Higher interest expenses, lending difficulties drag down banks’ income

All 22 banks that announced their earnings for the second quarter have reported a double-digit increase in interest expenses year-on-year, even doubling or nearly tripling in some instances.

But interest income and equivalents grew at a significantly slower rate, causing net interest income to fall for the first time in recent years. Even during Covid net interest income never declined.

Three state-owned lenders, Vietcombank, VietinBank and BIDV, saw interest expense rise by 60-80% in the second quarter. Their interest income only grew by 35-40%.

BIDV’s net interest income was down 6% from a year earlier. It rose for Vietcombank and VietinBank, but by less than 10%.

Private lenders were engaged in an intense deposit interest rate race in late 2022 and early 2023, and many private saw interest expenses more than double during the quarter.

It nearly tripled year-on-year for Techcombank to VND7.5 trillion. It interest income declined by 20%.

Other leading private lenders whose interest expenses doubled included VPBank, MB and HDBank. For VPBank, it was VND4.2 trillion in the second quarter of last year and VND9 trillion this year.

Interest rates shot up as a result to 11-12% by mid-2022. Most people chose to deposit for long terms, and so for banks the high interest expenses extended into the first half of 2023.

Meanwhile, with businesses facing difficulties as orders dried up, demand for bank loans slumped. Banking credit rose by only 4.7% in the first half of this year, half the rate from a year earlier.

In recent months, with the central bank making a series of cuts to policy interest rates, deposit interest rates have come down.

By the end of June only two banks offered 8% interest, down from over 10 in May. At most others, the highest rates have dipped below 7%.

Nevertheless, some banks will keep paying high rates through this year until one-year deposit contracts they signed at the end of 2022 end.

Credit growth will remain constrained in the meanwhile, according to some bankers.