Asset quality gradually recovers
The latest report released by Vietnam Investors Service (VIS Rating), while asset quality is starting to find a balance, the pressure to maintain profits is weighing on the shoulders of small and medium-sized banks.
The biggest bright spot in this quarter's report is that the rate of new bad debt formation has slowed down. Data from VIS Rating shows that the debt problem rate for the whole industry remains stable at 2.3%, with the rate of new debt formation decreasing by 30 basis points compared to the previous quarter. Analysts expect this rate to decrease to 2.1-2.2% by the end of the year thanks to strong debt handling activities.
However, this recovery is not divided equally among all. The group of state-owned banks and large private banks such as ACB, Techcombank are leading the improvement trend thanks to a healthy lending portfolio. In contrast, some large and medium-sized banks have recorded increased overdue debt from enterprises in the renewable energy sector (e.g. MB), small and medium-sized enterprises (SMEs) related to import-export and aviation (e.g. Sacombank), or from personal home loans such as TPB (AA-, stable rating) and HDBank.
The problem of keeping net interest rates
Although the return on assets (ROAA) of the whole industry remains at 1.5% thanks to growth of non-interest income, net interest margin (NIM) - the core index reflecting monetary business efficiency - is facing a major challenge. VIS Rating shows that many private banks are witnessing NIM shrinking due to increased capital mobilization costs while having to compete fiercely for loans.
Associate Professor, Dr. Pham Manh Hung, Deputy Director of the Institute of Banking Science Research ( banking Academy) commented that the room for banks to maintain high NIM is clearly narrowing.
"When input capital costs increase, banks will be forced to restructure their credit portfolio, focusing more on segments with high profit margins such as retail, small and medium enterprises (SME) or fee services. Some banks can boost non-credit income from bancassurance, payment fees or foreign exchange trading," Associate Professor, Dr. Pham Manh Hung analyzed.
According to experts from the Banking Academy, another viable solution is to optimize operating costs.
Liquidity and the capital story
In addition to profit pressure, liquidity is also a matter of concern, especially for small banks.
According to VIS Rating, the lending rate on customer deposits (LDR) in the whole industry has climbed to 111%, the highest in the past 5 years. Notably, the rate of non-term deposits (CASA) decreased to 19%, especially decreasing sharply at small banks such as ABBank, Bac A Bank or Kien Long Bank. The shortage of cheap capital forces small banks to rely more on short-term market capital, increasing liquidity risks when the market fluctuates. Meanwhile, the industry's capital buffer is still thin with the ratio of tangible equity to total tangible assets (TCE/TA) moving sideways at only 8.4%.
Forecasting the outlook at the end of the year, VIS Rating believes that the industry's profits will improve slightly thanks to credit growth.
