Year-end credit growth driven by industrial sector, Source: freepik.com

Some key findings from the fourth-quarter 2024 business trend survey of credit institutions (CIs), released by the State Bank of Vietnam (SBV) last week, indicate that overall business conditions and pre-tax profits in the banking system improved in the third quarter but did not meet expectations from the previous survey.

Up to 76.3 per cent of CIs expect more favourable business conditions in Q4 and throughout 2024. In the survey, 80 per cent of CIs anticipate positive pre-tax profit growth compared to 2023.

“Economic growth this year mainly stems from the industrial sector, or more specifically, from enterprises operating in this field. This indicates a shift in credit trends in 2024, as from 2015 to 2023, Vietnam’s economy was largely driven by consumer spending. Consumer credit was the main growth driver, but by the end of 2023, consumer credit growth accounted for only 5 per cent of total outstanding loans in the economy,” said Le Hoai An, founder of Integrated Financial Solutions Corporation.

“With consumer credit declining and industrial credit rising, the impact on profitability will be evident in the financial reports of banks focused on corporate lending, such as HDBank and Techcombank, which are experiencing strong credit growth. Meanwhile, banks specialising in consumer loans, like MBBank and VPBank, are facing challenges,” added An.

Frederic Neumann, chief economist of the Asia-Pacific Economic Research Department at HSBC, pointed out that consumer spending in Vietnam is decreasing.

“Over the past decade, Vietnam’s growth has been consumption-driven, but now we see that many households are burdened with real estate debt and are paying off bank interest. This means consumers are cutting back on spending, which is weakening consumer credit. Meanwhile, industrial credit, especially in sectors like manufacturing, electricity, and water, has surged in the first two quarters and continues to rise in the third quarter. Notably, profitability is also reflected in the performance of industrial stocks,” said Neumann.

Ahead of the release of third-quarter earnings reports, reflecting on Vietcombank Securities’ (VCBS) second-quarter forecast, full-year credit growth for 2024 is estimated to reach 14 per cent, driven by the real estate market, along with robust growth in production, exports, and public investment during the second half of the year.

Data shared by VCBS show that retail credit continues to decelerate, with its proportion of total outstanding loans dropping from 44.2 per cent at the end of 2023 to 43 per cent by the second quarter, as demand for housing, investment, business, and consumer purposes has not yet shown a clear recovery.

“This decline is primarily due to a limited housing supply, particularly in the southern region, and significant price fluctuations in central apartment markets, causing caution among investors and homebuyers,” said a VCBS representative. “Home loans are expected to be the main growth driver of retail credit in the Q4, as interest rates remain low, and the demand for both housing and investment remains high, supported by a more favourable supply outlook.”

In the SBV report, CIs continue to assess the economy’s demand for the unit’s products and services as the most important external factor contributing to improved business conditions in the third quarter. For the full year of 2024, SBV’s credit, interest rate, and exchange rate policies are expected to be the most crucial factors improving CIs’ business conditions.

Meanwhile, competition from other CIs remains the most significant negative factor impacting their business performance in both the third quarter and the entire year.

“The growth momentum of third-quarter profits has weakened, and the flow of credit has slowed. There are not many growth drivers left when comparing the third quarter to the first and second quarters, but the overall outlook for the year is still positive,” said Tran Ngoc Bau, CEO of WiGroup Financial Data and Technology Company.