If in previous years, service revenue contributed positively to banks’ total profits, in the first half (H1) of 2020, the contribution dropped due to Covid-19 epidemic.
The slow credit growth in the first quarter (Q1) of the year and the slowdown of credit activities due to Covid-19 epidemic have more or less impacted the revenue from services of many banks.
At Southeast Asia Commercial Joint Stock Bank (SeABank), some main activities of the bank showed decreased compared to other activities in Q2 of 2020. Specifically, the net interest income and income from service activities of the bank fell by respectively nine percent and 10 percent compared to the same period of 2019, reaching respectively 698 and 93 billion dong.
However, the profits from other activities recorded significant growth compared to the same period of last year, such as profit from foreign exchange trading (up by 13 times), profit from securities trading (up by 2.2 times), profit from other activities (up by nearly three times), etc.
In addition, SeABank’s provisions for credit risks in the period fell by up to 33 percent over the same period of 2019, helping the bank’s pre-tax and after-tax profit develop by respectively 39 percent and 23%, reaching respectively 360 billion dong and 209 billion dong. In H1, SeABank’s pre-tax and after-tax profit increased by 64 percent and 61 percent over the same period of 2019, reaching respectively 669 and 518 billion dong.
Asia Commercial Joint Stock Bank (ACB), according to the Q2 2020 consolidated financial statement, attained a net interest income of 3.112 trillion dong, up by seven percent over the same period of 2019.
In particular, the bank’s net profit from service activities declined by 18 percent to 426 billion dong, net profit from foreign exchange trading grew by 1.2 times to 153 billion dong. Securities trading turned from a loss of four billion dong in the same period of 2019 to nearly a gain of nearly 71 billion dong in this period.
At the same time, the trading of investment securities attained a profit of over 313 billion dong, while recording a loss of 26.7 billion dong in the same period of last year. However, the net profit from other activities decreased by 95 percent to nearly 22 billion dong.
After deducting operating costs of 1.767 trillion dong (down by eight percent), ACB’s profit before provisioning was 2.334 trillion dong, up by 15 percent over the same period of last year. However, the double increase in provision expenses to 439 billion dong made the pre-tax profit to fall to 1.894 trillion dong, up by one percent.
In H1, ACB’s net profit before provisioning was more than 4.351 trillion dong, up by 17%, and the provision expenses increased by 4.5 times to 532 billion dong, pulling the pre-tax profit to 3.819 trillion dong, up by five percent, equivalent to a completion of 50 percent of the year plan.
For Tien Phong Commercial Joint Stock Bank (TPBank), by the end of Q2 2020, the net interest income grew by 25 percent over the same period of 2019 to nearly 1.765 trillion dong.
The bank’s net profit from services and trading of investment securities dropped by respectively 41 percent and seven percent in this quarter. However, with the sharp rise of core activities and some non-credit activities, TPBank achieved a positive profit growth, although its operating costs and provision expenses for credit risks also went up by respectively 25 percent and 23%.
The positive results in Q2 helped TPBank recorded a H1 pre-tax profit of over 2.034 trillion dong, up by 26 percent compared to the same period of 2019. Compared to the pre-tax profit of 4.068 trillion dong in 2020, TPBank has completed 50 percent of its goal after six months.
Saigon Commercial Joint Stock Bank for Industry and Trade (Saigonbank) attained a net interest income of 331 billion dong in the first six months of 2020, up by 474 percent over the same period of last year. The profit from service activities was 16 billion dong, down by 20%, etc.
The total operating income of Saigonbank in the first two quarters of 2020 increased by 11.6 percent to over 390 billion dong. The bank’s operating costs rose by 9.82 percent to 242.7 billion dong.
Thanks to the sharp decline of 86 percent in provisions for risks (reaching six billion dong), Saigonbank recorded strong profit growth in H1 with 125 billion dong, up by 42 percent over the same period of last year.
The reason for banks’ sharp fall in non-interest income in H1is the impact of the epidemic and slow credit growth. At the same time, banks also have to lower service fees to support customers during the epidemic.
In fact, during the implementation of social distancing under the prime minister’s Directive no.16/CT-TTg dated March 31st 2020, implementation of the tasks assigned at Directive no.11/CT-TTg, the State Bank of Vietnam (SBV) has timely issued instruction on the exemption and reduction of payment service fees to support customers hit by Covid-19 epidemic.
Accordingly, the SBV has twice directed banks to reduce payment service fees. Up to now, 100 percent of banks have confirmed to carry out the policy of exempting and reducing fees for customers conducting small value transactions (from two million dong or less), and about 63 percent of payment transactions of customers via 24/7 interbank payment via Napas were applied free or reduced fee.
The SBV estimated that the total payment service fees that banks exempted or reduced for customers by the end of 2020 reached about 1.004 trillion dong (517 billion dong for the first time and 487 billion dong for the second time).
The SBV has also issued Circular 04/2020/TT-NHNN amending and supplementing Circular 26/2013/TT-NHNN to reduce 50 percent of the interbank payment transaction fee via Electronic payment system (applicable from April 1st to December 31st 2020).
Indeed, over the past time, due to the Covid-19 epidemic, banks’ revenue from service activities has been hit hard due to the task of reducing fees for customers.
Typically, at Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) of which non-interest income often contributed about 20-30 percent to the total profit, the non-interest income in H1 2020 only increased by seven percent.
For Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the bank may have to cover a loss of 500 billion dong for message fee this year.
In the recent difficult situation, the Vietnam Banking Association (VBA) has sent official document for to the Ministry of Information and Communication for the third time requesting a reduction of message fees for financial-banking services to support credit institutions (the first two times were on April 9th, and June 17th 2020), but so far there is no response.
Currently, the message fee that telecommunications businesses are applying to banks is nearly three times higher than normal messages. Thus, the VBA has proposed a cut of about 50 percent compared to the present time.
In fact, in recent years, in addition to increasing service fees, bancassurance is a prominent trend which has significantly increased profits of banks.
However, due to the Covid-19, credit has been difficult to increase, accompanied financial services have sharply fallen, and the revenue from insurance premium of banks could also hardly improve.
Meanwhile, with the goal set out this year, many banks rely on service revenue. At the beginning of the year, Chair of the Board of directors of Vietcombank Nghiem Xuan Thanh said that in 2020, the bank aims to expand total assets and capital mobilisation from the economy by 12%, the credit growth depends on the SBV’s credit growth limit, and bad debt ratio is targeted to be kept below 0.8%.
Specifically, the revenue from services of Vietcombank is expected to grow by no less than 30%. By 2025, Vietcombank aims to attain two billion US dollars of profit, in which the retail profit is expected to contribute one billion US dollars to the total profit.
However, since the outbreak of the epidemic, the non-interest income of Vietcombank has declined. At the 2020 annual general meeting, Vietcombank left the 2020 profit target open. Closing the first six months of the year, Vietcombank recorded profit of around 11 trillion dong, similar to the figure in the same period of 2019.
In recent years, although the non-interest revenue has been promoted, credit has still contributed the largest proportion to banks’ revenue and profits.
However, due to the unpredictable developments of the Covid-19 epidemic, business have encountered difficulties due to the affected production and business activities, resulting in lowered capital demand and gloomy financial services. Banks have been racing to reduce fees to retain customers. This will impact on banks’ business activities, not to mention that the uptrend of bad debts.
Accordingly, in addition to banks which have completed 50 percent of their profit target in 2020 such as HCM City Development Commercial Joint Stock Bank (HDBank), ACB, Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Vietnam International Commercial Joint Stock Bank (VIB), Military Commercial Joint Stock Bank (MB), Saigon Hanoi Commercial Joint Stock Bank (SHB), etc., many other banks saw sharp profit decline by the end of Q2, such as Bac A Commercial Joint Stock Bank (BacABank), Kien Long Commercial Joint Stock Bank (Kienlongbank), etc.
This is the reason why banks have to soon adjust their profit targets for the whole year down by10-40 percent compared to the original plan.
