The banking industry will continue to face difficulties in 2023 in the context of the real estate market downtrend and the less positive import and export outlook. (Photo: VNA) Under a report released recently, Viet Dragon Securities Company (VDSC)’sanalysts have said the interest income growth of the banking industry in2023 will slow due to the impact of low credit growth and a decreasing netinterest margin (NIM).
The credit growth target in 2023 is expected at 11-12%, lower than the 15.5-16%rate in 2022. Though the credit growth rates will differ among banks, thenegative outlook of the real estate market will cause the credit demand to belower than in past years.
The NIM decline will differ among banks in 2023, which will cause the growth ofinterest income of the entire banking industry to stay at less than 11%.Therefore, VDSC believes banks' interest income will grow slowly in 2023.
The analysts have also projected a high comparative base effect; the customerinterest aid programmes and the real estate market difficulties will lessen thenon-interest income growth. Accordingly, payment activities will likelydecelerate along with credit activities in 2023. Moreover, the tendency ofbanks to switch to a zero-fee payment programme will also contribute to adecrease in fee income growth.
Besides, the asset investment banking activities, including bonds, will fall insize and profit margin because the bond issuance volume may soon increase againcompared to 2022 but will remain lower than that in the booming 2019-21 perioddue to the Government’s tightened conditions. Improved professional investorstandards will make it difficult for banks to find bond buyers.
In addition, the costs of complying with the new provisions of Decree65/2022/ND-CP prescribing private placement bonds in Vietnam willalso increase.
The most important factor is the decline in investor confidence, which willcause the bond market to be continuously tough in 2023.
Therefore, the higher banks have income sources from investment bankingoperations, the bigger their service fee revenue decline.
Besides, the growth of bancassurance fees will continue to slow due to thelower expected credit growth, the allocation of personal assets tohigh-interest savings channels, and the saturation of the investment-linkedinsurance market.
Exceptions may be seen in some banks, such as Lien Viet Post Commercial JointStock Bank (LienVietPostBank) and HCM City Development Commercial Joint StockBank (HDBank), as the banks will record exclusive fees and the collection offirst-year premiums when signing new exclusive contracts for insurancedistribution.
The proportion of investment-linked products also cooled down in 2022, whilethis is the business segment that often contributes the most fee income to banks.The declining trend is forecast to continue in 2023, causing a slowdown inbanks’ fee income growth next year.
On this basis, VDSC forecasts banks’ total operating income will grow modestlyin the context of decelerating lending activities. Specifically, in the groupof banks in VDSC’s watch list, the total operating income in 2023 is expectedto grow slowly by 10% over the same period in 2022, when the interest incomewill rise by 11%, and the fee income growth will cool down to 16%.
Besides, banks’ asset quality is forecast to decline slightly in 2023 whilecredit expenses will increase moderately by 18%, and the pre-tax profit isexpected to go up slightly by 6% compared to 2022.
With the above forecast, VDSC estimates the return on equity (ROE) of banks, ingeneral, will slightly decline in 2023 as Vietnam experiences decreasingeconomic growth.
However, some banks, which have high provision buffers for risky loans and goodasset quality, and are less vulnerable to risky areas, will still maintain arelatively high ROE in 2023 and recover to the average level in 2024.
According to VDSC’s analysts, the banking industry's asset quality may reducein 2023 in the downtrend of the real estate sector and the less favourableimport and export prospect.
However, the analysts have noted the reduction will differ among banks based onthe impacts of corporate bonds and real estate lending. A high provision bufferfor risky loans will help some banks, which had prudent policies with the twobusiness segments, avoid the decline in asset quality.
A Q1 2023 business performance survey released this week by the State Bank ofVietnam also showed commercial banks were more cautious when forecasting thecoming time. According to the survey, only more than half of banksexpect their business performance to improve in 2023, but the improvementis lower compared to 2022./.
VNA
