Bank profits increased sharply, potentials for decrease in lending interest rates

	The State Bank is ready to support liquidity to reduce the lending interest rates
	If well managed, interest rates will be stable
	Duality of interest rate ceiling removal

Profits of credit institutions have many prospects in 2018. Photo: Huu Linh

On 26th December 2017, the National Financial Supervisory Commission (NFSC) held a workshop launching the "Overview Report on Financial Market 2017" to provide information and discuss, and analyse the stability of Vietnam’s Finance 2017.

According to the report, economic growth in 2017 has been supported positively by a number of key factors: the business environment continued to be improved, direct investment registered over 50% and indirect investment from overseas in Vietnam achieved the highest increase since 2011; the private sector continued to be the driving force of the growth with over 125,000 enterprises and raised 40% of capital. The financial foundation was increasingly improved, facilitating the growth. Specifically, the capital supply of the financial system increased significantly (28.6%), with an increase in proportion from the capital market (from 28% in 2016 to 33.4%).

"The long-term structural disequilibrium of the financial market has been improved, the capital market has helped to mobilize more medium and long-term capital for the economy; and term risks have been minimized. The stock market reached the highest growth rate in the region and was among the top five growth markets in the world. The stock market- capitalized value of stock market gained approximately 66% of GDP, twice as much as 2015," under the report.

At the workshop, Dr. Dang Ngoc Tu, Head of Research and Policy Coordination Department (under the NFSC), Secretary of the Prime’s Minister Economic Advisory Group noted that it was forecasted that in 2018, the growth would be maintained, inflation increased but not much when world prices rose insignificantly and credits were well controlled.

However, he still listed some key points to the macro-economy due to concerns about the risks from agriculture could reduce the growth: inflation increased due to the influence of the real estate sector, pressure on foreign currency exchange rate rose when foreign capital inflows increases, but the domestic exchange rate remained stable, and the world exchange rate was low, affecting the resources for processing and production.

For the finance-banking sector, according to Nguyen Van Thuy, Deputy Head of the General Supervision Board (under NFSC) in 2017, the total assets of financial institutions grew by 17.3%, equivalent to 200% of GDP (in 2016 was 189% of GDP) but was still lower than other countries in the region.

Regarding the system of credit institutions, Mr. Thuy said that the business results of the system had improved sharply, the after-tax-profits in 2017 was estimated to increase 44.5% compared to 2016, the liquidity was relatively stable, total assets increased by 17.2% from the end of last year, and the credit growth of 3 consecutive years reached about 19%.

"The NPL (non-performing loan) ratio was about 9.5%, sharply decreased mainly due to the potential bad debts in debt restructuring, corporate bonds and decrease in outside difficult receivables and quick handling of bad debts,"said Thuy.

However, the report revealed that although liquidity of the system was good, the macro conditions relatively favourable, interest rates of the financial market did not achieve the results as expected. The reasons were due to less connection between the deposit market and interbank market; and bad debt barriers.

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But experts at the workshops expressed their optimism about the financial market in 2018, profits of the credit institution system are prosperous because the credit still maintains the stable growth of 2017; bad debts are handled faster. Thus credit institutions have more potential to reduce the lending interest rates.