It has been more than two months since the first Covid-19 case was confirmed in Vietnam. The damages caused by the pandemic to the economy is enormous and have not shown signs of stopping when the pandemic situation remains complicated.
For the banking industry alone, the negative effects of Covid-19 outbreak have started to be quantified, seen through the fact that many members have had to cut costs and adjusted their profit targets this year.
The management board of Saigon Hanoi Commercial Joint Stock Bank (SHB) has recently decided to revise its business plan, reducing the expected profit in 2020 to a minimum level of one trillion dong. In addition, the bank also plans to reduce operating costs by at least 10%. To do this, SHB’s Board of directors, Executive Board and senior managers have agreed to lower their salaries by 50 percent until the announcement of the end of the pandemic; while management levels of the whole system from deputy Head Office level upwards (and equivalent titles) have agreed a salary decline of 10-30 percent depending on income level.
The above information is said to partly help the bank minimise operating costs and partly create more conditions to reduce lending rates, supporting customers to apply for loans.
At Nam A Commercial Joint Stock Bank (NamABank), the bank’s recently published business plan in 2020 shows that although other indicators such as total assets, capital mobilisation and outstanding loans are still expected good growth, the profit target sees a sharp decline. This year, NamABank’s profit is expected to reach only about 800 trillion dong, down by 125 billion dong, equivalent to 13.5 percent compared to the results achieved in 2019.
Meanwhile, Nguyen Thanh Tung, deputy general director of Commercial Joint Stock Bank for Foreign Trae of Vietnam (Vietcombank) said that the bank will have to sacrifice at least 300-450 billion dong of profit, considering only the 30 trillion dong of outstanding loans which are entitled for interest rate cut of 300 customers being large businesses in the first interest rate reduction phase. If including the interest cut of existing individual borrowers, the profit reduction will be even greater.
The bank which is having the largest total assets Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) plans to expand capital mobilisation by nine percent this year, in line with the use of capital. The bank will maintain credit growth as assigned by the State Bank of Vietnam (SBV) which is nine percent; target a consolidated pre-tax profit number of 12.5 trillion dong, up by 15 percent compared to 2019. The bad debt ratio is expected to be controlled below 1.6 percent and the expected dividend payment rate is seven percent.
However, Chair of BIDV’s Board of directors Phan Duc Tu also emphasized that this is the most positive scenario as the impacts of Covid-19 pandemic was not included.
BIDV’s Chair said that in the first two months of the year, the bank still operated normally and ensured safety. Nevertheless, the outstanding credit fell by two percent and mobilisation fell to 1.6%. Accordingly, the profit target set at the beginning of the year when the epidemic was assumed to end in March becomes difficult to be achieved. The bank will adjust its profit plan as the pandemic lasts longer.
Not only BIDV, reduction or modest growth in lending and mobilisation is a common situation of the entire system. According to statistics of the General Statistical Office, as of March 20th 2020, the capital mobilisation of credit institutions only grew by 0.51 percent (it was 1.72 percent in the same period of 2019), and the outstanding credit to the economy only increased by 0.68 percent (1.9 percent in the same period of 2019). Given this fact, it is understandable when banks’ profits this year is affected.
However, falling profits is not the only concern that banks are facing. The impact of the pandemic which may cause customers to be unable to pay their debts on time, the skyrocket increase in the number of businesses which have temporarily suspended business and wait for dissolution are also raising concerns about the risk of increasing bad debts.
This risk is also partially quantified when the related outstanding loans have initially been determined. Specifically, according to the SBV’s report in early March 2020, 23 credit institutions reported to the management authority and it is estimated that about 926 trillion dong of outstanding loans have been influenced by Covid-19, accounting for 14.27 percent of the total outstanding loans of the 23 credit institutions, and accounted for 11.3 percent of the outstanding loans of the entire system.
In the immediate future, the initial impacts of Covid-19 on each bank will be reflected in the business results in the first quarter (Q2) 2020, which are expected to be released in the upcoming financial statement season.
