A bank teller counts cash at a transaction office in Hà Nội. The credit growth target in 2023 is expected at 11-12 per cent, lower than the 15.5-16 per cent rate in 2022. Photo vneconomy.vn

HÀ NỘI — The banking industry will continue to face difficulties in 2023 in the context of the real estate market downtrend and the less positive import and export outlook, analysts forecast.

Under a report released recently, Viet Dragon Securities Company (VDSC)’s analysts have said the interest income growth of the banking industry in 2023 will slow due to the impact of low credit growth and a decreasing net interest margin (NIM).

The credit growth target in 2023 is expected at 11-12 per cent, lower than the 15.5-16 per cent rate in 2022. Though the credit growth rates will differ among banks, the negative outlook of the real estate market will cause the credit demand to be lower than in past years.

The NIM decline will differ among banks in 2023, which will cause the growth of interest income of the entire banking industry to stay at less than 11 per cent. Therefore, VDSC believes banks' interest income will grow slowly in 2023.

The analysts have also projected a high comparative base effect; the customer interest aid programmes and the real estate market difficulties will lessen the non-interest income growth. Accordingly, payment activities will likely decelerate along with credit activities in 2023. Moreover, the tendency of banks to switch to a zero-fee payment programme will also contribute to a decrease in fee income growth.

Besides, the asset investment banking activities, including bonds, will fall in size and profit margin because the bond issuance volume may soon increase again compared to 2022 but will remain lower than that in the booming 2019-21 period due to the Government’s tightened conditions. Improved professional investor standards will make it difficult for banks to find bond buyers.

In addition, the costs of complying with the new provisions of Decree 65/2022/ND-CP prescribing private placement bonds in Việt Nam will also increase.

The most important factor is the decline in investor confidence, which will cause the bond market to be continuously tough in 2023.

Therefore, the higher banks have income sources from investment banking operations, the bigger their service fee revenue decline.

Besides, the growth of bancassurance fees will continue to slow due to the lower expected credit growth, the allocation of personal assets to high-interest savings channels, and the saturation of the investment-linked insurance market.

Exceptions may be seen in some banks, such as Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) and HCM City Development Commercial Joint Stock Bank (HDBank), as the banks will record exclusive fees and the collection of first-year premiums when signing new exclusive contracts for insurance distribution.

The proportion of investment-linked products also cooled down in 2022, while this is the business segment that often contributes the most fee income to banks. The declining trend is forecast to continue in 2023, causing a slowdown in banks’ fee income growth next year.

On this basis, VDSC forecasts banks’ total operating income will grow modestly in the context of decelerating lending activities. Specifically, in the group of banks in VDSC’s watch list, the total operating income in 2023 is expected to grow slowly by 10 per cent over the same period in 2022, when the interest income will rise by 11 per cent, and the fee income growth will cool down to 16 per cent.

Besides, banks’ asset quality is forecast to decline slightly in 2023 while credit expenses will increase moderately by 18 per cent, and the pre-tax profit is expected to go up slightly by 6 per cent compared to 2022.

With the above forecast, VDSC estimates the return on equity (ROE) of banks, in general, will slightly decline in 2023 as Việt Nam experiences decreasing economic growth.

However, some banks, which have high provision buffers for risky loans and good asset quality, and are less vulnerable to risky areas, will still maintain a relatively high ROE in 2023 and recover to the average level in 2024.

According to VDSC’s analysts, the banking industry's asset quality may reduce in 2023 in the downtrend of the real estate sector and the less favourable import and export prospect.

However, the analysts have noted the reduction will differ among banks based on the impacts of corporate bonds and real estate lending. A high provision buffer for risky loans will help some banks, which had prudent policies with the two business segments, avoid the decline in asset quality.

A Q1 2023 business performance survey released this week by the State Bank of Vietnam also showed commercial banks were more cautious when forecasting the coming time. According to the survey, only more than half of banks expect their business performance to improve in 2023, but the improvement is lower compared to 2022.