Is the non-interest income to be a "salvage" for bank profits?

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

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

Non-interest income is an offset when net profit declines

In general, the financial statements of banks show that the profit after tax of the whole industry has decreased compared to the same period last year due to the influence of low credit growth and increased provisioning pressure when the quality of financial resources is weakened. Moreover, according to the banking industry report of WiGroup Joint Stock Company, the NIM of the whole industry decreased from 3.59% in Q1/2023 to 3.43% in Q2/2023 due to the high profit margin on earning assets decreased while the cost of capital increased. Along with the demand deposit ratio (CASA) continued to remain low in the context of the decrease in deposit interest rates, customers tend to optimize capital flow by looking to the channel with higher profitability. These factors caused the industry's net interest income to decline.

According to WiGroup, the analysis of banking industry 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 other segments such as services and other activities grew, increasing by 17.1% on average over the same period last year, becoming the "savior" for bank profits.

Looking at income from service activities in the financial statements of twenty nine banks alone, many banks saw a three-digit growth in net profit in the first six 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 holds the highest position with profit from service activities reaching nearly 4,000 billion dong; VietinBank with 3,875 billion VND; VPBank with VND 3,225 billion…

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

With the foreign exchange business, in the first six 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 thanks to the fact 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, up to 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 decreased by 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, happened in the first few months of the year. In that context, the Ministry of Finance and the State Bank have repeatedly issued reminders and rectified banks and insurance enterprises. 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, 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 three loss-making banks in this segment: Techcombank, VIB, and VPBank.

It is forecasted that in the last months of 2023, the banking industry will face many difficulties, greatly affecting revenue and profit. Therefore, diversifying business types 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 will be an inevitable trend. Currently, the digital transformation process will help banks reduce costs and attract new customers, improving business efficiency.

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