Banking industry profits will remain strong

During the recent shareholder meeting season, many banks set a profit growth target of around 10% this year and were confident with their 2024 plans in the context of low interest rates and gradually improving credit.

It can be seen that the profit targets set by banks for this year are not too sudden compared to the level achieved last year, but there is also a lot of pressure when credit growth is still slow, most likely only reaching 10-11% this year and net interest margin (NIM) has not increased much because banks have to reduce lending rates to stimulate credit demand.

Meanwhile, non-interest income, especially from insurance business through banks, has not improved. Although Circular 02 has been extended, bad debt will increase when it expires, so the provision will be larger.

According to financial experts, the recovery will be clearer by the end of the year thanks to looser global monetary policy; lower interest rates, stronger import-export growth and improved consumer demand, contributing to a more positive growth outlook than in 2023.

In the recently released banking industry outlook report, emphasizing credit, according to FiinGroup, credit growth is expected to improve in the last 6 months of 2024, due to increased credit demand from export production and domestic consumption sectors.

However, the deterioration in asset quality across the system continues into 2024, raising serious concerns for the banking industry: The bad debt ratio remains high and has not yet peaked, forcing the State Bank to extend the loan restructuring policy to support customers.

As asset quality recovers slowly, banks will continue to face increasing pressure, which could negatively impact profitability.

Uncertainties remain as monetary policy may change in the second half of 2024 due to inflationary pressures, which could increase funding costs and impact banks' NIMs in late 2024 and 2025.

Finally, net service fee and commission income may face challenges, mainly due to issues with insurance operations after the new Credit Institutions Law takes effect in July 2024. This may force banks to restructure non-credit services to increase revenue.

Meanwhile, according to VIS Rating, bank profits will continue to improve in 2024 thanks to better domestic operating conditions and low interest rates supporting borrowers’ repayment capacity and improved NIM. Capital and liquidity will remain stable thanks to deposit growth keeping up with loan growth and banks increasing long-term capital.

In the coming quarters, credit demand will gradually increase and NIM will improve compared to 2023 levels, thereby promoting banks' return on average assets (ROAA) to gradually increase.

However, it is worth noting that risk buffers remain weak as the NPL coverage ratio continues to decline. Higher profits have led to an increase in the sector’s tangible equity ratio to 8.9% in the first three months of 2024 from 8.6% in 2023. The banking sector’s NPL coverage ratio has declined to 86% from 92% in the same period.

By the end of 2024, the industry's bad debt ratio and credit costs will decrease compared to the previous year as the rate of new bad debt formation declines and banks resolve bad debts through debt collection or write-off, experts from VIS Rating said.

Source: https://laodong.vn/kinh-doanh/loi-nhuan-nganh-ngan-hang-van-se-giu-phong-do-1344848.ldo