Insights
Ho a Vu
Risks to the banking industry in the pandemic The Covid-19 pandemic is evolving unpredictably with the development of new variants. As the main capital channel of the economy (accounting for nearly 50 percent of total social investment in 2020), since the pandemic outbreak, the banking industry has faced many challenges and risks.
failure to pay the due debt on time.
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IDV Training and Research Institute recently issued a report on risks to the banking industry in the context of the Covid-19 pandemic. According to the reports, the main risks that face the banking industry include credit, market, operation, liquidity and others. First, credit risk should be taken into account. Bad debt potentially arises due to businesses and people facing difficulties. The Covid-19 pandemic has had an impact on all economic sectors, with industrial production and service sectors (tourism, entertainment, transportation, retail, etc.) being most heavily affected. A survey conducted by Vietnam Chamber of Commerce and Industry
(VCCI) showed that 87.2 percent of businesses in most industries are negatively affected by Covid-19, 65 percent of private enterprises and 62 percent of FDI enterprises experienced a decrease in revenue in 2020. The average revenue reduction of private enterprises was 36 percent and that of foreign invested enterprises was 34 percent. Micro, small and medium enterprises suffered a higher revenue decline than large businesses. The risk of arising bad debt not only roots from corporate customers but also individuals. When the economy is deteriorated by Covid-19, the wave of job cuts spreads across industries such as aviation, tourism, retail, entertainment, catering, resulting in income decline of many people and
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According to a survey by Vietnam Report (June 2021), 96.15 percent of experts and bank representatives said that one of the biggest challenges facing banks is the potential increase in bad debt due to the impact of the Covid-19 pandemic. The increase in bad debt poses pressure on the reversal of accrued interest and provisioning, thereby reducing banks’ profits. The rescheduling of debt repayment, exemption and reduction of interest and fees, and maintaining the debt classification aims to support customers affected by the Covid-19 pandemic. However they are potential bad debts for commercial banks in the long run. Regarding market risk, during the Covid-19 period, similar to many countries in the world, Vietnam maintained a loose monetary policy, expanded the money supply, and reduced lending interest rates to support economic sectors. In addition, administrative orders from regulators as well as calls from
