Vietnam commercial banks report 25-94% decline in Q2 profit

Four of seven Vietnamese commercial banks that have announced second quarter business results show a 25-94% year-on-year decline in pre-tax profits.

Of the seven banks, three have seen their first half pre-tax profit decrease 11-59% year-on-yeaar.

ABBank reported the strongest fall in profit in Q2, down 94% to just VND67 billion ($2.83 million). In H1, the bank's profit of VND679 billion ($28.7 million) was down 59% over the same period last year, achieving only 24% of its annual plan.

ABBank said increased provision outlay was one of the main reasons for the profit plunge. Its provision for credit risk was VND698 billion ($29.5 million) and VND814 billion ($34.4 million) in Q2 and H1, four times and 3.7 times higher than the same period in 2022, respectively.

LPBank came second with respective year-on-year decreases of 51% and 32% in Q2 and H1, due to poor performance by many business segments.

The bank’s six month net interest margin (NIM) decreased 11.7% year-on-year to VND5.22 trillion ($220.77 million), while its securities trading segment suffered a loss of VND4 billion ($169,000) compared to a profit of VND346 billion ($14.6 million) in the same period last year.

A sharp increase in bad debt was also a reason for the weak performance. The bank's bad debt ratio rose to 2.23% as of June 30, 2023, of which unrecoverable debts (Group 5) soared 80% to VND2.44 trillion ($103 million).

Meanwhile, TPBank recorded respective falls of 25% and 11% year-on-year in Q2 and H1 profits. In six months, the bank reached only 39% of its yearly profit target.

The bank reported a decline in core business activities, with H1 NIM dropping 6.8% to VND5.47 trillion ($231 million).

TPBank's bad debt ration also increased, reaching 2.21% of total outstanding loans as of June 30.

In general, analysts have attributed the profit deceleration to low credit growth, narrowing NIM and rising bad debt.

Previously, top broker Saigon Securities (SSI) had estimated that four out of 11 of the listed banks it studied would experience a year-on-year decrease in Q2 profits: ACB, Techcombank, TPBank and VPBank. Of these, TPBank would see the strongest profit decline of 21-25%.

ACB's Q2 pre-tax profit was estimated at VND4.4-4.7 trillion ($198.8 million), down 4-10% compared to the same period last year, fulfilling nearly 50% of the plan. However, SSI expected the bank's Q2 credit growth to recover and reach around 4.5-5% year-on-year with a slightly lower deposit growth of 4%.

The SSI study also estimated Techcombank's Q2 pre-tax profit at VND5.5-5.8 trillion ($245.3 million), down 20% year-on-year.

While VPBank was able to maintain a relatively good Q2 profit growth, SSI believed that its consolidated business results would be affected by “challenging consumer finance activities.”

In a recently released report, Vietcombank Securities Company (VCBS) said pre-tax profits of the entire banking industry are likely to grow at about 10% this year, sharply down from last year's nearly 35% due to low credit growth of about 12% and narrowed NIM.

Some small-sized banks could even suffer losses as the real estate market and the global macro economy deteriorated, it said.

According to VCBS, Q1 NIM of the banking industry fell from 3.81% at the end of 2022 to 3.68%. The NIM is likely to continue shrinking in Q2 as high-priced mobilized capital has not been fully absorbed, and at the same time, current account savings account (CASA) value has decreased sharply, the report said.

It said the group of state-owned commercial banks has had to maintain NIM at a low level from the beginning of this year due to the pressure of reducing interest rates to support large-scale preferential loan packages. At small banks, NIM will improve markedly when deposits with high interest rate reach maturity dates.

VCBS experts expect that the cooling of interest rates in H2 will create an increase in credit demand and cause credit growth rate to improve strongly over H1. NIM is likely to improve thanks to lower deposit rates, they say.