Banking industry's first quarter performance reveals mixed results
The banking industry's business landscape has become distinctly divided after the first quarter of the year. While some banks have experienced impressive profits and significant growth, others have faced decline.
Of particular concern is the slowdown in credit growth coupled with increased costs for risk provisions, posing significant challenges to achieving the yearly profit targets.
Latest reports from banks indicate that the total pre-tax profit of 28 listed banks in the first quarter has increased by more than 9.5 per cent compared to the same period in 2023, to reach VNĐ72.09 trillion.
Notably, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) has maintained its leading position with a pre-tax profit of VNĐ10.7 trillion, although this does represent a four per cent decrease compared to the first quarter of the previous year.
Vietnam Technological and Commercial Joint Stock Bank (Techcombank) has climbed to the second position in terms of profit, demonstrating robust growth of 39 per cent over the same period. Techcombank achieved a pre-tax profit of VNĐ7.8 trillion in the last quarter, primarily driven by credit growth, improved capital costs and income from service activities and investment banking services.
It is closely followed by the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) with VNĐ7.39 trillion and the Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) with VNĐ6.2 trillion, experiencing respective growth rates of 7 per cent and 4 per cent compared to the same period last year.
However, not all banks have recorded positive profit growth. Some banks, such as An Bình Commercial Joint Stock Bank (Abbank), Vietnam Thương Tín Commercial Joint Stock Bank (Vietbank), Saigon Industry and Trade Joint Stock Commercial Bank (Saigonbank), Prosperity and Development Joint Stock Commercial Bank (Pgbank), and Vietnam Export-import Commercial Joint Stock Bank (Eximbank), have experienced declines.
Notably Abbank's pre-tax profit dropped by 71 per cent, Vietbank by 63 per cent and Saigonbank by 35 per cent during the same period.
Cấn Văn Lực, Chief Economist of BIDV, said that the banking industry's profits in 2024 are expected to experience positive growth; however, the differentiation among banks will persist. Larger banks have the capability to achieve higher profits due to increased risk provisions in the past, which reduces pressure when bad debts rise.
The pressure from higher risk provisions, resulting from increased bad debts and declining collateral values, can impact banks' profitability. Additionally, revenue sources such as bank assurance and off-balance sheet debt collection, which were affected by the pandemic, have not yet recovered. These challenges
to profit growth were highlighted by Lực for banks in 2024.
The latest report from the Research Centre of SSI Securities Joint Stock Company (SSI Research) shares a similar perspective, indicating that the burden of risk provisions may persist in the upcoming quarters, potentially eroding bank profits.
SSI Research observed an increase in bad debts across most banks in the first quarter of 2024, following an improvement in asset quality in the previous quarter. The rate of bad debt formation sharply rose from 1.12 per cent in the fourth quarter of 2023 to 2.01 per cent in the first quarter of 2024. Meanwhile,
credit costs have not increased proportionately to the rate of bad debt formation, leading to continued pressure on provision costs.
Despite these challenges, Đào Hồng Dương, Director of Industry and Stock Analysis at Vpbank Securities Joint Stock Company (VPBanks), remains hopeful regarding the banking industry's prospects in 2024.
He believes that improving Net Interest Margin (NIM) due to low capital costs and increased borrowing motivation from foreign direct investment (FDI) will positively impact the industry. Factors such as the upgraded Comprehensive Strategic Partnership with the United States
and Japan, recovery in import-export activities, and domestic loan demand will play a role. However, risks such as the stagnant real estate market and the need to address bad debt persist.
VPBANKS further predicts that NIM in the banking industry may remain steady or experience slight growth in 2024 due to improved capital costs. Nevertheless, there is still pressure to reduce lending interest rates, and profit prospects among banks diverge, with an average growth rate of approximately 10 per cent. Some small-sized banks may continue to experience deceleration or even negative growth.