Survey points to banking growth despite bad debt

Survey points to banking growth despite bad debt

Nearly 94 per cent of Vietnamese bankers expect an improved financial performance, but bad debt levels remain a concern, says a study on the banking sector.

The latest study on ‘Banking in Emerging Markets Survey: Investing for Success' conducted by tax, auditing and finance consulting firm, E&Y, was released in Ha Noi yesterday, Aug 13.

This year's survey includes responses from 50 senior bank executives and more than 9,000 bank customers across 11 key rapid-growth markets (RGMs) at three stages of financial maturity. The frontier market includes Kenya, Nigeria and Viet Nam; transitional market includes Colombia, Egypt and Indonesia while the established one includes Chile, Malaysia and Mexico along with South Africa and Turkey.

In Viet Nam, 17 banks and 800 customers responded to the survey.

The survey, which revealed that the outlook for retail and corporate deposits was bright, also showed strong growth in customer demand and the broader economy.

An increase in the demand for credit was expected but with 76 per cent of bankers worried about bad debts, the outlook for lending was less positive than in their previous survey.

Specifically, Vietnamese banks were the least positive of all RGMs about lending to small-and-medium-d enterprises (SMEs) with the outlook deteriorating the most in this segment.

However, strong growth in demand was anticipated for retail credit products in both personal loans and credit cards.

"Demand in growth for savings and deposits is higher than in other Asian Pacific markets," said Keith Pogson, Managing Partner of E&Y's Financial Services – Asia Pacific (APAC) region.

The survey also revealed that 15 out of 17 Vietnamese banks expected a slight improvement in their performance, along with the hope of an improved economy.

The expected demand and growth has affected the merger and acquisition advisory services the most. The largest increase in demand was in loans to SMEs and corporations.

Keith said higher lending was anticipated in all sectors except construction and commercial real estate. Lending to the energy sector was also set to grow with government planning to upgrade and build new oil refineries and invest in renewables.

"Banks would struggle to maintain net interest margins and would have to find new sources of revenue," he added.

With most banks concerned with rising bad debts, respondents expected the managing of credit risks to be their greatest challenge.

This was the reason why banks would focus on cost reduction and risk management to drive profitability. They would seek to grow their business by focusing on cross-selling and introducing new channels, products and services.

Referring to the levels of regulation, he said Vietnamese banks expected fewer regulatory mechanisms than other frontiers banks and banks in other APAC markets.

However, 9 of the 17 Vietnamese banks said their regulatory burden would increase. In addition to global regulations, banks in Viet Nam were faced with a range of domestic regulatory pressures including a bank deposit rate cap of 6 per cent on deposits with maturities in less than 6 months. Total shareholding by foreign investors does not exceed 30 per cent of charter capital of a Vietnamese commercial bank.

He said that among APAC banks, Vietnamese are the most positive about the impact of Quantitative Easing (QE) tapering off. Twelve out of 17 Vietnamese banks expected an increase in the flow of foreign investments.

The comparative strength of Viet Nam was also highlighted by its declining sovereign spreads relative to other APAC and frontier markets.

Of those banks expecting change, 60 per cent believed it would be driven by acquisition of smaller banks by larger domestic banks.

On the question of foreign competition, the bankers believed Japanese and European banks were the greatest threats.

He also said that a greater portion of Vietnamese respondents expected their loan loss provisions to increase over the next 12 months than respondents from other frontier APAC banks.

vietnamnet