Bad debt was likely to increase when businesses and people were in difficulties. Besides, banks also had to reduce interest rates and fees to keep customers while the demand for capital was low. Banks were facing many challenges in 2020.
Credit in Q1/2019 has just increased by 0.68%, while it was 1.9 percent in the same period last year. Meanwhile, as of March 20, 2020, the total means of payment increased by 1.55 percent compared to the end of 2019 (the same period last year increased by 2.54%); Capital mobilisation of credit institutions increased by 0.51 percent (the same period in 2019 increased by 1.72%); Credit of the economy increased by 0.68 percent (the same period last year increased by 1.9%). All the data showed that businesses were facing many difficulties, having to limit production and business activities.
Given the severe impact of the Covid-19 epidemic on the economy, on March 16, 2020, the State Bank of Vietnam (SBV) decided to adjust the interest rates, in which the refinancing rate decreased from six percent per year to five percent per year; rediscount interest rate fell from four percent per year to 3.5 percent per year to support businesses.
However, KB Vietnam Securities Company (KBSV) said that these moves had not much impact at the moment. Because refinancing and rediscounting were not frequently used, which only took place when some banks had great liquidity difficulties and were forced to borrow capital from SBV when they could not acquire through the interbank channel.
Currently, the system’s liquidity was abundant. The lowering of the deposit rate cap for terms of less than six months had a direct impact on commercial banks, but not much because deposit rates for terms of over six months were still adjusted according to the supply-demand of the market. In particular, the deposit rate was only 0.25 percent per year.
Prior to the Covid-19 epidemic, businesses’ credit demand this year was judged by financial analysts not to increase as sharply as in previous years, and this situation would develop as the outbreak lasted. Thus, profit from credit growth would decrease. At the same time, the bad debt ratio would increase, leading to an increase in provision, hence, reducing profits.
Also, the implementation of the government’s policy on debt rescheduling and interest reduction to support businesses would partly reduce the bank’s profits. On the other hand, banking services might also decline this year.
Banks were reducing fees, even utterly exempt transfer fees to retain customers. Although online transactions could prosper, the cost collected from this service was low, so the profit was not significant.
At the same time, insurance services, which had accounted for a significant proportion of the total profits of banks in recent years, also seemed to decrease, because insurance was often one of the first costs to be cut when businesses had difficulties.
In the past year, many banks gained trillions of profits from selling insurance. The growth rate of this field was always calculated by times. Specifically, in 2019, Vietnam International Commercial Joint Stock Bank (VIB)’s insurance commission expenses increased by 4.6 times, reaching over 1.1 trillion dong (accounting for nearly 50 percent of service revenue). Currently, banks with the largest market share in insurance were VIB, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), Military Commercial Joint Stock Bank (MB), Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), Sai Gon Joint Stock Commercial Bank (SCB), Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank), Asia Commercial Joint Stock Bank (ACB), and so on. However, by 2020 the situation had changed.
Dao Minh Tu, Standing deputy Governor of SBV, said that the impact of the disease on the economy was chain-based. Many sectors had been restricted, such as aviation, transportation, etc. Many businesses had to suspend operations, especially small and medium enterprises.
According to Tu, it was necessary to gradually determine the manner and level of the State’s support to the economy, as well as the support of the banking industry to businesses and people to ensure the goal of helping companies overcome the difficult period. That was also a problematic solution for the banking industry.
Although there were still three business quarters in 2020, banks had then seen difficulties ahead and considered profit targets. Nam A Commercial Joint Stock Bank (Nam A Bank) had set a goal of 800 billion dong in profit before tax in 2020, 100 billion dong lower than the gain of 2019. Even a giant like Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) also said that, given the current difficult situation, the bank would adjust the profit plan compared to the initial 12.6 trillion dong.
According to Can Van Luc, the chief economist of BIDV, said that mobilising interest rates had decreased due to the impact of the SBV’s policy on reducing interest rates. However, the reduction was not much because it still needed to be kept at an attractive enough level to attract capital.
Luc said, banks were also gradually reducing lending interest rates, but the reduction depended on the subjects and followed the policy of supporting capital for enterprises to overcome difficulties.
However, banks would face many challenges. The non-performing loans (NPLs) might increase, banking restructuring efforts were likely to slow down.
Luc emphasized, there was a policy to support credit institutions by reducing interest rates. However, each of these policies was not enough. As a business, the bank was facing many difficulties. Therefore, it was necessary to have more solutions, such as extension, tax reduction, to reduce the challenges this year and the following years.
