What factors will banking industry profit growth in 2024 depend on?

Banking industry profits in 2024 are forecast to grow stronger than in 2023.



In the newly published report, BIDV Securities (BSC) expects profit growth of the entire banking industry to recover (forecasting after-tax profits of the watch list to grow 20% in 2024 compared to 4% in 2024). 2023) with the main driving force coming from the expansion of marginal interest income ratio (NIM), however the speed will be fast or slow depending on the evolution of credit demand and asset quality.




According to the latest published data of the State Bank, credit growth across the economy is estimated to reach 13.7% in 2023. Based on the State Bank's action of granting full limits to banks right from the beginning of the year (different from previous years issued in installments) and the system-wide credit growth orientation is 14-15% in 2024, BSC expects 2024 credit growth can reach about 14% in the base scenario.





The driving force will come from areas related to export, public investment, real estate business, etc. However, the analysis team sees risks from the economy recovering more slowly than expected, thereby causing demand. Credit (especially from consumers) may be compressed in the second half of the year.




The main factor to monitor will be the recovery of liquidity in the real estate market when real estate debt currently accounts for more than 21% of the total outstanding debt in the economy (of which 64% is for consumption purposes and 36% is for business purposes). ), which will determine the recovery speed of credit demand.





BSC observes that real estate consumer credit has shown signs of bottoming out in September 2023 and rebounding in October 2023, while preferential interest rates for home loans are continuing the downward trend (currently the annual interest rate The average initial rate is about 8%) and gradually returns to normal levels. Typically, Vietcombank has a personal loan program with fixed medium and long-term interest rates at 11%/year for a 10-year term or 9.5%/year for a 5-year term, and BSC believes that the interest rates are This rate is quite attractive.




The analysis team also expects that legal issues will gradually be resolved through amendments to the Land Law effective from January 1, 2025, which will help the real estate market begin to become vibrant again from the second half of 2024. This will help Credit growth actually improved this year.





Private banks will be under a lot of pressure on credit costs




With the pressure to form bad debt (NPL ratio plus debt written off during the period) still high in the short term, BSC maintains a cautious view on the industry's asset quality in 2024. In the base scenario, the analysis team Analysts expect banks to maintain a stable NPL ratio in 2024 compared to 2023 after writing off debt quite strongly in the past year.





The possibility of extending debt restructuring regulations (according to the current Circular 02/2023 of the State Bank, expiring on June 30, 2024) is also being left open in case potential bad debt continues to increase. However, even without extension, BSC believes that the impact on system safety will not be material because (1) outstanding restructured debt currently only accounts for about 1.09% of the entire system's outstanding debt (according to will be announced by the State Bank until the end of Q3/2023) and (2) banks still need to complete 100% provisioning in 2024 (after having set aside at least 50% in 2023).





Accordingly, BSC expects banks to record a slight increase in credit costs in 2024, creating conditions to consolidate bad debt coverage buffers when the amount accumulated during the pandemic period has almost reversed in 2023.




This pressure is most obvious for the private group when the bad debt coverage ratio (LLCR) of this group on the BSC monitoring list decreased to 63.4% in Q3/2023, while the specific provision ratio Bad debt has also decreased to the pre-epidemic level of about 35%.




In contrast, the state-owned group continues to affirm its leading position in the industry in terms of asset quality and level of provisioning with LLCR and the specific provision/bad debt ratio remaining at 189.8% and 137.2% in Q3/2023 (much higher than pre-epidemic levels), so the pressure on credit costs will not be too great.




In the base scenario, BSC forecasts that the average credit cost of the watch list will increase by more than 0.04 percentage points in 2024, corresponding to an expected increase in provision costs of about 16% compared to 2023.




NIM is expected to increase in 2024




BSC believes that there will be differentiation in the level of NIM recovery of the industry in 2024. Banks that are most affected in 2023 when mobilization costs spiked at the beginning of the year are expected to have a significant level of recovery. (Techcombank, VPBank), while banks with the advantage of stable CASA (MB) or loan portfolios promoting the retail segment (ACB, Sacombank, VIB, VietinBank, BIDV) are expected to maintain NIM is stable and tends to improve slightly.




In the base scenario, deposit interest rates are maintained low and credit growth is gradual