Restoring public confidence

The Vietnamese Government issued Resolution 31/NQ-CP ordering the SBV to focus on effectively handling weak commercial banks, ensuring banking system liquidity and safety, handling bad debts and limiting new bad debts.

Weak banks are those that are being put under special control and have difficulty in liquidity, leading to the risk of failure. In particular, banks bought by the SBV for zero dong - like Oceanbank - have not been properly handled so far. In addition, some banks have had to freeze bad debts for many years.

This is considered a central task assigned by the Government, because problems in the entire economy at the moment, such as the corporate bond market and real estate, are the core issues that must be solved. To solve the issues, we need to stabilize the financial system, especially the banking sector. In particular, great resources come from the public. We need to enable financial institutions, such as banks, to mobilize money from the public, contributing to boosting the economy, and dealing with bad debt problems, as well as the freezing state of the real estate market and the illiquid corporate bond market.

The first thing we have to do is restore public confidence. Dealing with weak banks will be one of the important tasks for the SBV.

However, it will take a long time to solve this problem completely. There used to be joint-stock commercial banks that fell into difficulties, with increasing bad debts in the period 2011-2013 leading to the SBV’s establishment of the Vietnam Asset Management Company (VAMC). Handling and recovering the strength of private equity commercial banks takes up to five years, especially at this time, public confidence in the bond market and even the banking sector is certainly affected after many incidents.

Some banks are less affected. Those are banks that have little involvement in corporate bonds and real estate, the two biggest problems in the economy today.

Although there is no official information on the transfer of weak banks this year, the Government has assigned it to the SBV, so there will be specific solutions. Especially in 2023, we will have a draft on amending the Law on Credit Institutions, which contains provisions for the SBV to use its tools to handle weak banks. The transfer of weak banks in the second half of 2023 will be a progressive phase. At this phase, the immediate problems in the financial market should be a priority.

Banks unlikely to make big profits

The index of industrial production (IPP) of Vietnam in the past two months dropped very seriously, leading to the low credit growth of the banking sector.

Currently, many domestic manufacturing enterprises are facing difficulties. So are FDI enterprises. Many enterprises have closed their production since October 2022 due to the lack of orders. With that situation, plus the time of Tet, it is a very normal thing that demands for loans decreased.

Moreover, in the first months of the year, credit growth was also low as activities in the economy declined and the Purchasing Managers Index (PMI) recovered but not as before. In addition, real estate is one of the sectors with the largest credit growth that has encountered difficulties. The manufacturing sector is also facing difficulties. Therefore, low credit growth is inevitable. This will be essentially a difficult period for the banking sector.

From the above issues, it is forecast that the bank's business this year will not be favorable. It is very likely that this year bank profits will not grow as strongly as in 2022.

It will be a very offensive and difficult thing if they report big profits when all economic activities are in difficulty.

However, there will not be a significant reduction in the financial statements, because the profit depends a lot on the financial models applied in the preparation of the financial statements. In particular, banks that have little involvement in real estate and corporate bonds will have the opportunity and advantage to make the most of increased market share and capture individual customers through the application of good technology to develop their retail business. Gaining market share in retail will lead to an increase in the current account savings accounts (CASA) of banks.

As for joint stock commercial banks which are heavily involved in real estate and bonds, in the past, they have also focused a lot on individual customers. However, that is what gives them difficulty in this period, because public and individual confidence is declining very sharply. The reason is that many people are invited to buy corporate bonds, loans for real estate investment, loans to buy houses, so they have to bear expenses such as buying life insurance to be disbursed. Or when people deposit money, they somehow convert it into insurance contracts, buy bonds, or even buy bond fund certificates.