Lenders on course to reach 2021 targets

HDBank recorded a rise of 68 per cent in on-year profit figures for the first quarter of 2021. Photo: Le Toan

Public health challenges have thrown the whole economy into wild gyrations, but banks operating in Vietnam still reported a stellar performance in this first quarter of this year.

As of March, the OCB reported a 15.3-per-cent increase in its pre-tax profit, equivalent to 23 per cent of the whole year’s target. Its total assets reached over VND160.4 trillion ($7 billion), up 5 per cent compared to December.

Trinh Van Tuan, chairman of OCB said, “Our performance last year has been a remarkable milestone in our 5-year-development plan, with total asset increase of 2.4 times, a charter capital increase of 2.73 times, total equity increase of 3.7 times, and profit increase of nine times.” Tuan added that prime focus will be specifically placed on retail banking, priority banking services, and digitally-led products. “We aspire to rise higher in the sector and aim to be among the top five privately-held commercial lenders in Vietnam,” Tuan told VIR.

Another Ho Chi Minh City-based lender, HDBank, recorded VND2.1 trillion ($91.3 million) in net profit in the first quarter, up more than 68 per cent on-year.

Some major state-backed lenders also reported strong performance. Vietcombank has steadily led the way for years, with the bank garnering net profit of over VND10 trillion ($438 million) in the first quarter, up 12 per cent on year.

According to fresh data from FiinGroup - a provider of financial data and business information, 19 out of 27 listed banks have released their quarter financial report, with their average profit after tax increasing 86.7 per cent on-year, whilst their revenue recorded an increase of 30.2 per cent on-year.

The driving force for these figures mainly comes from the bank’s better net interest margin, coupled with income from diversified services and reduced provision cost.

A total of 16 out of 19 listed banks noted that their average profit after tax is expected to increase by 24 per cent on-year in 2021. In the first quarter alone, local banks have completed 31 per cent of their after-tax profit plans on average for the year.

On April 2, the State Bank of Vietnam (SBV) officially promulgated Circular No.03/2021/TT-NHNN, announcing additional conditions for debt restructuring and extending the roadmap for restructuring debts provisions until 2023. Specifically, the SBV enables credit institutions to reschedule debt repayment terms for debts incurring repayment obligations from January 23 to the end of this year.

FiinGroup believed that regulations in Circular 3 have alleviated pressure on lenders’ provision cost. It also stated that banks’ 2021 profit targets are not impossible to reach, as the circular will help banks to avoid provision pressure.

In the same vein, VNDIRECT also believed that Circular 3 will release the pressure regarding provisions for commercial banks over the period of 2021-2023. The SBV also maintains the regulation that the period to restructure the repayment term does not exceed 12 months from the date the credit institution implements the restructuring process.

The debt payment rescheduling will be executed until December 31, which means the deadline for all the restructured debts to expire will be at the end of 2022.

“Regarding debt classification, Circular 3 stipulates that those restructured debt will maintain its debt categories instead of applying general rules for overdue debts,” said Nguyen Thi Phuong Thanh, financial analyst at VNDIRECT.

However, to avoid a “profit shock” at the end of the restructuring period, banks are required to start making provision in accordance with the nature of those outstanding loans, according to Devendra Joshi, equity strategist for ASEAN and Frontier Markets at HSBC. Joshi noted that corporate profitability is increasing as companies recorded higher growth in terms of revenue and profits in the first quarter of this year, up 24.8 and 51.8 per cent on-year, respectively.

Joshi also told VIR, “Banks in Vietnam are benefiting from increasing credit demand from their clients, and the gap between lending and deposit rates also contributes to higher interest rate margins.”

According to Infrastructure Asia, as Vietnam is rapidly moving to the next stage of development, the country is estimated to need around $480 billion for infrastructure development through to 2030.

“Thus, this pressing need for solid infrastructure in Vietnam also acts as an impetus for credit demand. Last but not least, the cheap cost of capital after policy rate cuts in 2020 is also a compelling force buffering lenders’ income,” Joshi emphasised.

“Banking is one of the best performing sectors. Liquidity remains high, putting downward pressure on deposit rates. At the same time, credit growth was up 12.7 per cent on-year in February,” he added.

Strong credit demand and low deposit rates help profitability, and net profit grew 65.1 per cent on-year in the first quarter. The sector is also benefitting from rising return on equity – which was 16.8 per cent in April – a level last seen in 2012. Non-performing loans remained low at 2.1 per cent.