Moderate earnings growth forecast for VN banking sector

Earnings growth in the Vietnamese banking sector, following a sterling year in 2018, would ease in 2019 due to slowing loan growth, reported by a foreign research firm.

Moderate earnings growth forecast for VN banking sector
Source: State Bank of Vietnam, Fitch Solutions

Fitch Solutions, a research unit of Fitch Group, blamed the deceleration in loan growth for the State Bank of Vietnam (SBV)'s lower loan growth target set for 2019 in comparison to the previous year, the transition to Basel II standards by January 1 2020, and a slower economic growth environment.

Given these, the research entity expects loan growth to slide to 13 per cent in 2019, from 14 per cent in 2018.

The profitability of Vietnamese banks has been steadily improving as the return on assets for the banking sector in the third quarter of 2018 significantly outperformed the comparable period in 2017.

Although aggregate measures have yet to be published by the SBV, Fitch Solutions expects the numbers to show an impressive year for the banking sector. Agribank, Vietnam’s largest state-owned bank by assets, posted the highest profits in its history, with a pre-tax profit of VND7.5 trillion (US$323,000), up 50 per cent from VND5 trillion (US$215 million) in 2017.

Other state-owned banks such as Vietcombank and BIDV also enjoyed a record 2018 with their respective pre-tax profits reaching VND18 trillion (US$776,000) and VND9.6 trillion (US$414,000), surging by 63 per cent and 11 per cent on year, respectively.

Sacombank, a joint stock commercial bank, also saw a 47 per cent jump in profits relative to 2017 to VND2.2 trillion (US$95,000) in 2018.

Loan growth under pressure

Fitch Solutions expects a slower pace of loan growth to weigh on earnings during 2019. This will primarily be attributed to three factors.

Firstly, the SBV has set a credit growth target for the overall banking sector to be 14 per cent in 2019, the same as the rate achieved in 2018, but lower than the 17 per cent credit growth target initially set for the previous year.

In 2019, banks which have met Basel II standards earlier than the SBV’s 2020 deadline will be allocated a credit growth limit of 15 per cent, with the rest being allocated a limit of below 12 per cent.

 

In comparison, most banks were assigned relatively higher credit growth limits between 14-16 per cent in 2018. Secondly, the incorporation of Basel II standards requires that banks to meet a capital adequacy ratio (CAR) of 8 per cent.

Although the CAR of state-owned banks and joint stock commercial banks, which together account for 85 per cent of assets in the banking sector, are already at 9.3 per cent and 10.6 per cent, respectively, the calculation for risk-weighted assets will be stricter under Basel II standards. This could make the CAR of these banks fall, Fitch Solutions predicts.

Thirdly, the country’s economic growth is unlikely to be spared from the synchronized global economic slowdown with real GDP growth forecast at 6.5 per cent in 2019, a drop from 7.08 per cent in 2018. Fitch Solutions predicts that slowing economic activity amid a bleaker growth outlook will begin to weigh on credit demand over the coming quarters.

Capitalization remains an issue with Basel II implementation

The research firm noted that many Vietnamese banks, particularly smaller ones will face the problem of undercapitalization when Basel II standards are implemented due to a more stringent calculation of risk-weighted assets. This could see consolidation in the sector involving smaller and weaker domestic banks with larger counterparts needed to attain the required capitalization levels.

The government could also relax restrictions on foreign ownership to incentivize foreign banks to inject capital into the banking system.

Currently, foreign banks face a cap of 30 per cent on their ownership in domestic banks, which makes it challenging for them to gain managerial control. And this has impeded foreign investment in local banks.

Having managerial control of domestic banks is important for foreign players as most domestic banks have endured a combination of poor operations and poor management. This has resulted in a growing number of foreign banks preferring to set up a 100 per cent foreign-owned bank, rather than trying to purchase its own stake in a local bank.

To meet the SBV’s deadline for the Basel II implementation by 2020, local banks have been asking the government to approve the foreign ownership cap to 49 per cent with the hope of attracting foreign capital.

An ownership cap of 49 per cent would still allow the government to own 51 per cent of banks and control them through the Law of Credit Institutions and other legal regulations if needed, making it a possible scenario for banks facing capitalization issues when the implementation of Basel II standards kicks in.

VOV

 
 

Other News

.
Upward trend persists for M&A in real estate
Upward trend persists for M&A in real estate
BUSINESSicon  16/11/2020 

The recent trend of transferring sub-projects to other developers in large-scale real estate complexes is considered one of the efficient ways to bring many benefits to developers, investors, and buyers.

Recovery continues
Recovery continues
BUSINESSicon  15/11/2020 

As opposed to that of supply, the recovery of demand remains weaker, which means that the recovery of growth in the coming time will depend largely upon whether consumers can bolster their purchasing power

Gov’t orders solutions to support rice exporters to EU
Gov’t orders solutions to support rice exporters to EU
BUSINESSicon  15/11/2020 

The Government has directed the Ministry of Industry and Trade to coordinate with other relevant agencies to support local enterprises exporting rice to the European Union (EU) to make the most of EVFTA,

Retail spaces left empty as shops go online
Retail spaces left empty as shops go online
BUSINESSicon  15/11/2020 

Although Vietnam has managed to effectively contain the Covid-19 outbreak, many unsuccessful shops have shut down, as retailers have opted to go online to reduce operation costs, with the trend expected to grow further in the coming time.

Amid global uncertainty, even traditional markets may be vulnerable: experts
Amid global uncertainty, even traditional markets may be vulnerable: experts
BUSINESSicon  15/11/2020 

It has been nearly a year since the first coronavirus-infected case was reported in China. There are now nearly 52.5 million infection cases worldwide and more than 1.29 million people have died of the disease.

New decree to prevent transfer pricing, limit thin capitalisation
New decree to prevent transfer pricing, limit thin capitalisation
BUSINESSicon  14/11/2020 

The Government’s recently-issued Decree 132/2020/NĐ-CP would help prevent transfer pricing and limit thin capitalisation to develop a healthy investment market, Deputy Director of the General Department of Taxation Dang Ngoc Minh said.

Proper mechanism needed to attract investors to PPP projects
Proper mechanism needed to attract investors to PPP projects
BUSINESSicon  14/11/2020 

A proper mechanism is needed to attract investors to infrastructure projects implemented following the public-private partnership (PPP) model, experts have said.

Oil fields becoming depleted, difficulties lie ahead
Oil fields becoming depleted, difficulties lie ahead
FEATUREicon  14/11/2020 

Oil and gas companies are struggling to cope with falling prices, oil field depletion, and difficulties in seeking new fields.

Business support packages in the frame for maximum impact
Business support packages in the frame for maximum impact
BUSINESSicon  14/11/2020 

With many businesses becoming gradually exhausted and in critical need of state support, many National Assembly members have asked the government to apply feasible solutions to lift them out of woes.

Curbed inflation eases concerns
Curbed inflation eases concerns
BUSINESSicon  13/11/2020 

The big rise in public investment disbursement will not cause high inflation this year due to a decline in public and business demand and oil price, as well as government efforts to stabilise prices.

Focus on efficiency for new incentives
Focus on efficiency for new incentives
BUSINESSicon  13/11/2020 

A list of sectors that could benefit from special tax incentives in Vietnam would be utilised to grow enthusiasm for overseas investors and, as a result, help to contribute towards luring more high-quality foreign direct investment.

Pressure on the Finance Minister
Pressure on the Finance Minister
FEATUREicon  13/11/2020 

As the holder of the keys of the national treasury, Finance Minister Dinh Tien Dung is facing great pressure.

Demographics, rising income, geopolitical shifts to drive ASEAN’s growth
Demographics, rising income, geopolitical shifts to drive ASEAN’s growth
BUSINESSicon  13/11/2020 

10 ASEAN member states are on the cusp of a tremendous leap forward in socio-economic progress and their growth will be propelled by four mega-forces, including favourable demographics, rising income levels, geopolitical shifts and digital tailwinds.

Local firms told to prepare for RCEP export opportunities
Local firms told to prepare for RCEP export opportunities
BUSINESSicon  13/11/2020 

Vietnamese businesses should prepare to export their products to other ASEAN countries ahead of the possible signing of the Regional Comprehensive Economic Partnership (RCEP) this week. 

Pork prices drop after country flooded with imports
Pork prices drop after country flooded with imports
BUSINESSicon  14/11/2020 

Vietnam spent VND5 trillion ($214.78 million) to import pork in the first nine months of the year, leading to a drop in prices.

Hanoi authorities to inspect farmstay projects, land violations
Hanoi authorities to inspect farmstay projects, land violations
BUSINESSicon  13/11/2020 

The Hanoi People’s Committee has assigned the Department of Natural Resources and the Environment to set up a taskforce to inspect farmstay projects and deal with land law violations.

Daily visits to local e-commerce sites top 3.5 million: VECOM
Daily visits to local e-commerce sites top 3.5 million: VECOM
BUSINESSicon  12/11/2020 

Online shopping traffic in Vietnam so far this year rocketed over 150 percent against a year earlier, with daily visits to e-commerce sites growing to 3.5 million, 

RCEP - A new boost for regional enterprises
RCEP - A new boost for regional enterprises
BUSINESSicon  12/11/2020 

The Regional Comprehensive Economic Partnership (RCEP) agreement, expected to be signed on November 15 within the framework of the 37th ASEAN Summit in Hanoi, 

Enterprises need to be pro-active during the pandemic
Enterprises need to be pro-active during the pandemic
BUSINESSicon  13/11/2020 

Nguyen Bich Lam, former director general of the General Statistics of Vietnam, talks on what Vietnamese enterprises need to do to maintain their business production during the COVID-19 pandemic.

New regulations on cap on loan interest deductions released
New regulations on cap on loan interest deductions released
BUSINESSicon  14/11/2020 

The regulations on the cap on loan interest deductions will cause enterprises to face difficulty as they have small capital and operate mostly with borrowed money.

 
 
 
Leave your comment on an article

OR QUICK LOGIN