Recognised as the “lifeblood” of the economy, credit institutions (CIs) need to be healthy and increase their resistance to external difficulties. Perhaps that is also the reason why the Governor of the State Bank of Vietnam (SBV) has just required banks not to pay cash dividends to gather resources.
Resources of CIs are being eroded.
By the end of last week, Vietnam Prosperity Commercial Joint Stock Bank (VPBank) announced the launch of the second special support package for loans with secured assets. The maximum interest rate reduction is 1.5 percent per annum for dong loans, one percent per annum for US dollar loans.
For unsecured loans, VPBank applies the maximum interest rate reduction of two percent per annum for dong loans and one percent per annum for US dollar loans.
Similarly, for existing loans, BIDV has restructured the debts, extended the repayment periods of principal and interests and lowered the rate by up to two percent per annum (for loans in dong) for businesses in the fields and industries hit byCovid-19 pandemic.
In addition, BIDV also supports businesses affected by the disease that need new loans with an interest rate reduction of two percent per annum compared to the interest rate of the same type of loans as of December 31st 2019.
Maritime Commercial Joint Stock Bank (MSB) implemented a seven trillion dong credit package designed for individual customers borrowing secured loans and unsecured loans. For unsecured loans, MSB applies interest rate of only 12.99 percent per annum in the first 12 months.
Meanwhile, the 25 trillion dong package of Saigon Hanoi Commercial Joint Stock Bank (SHB) offers numerous promotions in terms of interest rates, banking service fees, particularly an interest rate cut of two percent per annum compared to the normal rates.
To assist banks in reducing service fees for customers, Vietnam National Payment Joint Stock Company (NAPAS) has also reduced financial switching and clearing service fees twice in 2020.
Nguyen Tu Anh, Chair of the Board of directors (BOD) of NAPAS, said that the proportion of transactions within the scope of fee reduction for the second time accounted for nearly 40 percent of the transactions made via the NAPAS system. It is expected that the fee reduction programme of both times will reduce nearly 40 percent of NAPAS’s revenue in 2020.
NAPAS’s leader emphasized that implementing the mission of the national switching organisation in providing good and convenient retail payment infrastructure so that banks can provide non-cash payment services to people at the most reasonable fees. NAPAS has never set profit as its operational goal. “Reducing fees means directly lowering the company’s revenue, but NAPAS has always actively implemented this because this is the political mission of the business. In the context of the economy’s general difficulties due to the epidemic, NAPAS has to make more efforts to accompany banks, businesses and people,” said Tu Anh.
Nguyen Dinh Vinh, deputy general director of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) also said that the bank’s profit may also fall by 10-20 percent due to the interest rate and service fee support programme.
Assessing the overall situation, general director of a private joint stock bank said that it is difficult to measure the specific damages caused by Covid-19 pandemic as it has not yet ended. But obviously, low credit growth, lower interest rate levels, and reduced service fees will cut down banks’ profits. The shrinking Net Interest Margin (NIM) will erode the resources of CIs.
Meanwhile, one of the direction and tasks of banks set out in the banking development strategy is to strive to basically have equity level meeting the Basel II standards by 2020.
According to Circular 41/2016/TT-NHNN regulating the capital adequacy ratio (CAR) of commercial banks and foreign bank branches under the Basel II standards, banks must increase capital as prescribed, and regularly maintain CAR at eight percent a close level to Basel II standards. The circular took effect from January 1st 2020.
Since some banks failed to complete this task on time, including large and small banks, the SBV has flexibly allowed banks to send official documents to the SBV prior to January 1st 2020 giving detailed reasons to continue striving to maintain CAR and the roadmap to ensure compliance with Circular 41/2016/TT-NHNN by January 1st 2023.
Chair of a joint stock bank shared that difficulties are piled up as although the deadline was extended, epidemic situation remains stressful and banks need to focus its financial resources to comply with the regulation of the management authorities. Not to mention the case where banks continue to shoulder the bad debt worries when the solution to restructure debts and maintain debt groups for customers hit by the Covid-19 epidemic somewhat temporarily slow down the rise of bad debts this year, but push the risk to the future.
Banks need to be healthy in order to help others.
On March 31st 2020, the SBV’s Governor issued Directive 02/CT-NHNN requiring CIs to actively review and cut operating costs, especially salary, bonus spending; timely adjust business plans and financial plans in accordance with the reality before holding the annual general meeting. In the immediate future, CIs do not pay cash dividends to focus resources on sharply reducing lending rates for the current outstanding loans and new loans.
Talking to Dau tu Chung khoan, general director of Saigon Commercial Joint Stock Bank (SCB) Vo Tan Hoang Van clearly stated that this Directive of the SBV probably aims that since the economic situation will be very tough, CIs must carry out the policies of thrift in order to ensure their financial health to quickly resume operations when the epidemic passes. Before banks can help others, banks need to be healthy, said Van.
In fact, both banks and businesses are facing numerous difficulties, as the epidemic also makes the credit demand to sharply fall, thereby affecting banks’ revenue and profit.
At the regular government’s meeting held in March, the SBV’s Governor Le Minh Hung proposed to include CIs in the list of subjects to be entitled to corporate income tax payment deferment and extension. As also being businesses, banks still have to ensure a profitable business to remain active and more importantly, banks are financial intermediaries that borrow to lend, so the top priority is to protect the safety of depositors’ money.
