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Analyst Pin-board: Banking sector – Credit growth expectation for 2021

The banking industry strongly polarized during the pandemic. Covid-19 had a strong impact on the economy by negatively affecting loan demand, financial capability of customers and the quality of assets. The State Bank of Vietnam has directed credit institutions to support the economy by measures such as lowering interest rates, restructuring debt, rescheduling payment period, exemptions and maintaining debt group. These timely actions at the beginning of the year - when the pandemic just broke out – helped maintain a positive economic growth. This promises a recovery in credit growth in 2021, followed by operating income of banks. This growth is expected to be further supported by capital enhancement at several banks and abundant liquidity in the system. However, it came at a cost. Regarding the medium-term target of SBV in order to create a safer banking system, it had to abandon some targets and postpone some restrictions. We believe that the pandemic could have strongly affected the economy, if the government had not prolonged the impact period to give banks time to handle bad debt. In 2021, we expect the government to issue additional regulations to ease the pressure on commercial banks, giving those room to achieve a 11.4-14.7% credit growth.