Vietnamese commercial banks to see profit growth decelerate

Vietnamese banks have seen significantly lower second quarter profits and could find it difficult to reach even a 10% year-on-year growth this year, compared to last year’s 35%.

Several analysts have concluded that the main reasons for the deceleration are low credit growth and narrowing net interest margins (NIM) .

Per Q2 and H1 business results of 11 of 27 listed banks, profits continued to grow but with significant deceleration. Year-on-year Q2/2023 profit growth was about 3.5%, compared to a corresponding 11.6% in Q1 of the year.

Previously, top broker SSI Securities 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 fact, the first bank to announce a profit decline, LPBank, posted H1 pre-tax profits of VND2.45 trillion ($103.45 million), fulfilling 41% of the annual plan, but down 31.8% compared to the same period in 2022.

Bac A Bank reported Q2 pre-tax profits of VND139 billion ($5.88 million), down 25% year-on-year. Its H1 pre-tax profits reached VND474 billion ($20 million), up 10% year-on-year.

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 net profit margins (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 the second quarter 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 H2/2023 will create an increase in credit demand and cause credit growth rate to improve strongly over H1 2023. NIM is likely to improve thanks to lower deposit rates, they say.

At a conference that reviewed banking operations in the first six months of 2023, Nguyen Thanh Tung, general director of Vietcombank, said that at the end of June 2023, the bank’s capital mobilization and credit growth rose 6.6% and 2.6% from the beginning of the year to reach VND1,300 trillion ($54.9 billion) and VND1,200 trillion ($50.7 billion), respectively.

In the first half of the year, Vietcombank reduced its deposit interest rate 10 times and lending rates five times for both individual and corporate customers. This meant that on 87% of its outstanding loans, or more than VND1,000 trillion ($42.3 billion), it reduced interest by nearly VND1.3 trillion ($54.98 million) for more than 242,000 customers.

Nguyen Duc Vinh, CEO of VPBank also said that the bank has responded to central bank instructions by reducing deposit interest rates as well as profits to support the economy. It had cut interest rates on deposit rates by 2-3% and endured a profit reduction of more than VND1 trillion ($42.29 million) year-on-year.