Although banks have not announced their financial statements for the first half of this year yet, preliminary data shows the picture of bank profits is bright, contrary to the gloomy colour of production and businesses in general in the context of the Covid-19 pandemic.

Banks still promote many activities to support firms and communities
to overcome difficulties of the pandemic. Photo: BIDV

Firms continues to face difficulties

The report on Impact Assessment of the 4th Covid-19 outbreak on Vietnam's socio-economic activities and some recommendations by Dr Can Van Luc and a team of authors from the BIDV Training and Research Institute said although industrial production still maintained its upward momentum, it slowed down due to the impact of the pandemic in large industrial production centers such as HCM City, Dong Nai and Binh Duong, Index of industrial production (IIP) in June 2021 increased by 6.8% from the same period, was lower than the increase of 24.1% in April and the increase of 11.6% in May. Purchasing Managers Index (PMI) has dropped sharply from 53.1 points in May to 44.1 points in June. The risk of supply chain disruption with many manufacturing industries is available

Along with that, other service sectors like tourism, hotels, restaurants, transportation, warehousing, healthcare, education and training continue to be directly harmed. Therefore, business activities continue to be difficult. In the first six months of the year, the number of firms temporarily suspending business and completing dissolution increased by 22.1% and 33.8% respectively from the same period in 2020; in which, there was a sharp increase in the abovementioned fields.

Looking at the profits announced by some banks shows the opposite, when many banks achieved very high profits compared to the same period last year. For example, Vietcombank’s pre-tax profit is estimated to be more than 14,500 billion dong in the first six months, up 36% from the same period last year, completing more than 56% of the year plan. VietinBank also has an estimated profit increase of 75% over the same period, to 13,000 billion dong.

In the commercial banking sector, MSB said that in the first six months of the year, pre-tax profit is estimated at VND 2,800 billion, three times higher than the same period last year and reaching 85% of the year plan. TPBank also estimates pre-tax profit to hit VND 3,007 billion, up 47.8% over the same period last year, hitting 54% of the year plan. SeABank reported pre-tax profit in the first six months of the year reached nearly VND 1,557 billion, 2.3 times higher than the same period in 2020, nearly equal to the profit of 2020 and completed 65% of the plan in 2021. MB also reported the profit of its parent bank and its subsidiaries reached nearly VND 8,000 billion, up 56% from the same period, the parent bank's profit reached VND 7,038 billion, up 55% over the same period. ACB also revealed its profit in the first six months of 2021 reached VND 6,400 billion, up 66% compared to the same period last year.

According to the June 2021 strategic report of Viet Dragon Securities Company (VDSC), the banking industry is set to witness a strong profit growth cycle this year, with a forecast increase of 27%, despite pandemic. According to the report on estimated business results in the second quarter of 2021 of 33 listed companies within the research scope of SSI Research, six companies are expected to have reduced profits and are all non-banking ones; Of 27 firms, there are 11 banks are positive profit growth.

Borrowing interest is too huge

The above situation has once again caused economists to turn to the issue of lending interest rates. In July, the deposit interest rate level continues to have slight and mixed fluctuations among banks and a number of terms, but most of them are in a downward trend, helping the interest rate level remain low. However, according to many experts and firms, the decrease in lending interest rates has not been commensurate. For example, with a long-term loan, the preferential interest rate in the first year is from 8 to 8.7% per year, in the following years, a margin of 4-4.3% per year is added, so it could be up to 11.5 %. - 12.5% per year.

According to a representative of the Hanoi Association of Small and Medium Firms, lending interest rates have never been as low as they are now, but still high compared to the tolerance of firms in the context of interrupted liquidity, no revenue and no collateral. In addition, many firms in the tourism and service sectors also said that the interest rate reduction of 1-2% per year was not adequate compared to the damage caused by the pandemic.

Therefore, the State Bank of Vietnam (SBV) has had to speak out to lobby commercial banks to cut lending interest rates right in July. In addition, recently, a number of banks have been approved by the SBV to loosen the limit of credit growth, including banks expanded by 6% to 17.4% in 2021. The State Bank said this adjustment contributed to the recovery of economic growth in the face of adverse impacts of the Covid-19 pandemic, priority is given to credit institutions that implement the Government's policy and the SBV's direction to reduce lending interest rates to share difficulties and accompany firms and people.

However, the operations of banks also need a more objective view because Covid-19 affects the whole economy. Report of Dr Can Van Luc and the authors said that in the first six months of 2021, although banks reported high interest rates, bad debts were increasing, it was forecasted to increase by 8-10% compared to the end of 2020. Moreover, year-end business results would be different because credit institutions must make provision for risks with a three-year roadmap (2021-2023) for debts restructured under Circular 03 of the SBV (effective from 17 May, 2021).