As forecasted by experts, the Q2/2020 financial statements of banks showed the increasingly clear impact of the Covid-19 pandemic as profits plummeted due to slow credit growth. Along with that, the non-performing loan rates (NPL) tended to increase, risk provision expenses increased sharply.
For example, at Bac A Commercial Joint Stock Bank (Bac A Bank), credit in the first six months only increased by 1.48%, which was much lower than the rise of 8.21 percent of the same period last year. At the same time, provision expenses for credit losses increased by 7 percent to nearly 122 billion dong. Therefore, the bank’s profit before tax for six months decreased by almost 8.5 percent compared to the same period last year. Even a well-functioning giant in the banking industry, like Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), was not outside the vortex affected by the Covid-19 pandemic. Accordingly, Vietcombank’s credit for the first six months of the year increased by only 4.9%, which was less than half of the increase of 10.1 percent of the same period last year. While provision expenses for credit losses also increased by 46 billion dong in the first six months to 1.856 trillion dong, dragging pre-tax profits declined by 2.8 percent year-on-year (YoY). Similarly, in the first six months, Asia Commercial Joint Stock Bank (ACB) saw a net profit of over 4.351 trillion dong, up by 17%. The bank’s provision expenses increased by 4.5 times to 532 billion dong, bringing pre-tax profit to 3.819 trillion dong, rising by only 5%, equivalent to fulfilling 50 percent of the yearly plan.
The results of a survey on business trends in Q3/2020 by credit institutions conducted by Department of Forecasting and Statistics (The State Bank of Vietnam, SBV) in late May and early June recorded two consecutive quarters that the situation business of the whole system had decreased. Besides, the overall risk level of customer groups, business and financial conditions of customers and the demand of the economy for banking products and services had also declined. Obviously, the pressure of making provisions for high credit risks was expected to greatly affect the income and profit before tax of the banking system in 2020.
However, this investigation was conducted before the domestic epidemic became more complicated. Then, the current disease situation had made banks’ leaders worried. The Orient Commercial Joint Stock Bank (OCB) ‘s general director Nguyen Dinh Tung expressed his concern about another social isolation that many businesses might not be able to cope. At present, the market was very difficult, goods could not be exported, and domestic products were sold slowly. Tourism froze again after a short time of recovery when the disease returned. The declining tourism industry had led to a lot of seriously affected industries such as hotels, accommodation services, transportation. When businesses ran into difficulty, banks could not avoid getting involved. Certainly, business activities were stagnant; profits declined, asset quality deteriorated, Tung expressed concern.
The above worries were entirely reasonable when, in recent years, many banks not only faced a decline in revenue from credit and services but also had to increase provision sharply. FiinGroup analysts also warned that when the policy changed, particularly when the debt structure expired, bad debts were likely to hit and erode bank profits. Not to mention, the impact of Covid-19 on banking business, especially in the credit segment, had a certain lag.
Can Van Luc shared the same viewpoint when assessing that the profit figures in the financial statements for the first six months of this year were only provisional and had not fully reflected the financial picture of banks this year. Normally, banks often made the strongest provision in Q4. Given the complicated disease situation, the next two quarters’ financial statements might record a sharp decline in profits due to the bank’s strong risk provisioning. According to calculations by Luc, the profit of the whole banking industry this year would be reduced from 30 trillion dong to 34 trillion dong compared to the plan, equal to the decrease of 20 percent to 25%.
According to experts’ forecast, in the current situation, the capital demand of enterprises from then to the end of the year could be lower than the usual practice every year. Even many businesses were facing the ability to completely stop operating. The ability to absorb capital of the economy in general and enterprises, in particular, would decrease further so that credit could hardly increase. Thus, banks faced many difficulties in business activities.
About this fact, Tung said, the bank had no other way to follow customer activities, take advantage of the mechanism of Circular 01 to support customers. Along with that, the bank had to continue to exploit business customers in several sectors and areas with development opportunities such as accessories, energy. Another issue was to ensure safety in operation. Banks would have to increase the provision so it would surely have to adjust the profits.
Encouraging banks to try to reduce costs to reduce interest rates to support businesses, but experts evaluated that was not a radical solution at the moment. The most serious barrier of companies was not the shortage of capital but a fragmented market. So this time, despite trying to inject capital into the economy, even the cheap one, it was unlikely that the economy would absorb it. Therefore, to remove difficulties for businesses, the root of the problem of finding output markets for companies must be solved.
On the other hand, in this difficult time, the sharing of different ministries and sectors was very important to help banks have more financial space to support businesses, such as the problem of reducing message charges. Some banks calculated that they had to cover losses of up to 500 billion dong for message charges this year. Currently, the message rates that telecommunications businesses were applying to banks were nearly three times higher than regular messages. Facing the difficult situation, recently, the Vietnam Banking Association had sent a letter to the Ministry of Information and Communications for the third time requesting a reduction of message charges of about 50 percent for financial banking services to support credit institutions, but so far no response.
Experts recommended reducing the bank support fee as soon as possible. In this context, every economic sector must contribute to reducing the burden on the whole society, not just for any ministry or area.
