Banks’ diversified income sources protect profits amid epidemic

March 02, 2020 - 09:40

On February 7, the banking sector’s outstanding loans fell by 0.38 per cent for the year, while overdue debts and non-performing loans showed signs of rising.

In response to the central bank’s appeal, many banks cut their lending interest rates by 0.5-1.5 percentage points to support affected customers. — Photo

Compiled by Thiên Lý

On February 7, the banking sector’s outstanding loans fell by 0.38 per cent for the year, while overdue debts and non-performing loans showed signs of rising.

Dr Nguyễn Quốc Hùng, director of the State Bank of Việt Nam (SBV)’s credit department, blamed the situation on the new coronavirus outbreak in many countries including Việt Nam.

Forty three credit institutions said losses caused by the epidemic were worth VNĐ950 trillion (US$41.3 billion) or 13 per cent of their outstanding loans.

State-owned banks, which account for 50 per cent of the credit market, are arguably the worst affected with their total loans outstanding down by nearly VNĐ600 trillion ($26 billion).

Analysts said payment flows would surely be affected since borrowers, most of them enterprises in various sectors, are facing severe difficulties due to the epidemic and are unlikely to be able to repay in time.

This would affect lenders’ profits, they said.

In response to the central bank’s appeal, many banks cut their lending interest rates by 0.5-1.5 percentage points to support affected customers. This has also had an impact on their profits.

Nguyễn Thanh Tùng, Vietcombank deputy director, said the bank has lost at least VNĐ300-450 billion in profits after cutting rates recently.

Hùng of SBV said there are no plans yet to adjust the year’s credit growth targets or reference rates.          

However, the central bank will continue to closely watch developments and the impacts of the epidemic on the economy to tweak monetary policies if required while still ensuring the Government’s goals of controlling inflation and helping various sectors handle the difficulties caused by the outbreak.

A spokesperson for a bank in HCM City, who did not wish to be named, said the lender’s profit this year is likely to fall by VNĐ50 billion because of the interest rate support for customers affected by the epidemic.

But it would not adjust its profit target since the Government has decided to keep the GDP target unchanged and the central bank does not want to adjust the credit growth target it has set for 2020.

To achieve the target, his bank would increase lending to the retail segment and focus on services, he said.

Nguyễn Đức Vinh, general director of VPBank, said it is too early to accurately assess the impact of the epidemic, but his bank would make every effort to protect its net interest margin (NIM).

NIM is the difference between the interest paid and received relative to interest-earning assets.

The bank also plans to restructure loans to better utilise cash flows.            

Analysts said banks’ sources of income have significantly been diversified in recent years, with non-interest income increasing, thus making them less reliant on lending.

VPBank, for instance, has reduced its revenues from credit activities from 90 per cent in the past to 40 per cent now, with income other than from interest making up nearly 40 per cent.

The diversification has enabled banks to better cope with economic volatility, experts said.

A recent report by the Fiin Group showed that net profit growth of the 18 listed banks was 29.3 per cent last year, mainly thanks to the improved NIM.

The epidemic is expected to drag down Việt Nam’s GDP growth by half a percentage point.

With such impact level, it is not necessary for the banks to offer preferential credit packages, experts said.

They suggested that tax deduction or exemption be measures to support the businesses at this time.

Banks continue to delay listing of shares

Market observers said no bank has listed its shares so far this year.

Under a Government plan to restructure the stock and insurance markets by 2020, all banks are required to list by this year.

But so far, only 18 out of 31 banks have done so, with the deadline only 10 months away.

The Orient Commercial Joint Stock Bank (OCB) for instance planned to list on Hồ Chí Minh Stock Exchange (HoSE) several years ago, but failed to do so due to several reasons.

Then, Chairman Trịnh Văn Tuấn said the bank would surely list in late 2019 or early 2020, but it has again had to delay it since market conditions are not favourable.

The COVID-19 outbreak has yet to show signs of tapering off, and is expected to affect all sectors of the economy including the stock market and banking industry.

Tuấn also said OCB wants to sell stakes to foreign investors before listing, but has yet to identify them.

“Listing of shares must be done at the proper time to ensure their prices can go up so that shareholders can get best interests.”

A similar plan was revealed by an executive of Nam Á Bank, which recently received approval from the SBV to increase its charter capital from VNĐ3 trillion to VNĐ5 trillion this year.

He said the bank plans to list this year soon after completing the sale of 20 per cent stakes to domestic and foreign investors.

Though many foreign investors have been in negotiations to buy, it is not an easy choice for the bank to make since it has to identify investors with the right fit in terms of views and strategies, especially at a time when both the domestic market and the global economy face unfavourable conditions, he said.

Thus the bank has also been unable to fix a schedule for listing its shares.

Market observers said that there are 10 banks currently trading on the HoSE, Việt Nam’s main bourse, which accounts for over 90 per cent of the country’s total market capitalisation.

They include major State-run banks such as the Bank for Foreign Trade of Việt Nam or Vietcombank, Việt Nam JSC Bank for Industry and Trade or VietinBank and Bank for Investment and Development of Việt Nam or BIDV.

The Hà Nội Stock exchange (HNX) has three banks listed, namely ACB, SHB and NVB, while the remaining five are traded on UpCoM, which is considered a transitional step before listing on one of the two main exchanges.

Last year, only Vietbank listed on UPCoM.

Late last year, Việt Nam Maritime Bank (MSB) filed an application to list on HoSE, but little progress has been made so far.

Analysts said that listing shares on an exchange depends on many factors.

Meanwhile, the proxy season is expected to take place later this year than usual due to the epidemic.

Proxy season is the period during which many companies hold their annual shareholder meetings. It usually occurs in April, as most companies end their fiscal years on December 31 and hold their annual meetings the following spring.

Bank shares have recently lost their sheen, with investors preferring companies involved in manufacturing since banks’ profit growth is expected to slow down this year as their biggest borrowers, property developers, face major obstacles.

Besides, banks also have to compete increasingly with corporate bonds and other low-cost sources of funding. — VNS