Modest business plans

A series of banks that have just revealed their business plans for 2023 have adopted more modest targets compared with their performances last year.

Vietcombank’s leaders said the bank aims to increase its 2023 pre-tax profit by at least 12 percent, estimated to exceed VND41 trillion compared to 2022. However, the 12 percent growth target is only one third of the record profit this bank achieved in 2022.

Nam A Bank set a target of consolidated pre-tax profit of VND2.4 trillion this year, a year-on-year increase of about six percent, and lower than the 25 percent increase target of the previous year.

VIB also lowered its pre-tax profit growth target from 32 percent in 2022 to 15 percent this year, equivalent to VND12.2 trillion.

Techcombank and NCB both expect negative profit growth. Techcombank’s profit in 2023 is expected to reach VND22 trillion, down 14 percent compared to 2022, while that of NCB is set at only VND16 billion, compared to VND41.2 billion in 2022.

Many banks have slashed business targets compared to their performance last year

According to top Techcombank officials, in the first two months of this year, liquidity has shown signs of improvement, however, interest rates are still high, resulting in both low credit and deposit growth. In addition, the banking system is facing potential bad debt risks from real estate investors due to the ailing real estate market during this period.

Banks lower expectations

A recent survey conducted by the State Bank of Vietnam (SBV) showed that about 66.7 to 79.6 percent of credit institutions expect their business situation to improve in the second quarter of 2023, while 88.7 percent hope for positive profit growth this year compared to last year.

However, 5.7 percent of credit institutions are worried about negative profit growth, and another 5.7 percent forecast their profits would remain unchanged. Since late 2022, the SBV has directed commercial banks to reduce lending interest rates based on their operational scales and potential in order to support businesses and the economy. However, according to analysts, this may cause difficulties in raising capital for small and medium-sized banks as they no longer have competitive advantage in interest rates compared with larger ones.

Meanwhile, the limitation of the ratio of short-term funds used for medium and long-term loans according to the SBV’s roadmap also puts pressure on mobilizing longer-term capital sources (bonds, equity capital, etc.). In addition to the decrease in NIM (net interest margin), the quality of assets is another factor that can affect the profitability of the banking industry. In particular, banks with high bad debt ratio need to take measures to recover and handle bad debts to improve their financial capacity and avoid affecting both the banking system and the interests of depositors.