Bank profits will diverge strongly

Recovery in profits

According to the 2024 business plans from 25 listed banks, their total pre-tax profit is expected to increase by about 35.5% compared to 2023, equivalent to the explosive growth seen in 2021–2022.

Despite credit growth being relatively low since the beginning of the year, banks remain confident in achieving their targets. Historically, except for the unique year of 2023, most banks set feasible goals, often exceeding them by 3-7%.

According to Vietcombank Securities (VCBS), there are three drivers of profit growth for the banking system in the coming period: optimizing capital costs, increasing non-interest income, and optimizing operating costs.

Specifically, regarding capital cost optimization, VCBS believes that in the context of rising deposit interest rate pressures, private banks with a high proportion of non-term deposits (CASA) and flexibility in capital mobilization (with a low dependence on customer deposits) have significant potential to optimize capital costs, thereby improving profits.

For non-interest income, analysts expect some banks to record extraordinary income from upfront fees of bancassurance contracts, profits from selling subsidiaries, or recovering written-off bad debts.

With the driver of optimizing operating costs, banks will continue to push for digital transformation, enhance management efficiency, and reduce operating costs to maintain profitability.

Meanwhile, Mirae Asset Securities suggests that while provisioning costs are unlikely to decrease in 2024, most banks have adapted to the "new normal," so profits won't face excessive pressure.

Furthermore, Circular 02 is likely to be extended, and many banks may reuse special bond tools (VAMC) if they see the need for longer-term provisioning within their balance sheets.

On the income side, stable credit growth and the potential for NIM recovery provide good growth prospects, while non-interest income sources play a key role in driving profits for banks.

Divergence

VCBS forecasts that the banking sector's profit growth will be around 10% in 2024.

Profits from increased credit demand will accelerate in the second half of 2024 as low interest rates boost loan demand and economic recovery. Consequently, annual credit growth is expected to be 12-13%, helping bank profits to rebound.

Drivers for credit growth include positive production and export activities, public investment disbursement, especially key infrastructure projects, and a clearer recovery in the real estate market from the second half of 2024, leading to credit growth in real estate business loans, construction loans, and home purchase loans.

As a result, the net interest margin (NIM) of banks will remain stable in Q2 and Q3 2024, then face narrowing pressures in Q4 due to rising deposit interest rates.

However, VCBS also predicts a clear divergence among banks. The potential to expand NIM belongs to banks with capital mobilization advantages (high CASA ratio, diversified funding sources through issuing valuable papers, foreign syndicated loans, etc.).

Additionally, banks with good asset quality, customers with quick repayment capabilities, or those able to boost retail lending proportions are expected to expand NIM.

Regarding asset quality, VCBS believes that bad debt pressure will remain high in the first half of the year but is likely to gradually ease with the economic recovery.

Analysts expect a divergence among banks, with those having good asset quality managing bad debts and restructured debts at moderate levels, while banks with high corporate credit proportions (including corporate bonds) and low bad debt coverage ratios may face increased bad debt risks and provisioning pressures in 2024-2025.

Source: VCBS, theleader

Compiled by Vietnam Business Information