In arecent report on banking, SSI Securities Corporation estimates that credit growth in 2020 will reach 9%-10% compared to the beginning of the year and forecasts the State Bank of Vietnam may increase the credit limits for banks in the fourth quarter of 2020.

Provision expenses may accelerate inthe fourth quarter 2020. Photo: Internet

SSI assessed the overall outlook for the banking sector is better than previously anticipated due to limited impact from Covid-19 second wave. Accordingly, SSI revised up pre-tax profit forecast for 13 banks to VND 110.7 trillion in 2020 (increasing by nearly 3% year-on-year) and VND 129.3 trillion in 2021 (upby 17% year-on-year)

SSI forecasts the pre-tax profit of State-owned commercial banks will drop 6.2% in 2020 and rebound 21.8% in 2021. The pre-tax profit of joint-stock commercial banks will grow 9.3% in 2020 and another 13.7% in 2021.

The provision will greatly impact the SSI’s earnings estimate for banks and credit risk will remain in 2021 onwards. Risks may reduce banks’ earnings withthe rate of new bad debts higher than the estimate andthe recovery of the economy is slower than the estimate due to the resurgence of the Covid-19 pandemic.

SSI's statistics at 13 banks show that although provision expenses in Q3 of 2020 increased by 18% compared to Q2, most of them were used for debt write-off, but the ratio of debt bad still increased from 1.68% to 1.77% in Q2. The provision for bad debt only increased slightly from 90% in Q2 to 90.6% at the end of Q3.

In the first nine months of 2020, the pre-tax profit of 13 banks studied by SSI reached VND 86.2 trillion (up 11% over the same period). Although the growth rate wasmuch lower than the 26.9% increase year-on-year, the sector’s performance wasstill higher than other sectors. Joint-stock commercial banks werethe main driver of pre-tax profit in Q3. The pre-tax profit of private banks increased by 18.6% year-on-year, while State-owned commercial banks’ pre-tax profit only increased by 0.9% year-on-year.

Notably, non-interest income in Q3 2020 of 13 banks hitVND 19.2 trillion (up 15% year-on-year), accounting for 23.3% of total operating income. This stems from the net fee income of private banks (up by nearly 52% year-on-year) and foreign exchange trading interest in State-owned commercial banks (up 18% year-on-year).