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What does the bank do when it no longer expands credit?

Monday - 27/08/2018 01:33
Many banks have increased their credit growth to nearly the maximum allowed by the State Bank of Vietnam.
One of the contents of the recent 04 Directive by Governor Le Minh Hung is directed on credit growth. Accordingly, the agency will not consider adjusting credit ratings for banks in the second half of 2018, except for special circumstances such as participation in the restructuring of weak banks.

With the overall credit growth of the industry in the first half of the year at around 6.5%, the 12-14% limit granted to each bank from the regulator earlier this year could be considered sufficiently large for growth. However, if each bank, not all names have enough "packs" reserve for the last months of the year.

Although credit has slowed down and increased lower than the increase in profitability, many banks in the first group have grown close to or exceeded the credit growth rate issued by the State Bank since the beginning of the year. Not many bankers are in the "stand still" to pull the activity.

"Many commercial banks have higher loan growth than the average in the first 6 months, it seems that the credit at these banks will not be able to grow much in the second half of the year," the Securities Company HCM (HSC) commented on the recent decision of the governing body.

LienVietPostBank, the third-largest bank in credit growth in the first half of the year, was the first bank to take action after the decision. The bank has announced to adjust its profit plan for 2018 down by 33% from VND1,800 billion to VND1,200.

"In 2017, LienVietPostBank's credit growth of 20%, so early this year to build business plans based on this growth, although approved in early 2018 by the State Bank of 14%," said Nguyen Dinh Thang, Owner said LienVietPostBank. However, the imposition of "martial law" from the regulator made the bank adjust the performance criteria accordingly.

Nguyen Thi Thanh Son, deputy general director of strategy, said that LienVietPostBank still has plenty of room for loans in the second half of the year, when some large loans are due to open. quotas for credit. However, the 14% growth limit from the bank's plan for the first half of this year is expected to be around 20-21%.

Rather than focus on new debt, the bank plans to restructure its credit structure in the direction of reducing loans to large customers and focusing on retail segment with individual customers, medium enterprises and small. "This is a segment of customers with higher interest rates, helping to improve somewhat NIM of banks when growth is limited," she shared Thanh Son.
The measure from LienVietPostBank is also one of the four measures mentioned by HSC in recent reports that may help banks to some extent avoid the effect of Directive 04.

According to the securities company, banks can also change interest rates by reducing deposit rates and increasing lending rates to support business operations. boost non-interest income and reduce operating costs; Another measure is to support weak banks to get a special "credit" room.

HDBank - the highest credit growth bank in the first half of the year, was the case with HSC's assessment of "exceptional" by the third measure above. Under Directive 04, banks that are supporting weak banks in the restructuring process will be considered for granting higher credit growth targets. And HDBank is currently awaiting approval from the State Bank of Vietnam for its merger plan with PGBank.

"In the most optimistic case, if the merger plan is approved before the fourth quarter, we estimate that HDBank will be able to obtain a credit growth target of 30-40%," HSC said. However, in case the merger plan is not approved, the bank has two "doors" to reduce the effect of Directive 04 is to target for HDSaison - financial company owned by HDBank 50% or slow down the mobilization of deposits.

With these measures, HSC believes that although the regulator does not adjust the credit growth targets for any banks, the impact of Directive 04 "is likely to be less than forecast."

However, there are always two risks to the forecasting model, two of the assumptions raised by HSC may affect the profitability of banks.

First, many banks will not want to halt the growth of customer deposits, even if credit growth is limited. The impact of this is that the NIM will decline in the future. And the second assumption is that the gap between the actual rate and the plan at the beginning of the year may push some loans into bad loans when customers are not fully funded. For example, the financing of unplanned projects may affect cash flow, or some of the outstanding loans to offset debt.
 Tags: bank, credit

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