The Covid-19 pandemic is negatively affecting businesses in many industries and sectors. This is the reason for banks to reconsider their business targets in 2020 and increase provisions for risks to prepare for the risk of bad debt increase.
Assessing the impact of the disease, Chair of the Board of directors (BOD) of Export Import Commercial Joint Stock Bank (Eximbank) has issued a resolution on adjusting the bank’s 2020 business plan.
Accordingly, Eximbank has significantly cut operating costs to 326 billion dong (11 percent lower than the initial plan), and set goals to achieve mobilisation fund of 147.8 trillion dong (down by eight percent) and outstanding loans of 122.275 trillion dong (down by four percent).
Notably, under the adjusted plan, Eximbank has raised its provisioning costs to 414 billion dong compared to the initial plan, although more than 35 billion dong of credit risk provisions were reversed in Q1 2020.
According to a source of information, Eximbank is preparing to hold an Extraordinary general Meeting of Shareholders for year 2019 (due to the failure to hold it in 2019) and 2020 Annual general Meeting to approve the business targets this year.
For Nam A Commercial Joint Stock Bank (NamABank), the bank plans to reach an outstanding credit growth of 21.4 percent this year, but consolidated pre-tax profit of only 800 billion dong, down by 13.47 percent compared to 2019.
Meanwhile, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) aimed at a consolidated pre-tax profit of 12.5 trillion dong in 2020, in the case when the disease is controlled in March. However, since it is prolonged, BIDV will possibly have to recalculate its business targets in 2020.
In fact, since many industries and sectors are facing difficulties, the entire banking system has joined the support through debt restructuring, interest reduction and exemption, etc. for customers hit by the disease. This will surely affect banks’ profits, including state-owned banks.
Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu said that the profits of all state-owned banks this year must decline by 40 percent to contribute to reducing interest rates to support businesses.
The SBV also required banks to carry out measures to reduce and exempt interest rates and restructure debts more drastically and quickly.
The SBV’s Governor Le Minh Hung emphasized that, the incentives under Circular 01/2020/TT-NHNN may be applied to any individuals, organisations, households that have encountered revenue decline due to the disease without limit on the industry, type of business, the currency of the borrowing, and the debt group at the time of the debt restructuring and interest rate reduction/ exemption.
The SBV also asked banks to promptly handle customer support requests and will strictly settle cases that cause difficulties to the requesters.
With this policy, Viet Dragon Securities Company (VDSC) said that, the scope and level of interest rate reduction/ exemption and debt restructuring will be expanded in the near future, so it will negatively affect banks’ Net Interest Margin (NIM) in Q2 2020.
On the other hand, as the pandemic has hit production and business activities of businesses, banks also have to increase risk provisions to control bad debts.
This is one of the reasons for banks’ profit decline in Q1 this year. For example, the pre-tax profit in Q1 of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) fell by 5.7 percent compared to the same period of 2019 to 2.974 trillion dong, due to the sharp increase of credit risk provisions of nearly 36 percent in Q1 from 3.241 trillion dong to 4.392 trillion dong.
Similarly, the provisions for risks of Military Commercial Joint Stock Bank (MB) in Q1 2020 soared by 117 percent from 964.4 billion dong to 2.092 trillion dong, making the pre-tax profit to fall to 2.145 trillion dong, equivalent to 9.5 percent over the same period of 2019.
For BIDV, in the first three months of the year, the bank’s operating and provisioning costs went up by 16 17%, causing the bank’s profit to decline by 27 percent to 1.315 trillion dong, although the bad debts dropped by 1.5%.
In the Q2 2020 strategic report announced recently, BIDV Securities Company (BSC) stated that the bad debts of commercial banks may rise in the context of the pandemic. BSC raised forecast on the system’s bad debt ratio to 1.7 percent from the initial assumption of 1.4%.
The declining asset quality at banks will also increase provisioning expenses. This explains why the bad debt situation in many banks has gradually become less positive after the first three months of the year, causing bad effects on profits.
