Boosting Vietnam's economic growth: A key pillar of monetary policy.
Vietnam's GDP growth slowed from 8% in 2022 to just 3.3% in the first quarter of 2023. Therefore, to achieve the target, the government has implemented numerous support measures, including administrative measures (for the real estate market), a VAT reduction plan, and especially a loosening of monetary policy.
Deposit interest rates increased by more than 200 basis points by the end of 2022, reaching over 8% for 12-month terms. According to a report by VinaCapital, the fund believes that the average 12-month deposit interest rate will decrease by 200 basis points compared to the beginning of the year (to around 6%) to stimulate economic recovery and support businesses.
To further reduce deposit interest rates, liquidity in the banking system needs to improve significantly, and the most important way to do this is to buy USD to increase foreign exchange reserves. VinaCapital expects the State Bank of Vietnam to purchase approximately $25 billion in foreign exchange reserves and inject liquidity into the banking system, boosting deposits across the system by an additional 4% this year. Cutting interest rates and buying foreign exchange reserves to support liquidity in the banking system are important monetary easing measures that the central bank will implement to support economic growth.
VPBank changes the facade of its branches according to the new location.
With strong Q1 results, VPBank is confident in achieving its 2023 growth targets.
At the end of 2022, many forecasts suggested that the banking sector would face significant challenges in 2023, potentially negatively impacting profit growth. While many banks set cautious business plans for 2023, some defied the trend with ambitious growth targets, such as VPBank, which aimed for a profit growth of over 50% in 2023 after excluding extraordinary income. VPBank demonstrated caution but remained optimistic about the macroeconomic outlook for 2023, built on its strengthened capital base and stable financial health.
The reality supports VPBank's optimism, as in the first quarter of the year, with a bright spot from domestic consumption, the bank's consolidated loan balance was over 503 trillion VND, of which the bank as a whole achieved a growth rate of over 7%, driven primarily by its two strategic segments: individual customers and SMEs, with the loan balance of the individual customer segment alone reaching over 200 trillion VND.
Furthermore, deposits from customers and securities increased by nearly 12% compared to the end of 2022, contributing to ensuring liquidity and creating momentum for the bank's high credit growth target (over 30%). With positive first-quarter profits (the parent bank achieved over VND 4,100 billion in pre-tax profit), although challenges remain, their severity does not seem as serious as previously predicted, especially in the context of the policymakers implementing a series of measures to support economic growth with a focus on monetary policy as analyzed above.
Currently, according to VinaCapital's assessment, short-term deposit interest rates in Vietnam peaked at the end of 2022, and the policy interest rate cut in March will create further momentum for lower deposit rates. Therefore, in the second and third quarters, many bank deposits will mature, and depositors will have to choose to renew their deposits at lower interest rates (most deposits in Vietnam have 3-month and 6-month terms), helping to bring down the cost of capital for banks.
This is considered one of the most positive factors affecting the operations of banks, as it not only reduces pressure on the risk of shrinking net interest margin (NIM) but also lower deposit interest rates lead to gradually lower lending interest rates, helping to reduce the risk of increasing bad debt, while simultaneously promoting faster credit growth by stimulating a resurgence in borrowing demand.
For VPBank, this is a "double benefit" as the bank has the basis to continue maintaining its leading NIM while its thick risk buffer, with consolidated provisioning costs increasing by 55% in Q1, will be offset by profits in subsequent quarters as the economy recovers positively, improving customers' debt repayment capacity, especially in the consumer finance segment.
With a solid business foundation and market share, coupled with the vast potential of a market of nearly 100 million people, VPBank has reason to believe in the recovery of FE Credit in the coming quarters of 2023 and subsequent years.
With expectations of positive economic developments thanks to government policies supporting businesses, the business outlook for banks is expected to improve in the coming quarters as challenges gradually ease. VPBank, with its continuously expanding customer base and large capital base after the private placement, is expected to experience positive growth in the coming quarters and achieve its set targets.
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