Following a period of rapid expansion, the banking sector’s earnings obviously decreased in the first half of 2023 as a result of the significant effects of the race between deposit interest rates and falling loan demand. In particular, the listed banks’ profits declined in light of the broader market challenges.

Diversified profits

In a recent report, the research departments of local securities firms simultaneously forecast that the entire banking industry’s profit will grow by about 10% compared to 2022. Credit growth reached 10-12%.

According to the VCBS research, there will be differences in the profit outlooks of the various banking groups, with some small banks continuing to slow down and even seeing negative growth in the real estate market. The macroeconomic situation around the globe is deteriorating, which slows credit growth and makes it challenging to recover customers’ debt-paying capacity.

Low credit growth

Data from the State Bank show that as of the end of July 2023, credit had expanded by 9% since the beginning of the year and by 4.56% since then. This is a modest gain compared to previous years when the majority of the production and commercial sectors experienced a reduction in credit growth contributions.

Over the past several years, the rise of all types of credit has been fueled by real estate-related credit, which makes up around 20% of total outstanding credit. Real estate credit growth was slower than overall credit growth as a result of the market shock.

For instance, real estate credit, which made up the majority (65% of outstanding loans) in the first half of the year and is driven by demand for house loans, fell by 1.12%. In the previous three years, a decreasing tendency has just recently begun to manifest.

However, lending interest rates for house loans have returned to advantageous levels, and it is anticipated that projects scheduled to go on sale at the end of this year will continue to be the primary factor boosting homeowner credit demand. growth and personal development in 2023 and 2024’s second half.

Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, asserts that since the year’s beginning, policies have been released to support the trend of falling interest rates, which has resulted in faster capital mobilization and credit growth. For the entire year 2023, loan growth is anticipated to be between 14 and 15%.

Bad debt increases

For the third consecutive quarter, bad debt climbed, rising to 2.1% in the second quarter from 1.6% at the end of 2022. Summary of information from 27 commercial banks’ second quarter financial statements for The entire amount of bad debt (groups 3-5) is estimated to be VND187,475 billion, up 10% from the previous quarter and 37.4% from the end of 2022.

When compared to the end of 2022, the ratio of group 2 debt throughout the whole banking sector climbed by up to 45% at the end of the first quarter of 2023. In the following quarter, the trend continued to rise, albeit at a slower rate.

During this time, the industry’s bad debt coverage ratio (LLR), which was 143% a year ago, is now only 99.4%. There are now just two banks, Bac A Bank (0.7%) and Vietcombank (0.8%), that maintain a bad debt level below 1%. In addition to VietinBank (1.3%), MB (1.4%), and BIDV (1.6%), the few banks with bad debt percentages below 1% include ACB and Techcombank.

When the bad debt ratio increases on a large scale, it will lead to interbank system risks and, more seriously, can cause a financial crisis. Mr. Nguyen Quoc Hung, General Secretary of the Vietnam Banks Association (VNBA), said that the bad debt situation of credit institutions is currently “very worrying” when many businesses are still unable to repay their debts. Debts have been restructured and are due, affecting credit quality.

Year-end motivation

According to MBS Chief Economist Hoang Cong Tuan, the initiatives to cut operational interest rates open the door for decreasing lending interest rates to lower levels, which would increase credit demand. Additionally, the State Bank’s aforementioned move assists banks in potentially increasing their net profit margins in the second half of the year.

Generally speaking, the banking sector may differ in 2023, when banks with backup buffers and solid asset quality will have a larger edge over the current year’s economic challenges. The choice to give some commercial banks more breathing room has also significantly boosted banks’ financial performance.

The largest potential for the banking sector in the second half of this year, according to Ms. Pham Lien Ha, Director of Financial Services Industry Research at HSC, is interest rates. Lower deposit interest rates will reduce bank capital expenses. In addition, the ongoing trend of interest rate reductions will support credit expansion and economic growth in both the second half of 2023 and 2024.

As Vietnam progressively enters the recovery era, analysts from VNDirect Securities Company predict that banks with a large share of retail loans, including VIB and ACB, will have numerous opportunities to boost credit growth. starting out. On the other hand, when Circular 06/2023 (which will be in force starting in September 2023) restricts access to capital for enterprises, banks with a large share of real estate loans may find it challenging to increase credit.

The last quarter of 2023 will see credit growth rates and NIM rates higher than the industry average for banks with a significant number of retail customers and a focus on this market.

Responding to the situation, Vietnam has issued policies on economic recovery and development, particularly for the recovery of the real estate market.

Speaking at a recent workshop seeking measures to increase the attractiveness of the market held by Nha dau tu (Investors) magazine, its Editor-in-Chief Nguyen Anh Tuan said that Vietnam is considering amendments to the Land Law, the Law on Real Estate Business (amended) and the Law on Housing (amended). These moves should bring positive changes to the market.

Deputy Minister of Construction Nguyen Tuong Van said that on average, the construction and real estate industries contributed about 11% of GDP in recent years, in which the real estate industry directly made up about 4.5%. 

Foreign investment in this field has continuously increased and made an important contribution to the development of the market.

Up to now, FDI capital in the real estate sector has reached 66.4 billion USD, accounting for 15.1% of total FDI capital in Vietnam and continuously maintaining the 2nd or 3rd position in FDI attraction. However, in the last few years, the real estate market has faced many difficulties and challenges.

Van said the Ministry of Construction has presided over the drafting of the Law on Housing (amended) and the Law on Real Estate Business (amended). These are two laws of great significance, attracting the attention of people and the business community at home and abroad.

The amendment and completion of the two laws will have a positive impact on the housing and real estate market, drastically improving confidence in the investment environment, and creating transparency and stability for the housing market in Vietnam. 

“Once approved, the amended laws will also help Vietnam’s real estate market become more attractive to foreigners living and working in Vietnam and foreign investors,”  Van confirmed.

Nguyen Anh Tuan, Deputy Director of the Foreign Investment Agency under the Ministry of Planning and Investment, said that real estate is one of the fields that have attracted many foreign investors to Vietnam. Currently, investors from 48 countries and territories are investing in the real estate market in Vietnam.

To get high-quality FDI real estate investors, Vietnam needs to focus on several solutions, including perfecting legal regulations on the real estate market. This includes new types of real estate such as smart cities, resort real estate, real estate combined with healthcare, condotels, and officetels in line with international practices.

The country should target investors that have good financial capacity and solutions associated with green and sustainable economic transformation, he said.

Investors have a responsibility to the environment and society during the investment process in Vietnam, he added.

In addition, the flexible and systematic management of monetary policy tools is needed to meet the credit capital demand for the development of the real estate market, creating favourable conditions for businesses, home buyers, and investors to access credit sources.

Reducing lending interest rates is also a solution, according to the official.

He said that along with the continued improvement in infrastructure which facilitates the development of the real estate market, Vietnam needs to improve the business investment environment, and promptly remove difficulties relating to policies, especially for projects that use large areas of land and have been long delayed.

Source: Vietnamplus

Under the plan, about 3,000 of its VF8 crossovers would be delivered to France, Germany and the Netherlands in the fourth quarter of this year from VinFast’s factory in northern Vietnam, a person familiar with the plan told Reuters. The source declined to be named because these details were not yet public.

The Nasdaq-listed company’s plan to expand into Europe would represent a four-fold increase from a previous unmet target of delivering 700 cars by last July, and comes as the EU probe into Chinese EV makers creates a possible gap in the market.

If fulfilled, Europe could become VinFast’s biggest overseas market this year. The company had shipped about 2,100 EVs earlier this year to the United States and planned to ship more VF9 models, according to its first filing to the U.S. Securities and Exchange Commission (SEC) after the listing.

“We expect to deliver the first VF8 models to French, German and Dutch customers in the fourth quarter of this year,” Le Thi Thu Thuy, VinFast’s chief executive, said, adding the company’s other models VF6, VF7, and VF9 would be launched in the European market next year.

Thuy did not indicate the number of VF8 sport utility vehicles (SUVs), but the person familiar with the matter said it would be around 3,000 vehicles, including some for Israel.

The loss-making company repeatedly revises its targets.

The VF8 SUV has already been approved by a European regulator as compliant with EU standards, and can be sold within the 27-country bloc, Thuy said.

The company is also completing the procedures to obtain the voluntary Euro NCAP safety rating, she added.

CHINESE COMPETITION

Europe is one of the biggest markets for Chinese automakers, which shipped almost 70,000 EVs in the first seven months of this year, nearly triple the same year-ago period, according to consultancy Inovev.

Should the EU probe conclude that punitive duties on China-made EVs are warranted, VinFast could find its cars are more competitively priced.

Its VF8 model will start at 50,990 euro ($54,218) in France. The China-made Tesla  Y model, which is also threatened with EU tariffs, starts from 46,000 euros.

VinFast’s expansion into Europe is part of a global plan that includes building new factories in the United States and in Indonesia and targeting also India, the Middle East, Africa and Latin America.

Just before its Nasdaq debut in August, the company stepped up deliveries of cars in the second quarter, with a total number of 11,315 EVs made available to clients by the end of June, largely to the domestic market thanks to a scheme to turn its cars into green taxis in Vietnam’s main cities.

VinFast’s reported second-quarter revenue rose 131.2% to $327 million. Its net loss in the quarter was $526.7 million, down 8.2% from the same period last year.

VinFast, which is part of Vietnamese conglomerate Vingroup, was formed in 2017 and began making EVs in 2021 after dropping its manufacturing of cars with internal combustion engines.

Source: Reuters