Banks’ outlook for 2H remains cautious

Stable credit growth

Despite the possibility that the epidemic could prolong, credit growth in the first 6 months of 2021 was much higher than expected. The credit growth reached 5.47% by June 21, 2021, significantly higher than the same period last year (2.45%).

Liquidity in the second half of 2021 will remain positive when the granting of credit lines is lower and longer than expected as the SBV is being cautious.

Private banks generally have higher CARs than those of the state-owned banks, so they are often assigned higher credit growth limit  s. SBS said credit growth from these banks would reach 15-20% in 2021, outperforming the industry as a whole.

Short-term pressure from NIM

In the long term, SBS assessed that NIM would have room to increase in some banks in the second half of the year, depending on demand deposits (CASA). Because the pressure to reduce lending interest rates to support the economy has a strong impact on state-owned banks, partly because lending rates follow market rules, on the other hand, interest rates on loans must also be at a guaranteed income level for weak banks to continue doing business.

Given that credit growth is expected to be positive, NIM will decline slightly and balance sheet growth is more conservative, net interest income is forecast to grow more slowly in 2H. The difference will lie in the NIM, as banks with unaffected lending rates and improved CASA rates will benefit.

Non-interest income to grow

Bancassurance gained popularity due to the impact of the epidemic and higher penetration rates on a low basis, so this operation has the potential to become a new growth engine. Vietnam's life insurance market still has a lot of room for growth when the proportion of the population participating in life insurance is only 11% by the end of 2020. Therefore, in 2H, SBS expects sales to continue to be good in the bancassurance sector due to the digitization process, allowing insurance buying advice without impact from social distancing. However, the strength and growth rate of this segment is different between banks and partners.

Overall, banks' operating income will continue to grow well, although less so than in the first half of this year, when the State Bank was reluctant to grant credit lines. Non-financial income growth will be the main driver, which will be maintained by the stable development of bancassurance and payments, growth margin thanks to bond trading, and potential for bad debt recovery.

Cautious outlook in 2H

The fourth outbreak of the Covid-19 pandemic in recent months makes the economic difficulties more urgent than ever. This is the factor that makes SBS cautious in making year-end forecasts that are not really positive from here. The outlook of banks in 1H is quite bright, there are still potential difficult factors that can affect the growth of banks. In the near future, bad debt tends to increase, and the collapse of a part of businesses is heavily affected by the COVID-19 pandemic.

The growth of the banking industry depends greatly on the health of the business sectors associated with the picture of economic growth in the last 6 months of 2021. If the epidemic is not controlled, by 2022, the economy will slow down, businesses will not be able to recover as before the epidemic, and the ability to pay debts will decrease. The knock-on effect amid the exhausting corporate sector will directly affect the health of the financial and banking systems, as bad debts and loan provisions are expected to increase in 2H. As well as the high possibility that interest rates will continue to be lowered under the direction of the State Bank, to maintain capital flow for production and business. Therefore, the profit forecast of the banking system at the end of this year will not be as high as in the first 6 months. This is a big challenge that banks need to monitor closely and prepare for the worst possible scenarios, said SBS.