Sluggish growth and risks abound in banking arena

In the past week, about 10 banks have released their financial statements. What is the profitability status of commercial banks in the first quarter?

Le Hoai An, a banking consultant and trainer at Integrated Financial Solutions

Firstly, credit growth in the economy in the early months of this year is relatively slow, growing by about 0.26 per cent. This growth rate is even lower than what happened in the first quarter of 2023 when credit growth in the whole economy, although low, still increased by 2.06 per cent compared to the end of 2022.

In the context of low credit growth and the policy of maintaining low lending rates is still being promoted given considerable pressure from foreign exchange fluctuation, we have witnessed a deep divergence in the business results of different groups of commercial banks.

While banks such as TCB and LP Bank recorded impressive profit growth, many other banks such as MB Bank or ACB did not meet their expectations, with low growth or negative growth compared to the same period last year.

So, what factors are contributing to the profit differentiation between commercial banks?

Numerous factors contribute to the profit differentiation among banks. However, the core issue remains the matter of governance efficiency and strategies of each institution. Credit growth in 2023 at commercial banks was primarily driven by lending to corporate clients rather than individuals. This trend persisted into the first quarter of 2024.

Commercial banks like TCB, LPB, and SSB, with high corporate lending ratios, typically experienced robust profit growth alongside an increase in CASA ratio (ratio of Current Account Saving Account to deposits), which helped reduce cost of funds (COF) and enhance net interest margins (NIMs) considerable. Moreover, corporates in financial difficulty have been resolved by efforts for new disbursement, which could also enhance non-performing loan ratios as well as maintaining cash flow for different corporate ecosystem.

Conversely, banks with high retail lending ratios, such as ACB, VIB, and MBB, often faced challenges in pushing profit growth. In the current economic context, borrowing demand is relatively low, with overall credit growth reaching only 0.26 per cent by the end of March. Banks with a high proportion of individual lending typically lacked COF advantages compared to corporate lending due to their lower CASA ratios.

In the first quarter, MBB’s NIM declined to 4.67 from 5.6 per cent, while VIB’s NIM decreased to 4.5 per cent, leading to a reduction in profit compared to the same period in the previous year. This situation indicates that these banks had to lower lending rates to stimulate credit demand, causing a decline in profit from the lending portfolio.

Maintaining a low yield on earning assets poses a significant challenge amidst a rising COF. This also contributed to the profit decline, even though credit growth remained slightly higher than the same period in the previous year.

Many banks have announced their business plans towards 2025. What is your assessment of the prospects for banks in the coming period?

The cautious outlook for the industry can also be seen in the way commercial banks set their profit targets for this year. By the end of April, many banks had announced their profit plans for the rest of 2024. However, most banks have set quite modest profit growth targets compared to their targets in 2023. This reflects a cautious growth strategy of banks in the context of many unpredictable developments in the global and domestic economy.

Specifically, banks such as Vietcombank, BIDV, and VietinBank, although still leading in terms of profits, set slow credit growth targets for 2024, only equivalent to the average credit growth of the industry. Vietcombank alone has set a growth target of only 5 per cent for profit before tax, compared to 15 per cent set for 2023. Meanwhile, the fact that BIDV and VietinBank have not informed of their profit target shows the caution and hesitation of banks in doing so.

HDBank and TPBank forecast profit growth of 20 and 34 per cent respectively, while VPBank set a more ambitious growth target of over 100 per cent in 2024. However, VPBank’s growth must be put in the context of their pre-tax profit falling by nearly half last year due to a sharp increase in non-performing loans.

Caution is necessary to forecast the profit growth of banks this year, especially when the banking industry is facing slow credit growth and economic difficulties that could be prolonged.

The differentiation in the profit levels of banks indicates potential risks from macroeconomic instability, risks in the quality of earnings, and the fact that the bank’s lending portfolio remains considerable. Faced with fluctuations in the economic environment, along with pressure to improve asset quality and manage bad debts, the banking sector is not only encouraged to boost credit but also needs to be more tightly monitored to ensure the maintenance of asset quality across the system.

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