In the context of the unpredictable developments of the Covid-19 epidemic, the banking sector has made very drastic moves, proactively issued many documents to direct credit institutions to regularly review and assess the impact of the epidemic and damage of customers in order to timely have solutions to remove difficulties for borrowers.
Following the Official Letter No.541/NHNN-TD dated February 4th 2020, Notice No.35/TB-NHNN dated February 7th 2020, and Official Letter No.1117/NHNN-TD dated February 24th 2020, on March 11th 2020, the Governor of the State Bank of Vietnam (SBV) Le Minh Hung chaired a meeting with the SBV’s Board of directors to grasp the situation and strengthen the implementation of the industry to help remove difficulties for affected people and businesses. Accordingly, the Governor directed relevant units to receive comments, urgently complete and submit the Governor to sign and promulgate the Circular on CIs and foreign bank branches rescheduling loan repayment term, exempting and reducing interest rates, and maintaining the debt group to support customers affected by Covid-19.
Particularly, the SBV has recently issued Circular 01/2020/TT-NHNN regulating the rescheduling of loan repayment term, exemption and reduction of lending interest rates to support business and people affected by Covid-19. The circular ensures the legal basis to guide CIs in rescheduling loan repayment, exempting and reducing interest rates, keeping the debt group for those affected by Covid-19.
Responding to the call of the government and the SBV, showing responsibility to share with businesses, numerous commercial banks have taken urgent actions to be able to immediately support businesses. After the prime minister issued Directive 11/CT-TTG on urgent tasks and solutions to remove difficulties for production and business, ensure social security, respond to Covid-19, many banks have launched many credit packages to share difficulties with businesses with a total of about 285 trillion dong. For example, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Military Commercial Joint Stock Bank (MB) and Asia Commercial Joint Stock Bank (ACB) offer credit package worth respectively 120 trillion dong, 35 trillion dong, and 15 trillion dong.
Chair of Commercial Joint Stock Bank for Investment and Development of Vietnam (VietinBank) Le Duc Tho said that the bank spends a source of 15 trillion dong and 150 million US dollars to carry out the programme to promote short-term credit growth with lending interest rates from just five percent per annum in dong and from 2.6 percent per annum for US dollars. In addition, to meet the long-term capital needs for production and business activities, VietinBank also offers lending rates from only 8.1 percent per annum with a relatively long preferential period of up to five years. The bank also supports businesses to cut operating costs through many electronic banking transaction waivers.
Vietnam International Commercial Joint Stock Bank (VIB) has recently announced a cut in lending interest rates of 0.5 1.5 percent per annum. It is estimated that the total outstanding loans of customers enjoy an approximately 1.5 trillion dong interest cut. Export Import Commercial Joint Stock Bank (Eximbank) has also launched an eight trillion dong package to support businesses affected by the Covid-19 epidemic, including a package worth five trillion dong with interest rates from 6.99 percent per annum applicable for small and medium enterprises (SMEs) and a three trillion dong package with interest rate from five percent per annum for large enterprises. Maritime Commercial Joint Stock Bank (MSB) also introduces a mortgage package with interest rate of 6.59 percent per annum, applicable from now until the end of March 2020, etc.
The launch of credit packages with preferential interest rates to support businesses by commercial banks also means that their profits will be more or less affected. In other words, banks will have to accept the decline in profits.
In the context of the complicated developments of the epidemic, it is likely that banks will have to calculate and reduce their profit targets to appropriate levels. At the annual general meeting (AGM) held recently, Chair of BIDV Phan Duc Tu also said that the business plan in 2020 submitted by the bank’s Management Board is the most positive scenario. In the context of the ongoing epidemic, BIDV will try its best to complete the plan assigned by the general meeting but in a flexible manner, in which targets may be adjusted in case of necessity and that will be reported to shareholders.
Despite acknowledging the complexity of the epidemic and that bank’ profits are likely to be affected, leader of a commercial banks shared that “banks are also businesses, so the main interest is profit. However, since banks are also businesses, they partly understand the difficulties that businesses are facing. As this is not expected, I think that banks will not pay special attention to the reduction of interests and its impact on banks’ profit targets at this point of time. The important thing is to support customers to remove difficulties, because if businesses are in trouble, banks will also be affected.”
In the latest analysis report, Moody Investors Service pointed out the adverse risks to Vietnamese banks’ asset quality that may arise from the unpredictable spread of the Covid-19 epidemic. If the epidemic continues for a long time, it will disrupt the trading of goods, leading to bad debts from production, trade businesses and other businesses that have a close relationship with the global supply chain.
In the first two months of 2020, the credit growth of the entire banking sector was only 0.06%, significantly down compared to the one percent recorded in 2019. This is also the lowest growth rate in the last six years. The fairly low increase in the early months of the year shows that businesses are facing a lot of difficulties and having to narrow their production and business activities due to the impact of the Covid-19 epidemic.
An economic expert said that with the low credit growth recorded in the first two months of 2020, it is very likely that this year’s credit growth target of 14 percent will not be achieved. However, he also said that “we can accept a lower growth rate, because the current credit demand is not as high as last year when many businesses are encountering difficulties due to the epidemic and in absorbing capital. The fact that achieving lower credit growth than the target is also appropriate to business conditions, because the epidemic situation will shape the credit needs of businesses in the near future.”
However, Dr Nguyen Tri Hieu thought that in a positive view, the low credit demand is also an opportunity for banks to focus on restructuring. In recent years, banks have always been under the pressure to follow business targets, causing a number of internal procedural loopholes, etc. The restructuring of products, services, human resources, technology platforms, etc. will help banks improve and consolidate their potentials, in the context of having to sacrifice part of the profits. “This year’s profit may not be as high as last year, but it is already very good if each bank can keep Return on Equity (ROE) of at least 10 percent and Return on Assets (ROA) of at least one percent.”
