BIDV Securities Company (BSC) has just released its industry outlook report for the fourth quarter of 2019, with a deep mention of the banking industry.
The report said that credit growth of the banking sector in the first half of the year stood at 8.64 percent, lower than 9.52 percent in the same period of 2018 (up to September 30, the credit increased by 9.4 percent according to the State Bank of Vietnam (SBV) Governor’s update at the National Assembly session, which is taking place).
The lending structure is still primarily focused on agriculture, industry, construction and tradewhich are the priority sectors for government lending. The accumulated M2 supply increased by 8.6 percent over the beginning of the year, equivalent to the credit growth. Well controlled credit supply and demand will help stabilise interest rates (average interest rates for short-term loans from six to nine percent, medium and long-term loans at 9 percent -11 percent).
Regarding the prospect of Q4/ 2019, BSC estimates that the credit growth of the whole system will probably reach 12 percent -13 percent, mainly because (1) the credit demand is reduced in many business lines that are facing difficulties. In addition to tightening lending to risky industries, (2) the demand for credit from individual customers may be affected by the economic slowdown in the near future.
Fund mobilisation in the first seven months of the year reached 7.6 percent, the loan-to-deposit ratio (LDR) decreased to 88.7 percent. The LDR of state-owned commercial banks and joint-stock commercial banks continued to remain high (92.9 percent and 84.5 percent), exceeding SBV’s allowed level.
However, thanks to good growth mobilisation, the pressure on high LDR has gradually improved. Deposit rates at medium and long-term terms have increased sharply due to the need for medium and long-term capital supplementation when the ratio of short-term capital used for medium and long-term loans is limited in the near future. Interbank interest rates remained low and decreased mainly due to SBV’s cutting interest rates (reducing OMO rate to 4.5 percent), currently below 2 percent with overnight and one week rates.
NIM in 2019 will increase slightly thanks to the restructuring of lending. In the first half, NIM of the whole industry improved, the average NIM of listed banks was 3.51 percent, higher than 3.2 percent of the same period last year thanks to (1) credit growth slowed down, (2) deposit rates grew for long terms while lending rates were stable, and (3) restructuring loans with higher interest rates. The structure of these loans took place faster than expected, so BSC changed its perspective compared to the previous report on the bank’s NIM trend in 2019.
Non-interest income, potential land of banks, is expected to continue to grow from 20 percent to 30 percent in 2019. In the first half of the year, non-interest income of the whole system grew strongly thanks to (1) growth from service fee of 46 percent y-o-y as a result of customer growth and service fee increase, (2) active recovery of off-balance sheet bad debts, and (3) revenue from cross-selling bancassurance products. In 2019, BSC expects non-interest income of the whole industry to continue growing strongly from 20 percent30 percent for the whole system thanks to the increase in service fees, growth of individual customers and the exploitation of new potential land (bancassurance and bonds).
NPLs tended to decrease in listed banks. The median NPL ratio of the whole industry was 1.6 percent (Q1/2019: 1.8 percent), debt ratio of group II was 1.3 percent (Q1/2019: 1.7 percent) showed that banks have focused on handling outstanding debts from the past, cleaning the balance sheet. In addition, reducing bad debts helps banks reduce provision expenses, thereby improving profits. A number of banks recorded a sharp decline in provision expenses, supporting profits in recent years such as Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) and Asia Commercial Joint Stock Bank (ACB) as a typical example. The ratio of provision expenses to net profit before provision increased to eliminate bad debts (28.2 percent compared to 18.7 percent in Q2/2018). NPL coverage ratio (LLCRs) was 75.9 percent. In addition, many banks have also successfully applied Basel II before maturity and will have their own credit management and growth mechanism in the near future.
Banks will increase charter capital to meet capital requirements under Basel II standard through (1) paying stock dividends; (2) issuing additional capital to foreign shareholders (VCB, BID), (3) issuing bonds to raise Tier II capital. In July 2019, banks increased their charter capital to meet the capital requirements according to Basel II by (1) paying stock dividends; (2) issuing additional capital to foreign shareholders (VCB, BID), (3) issuing bonds to raise Tier II capital. In July 2019, BID finished negotiating a 15 percent sale to KEB Hana Bank with priced at 33,640 dong per share, currently completing the issuance procedures. Other banks such as VPB, TPB, etc. are currently issuing long-term international bonds to increase Tier II capital, thereby improving CAR of these credit institutions. Currently, CAR Basel I of the whole industry, according to estimates of BSC, is at 11 percent (CAR Basel II will be lower from 1 percent -2 percent).
BSC also made another forecast for banks which was the listing plan. At this year’s shareholders’ meeting season, banks have listed plans including: OCB, MSB, SeABank, ABBank, Saigonbank, Nam A Bank and Viet A, in which BSC thinks that OCB and MSB may go listed at the end of 2019.
