Banks must mitigate the difficulties faced by borrowers both during and after the coronavirus pandemic. — Photo tapchitaichinh.vn

The governor of the State Bank of Viet Nam, Le Minh Hung, has called on banks to simplify lending procedures to help COVID-19-affected firms.

They have a responsibility towards the system and economy to enable these firms to easily get loans at preferential interest rates, he said.

State-owned banks must speed up the process of working with customers to solve problems, he said.

“Banks must mitigate the difficulties faced by borrowers both during and after the coronavirus pandemic.

“They should take advantage of lower input costs to cut loan interest rates and increase provisioning for risky loans.”

He also called on them to consider restructuring debts for individual customers.

The central bank chief’s appeal follows several others by the Government to the banking sector to support the economy amid the pandemic.

In response to the appeals, credit institutions including banks have cut interest rates on existing and new loans by 2 percentage points since late March.

Banks have also implemented support measures such as debt rescheduling to enable firms to maintain production and do business and ride out the crisis.

For the banking sector, an estimated VND926 trillion (US$39.85 billion) in outstanding debts will not be paid as scheduled since borrowers have been affected by the pandemic, accounting for more than 11 per cent of the banking sector’s total outstanding loans.

Industry insiders estimated revenues this year would fall by VND30-34 trillion and profits would be 20-25 per cent below target.

Nevertheless, banks are committed to launching a preferential credit package worth VND600 trillion with interest rates slashed by 1-2.5 percentage points.

If it is completely disbursed by year-end banks’ revenues would fall by VND2,430-6,075 billion, the insiders said.

Besides increasing risk provisions due to a feared rise in bad debts as businesses are affected by the Covid-19 crisis, analysts also pointed to low credit growth in the first place.

They also warned that as economic growth slows due to the epidemic, property prices might fall, further hitting banks since they have lent against properties.

But others rejected all this, claiming banks could cut their losses by switching to digital banking.

Data from the General Statistics Office does show the banking sector faces difficulties after being affected by the pandemic.

As of March 20 the total payment instruments increased by 1.55 per cent for the year compared to 2.54 per cent in the same period last year, deposits increased by 0.51 per cent compared to 1.72 per cent and loans outstanding increased by 0.68 per cent compared to 1.9 per cent.

Many lenders will have to revise their business plans for this year. Some are still sizing up the situation since their annual general meeting has been delayed until June because of the pandemic, others have publicly indicated the possibility of negative growth this year.

For instance, Nam A Commercial Joint Stock Bank (Nam A Bank) has revealed some business targets for 2020, though it has not organised the AGM yet. Notably, it expects loans outstanding to increase by 21.4 per cent but consolidated pre-tax profit to fall by 13.47 per cent from last year to VND800 billion.

Recently it informed shareholders about the postponement of the AGM that had been scheduled for March 28.

The Joint Stock Commercial Bank for Investment and Development of Viet Nam (BIDV) had set a profit target of VND12.5 trillion if the pandemic ended in the first quarter.

This means in light of the current situation its business plans might have to be adjusted. In the first two months of the year its deposits decreased by 1.6 per cent and outstanding loans by nearly 2 per cent.

In its recently released annual report the Military Commercial Joint Stock Bank (MBBank) also admitted it would be a big challenge to achieve its targets this year in the context of the economic crisis caused by the pandemic.

The management board is having to work hard to identify opportunities to ride out this difficult situation, it added.

How to survive

Analysts said credit packages should depend on the capability of each bank and their ability to balance their finances.

Interestingly, some banks are planning to expand the size of their preferential credit package despite the many challenges. The Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) for instance initially expected to provide total loans of VND78 trillion for affected customers. But as the pandemic situation became complicated, Vietcombank is considering expanding it to VND120 trillion.

Central bank deputy governor Dao Minh Tu said at a meeting with Prime Minister Nguyen Xuan Phuc that the economy had experienced many difficulties this year as had the banking sector, and therefore banks needed to cut operating costs and redraw their business plans.

Besides, banks should also review the developments, carefully assess current opportunities and difficulties and report the assessments of their operations, customers, debts likely to be affected and their implementation of support programmes in order that the central bank could have timely and proper support measures, he said. — VNS