Vietnam Banking Highlights 2015

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The first half of 2015 witnesses Non Performing Loan (NPL) ratio decreased thanks to the intervention of VAMC and many M&A deals in the banking sector of Vietnam.

Vietnam banking sector has been highly valued by foreign investors which consequently create positive impact on the Vietnam stock indexes.

Credit growth is forecasted to continue to be strong thanks to economic recovery, low interest rates and loosening the ceiling for using short-term loans for medium and long term loans from 30% to 60%. In addition, commercial banks are boosting provisioning and selling bad debts, bad debt rate at the end of the year can reach target of less than 3%.

Below are the remarkable highlights in the first half of 2015 of the Vietnam banking sector:

Positive credit growth

In 2015, credit growth is positive since the first months of the year. As of June 30th 2015, credit balance increased by 6.28% compared with the end of 2014, 3 times higher than the same period last year.

State Bank of Vietnam (SBV) said that in case of necessity, SBV may adjust to increase the target for credit growth control from the current level of 13% – 15% to 17%. SBV Governor has also approved to adjust credit growth target in 2015 for some banks.

The interest rate increases slightly

The interest rate has shown signs of rising again from the beginning of June 2015, after a long time of decreasing continuously. Interest rates increasing as banks rebalance the money in the context of high credit growth while slowed mobilization growth (mobilization increased by 4.48% in the first 6 months of 2015 while increased by 5.26% in the same period last year) and investment channels such as real estate, stocks recover lead to the reducing the attractiveness of the deposit interest rates.

Bad debt decreases gradually

By the end of May 2015, the NPL ratio was 3.15% throughout the system, decreased by 3.25% compared with the end of 2014 due to higher credit growth and banks rush to sell debts for VAMC. By the end of the 1st quarter of 2015, the NPL ratio of listed banks was 2.2% (end of 2014 was 1.84%).

The Decree 34 increases the debt purchasing capacity of VAMC through increasing charter capital from 500 billion VND to 2,000 billion VND and allows VAMC to issue bonds to purchase debt under market value.

As of June 15th 2015, VAMC has acquired 28,194 billion VND in principal balance sheet of credit institutions in 2015. Accumulated since starting operation, VAMC bought 143,800 billion VND in principal balance sheet.

The goal is to end of June 2015, credit institutions must sell at least 75% of the fixed bad debt and complete the sale of 100% for VAMC before September 30th 2015. The bad debt target of the system at the end of the year is under 3%.

Expenses for credit risk provision increases

End of the 1st quarter of 2015, the total cost of the credit risk provisions of 8 listed banks increased by 40.38% over the same period last year.

Except Eximbank (EIB), other banks are all increase credit risk provision. Some banks that have high credit risk provision ratio/high total loans including Vietcombank, BIDV, Mbbank, and ACB.

This is a positive sign, sources of risk provision increased will help banks to have better defense against credit risk.

The cost of credit risk reserves is forecasted to increase due to increase in NPL ratio; increase in provision for bad loans sold to VAMC.

Restructuring of Credit Institutions

In 2015, a series of operations to restructure the credit institution is deployed. Many bank M&A deals have been undertaken or proposed revealed by our Vietnam bank corporate intelligence department i.e. completing to merge MHB into BIDV, the merger proposal of PGBank into Vietinbank, Southern Bank into Sacombank, MDBank into Maritime Bank…. The SBV completed the acquisition of 3 banks at the price of 0 VND that are VNCB, Oceanbank and GPBank.  The risk advisory team in bank sector has been alerted to continue to monitor the progress pre and post integration for the foreign clients whom are intersted in future expansion into Vietnam.

Business results in the 1st quarter of 2015

End of the 1st quarter of 2015, total outstanding loans of 8 listed banks rose by 2.77% compared with December 31st 2014 (reached 1.8 trillion VND), the NPL ratio was 2.2%.

Banks boost the bad debt provision, the cost of credit risk provision increased by 40.38% over the same period last year.

However, total pre-tax profits of 8 listed banks rose by 6.06% over the same period last year, reaching 8,007 billion VND thanks to growth in interest income and boost non-interest activities.

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