Delayed impact, banks still “sacrifice” profits for businesses

	Nearly VND 80 thousand billion deposited on term by State Treasury at bank online
	Will banks be sanctioned for liquidating collateral subject to tax exemption?
	Creating an ecosystem for non-cash payments

Financial - banking expert PhD. Can Van Luc, Chief Economist of BIDV

What is your assessment of banks' profit-sharing actions to support businesses over the past year?

In 2020, in accordance with Circular 01/2020/TT-NHNN of the State Bank of Vietnam (SBV) directing credit institutions and foreign bank branches to restructure repayment periods, waive and reduce interest and fees, maintain debt classification to support those customers affected by the Covid-19 pandemic and many other circulars on business support, banks had to do four main tasks.

First, restructure debt without changing the debt classification, and continue lending. Second, reduce interest rates on new and old loans. Third, reduce the costs of activities and services. Fourth, continuously provide capital to the economy, helping credit increase by about 12% compared to the previous year amid the pandemic and weak demand from firms. However, thanks to attractive interest rates and preferential credit packages, credit still increased, even as the SBV asked not to lower credit standards. Therefore, according to the calculation of the BIDV’s research team, the banking sector has accompanied the economy in the past year up to VND30,000-34,000 billion in all items.

However, according to the estimates of many banks and organizations, did the profit of the banking industry still go up in the whole year 2020?

It is true the banking sector's profit is increasing, estimated to rise by 8-10% in 2020. However, compared with the previous periods, this figure is quite low, equal to a third of the previous year. Moreover, the announced and estimated profits of banks in 2020 have not fully reflected the difficulties and challenges of the banking system. It is because the impact of the pandemic on businesses and people has a delay, so the impact on the banking system will occur later.

For example, in Circular 01, the SBV allows to restructure and maintain the debt classification, so banks do not need to set aside provisions for possible bad debts to support enterprises. However, in the near future, the SBV will amend Circular 01 in the direction that banks must gradually make provisions for bad debts, which will significantly affect their profitability in 2021. Therefore, I predict bank profits in 2021 could increase about 10% over the previous year in a case of luck.

With such influence, how will business support activities continue to be deployed?

SBV leaders said the banking sector would try to reduce profit targets to support firms and the economy to overcome the impacts of the pandemic. Therefore, supporting activities and incentive programmes will be implemented as they were in 2020. Additionally, banks are extracting profits to invest in non-cash payments, digital banking and converting magnetic cards to chip cards to increase the revenue from their services. Because in recent years, revenue from retail services has contributed greatly to the banking industry's profits, avoiding dependence on credit revenue. Therefore, in the future, the SBV and relevant agencies need to improve legal institutions, especially the legal basis related to new business models like financial technology (fintech), peer-to-peer lending (P2P), and e-wallets to support banks.