Earnings of the banking sector remains positive

In Q1-2020, total operating income of 27 listed banks slipped by 1.2% QoQ but rose by 28.4% YoY. However, provision expenses dropped by 14.4% quarter-on-quarter and edged up by only 0.9% YoY. Operation expenses also fell by 16.5% QoQ and increased by only 3.4% YoY. As a result, earnings rose sharply by 23.1% QoQ and 77.4% YoY.

Slight reduction in NIM

After increasing strongly for two consecutive quarters, banks' NIM fell slightly by 2 basis points (bps) in Q1-2021 to 0.93%, equivalent to annualized NIM of 3.73%.

Total interest income customer loans of 26 banks (except VAB) declined by 1% while interest income debt securities decreased by 3.7% QoQ. In contrast, deposit income increased by 30.1%, but this amount only accounted for a very small part.

However, NIM only slid by 2 basis points as interest expenses fell even more. Interest and similar income slipped 0.5%, while interest and similar expenses dropped 3.1%. The leading banks in terms of NIM in Q1-2021 (quarterly) included VPB (2.32%), KLB (1.64%), TCB (1.5%), MBB (1.28%), and TPB (1.28%), equivalent to annualized NIM: VPB (9.27%), KLB (6.57%), TCB (5.98%), MBB (5.13%), and TPB (4.71%). This is a very high level compared to the industry average at 3.73% in Q1-2021.

As a rule, credit and deposit growth is calculated as the growth compared to the end of the previous year. In 2020, customer deposit growth of 27 listed banks was greater than customer loan growth by 2%. This is different previous years when customer loan growth was always larger than customer deposit growth, even when the gap was very narrow in 2018 and 2019, said FiinGroup.

In Q1-2021, customer loans of 27 banks rose by 3.2%, significantly higher than customer deposit growth (1.4%). This difference is larger than the same period in 2020 when customer loans increased by 1.2% and customer deposits grew by 0.2%.

Compared to the previous quarter, only net interest income increased by 2.1% while net fee and commission income and net income remaining activities decreased by 2.9% and 3.6% respectively.

However, FiinGroup said, compared to the same period, net fee and commission income jumped by 62.6% while net interest income and net income remaining activities rose by
24.8% and 11.1% respectively.

Net fee and commission income slipped compared to Q4-2020 but still rose over the same period as it usually increases sharply in the last quarter of the year.

Compared to Q4-2020, the proportion net interest income (excluding provision expenses) increased by 4.3% 64.6% to 68.9% due to the following reasons: (i) net interest income rose while net profit other activities fell; (ii) reduction in provision expenses.

This is similar to previous years when the proportion of net interest income increased in the first quarter of the year and tended to decrease during the year.

While data on corporate and personal outstanding loans was not fully disclosed by banks in Q1-2021. However, data 7 banks with notes in their financial statements (MBB, MSB, PGB, SHB, SSB, VIB, VPB) showed that both segments had similar growth, although personal credit growth was slightly higher.

The trend of higher personal credit contributed to the rise in net interest income and NIM of banks, as these are loans with higher interest rates and large NIM.

NPL and SML ratio increased again

At the end of Q1-2021, the non-performing loan (NPL) ratio of 25 listed banks rose 1.38% to 1.41% after falling sharply in the previous quarter. Group 3 and Group 4 loans dropped by 21.3% and 12.5% respectively, while Group 5 debt edged up by 2.5% compared to the end of Q4- 2020.

The proportion of Group 3 and Group 4 loans at the end of Q1-2021 was at 23.5% and 18.6% respectively of the total non-performing loans, while Group 5 loans still accounted for a very high proportion at 57.9%, said FiinGroup.

At the end of Q1-2021, the ratio of Group 2 loans (special-mentioned loans or SML) of banks also inched up 1.02% to 1.12% after three consecutive quarters of decline.

NPL formation rate (defined as Change in outstanding loans of Group 3-5 loans in the quarter divided by average total outstanding loans in the quarter) turned positive again after dropping to -0.33% in Q4-2020. This trend is similar to previous years, but the increase in Q1-2021 was smaller than those of the same periods.

FiinGroup said, Circular 03 still allows banks to restructure the repayment term and keep the same classification for loans of customers affected by Covid-19. Therefore, the current NPL ratio and the NPL formation rate don’t fully reflect the debt quality of banks.

Provisions/NPLs continued to rise and stay above 100% in the second quarter, while in previous quarters it was usually above 80%. While provisions/(NPLsSMLs) has increased for 4 consecutive quarters to over 60%, while in previous quarters it was usually above 40%.

Circular 03 allows banks to extend the schedule of provisioning loans affected by Covid- 19 to 3 years. However, with a sharp increase in coverage ratio, it can be seen that banks have been more aggressive in provisioning to prepare larger buffers for possible risks.

On the other hand, part of the provisions can be reversed, contributing to future profits. In other words, banks have made certain choices in balancing between provisioning and current profit recognition, as we have mentioned in previous editions.

COVID-19 pandemic’s impacts on outstanding loans

Although banks’ earnings grew well despite Covid-19, it is said that the banking sector has potential risks as profits and debt quality have not been reflected properly due to Circular No. 01 and then Circular 03 amending Circular 01. However, besides the increase in non-performing loan coverage ratio, we assess that the risk not too worrying for two main reasons:

Outstanding personal loans of banks account for a large proportion, at around 23% and thus credit risk is dispersed, although the pandemic may affect income of a certain segment of customers, said FiinGroup.

The sectors heavily affected by Covid-19 made up a very small proportion in the total structure of outstanding loans by industry. For example, Hotel & Restaurant industry accounted for only 1.7% of the total outstanding loans of eight banks.

LDR spiked up to a record level

At the end of Q1-2021, the loan-to-deposit ratio (LDR) ratio of 27 listed banks continued to rise sharply to 96.2% after decreasing in Q2 and Q3-2020. This is mainly due to increasing credit demand.

According to the State Bank of Vietnam, by the end of Q1-2021, credit growth of the whole industry was about 2.93%, double the level of the same period last year.

According to Circular 22/2019/TT-NHNN, January 1, 2020, the maximum LDR is 85%. The LDR here is different LDR calculated in accordance with Circular 22, however the rising of LDR in Q1-2021 indicated an increase in liquidity demand.

In 2020, May, interbank rates dropped sharply. The average overnight interbank rate in Q4-2020 continued to remain close to 0% (0.1%-0.11%) and only increased slightly to 0.12%-0.15% in the last 5 days of the year.

In FiinGroup’s view, this trend started to change the end of January 2021 when interbank rates climbed up again, especially soared in February (due to the Tet holiday) before falling and then gradually rising to above 1% the end of April (1.1-1.54%).