In a recent analysis report, Vietcombank Securities Company (VCBS) provided two scenarios for the banking industry in 2020.
In the base scenario, the total profits of banks in 2020 slightly increase despite being affected in both income sources including net interest income and service income, as well as other sources of revenue.
In a less optimistic scenario, banks’ total profits only slightly fall compared to 2019.
Meanwhile, statistics of FiinGroup based on banks’ business plans after their annual general meeting (AGMs) or forecasts of analysts mentioned that banks’ profits in 2020 may fall by about 11.9 percent over 2019.
In fact, the business targets in 2020 of many banks, after considering the long-term consequences of the Covid-19 pandemic, do not decrease, or even increase and most of them are cautious plans. The actual numbers are showing more positive signals.
For example, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) estimated that it may achieve about six trillion dong of profit in the first half of 2020. This number is about 12 percent higher than the bank’s realised figure in the first half of last year (5.334 trillion dong), regardless the impact of Covid-19.
For Tien Phong Commercial Joint Stock Bank (TPBank), the profit in the first four months of 2020 was 1.2 trillion dong, completing about 30 percent of the annual plan, although the bank’s business was heavily March and April were hit by the Covid-19 pandemic. In 2020, TPBank still target a positive profit growth of about five percent over 2019.
At the AGM held recently, general director of Vietnam Prosperity Commercial Joint Stock Bank (VPBank) Nguyen Duc Vinh said that the bank’s pre-tax profit was estimated at about four trillion dong by the end of April 2020, and 5.1 trillion dong by the end of May. After the first half of the year, the bank’s profit is expected to reach about six trillion dong.
In the first three quarters of last year, VPBank’s pre-tax profit was 4.342 trillion dong. Thus, as estimated, the bank’s profit growth in the first half of 2020 may reach up to 38%. The bank’s profit growth target is set at negative 1.1 percent compared to 2019, but Vinh said that if the Covid-19 situation continues to be favourable as at the present time, the realised figure by the end of the year may be 10 percent to 20 percent higher than plan.
Since banks’ profit growth in 2020 was expected to be fairly high before the Covid-19 outbreak, if the profits of the entire industry only slightly fall, it does not mean that banks are less affected. The sacrificed profit compared to the plan before the pandemic happened is very significant.
In addition, a large part of profits will continue to be sacrificed in one or a few years later because at present, the pressure of bad debts, followed by the pressure of risk provisioning, is being pushed to the future thanks to Circular 01 and soon the amended Circular 01 which allows banks to maintain the debt group for the debts determined as being affected by the Covid-19.
Truong Thanh Duc, Chair of Basico Law firm, who has many years of experience in the banking industry, called the maintenance of debt group or the restructuring of debt repayment term, etc. “mandatory situation”, although before the disease outbreak, the State Bank of Vietnam (SBV) strictly controlled the provisions for risks and bad debt hiding.
Duc emphasized that maintaining the debt group has created a virtual number of bad debts and considered that as a challenge for the banking industry in the near future.
VCBS pointed out that the asset quality of banks may decline in many aspects, including interest receivables, market value of secured assets and the actual bad debts. This will affect the profitability of banks in the following years.
VCBS estimated that in order to bring the system’s bad debts to 1.5 two percent as in the pre-epidemic period, it only takes one to two years in the context of favourable economic conditions, but may require three to five years if the economy encounters sluggishness.
From the perspective of a company specialising in providing and analysing data, FiinGroup offered a similar assessment that “data from the 2008 crisis showed that the arising provisioning costs often incurs a long delay, because the determination of the impacts requires time for evaluation and analysis as well as the industry’s changes in accounting policies to adapt.”
