Bank earnings face a narrow window of opportunity

Bank profits have been negatively affected by the persistent difficulties of the economy, with many banks experiencing negative growth and increased bad debt. 

Despite strong credit growth, VPBank saw profits decrease for the fourth consecutive quarter, with a consolidated pre-tax profit of just over 3,100 billion VND, down more than 30% compared to the same period last year.

The Analysis Department of SSI Securities Company predicts that many banks may record a profit decrease of 4–30% in the third quarter, with Techcombank, TPBank, and MSB being the three banks that may witness the sharpest decrease in profits. 

Deposit interest rates have decreased rapidly but have not yet spread widely to help reduce banks' input costs, while the increase in bad debt shows that the profit prospects of many banks are not very positive.

Dr. Can Van Luc, Chief Economist of BIDV Bank, also commented that the banking industry's profits in 2023 will be greatly affected, primarily due to the trend of decreasing interest rates, leading to a reduction in the industry's profit margin. 

In the third quarter, the general business picture makes it difficult to be optimistic due to more sluggish credit growth. The State Bank reported that credit growth in the entire banking system only reached 6.92% compared to the end of last year, far from the target of 14–15% for the whole year.

Although some banks have increased credit more than they have mobilized capital, increased risk provision costs to deal with bad debt have eroded profits. BIDV is forecast to be the only bank with backward profits among the group of state-owned joint-stock commercial banks, with increased provisioning making its profit expected to decrease by 10–12% in the third quarter.

The economy's need to absorb capital has not yet recovered this year, so banks' credit growth will be difficult to achieve as set goals. Ms. Tran Thi Khanh Hien, Director of Research Division of MB Securities Company (MBS), commented that credit growth is low and provisions are increasing in the context of a difficult economy, leading to an increase in bad debt.

Analysis by Bao Viet Securities Company (BVSC) estimates that in 2023, banking industry profits will increase by 5.2%, and if banks continue to reduce lending interest rates, profit margins will decrease.

However, many forecasts show that the US Federal Reserve (FED) will not raise interest rates anymore, and world economic developments will be more positive, resulting in a more favorable operating picture for the banking industry in 2024.