Concerns about bank liquidity
Standard Chartered Bank forecasts Vietnam's FDI inflows in 2020 will fall below USD 10 billion | |
Some banks recall bad debts | |
Banks still register encouraging performance amid COVID-19 |
Bank liquidity will be difficult if the pandemic is prolonged. Photo: ST |
Supply reduces
Impacted by the pandemic, many economic sectors stalled,and maintaining of people’s deposits is difficult. Data published by the General Statistics Office said that as of March 20, 2020, the total means of payment increased by 1.55% compared to the end of 2019 (in the same period last year, it increased by 2.54%); capital mobilization of credit institutions grew by 0.51% (in the same period in 2019, it increased by 1.72%). Despite the growth, it was only half or a third of the same period last year. This shows that people and businesses have to withdraw money or cannot deposit money into the bank as previously.
The cause of the above situation is partly due to the fact that in the first months of the year, businesses have to withdraw money to pay year-end bonuses for employees. But when the Covid-19 pandemic broke out, many businesses cannot produce or do business, so the profit is zero or negative.To pay for rental fees of offices, warehouses and salaries for employees, many individuals and businesses have to withdraw money. It is proven that according to the first two months of 2020 of the State Bank (SBV), deposits of economic organizations decreased by 4.84% compared to the end of 2019, to more than VND3.77 billion, equivalent to a net withdrawal of over VND190,000 billion.
At the same time, the volatile world monetary market can also have an impact on banks. In the first quarter, the State Bank of Vietnam affirmed that they still operated monetary policy stably, including foreign exchange rates, despite the fluctuations in the world market, mainly due to the current foreign currency reserves of US$84 billion, they could be ready to intervene when necessary. But in the first quarter, the VND dropped by approximately 1%, so if the pandemic is prolonged, the VND will depreciate more.
In this regard, Assoc,Prof.Dr. Pham The Anh, chief economist, Institute of Economic and Policy Research (VEPR), said that the VND could depreciate more sharply due to the shortage of market supply, because of declining tourists and interruptions of many big export markets.
Moreover, foreign investment funds would sell assets on the stock market to withdraw money, which also increases the pressure on the VND exchange rate. In addition, the supply of foreign currencies is more difficult when the amount of remittances from overseas Vietnamese this year will not be the same as the previous year, because they also face difficulties in doing business and living in epidemic-affected areas.
Is it a concern?
It can be seen that the banking system is facing many concerns due to the impact of the Covid-19 pandemic. However, due to the lower demand for credit, bank liquidity is still stable. Assoc.Prof.Dr. Pham The Anh said that credit to the economy this year was mainly in the form of supporting businesses, jobless people and households stopping production. Therefore, the credit made through the Social Policy Bank will be higher than the credit through commercial banks.
However, good credit growth can also affect bank liquidity, because with the current economic situation, borrowing and repaying are difficult. In a recent report to the Government, the SBV said that, according to preliminary assessment, the expected outstanding debts affected by the Covid-19 pandemic reached VND 2 trillion, accounting for about 23% of the system's total outstanding debts,which is a potential risk to banking activities. Thus, if this figure falls into the "non-performing loan” group, the "health" of the whole system will be seriously affected; banks will have to increase the burden on provisioning.
With the impacts analyzed above, financial - banking expert, PhD. Nguyen Tri Hieu said that at present, the liquidity of banks is still abundant, but if the pandemic is not controlled by the end of June, the liquidity of banks will be strongly affected, the money will be withdrawn more to meet the needs of daily life.
"If the economy is sunk because of the pandemic, the support packages will not be enough, or there is a risk of high inflation, increasing public debt will make the bank's liquidity fall into big shortage," the expert said.
Covid-19 epidemic could increase banks' bad debts VCN - The Covid-19 epidemic began to worsen in the second half of March, so the impact of ... |
Facing these difficulties, in a recent report, experts of the National Economics University said that support needs a harmonious combination between monetary policy and fiscal policy. Under unfavorable conditions when the budget has a deficit, it is necessary to pursue a sustainable fiscal policy by maintaining a stable public debt / GDP ratio. The government can issue bonds to raise capital from the people.
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