Viet Dragon Securities Company (VDSC) has released an update on the banking industry. Regarding credit, the company stated that the credit growth limits will not be expanded significantly because the State Bank of Vietnam (SBV) still has to maintain the orientation of ensuring credit quality and controlling inflation. Therefore, VDSC maintained forecast that banks will be given two to three percentage points in their credit growth limits compared to the levels assigned at the beginning of the year.
The credit growth in 2020 of banks will likely range from 13 percent to 15 percent (except Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) and Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) which may see lower credit growth rates). Regarding Net Interest Margin (NIM), VDSC predicted that this indicator will still move sideways or decrease in most banks because the impact of the lending rate preference is expected to be stronger than the impact of the policy rate reduction.
According to VDSC, the interest income of banks will slow down more clearly from the second quarter (Q2). Compared to private joint stock banks, the interest income of state-owned banks in 2020 is likely to be more affected because these groups are expected to take the lead in applying measures to reduce interest rates and restructure debts for customers.
VDSC stated that in the near future, banks with their credit activities will also have to provide more active support to customers in order to contribute to supporting the economic growth, in the context when the government determines that recovering the economic growth is an urgent need and the task of all sectors.
Previously, the prime minister asserted that the economic growth in 2020 must be higher than the recent forecast of the International Monetary Fund (IMF) (2.7%, down from the seven percent forecast given in January). The set target is at least five percent, while the actual figure in Q1 was 3.82 percent over the same period of last year. This implies that the growth of the last quarters of the year must be accelerated to compensate for the slow growth in Q1 and possibly Q2, too.
As of May 8th, the entire banking system has extended/ restructured debts for 215,000 customers with outstanding loans of 130 trillion dong, equivalent to 1.6 percent of the system’s outstanding credit; and exempted/lowered interest rates for 260,000 customers with over 1,000 trillion dong, accounting for 12.2 percent of the system’s outstanding credit. Credit institutions (CIs) also started to lend out at preferential interest rates for 182,000 customers with 630 trillion dong of outstanding loans from the beginning of the pandemic, equivalent to 7.7 percent of the system’s outstanding credit.
The lending interest rates have decreased by 0.5 2.5 percentage points compared to the period before the pandemic. In particular, corporate customers accounted for nearly 80 percent of the outstanding loans supported by banks and CIs. VDSC believed that these policies have been effective in promoting the credit growth of the economy from 0.8 percent in mid-April to 1.3 percent as of April 28th.
The SBV required banks to carry out measures to reduce interest rates and restructure debts more drastically and quickly. The SBV’s Governor emphasized that the preferences under Circular 01 can be applied to any individual, organisation or household that suffers revenue decline due to the pandemic, without limitations of industries, types, and categories, regardless of the borrowing currency and debt group at the time of the debt restructuring and interest rate exemption/ reduction. The SBV also asked banks to promptly handle customers’ request for support and strictly handle cases that cause difficulties to the requesters.
With this orientation, VDSC believed that the scope and level of interest rate reduction/ exemption, and debt restructuring will be expanded in the coming months. It is expected that the negative impact on NIM (and then interest income) will become stronger than Q1.
On the other hand, the SBV also suggested a number of easing policies which can be considered in the near future to support banks to exempt/ reduce interest rates for customers. Firstly, the SBV committed to provide sufficient capital for the economy, and will consider adjusting the credit growth limits for banks so that banks have more room for lending.
Secondly, the operating rates such as refinancing rate, rediscounting rate, OMO interest rates, etc. may be further cut. If so, banks can lower capital costs and have more room to reduce lending rates on a broader scale.
Thirdly, the SBV will also consider extending the time of debt restructuring if necessary, so that banks can reschedule debt terms for good customers who are not yet able to arrange the cash flows to repay debts.
