Profit growth of banking industry forecast to slow in 2023

Besides, VCBS believed there would be a difference in profit prospects among different groups of banks and this difference would continue to be stronger in 2024. Specifically, some small-sized banks would continue to decelerate or even grow negatively in 2024 if the real estate market and the global macro situation deteriorate, which could cause credit to slow and the debt repayment ability of borrowers difficult to recover while the Government’s supporting policies expire.

Similarly, the Ho Chi Minh City Securities Joint Stock Company (HSC) forecast the average profit of a group of banks that HSC was studying would increase by only 12-15% in 2023. However, in the last six months of 2023 alone, HSC expected the bank group’s profits to increase by more than 20% over the same period last year.

According to VCBS, one of the main reasons for this deceleration comes from the difficulties of banks in recovering bad debts due to the frozen real estate market. Real estate is the main collateral for most loans of banks.

According to Pham Nhu Anh, General Director of Military Bank (MB), in the last six months of 2023 and 2024, the real estate market is expected to face many difficulties and pose potential risks. Many real estate projects are still in the process of completing legal procedures or have not completed construction and handed over apartments to homebuyers as planned. At the same time, the declining confidence of homebuyers continues to directly affect the demand for loans, the compliance with payment commitments under purchase and sale contracts with investors and loan repayment commitments with banks.

The above difficulties are forecast to directly affect the stability of the real estate market and a number of related industries such as iron and steel, building materials and construction. The uncertainty would reduce the credit quality of the banking industry, Anh said.

However, VCBS expected the bad debt ratio and provisioning level of banks would not increase dramatically in 2023 thanks to the Government's Decree No 08/2023/ND-CP supporting the extension of corporate bonds and Circular No 02/2023/TT-NHNN allowing the restructuring of outstanding loans.

By 2024, VCBS forecast the risk of bad debt might increase again and there would be a divergence. Specifically, the group of banks with good asset quality would record bad debt and debt restructuring at a moderate level. In contrast, banks with a high proportion of loans to real estate and corporate bonds, and low coverage of bad debts might face rising bad debt risks and provision pressure in 2024.

Besides, VCBS also pointed out another factor affecting the business results of the whole banking industry. It was the decrease in non-interest income in most of the main activities of banks such as services and securities investment, over the same period last year.

In particular, income from bancassurance, which accounted for about 30% of banks’ service income, was affected by the decrease in people's income and the inspection strengthening of the State management agencies, VCBS said, adding after the first four months of this year, new revenue through the bancassurance channel of the whole market recorded a decrease of 38% over the same period last year and the profit from insurance premiums for the whole year was forecast to decrease by 10-15%./.