By the end of Q1/2020, the credit growth of the whole banking industry reached 1.3%, the lowest level in many years. The slowing down of credit growth was also clearly reflected in the banks’ Q1 financial statements.
Negative credit growth
The consolidated financial statements for Q1/2020 just announced by Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) showed that, at the end of March, the bank’s total assets stood at 1.222 quadrillion dong, down 1.46 percent compared to the beginning of the year. In which, customer loans decreased by 1.25 percent to 923 trillion dong.
Deposits from customers of banks only increased slightly by 0.33 percent compared to the beginning of the year, at nearly dong 895.8 trillion dong.
Similarly, the Military Commercial Joint Stock Bank (MB)’s total assets at the end of March 2020 decreased by 1.14 percent compared to the beginning of the year, to over 406.8 trillion dong. In particular, customer loans stood at 248 trillion dong, declining by 0.94 percent year-on-year, deposits fell by 12%, to 240.7 trillion dong.
National Citizen Commercial Joint Stock Bank (NCB)’s financial statements also showed that, at the end of March 2020, total assets dropped by over 12 percent to 70.458 trillion dong. In which, customer loans dropped by 0.27 percent to 37.8066 trillion dong.
At Saigon Bank for Industry and Trade (Saigonbank), lending activities had decreased by 2.3 percent in the first three months, to 14.2 trillion dong. Along with that, customer deposits into the bank also dropped by 0.8 percent to 15.543 trillion dong
This had led to a five percent decrease in net interest income of Saigonbank during the period compared to Q1/2019 to dong 152 billion dong.
The ‘Zero-dong bank,’ Petrolimex Group Commercial Joint Stock Bank (PGBank), also recorded negative credit growth in Q1/2020. According to that, PGBank’s total assets were nearly 31.4 trillion dong, down slightly by 0.64 percent YTD. In which, customer loans dropped by 1.6 percent to 23.3 trillion dong. Therefore, the profit from lending in the period of the bank also decreased by 10 percent to dong 193 billion.
Not only lending in market 1 (transactions between banks and residents and economic organisations), financial statements of banks show that lending in market 2 (lending between credit institutions) also declined.
Specifically, at the end of March 2020, deposits and loans to credit institutions at the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) were recorded at 176.5 trillion dong, down by 29.2 percent compared to the beginning of the year. That of Vietinbank stood at 126.351 trillion dong, down 2.4%. The data of Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) also decreased by 35.4 percent compared to the beginning of the year, to nearly dong 31 trillion. HCM City Development Joint Stock Commercial Bank (HDBank)’s decreased by 23.3 percent to 18.93 trillion dong. SeABank only spent 16.6 trillion dong on lending at credit institutions, down by 34.3%.
Would interest rates decrease in Q2?
According to experts, the negative credit growth in many banks was not new and strange. The Covid-19 epidemic caused businesses to face many difficulties, narrowing their business and production activities, which limited the demand for capital lending. Not to mention, banks were forced to take the initiative in considering new loans due to the difficult business situation, the credit rating of customers decreased, making the risk of new loans increase.
Explaining the reason for the sharp decline in credit, Nguyen Quoc Hung, director of the Credit Department of Economic Sectors, the State Bank of Vietnam (SBV), said that the demand for loans of businesses had plummeted because of the social gap implementing of not only Vietnam but also many countries in the world. Thus, consumption and export had sharply decreased, input materials and output markets had faced difficulties.
In this context, businesses focused on capital recovery, loan repayment, did not need further loans. Four state-owned commercial banks wanted to promote loans but could not lend, Hung added.
At the beginning of Q2/2020, experts assessed the disease to have been controlled, the economy began to recover, but the ability to restart was still weak. Therefore, the ability to absorb the capital of the economy was expected to be slow.
To continue supporting businesses to recover after the epidemic, lending interest rates would continue to fall in Q2. In the report on Vietnam’s economic outlook in Q2/ 2020, KB Vietnam Securities Joint Stock Company (KBSV) assessed that the downward trend was likely to be more pronounced shortly. In the relationship between lending interest and executive interest, there was a clear mixed trend, especially in the case of system liquidity problems. The phase bias trend in the last three years was mainly due to the control liquidity from SBV, reducing the ratio of short-term capital for medium and long-term loans.
It was likely that SBV would loosen the credit room for each bank, prioritise banks that had reached Basel II, with an estimate of two to three percentage points in Q3, which was the time to start the peak season for loans from banks, commented KBSV.
