What room is there for the bank to improve NIM?

What room is there for the bank to improve NIM?

In the first half of 2021, banking NIM will improve well, but in the coming time, NIM will likely shrink in the short term due to the impact of the difference in input/output interest rates.

NIM (Net Interest Margin) or net interest margin is the percentage difference between a bank’s interest income and interest expense, which indicates that banks are actually enjoying the interest rate differential between deposit activities and interest rates. How much is the credit investment and investment activity? Based on the NIM coefficient, banks can know how they are actually enjoying the difference in interest rates in the process of credit mobilization and investment. From there, adjust the deposit/lending structure accordingly.

NIM = Net Interest Income / Profitable Assets

Inside:

– Net interest income is the difference between “interest income and similar income” and “interest expense and similar expenses” as shown in the income statement (I)

– Profitable assets = Deposits at the State Bank + Deposits with other financial institutions + Investment securities + Loans to customers; these numbers are taken on the balance sheet (I, II, III, IV).

In the first half of 2021, data from VietstockFinance recorded that the growth rate of main income sources at most banks averaged 30-50% over the same period last year, except Saigonbank (SGB, -1.1%). . Some banks boosted main income such as VBB (2.4 times), KLB (2.2 times), NamABank (NAB, +99%), SeABank (SSB, +82%), SHB (+62%).

Particularly in the case of SCB, which was the only bank that reported a loss in its main activities, the reason was that in the second quarter, the decrease in interest expenses (-1%) was not as fast as the decrease in interest income and other financial services. similar income (-15%).

Profitable assets at the end of the second quarter of banks also recorded growth compared to the beginning of the year, except for ABBank (-3%) due to a decrease in deposits at the State Bank (SBV) and cash inflows. deposit and borrow from other credit institutions.

Many banks grew by times such as TPBank (2.07 times), BIDV (2,04 times), SCB (2,03 times), TCB (2,03 times)…

Data at 28 banks showed that profitable assets grew mainly due to the growth of 7% in loans to customers (VND 7.13 million billion) and deposits and loans to other credit institutions increased by 8% (nearly VND 1.02 million billion). ), while deposits at the State Bank decreased by 10% compared to the beginning of the year (to 280,085 billion dong).

It can be seen that NIM has increased sharply since Q4/2020, similar to the growth of net interest income. The shift to retail banking also contributed to the improvement of banks’ NIM margin.

In the Industry Strategy Report for the second half of 2021, VDSC believes that reducing capital costs through boosting the CASA ratio is one of the factors that have helped banks improve NIM in recent months. Besides, the salary cut has an impact on the cost-to-income ratio (CIR), which in turn helps banks to cope with the shock in NIM.

For banks with affected NIM, high credit costs and high risk lending, the impact will be more severe. Therefore, to optimize balance sheet growth with lower NIM and higher provisioning costs, staff size is reduced to ensure operational efficiency. Banks with significant staff reductions are banks that own large consumer finance segments such as VPB, STB, MBB, HDB, and OCB.

If the pandemic persists, VDSC believes that these banks have little room in the second half of 2021 to continue cutting costs through salary or personnel due to the impact on the scale of operations.

Data from VietstockFinance shows that VPBank owns the highest NIM ratio in the industry with 4.44%. In the second half of 2021, VDSC still expects the proceeds from FE Credit’s divestment to help reduce mobilization pressure and capital costs. As a result, even though lending rates are reduced to support customers, full year NIM will still be positive at 8.91%.

Meanwhile, coming in second with NIM of 2.75% at Techcombank, net interest income continued to be the growth driver as NIM steadily increased and assets grew better, boosting non-interest income. Low volatility in lending rates and lower deposit costs thanks to high CASA widened the difference between deposit rates and NIM in the first 6 months of the year.

In the state-owned group like VCB, CTG, net profit margin is approximately 3%. VDSC expects the NIM of this group to decrease in the second half of the year as the support package reduces lending rates. The credit-deposit growth gap due to LDR pressure will narrow NIM and allocate source surplus to liquid assets with low interest rates. Combined with low credit lines, net interest income is expected to grow weakly.

Mr. Bui Nguyen Khoa, Head of Market Analysis Group BIDV Securities Joint Stock Company (BSI) said that NIMs of banks in the first 6 months of 2021 improved well, because input deposit interest rates decreased while interest rates fell. The output power decreases more slowly, so the NIM is enlarged.

“Although banks are in a state of reducing interest rates, the rate of input interest rates can hardly be reduced anymore because they are quite low, while output interest rates must be reduced to support customers affected by the pandemic. Due to the Covid-19 epidemic, in the short term, NIM will be under pressure to contract,” Khoa forecast.

In addition, the pressure on bad debt when the Covid-19 situation is having a strong impact, if the SBV does not soon adjust Circular 01 and Circular 03 on setting up bad debt, the bank’s profit in the coming quarters will be affected. clearly.

VDSC believes that the NIM of banks that announce a new preferential interest rate package will be more pressured due to limited room to adjust deposit rates. It is expected that the SBV will soon grant a higher credit limit due to the serious impact of the pandemic and banks accepting to lower lending rates. With positive credit growth expected, NIM likely to shrink slightly and balance sheet expanding more cautiously, net interest income in the second half is expected to grow more slowly than in the first half. The difference will be in the NIM, as banks with unaffected lending rates and improved CASA rates will benefit.

Trans: Fili

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