Vietnam's banking sector earnings growth expected to ease in 2019

Viet Nam’s banking sector earnings growth is likely to moderate this year following a sterling year in 2018 due to expected slowing of loan growth to 13 per cent, experts forecast.

Vietnam's banking sector earnings growth expected to ease in 2019
Viet Nam’s banking sector earnings growth will likely moderate this year after a strong 2018.

Analysts from Fitch Group’s Fitch Solutions Macro Research explained that the deceleration in loan growth would be due to the State Bank of Viet Nam (SBV)'s lower loan growth target in 2019 versus 2018, the sector's attempt to transition to Basel II standards by January 1 2020 and a slower economic growth environment.

“Accordingly, we forecast loan growth to slow to 13 per cent in 2019, from 14 per cent in 2018,” the analysts said. “We expect a slower pace of loan growth to weigh on earnings in 2019.”

According to the Fitch analysts, this will likely be primarily due to three factors.

First, the SBV has set the 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 2018. 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. By comparison, most banks were assigned relatively high credit growth limits between 14 and 16 per cent in 2018.

Second, the incorporation of Basel II standards requires 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) in Viet Nam 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 standard, which could see the CAR of these banks fall.

“We believe that banks will tighten lending towards riskier ventures in anticipation of the Basel II standards and this will weigh on loan growth,” they said.

Third, Viet Nam's economic growth is unlikely to be spared from the global economic slowdown and it is forecasted that real GDP growth will slow to 6.5 per cent in 2019, from 7.1 per cent in 2018. Slowing economic activity amid a dimmer growth outlook will thus weigh on credit demand over the coming quarters.

 

Recently released reports from the SBV also showed that the credit growth as of April 17 this year expanded by only 3.23 per cent against the end of 2018. The rise was lower than that of the same period last year – 5 per cent.

Capitalisation issue

Fitch also forecast that many Vietnamese banks, especially small ones, will face the problem of undercapitalisation when the Basel II standards are implemented due to more stringent calculation of risk-weighted assets. This could see consolidation in the sector involving the smaller and weaker domestic banks with larger counterparts to attain the required capitalisation levels.

According to the analysts, the Government could also relax foreign ownership restrictions to incentivise foreign banks to inject capital into the banking system.

At present, foreign banks face a cap of 30 per cent on their ownership in Vietnamese banks, which makes it challenging for them to have managerial control. This has likely impeded foreign investment in Viet Nam’s banks.

Having managerial control of domestic banks is important for foreign players as most domestic banks are grappling with poor operations and management. This has resulted in a growing number of foreign banks preferring to set up a wholly foreign-owned banks rather than purchase a stake in a local bank.

To meet the SBV’s deadline to implement the Basel II standard in 2020, Vietnamese banks have been asking the Government to raise the foreign ownership cap to 49 per cent so as to attract foreign capital. An ownership cap at 49 per cent would still allow the Government to own 51 per cent of the bank and control the banks through the Law of Credit Institutions and other legal regulations if need be. — VNS

 
 

Other News

.
Vietnam to increase imports of coal and gas
Vietnam to increase imports of coal and gas
BUSINESSicon  14/10/2020 

The latest data from the ministry sent to the National Assembly shows that Viet Nam is transitioning from an energy exporter to a net importer.

Tra fish swimming back to local market
Tra fish swimming back to local market
BUSINESSicon  14/10/2020 

Turning away from the uphill battle in exports due to COVID-19, tra fish producers have set an eye on the domestic market.

Investors find VN ports, logistics attractive
Investors find VN ports, logistics attractive
BUSINESSicon  13/10/2020 

With its annual growth of 12-14 per cent, the logistics sector, especially seaports, is becoming attractive to both domestic and foreign investors,...

Vietnam continues reform as part of EVFTA deal
Vietnam continues reform as part of EVFTA deal
BUSINESSicon  13/10/2020 

Viet Nam is continuing its institutional reform commitments made in the historic EVFTA in an aim to boost exports of agricultural products and...

VN to set new regulations for overseas investment
VN to set new regulations for overseas investment
BUSINESSicon  13/10/2020 

Individuals will no longer be allowed to invest in real estate abroad if a new draft decree issued by the Ministry of Planning and Investment is approved.

Tax cut welcome but not enough: businesses
Tax cut welcome but not enough: businesses
BUSINESSicon  13/10/2020 

The Government's 30% corporate income tax cut was a step in the right direction but it could have been more inclusive by offering support to small businesses that were in desperate need of cash due to the difficulties caused by the COVID-19 pandemic.

Vietnam expects to welcome more investors next year
Vietnam expects to welcome more investors next year
BUSINESSicon  13/10/2020 

Vietnam is still regarded by investors as an attractive destination thanks to its stable politics and macro economy, favourable geographical location, and advantages in land and human resources.

Long Thanh Airport project awaits disbursement of funds
Long Thanh Airport project awaits disbursement of funds
FEATUREicon  13/10/2020 

The government’s report to the National Assembly on the implementation of the Long Thanh International Airport project on October 9 shows that little has been done over the last five years.

HCM City tightens licensing of condotels, resort villas
HCM City tightens licensing of condotels, resort villas
BUSINESSicon  14/10/2020 

Local authorities have been asked to carefully consider the granting of new licenses to projects with condotels, following many problems that have been discovered.

Experts unhappy with cement exports, but industry says unavoidable
Experts unhappy with cement exports, but industry says unavoidable
BUSINESSicon  12/10/2020 

In the first eight months of the year, cement companies exported more than 23.5 million tonnes of cement and clinker, an increase of 13.7 per cent year-on-year.

Half of local businesses use IFRS
Half of local businesses use IFRS
BUSINESSicon  12/10/2020 

More than half of companies in Vietnam have been adopting international financial reporting standards to meet investors’ expectations and improve their corporate governance, a survey showed.

Party Resolution boosts marine economy and defence
Party Resolution boosts marine economy and defence
BUSINESSicon  12/10/2020 

The sustainable development of the marine economy in association with the consolidation of defence and security is among the important sections of a resolution from the Communist Party of Vietnam

Japanese enterprises want to expand supply chains in Vietnam
Japanese enterprises want to expand supply chains in Vietnam
BUSINESSicon  12/10/2020 

About 15 out of 30 Japanese firms with overseas production bases say they want to expand and diversify their supply sources in Vietnam, according to a survey by the Japan External Trade Organization (JETRO).

The last quarter’s momentum
The last quarter’s momentum
BUSINESSicon  11/10/2020 

If the Covid-19 pandemic will continue to be well put under control as it is now, Vietnam’s GDP growth in the fourth quarter is likely to be higher than the first three quarters.

Positive outlook ahead for economic growth in 2020
Positive outlook ahead for economic growth in 2020
BUSINESSicon  11/10/2020 

There remains plenty of room to accelerate economic growth moving into the fourth quarter of the year, with domestic consumption and investment set to be the key drivers for Vietnam’s growth during the remainder of the year, according to insiders.

Vietnam to develop livestock sector
Vietnam to develop livestock sector
BUSINESSicon  11/10/2020 

PM Nguyen Xuan Phuc has approved a plan to develop the livestock sector for the 2021-2030 period with a view to 2045.

72% of EU businesses plan to expand in Viet Nam
72% of EU businesses plan to expand in Viet Nam
BUSINESSicon  11/10/2020 

A majority of European businesses in Viet Nam expect to increase their operations in the country, the sixth Business Sentiment Survey of the EU-ASEAN Business Council released on Thursday shows.

VN eyes boosting processed meat industry
VN eyes boosting processed meat industry
BUSINESSicon  11/10/2020 

The husbandry industry is hoped to become a modern economic sector industrialised in all stages from production, processing, preservation and...

Vietnam vows to develop eco-friendly chemical industry
Vietnam vows to develop eco-friendly chemical industry
BUSINESSicon  10/10/2020 

Nguyen Van Thanh, director general of the Vietnam Chemical Agency, speaks about some of the strengths and weaknesses in the 2007 Law on Chemicals.

Banks put pedal to the metal in digital transformation
Banks put pedal to the metal in digital transformation
BUSINESSicon  10/10/2020 

The banking industry has been recently abuzz with digital transformation as lenders embark on their journey to become more tech-enabled to keep pace with disruptive technologies.

 
 
 
Leave your comment on an article

OR QUICK LOGIN