Is non-interest income an " salvation" for bank profits?

	Bank profits in the third quarter still grew impressively
	Being many "hot" issues at the general meeting of shareholders of banks
	Bank profits in the first half of the year: Where growth is more than 60%, where there is a sharp decrease of nearly 90%

The application of digital transformation has helped income from service activities of many banks grow positively. Photo: MSB

Non-interest income offset when net profit declines

In general, the financial statements of banks showed that the profit after tax of the whole industry decreased compared to the same period last year due to the influence of low credit growth and high provisioning pressure when the quality of asset weakened. Moreover, according to the banking report of WiGroup Joint Stock Company, the NIM of the whole industry decreased from 3.59% in the first quarter of 2023 to 3.43% in the second quarter of 2023 because rate of return on profitable assets decreased while the cost of capital increased. Along with that, the Current Account Savings Account ratio (CASA) continued to remain low in the context of the decrease in deposit interest rates, customers tended to optimize capital flow by looking to the channel with higher profitability. These factors caused the industry's net interest income to decline.

Also according to WiGroup, the analysis of banking income in the second quarter of 2023 showed that income from lending activities peaked in the fourth quarter of 2022 and decreased by 3.8% compared to the same period last year, but in return, income from lending activities peaked in the fourth quarter of 2022, and decreased by 3.8% over the same period last year but in return, income from other segments such as services and other activities grew, an average increase of 17.1% over the same period last year, becoming a "saviour" for bank profits.

Looking at income from service activities in the financial statements of 29 banks saw that many banks had a 3-digit growth in net profit in the first 6 months of the year. For example, Nam A Bank reached VND 241.6 billion, up 185% over the same period last year. ABBank reached VND 289 billion, up 92.4%. MSB also recorded a strong increase in net profit, over 86%, reaching VND 1,081 billion, the ratio of non-interest income to total operating income reached over 31%.

In addition, some banks also recorded strong growth in net profit from service activities compared to the same period last year such as: VietinBank increased by more than 33%, TPBank increased by more than 25%, Eximbank increased by nearly 21%, Kienglongbank increased by 31.5%, BacAbank increased by 47.5%... In terms of absolute numbers, Techcombank was the highest position with profit from service activities reaching nearly 4,000 billion dong; VietinBank with 3,875 billion dong; VPBank with 3,225 billion dong…

Sharing more about this issue, Mr. Nguyen Hoang Linh, General Director of MSB said, MSB aimed to increase non-interest income in addition to maintaining the core business segment. This shift was in line with MSB's current strategy of reducing the proportion of businesses in potential volatile sectors, while optimizing revenue from non-credit activities such as card services, payment, foreign currency trading, investment banking services… According to experts, owning an income structure with a high proportion of non-interest income would help the bank grow more sustainably and stably in the long term.

Or with the foreign exchange business segment, in the first 6 months of the year, many banks also recorded an impressive increase such as: OCB increased by 427%, LPBank increased by 334%, BaoVietBank increased by 152%... compared to the same period last year. The reason is that banks have actively deployed many products and services to support import-export businesses along with the stable foreign currency exchange rate in Vietnam.

Must aim for a more sustainable income

But in the opposite direction, 14/29 banks recorded a decrease in profit from service activities such as: NCB down 88.9%, Sacombank down 59.9%, SeABank down 52.2%, VietCapitalBank down 36 .4%, MB down 27%... compared to the same period in 2022. The two "big" state-owned banks, Vietcombank and Agribank, also decreased by 9.6% and 7.9% respectively over the same period. period of the previous year.

In particular, in the main service activities, revenue from insurance business and services at most banks is narrower, especially in the context of many "controversies" about cross-selling insurance through banks which happened in the first few months of the year. In that context, the Ministry of Finance and the State Bank have repeatedly issued documents to remind and rectify banks and insurance companies. Therefore, the financial statements of some banks have recorded a decrease in revenue from insurance compared to the same period last year such as: SeABank down 81%, Kienlongbank down 63%, TPBank down 55%, Techcombank down 53% MB down 18%, VPBank down 8%...

Similarly, with the foreign exchange business segment, some banks recorded high declines such as: VietABank down 76%, Kienlongbank down 58%, SeABank down 40%, ABBank down 30%, MB down 26%, BVBank down 27%... compared to the same period last year. In particular, there are 3 loss-making banks in this segment: Techcombank, VIB, and VPBank.

It is forecasted that in the last months of 2023, the banking industry will still face many difficulties, greatly affecting revenue and profit. Therefore, diversifying kinds of business and improving the resilience of banks have been recommended by many experts. Financial expert Assoc. Prof.Dr. Dinh Trong Thinh said that banks boosting non-interest income, aiming for more sustainable revenue, avoiding dependence on credit revenue would be an inevitable trend. Currently, the digital transformation process would help banks reduce costs and attract new customers, improving business efficiency.

According to the World Bank (WB) experts, the banking industry should strengthen the capital adequacy ratio (CAR) to ensure that banks had enough capital to absorb possible losses and maintain stability in the face of economic shocks. Along with that, management agencies should strengthen mechanisms and institutions for safety supervision, early intervention, prevention of crisis escalation and reduction of systemic risks.