Banks' provisions for risky loans will likely increase 48 percent in H2 2020 (Photo: plo.vn) Hanoi (VNS/VNA) - The pre-tax profit of the banking system in thesecond half of this year is estimated to fall 22.1 percent compared to the sameperiod last year due to an increase in provisions for risky loans in the wakeof the COVID-19 pandemic.
According to a recent report on the prospects of the banking industry in H22020 by Saigon Securities Incorporation (SSI)’s research division, SSI analystsbelieved that the rising provision will further reduce profits of banks.
They estimated that banks would promote the provisions for new bad debts andrestructured debts. Total operating income of the banking system is projectedto decrease 4 percent while provisions for risky loans will likely increase 48 percent.
The SSI estimated pre-tax profit of State-owned banks, including Vietcombank,BIDV and VietinBank, could decline 36 percent, mainly due to the 59 percentincrease in provisions for risky loans in H2 2020.
The rising restructured debts will make the net interest margin (NIM) fallfurther. The amount of bad debts and restructured loans will sharply increaseby the end of the year. Based on the estimates of the State Bank of Vietnam(SBV), about 23 percent of the total outstanding loans were adversely hit bythe pandemic in the first quarter of this year.
When the pandemic continues, the number of customers encountering cash flowproblems will continue to increase. Banks will have to put the loans on restructuringlists or classify them as bad debts. Therefore, the loss of interest incomerelated to restructured loans and bad debts may increase significantly.
The negative effects of the interest rate reduction and exemption will lastthrough H2 2020, longer than H1 of 2020. Therefore, SSI analysts estimated thatthe NIM would fall by an additional 60 basis points in H2 2020 if the pandemiclasts until the end of this year.
SSI forecast the credit growth in 2020 will be around 7.5-8.5 percent, lowerthan the initial credit growth target of 11-14 percent set by the SBV. At theend of July 2020, the total credit growth was 3.75 percent, compared to the3.65 percent in H1. It is half of the credit growth recorded in the same periodof 2019 which was about 7.5 percent.
The credit demand may continue to fall because the country is still facing thepandemic while banks may not lower their credit granting standards. Lending tolarge corporate customers and corporate bonds may continue to be the maindriver for credit growth, while the retail segment will not be as strong asbefore, the report stated./.
According to a recent report on the prospects of the banking industry in H22020 by Saigon Securities Incorporation (SSI)’s research division, SSI analystsbelieved that the rising provision will further reduce profits of banks.
They estimated that banks would promote the provisions for new bad debts andrestructured debts. Total operating income of the banking system is projectedto decrease 4 percent while provisions for risky loans will likely increase 48 percent.
The SSI estimated pre-tax profit of State-owned banks, including Vietcombank,BIDV and VietinBank, could decline 36 percent, mainly due to the 59 percentincrease in provisions for risky loans in H2 2020.
The rising restructured debts will make the net interest margin (NIM) fallfurther. The amount of bad debts and restructured loans will sharply increaseby the end of the year. Based on the estimates of the State Bank of Vietnam(SBV), about 23 percent of the total outstanding loans were adversely hit bythe pandemic in the first quarter of this year.
When the pandemic continues, the number of customers encountering cash flowproblems will continue to increase. Banks will have to put the loans on restructuringlists or classify them as bad debts. Therefore, the loss of interest incomerelated to restructured loans and bad debts may increase significantly.
The negative effects of the interest rate reduction and exemption will lastthrough H2 2020, longer than H1 of 2020. Therefore, SSI analysts estimated thatthe NIM would fall by an additional 60 basis points in H2 2020 if the pandemiclasts until the end of this year.
SSI forecast the credit growth in 2020 will be around 7.5-8.5 percent, lowerthan the initial credit growth target of 11-14 percent set by the SBV. At theend of July 2020, the total credit growth was 3.75 percent, compared to the3.65 percent in H1. It is half of the credit growth recorded in the same periodof 2019 which was about 7.5 percent.
The credit demand may continue to fall because the country is still facing thepandemic while banks may not lower their credit granting standards. Lending tolarge corporate customers and corporate bonds may continue to be the maindriver for credit growth, while the retail segment will not be as strong asbefore, the report stated./.
VNA
