB Securities Vietnam (KBSV) believed that the Net Interest Margin (NIM) will increase in the group of private joint stock banks and the non-interest income will continue to grow well with determination of banks in the segments of payment and insurance. In addition, banks’ operating expenses still have much room to be improved; and credit expenses are under good control because asset quality has not shown signs of weakening.
Therefore, according to KBSV, banks’ profits will continue to see good growth in 2019, ensuring the goal of each bank. Since the Price to Book (P/B) ratio is generally stable in 2019, in the context of stable macro factors, banks with good and stable business results will offer good investment opportunities in the coming period.
Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) Securities Company (BSC) also raised the prospects of banks from Neutral level to Positive level from the second quarter of 2019, due to the industry’s valuation in terms of level of attractiveness and maintenance of positive profit growth. In the fourth quarter of 2019, according to BSC, banks’ profits will see differentiation in growth rate. Banks with good asset quality and high profitability will record stronger development.
BSC forecasted that in 2019, the pre-tax profit of the entire banking sector will grow by 14.8 percent compared to the same period of 2018. The company also expected the non-interest income of the sector to increase strongly by 20-30 percent over the same period, thanks to the revenue increase in services, bancassurance, bonds, growth of individual customers, etc.
Meanwhile, according to an economic expert, the low credit growth this year more or less limits banks’ profitability, but this is necessary for the whole sector in order to control risks more closely. IT also creates pressure on banks to diversify activities to improve revenue and boost revenue from services. Nevertheless, the expert also noted that there are still issues that banks need to pay special attention to, such as speeding up the handling of bad debts, including newly arising bad debts or existing bad debts.
Sustainable development
In 2020, financial expert Dr Nguyen Tri Hieu said that the pressure on banks may be greater when regulations on ensuring safety in operation will be tightened, the standards of capital safety will be raised, etc. while external fluctuations are forecasted to remain large.
In Dr Hieu’s point of view, banks should focus on some issues. The first issue is interest rate.
On November 19th, the State Bank of Vietnam (SBV) issued a decision on lowering the maximum interest rate for deposits of less than six months and reducing short-term lending rates in dong for priority areas from 6.5 percent to six percent per annum. This move of the SBV and the good liquidity status will support banks cut capital costs and increase the opportunity to reduce lending rates.
However, Dr Hieu also noted that the reduction of lending rates will not only based on lowering capital costs, but also involve the control of expenses, including provisions for risks, bad debts and other expenses. The second issue is that to maintain positive profit, banks need to promote the digitalisation of banking operations to cut down investment on human resource and marketing.
In a broader view, Chief Executive Officer (CEO) of a joint stock bank said that the economic situation in 2020 is expected to continue to have unpredictable developments, especially when the US-China trade war, if the final agreement is not reached, will still affect the global economic situation, including Vietnam.
As for risk management issue alone, according to the above CEO, in addition to handling weak banks in the system. Circular 41 with stricter regulations on capital safety will also officially be effective in 2020. At the same time, the SBV is likely to continue limiting credit growth, forcing banks to make strict and specific calculations in effective bank management costs.
“Objectively speaking, it is better for each bank to spend a large investment in governance and sacrifice a part of the profit in the long run. Effective risk management is also one of the prerequisites for the Vietnam’s banking system to develop more sustainably in the process of integrating with the world. Banks will gradually shift their focus from lending to consulting and services, concentrating on sustainable business instead of maximising profits at all costs,” the CEO emphasized.
Regarding banks’ capital increase, experts also think that it will be difficult to increase capital from profits. There should be solutions to attract investment from domestic and foreign shareholders, especially foreign capital source, in order to supplement working capital.
