Customers make transactions at a branch of Vietinbank in Ha Noi. Shares in Vietinbank have decreased by nearly 40 per cent since late June.

After setting a historic peak of 1,420.27 points on July 2, the stock market had a deep correction with the VN-Index losing more than 100 points, equivalent to a decrease of nearly 7 per cent, staying at 1,310,05 points at the end of the month. Instead of leading the market up, bank stocks were one of the groups that pulled the index down the most.

In August, although the VN-Index recovered significantly by 1.64 per cent compared to the previous month, the financial sector index continued to drop by 3.23 per cent. Many banking stocks witnessed strong volatility during this period.

Shares in Vietinbank have decreased by nearly 40 per cent since late June, from VND52,700 (US$2.32) per share to VND31,800.

Military Commercial Joint Stock Bank also fell 36 per cent compared to the end of June, and is currently trading at VND27,900 per share. In the first half of this year, the bank reported a 56 per cent increase in profit before tax, reaching nearly VND8 billion. Total bad debt at the end of the second quarter this year decreased by 22 per cent compared to the beginning of the year.

Lien Viet Post Commercial Joint Stock Bank also underwent a decrease of 23 per cent compared to late June.

Le Quang Minh, Investment Analysis Director of Mirae Asset Vietnam Securities Co., attributed the sharp decline of bank stocks to lower expectation in economic growth in the second half of the year.

“Profits of banks are strongly affected as the economy is being heavily damaged by the COVID-19 pandemic,” he said.

“With the current social distancing measures nationwide, it is likely that credit growth in the third quarter of 2021 will slow down, and banks will have to prioritise risk management to ensure asset quality.

“The prolonged pandemic has affected production and business activities and debt repayment of enterprises, pressuring banks with handling increasing bad debts.”

Despite many influences, some analysts are still optimistic about the prospects of the banking industry in the near future.

“The negative impact of the pandemic on the banking industry is obvious, but compared to many other economic sectors, the impact of the pandemic is much less," said Truong Hien Phuong, senior director of KIS Vietnam Securities Joint Stock Company.

"Despite social distancing, banking operations have been maintained thanks to the online trading platform, plus non-interest income will help banks maintain positive profit growth.

“When the pandemic is under control, business activities will recover and credit demand will increase again.

"The banking industry will benefit from the injection of capital to recover the economy. Transactions of banking stocks will soon be active again and will continue to lead the market in the last months of this year and the whole year of 2022.”

The recent increase in banks' provisions also helped reduce risks. Yuanta Securities Vietnam said that the total provision in the second quarter of 2021 of listed banks was estimated at VND33.4 trillion, an increase of 55 per cent compared to the first quarter of 2021 and an increase of 83 per cent over the same period of 2020.

The State Bank is collecting opinions on amending Circular 01/2021/NHNN dated March 13, 2020 on the restructure of debts payment deadlines, exemptions, reductions in interest of foreign credit institutions and foreign bank branches.

According to experts, this is expected to create a positive effect on cash flow, supporting the market price of this group of stocks in the coming years.

The ability to manage risks better, and more diversified financial products such as bonds, insurance or card payment development, and digital banking will be supporting factors, creating sustainable growth for the banking industry during the pandemic.

Source: VNS