This move, according to Mr. Quan Trong Thanh, offers various issues for banks, as non-performing loans are on the rise.

Commercial banks released financial reports for the third quarter of 2023, providing a general picture of the industry's performance and forecasts for the fourth quarter and the whole year.

Cost of capital is not yet affordable

We see that loan growth in the first nine months of 2023 is slower than predicted for the year's recovery. When we look at credit growth for the first nine months, we see that it only reached 6.92%, which is substantially lower than the growth rate for the same time in the previous three years. When comparing credit growth this year to the same period last year, it is evident that credit growth is an issue. So, what's the problem here?

According to data from bank releases, lending interest rates are still relatively high, particularly in specific industries. For example, interest rates on house loans are currently hovering at 11-13% till August, and variable rates are particularly high. Even after interest rate cuts in October, interest rates on bank loans have dropped dramatically to 7-8%, while floating rates remain high. Homebuyers, particularly those who may struggle to obtain information for direct borrowing decisions, are likely to be anxious and hesitant to borrow. As a result, demand for real estate consumer loans remains restricted.

In general, high lending interest rates are a concern, and banks cannot cut lending rates instantly. We can see this fact in the market as well as in bank cost of capital data. Previously, in 2022, commercial bank deposit interest rates began to climb in Q3 and were pushed higher in Q4/2022. Beginning in Q4/2022, deposits increased the average cost of capital, reducing banks' Net Interest Margin (NIM).

Banks lower TLDR to maintain profits

As previously stated, the decline in deposit interest rates began dramatically in July of this year, and following many policy revisions, market interest rates also began to fall. In other words, banks will take their time mobilizing cheap money and integrating it into the current capital pool, so contributing to lower capital costs. Clearly, this will take an additional 6 months on average.

As a result, we return to the fact that the previously high deposit interest rates did not greatly lower the cost of capital, and hence lending rates did not fall rapidly. This is why credit growth has been slower than predicted, causing the average NIM of banks to fall from 4.4 at the end of last year to 4.0 by September, and it has continued to fall since.

The NIM decrease has an impact on bank profitability in the third quarter and the first nine months. However, banks are still compensating in general by altering provisions for risk reserves in order to improve earnings. Most banks put the provision at a relatively low level in the Q3 financial statements, and some even lowered the quality of reserves, with just a few banks pushing the quality of reserves higher, but only marginally.

With banks' provision levels ranging between 40% and 150%, this is a common and fair range. Setting these levels will lower provision costs, allowing banks to boost income and maintain profitability.