Commercial banks have recorded lower profit during the third quarter of the year with the underlying cause being the fourth outbreak of the novel coronavirus, which resulted in lockdowns in major cities and provinces across the country, said the latest report by the State Bank of Viet Nam (SBV).

In a recent survey conducted by the SBV, 54 per cent of commercial banks and financial institutes have said they expected business to pick up in the last quarter of the year.

SSI Securities Corporation (SSI)'s forecast shows profit during the third quarter of the year for Viet Nam International Commercial Joint Stock Bank (VIB) may experience a nosedive due to the bank's restructuring efforts to support borrowers, despite a positive 11 per cent credit growth since the beginning of the year.

In addition, income generated from bancassurance, which typically accounts for around 20 per cent of the bank's profit, has been hit hard during the lockdown period.

As a result, the bank's forecast for the quarter was VND1.3-1.4 trillion (US$57.5 million) in pre-tax profit, a 16 per cent decrease from the same period last year.

Some commercial banks have not released their business performance for the quarter, while market analysts said most banks would produce weaker numbers compared to the first two quarters of 2021. Contributing factors to lower profit included interest cuts, lower demand and a decrease in asset quality. As demand has shown signs of recovery and the virus outbreak has been put under control, the situation is likely to improve from now until the end of the year.

Bright side

Viet Nam Technological and Commercial Joint-stock Bank (Techcombank)'s profit is forecast at VND5.2 trillion, a 35.7 per cent increase year-on-year with a 16 per cent credit growth since the beginning of the year, according to SSI.

SSI also forecast an increase in profit for Military Commercial Joint Stock Bank (MB) and Viet Nam Prosperity Joint‑Stock Commercial Bank (VPBank).

Tien Phong Commercial Joint Stock Bank (TPBank) said its credit growth for the first nine months of 2021 was 15 per cent with a bad debt ratio at just 1.02 per cent, significantly lower compared to last year's figure at 1.43 per cent.

The bank said it was at over 75 per cent of its yearly profit target, which the bank has stated previously to be around VND5.5 trillion for 2021.

"Our performance was testament to TPBank's ability to adapt and adopt new adjustments to sustain business growth," said TPBank director-general Nguyen Hung.

Bad debt

Profit, however, should not be the only measure used to reflect financial institutes' performance, said Viet Nam Bank Association general-secretary Nguyen Quoc Hung.

Hung said prior to the outbreak, there was a great effort by financial institutes to reduce their bad debt ratio. There has been some progress made, especially since the introduction of Government Decree 42 – a decree that facilitates the sale of collaterals and the recovery of capital. However, the fourth outbreak and the widespread lockdown has put a large number of businesses at risk.

"We are to see an increase in bad debt ratio in the banking sector in the near future. As banks need to divert their resources to address such problems their profit is likely to take a hit," he said.

SBV deputy governor Dao Minh Tu said financial institutes must continue to support the business community and the public.

"In order to sustain interest cuts, banks must find a way to reduce expenses in other areas," Tu said.

Since the beginning of 2020, the SBV has cut interest rates three times in an effort to help businesses gain access to more affordable financing and get back on their feet. As a result, the average interest rate among the country's banks has declined by 1.55 per cent compared to pre-pandemic levels.

According to the SBV, the banks have slashed VND26 trillion in interest rates from January 2020 until the end of August 2021.

Commercial banks have slashed more than VND8.8 trillion ($386 million) in interest rates from July 15 to August 31 in support of businesses that have been severely affected by the novel coronavirus. — VNS