Banking industry breaks three-year profit growth streak

By Minh Son   December 29, 2023 | 05:54 pm PT
After three years of growing profits, the banking industry is reporting a decline this year, primarily due to bad debts and the economy's flagging ability to utilize capital.

In the first nine months of the year 14 of the 27 banks listed on the stock market reported lower profits year-on-year.

Of the 14 eight had not even reached 50% of their profit target, with some achieving only 15-30%, while the rest were at 50-60%.

The figures come as a complete contrast to the double-digit growth the industry witnessed in the past three years.

There was both lack of demand for credit and less access to it for the manufacturing industry, which could not satisfy the collateral requirements.

The property industry could use capital but was not considered a priority sector for lending.

Now the banking industry is grappling with mounting bad debts, which has prevented it from loosening lending norms or cutting interest rates.

Debts in groups three to five, which are overdue by 180 to over 360 days, have risen dramatically at all banks this year.

The uptrend in bad debts slowed toward year end but existing debts moved to higher groups, meaning banks had to hike their risk provisioning correspondingly, leading to lower profits.

Another factor was the high interest rates on some deposits from the previous year.

Late in 2022 banks hiked deposit rates to 11-12% to boost liquidity.

The rates started declining in the second quarter of this year, but high-interest deposits that did not reach maturity this year were a major expense for banks.

BVBank’s profits decreased by 85% to VND60 billion (US$2.4 million) and ABBank’s by 60% to VND700 billion.

NCB reported no profit from lending.

VPBank, Eximbank, LPBank, VietABank, and VietBank posted 20-50% decreases in profit.

Vietcombank was the best state-owned lender with an 18% rise in profits.

Nonetheless, for the full year it has cut its growth target from 15% to 10% due to the struggling real estate industry and lower credit demand, securities firm VNDirect said in a note.

It expected the bank to have a hard time sustaining the growth rate in the fourth quarter.

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