COVID-19 hits profitability of national banking sector

Interest rates of the banking industry will suffer enormous impacts of the COVID-19 epidemic

SSI experts analysed the impact of the epidemic on the business results of a number of the nation’s banks during the first quarter, with the conclusion being there was little effect, with the exception of banks that chose to take steps to make provisions regarding credit risk in advance and put aside additional reserves for the future.

According to the General Department of Statistics, the banking system recorded modest credit growth in the first quarter of 0.68% on-year, the lowest rate of the 2015- 2019 period, during which credit growth ranged between 1.25% and 2.81%.

Throughout the industry, credit growth at banks such as Vietcombank, BIDV, and MBank has begun to slow, possibly due to financial institutions becoming increasingly cautious when disbursing new loans in order to limit their future risks.

Regarding consumer credit, SSI believe that the impact of the COVID-19 will take place in two stages. The first phase will see the demand for loans from low-income customers aim to meet their living costs. Following this the second phase, when the epidemic becomes more complicated and eventually reaches its peak, will see low-income earners affected first, leading to this group of customers quickly becoming unable to repay their debts.

As a means of supporting customers affected by the disease, the State Bank of Vietnam has issued Circular 01 which allows credit institutions and foreign bank branches to reschedule debt repayment, impose exemptions and reductions, whilst maintaining debt groups. Accordingly, banks have been able to expand their preferential loan packages to support businesses.