In the recent banking industry report, analysts from Viet Dragon Securities Company (VDSC) assessed that the growth of net interest income in 2018 of banks somewhat slowed down due to the lower credit growth although the Net Interest Margin (NIM) continued to be expanded.
Thanks to the State Bank of Vietnam (SBV)’s credit growth limit extension, credit grew faster again in the fourth quarter (Q4) of 2018 after slowing down or almost not increasing in Q3. With credit growth ranging within 17-18 percent, private joint stock banks recorded higher credit growth rate than state-owned banks.
In particular, Vietnam Technological and Commercial Joint Stock Bank (Techcombank) achieved the highest credit growth of 20.3 percent compared to 2017, although the bank saw very low credit growth in the first half of the year (3.6 percent). Although Techcombank’s lending to customers slightly declined by 0.6 percent compared to 2017, the overall credit growth of the bank was offset by the high value of bond portfolio of nearly 60 trillion dong.
Meanwhile, state-owned banks maintained lower credit growth rates. For example, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) only expanded credit according to the limit set by the SBV at the beginning of the year, which was below 15 percent. Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) only increased credit by 7.7 percent, under the bad debt settlement plan approved by the SBV. However, VDSC noted that the current capital shortage of state-owned banks is the main factor limiting their credit growth potential.
Among the 10 banks which were analysed, the NIM of Tien Phong Commercial Joint Stock Bank and Vietnam International Commercial Joint Stock Bank (VIB) increased the most in 2018 (by 0.7-0.9 percentage point), followed by Military Commercial Joint Stock Bank (MBBank), Vietcombank, and Asia Commercial Joint Stock Bank (ACB).
TPBank has been significantly boosted retail lending since 2017 by offering preferential interest rates for the first six to 12 months of personal loans. Thus, in 2018, when the interest rates of these loans returned to normal, the bank’s NIM also sharply increased compared to 2017. From 2019, when the proportion of preferential loans of TPBank is much lower than before, VDSC believed that the positive impact on increasing NIM for TPBank will not be as strong as in the past.
For the cases of MBBank, Vietcombank and ACB, they have successfully expanded their NIMs through restructuring their asset portfolio towards focusing on retail ending, small and medium-sized enterprises and consumer finance (in the case of MBBank). However, the level of competition in this field is becoming more and more severe.
For HCM City Development Commercial Joint Stock Bank and Vietnam Prosperity Commercial Joint Stock Bank, their NIMs only increased slightly due to the lower growth and contribution of consumer credit segment compared to the strong growth period in 2017.
BIDV and VietinBank were the two banks that experienced decline in NIWhile the need to increase capital is urgent and the Lending to Deposit Ratio (LDR) is very high at 100 percent, BIDV sets higher growth in mobilisation than in lending for the period of 2019-2020. Accordingly, VDSC said that the pressure on mobilisation costs of the bank is likely to continue going up.
For the case of VietinBank, to handle bad debts, the bank accounted a large amount of expenses in other credit expenses item instead of provisioning for risks. That made the bank’s net interest income and NIM in 2018 to significantly decline by respectively 16.8 percent and 0.7 percent compared to 2017.
For all the 10 banks mentioned in the above, in 2018, the growth of customer deposits and mobilisation were in general maintained at lower level compared to the growth of lending to customers and credit growth.
Specifically, the customer deposit growth was 13.2 percent while lending to customers growth was 13.7 percent; and mobilisation growth was 10.6 percent while credit growth was 12.7 percent. Accordingly, the LDR was strongly increased in eight out of 10 banks.
Except for Vietcombank, the current LDRs of banks are fairly high. Thus, VDSC mentioned that the room for raising NIM by increasing LDR will become limited. Overall, the growth of NIM and net interest income are likely to continue to slow down in 2019.
