The NIM of all banks declined in the third quarter 2023

20/11/2023

The continuous decrease in interest rates has been impacting the Net Interest Margin (NIM) of banks in the third quarter, but it is expected to improve from the fourth quarter.

The NIM of all banks has declined.

NIM (Net Interest Margin) is the difference between a bank's interest income and interest expenses, also referred to as the net interest income. NIM can also be understood as the difference in interest rates between funding activities (interest on deposits) and lending activities (interest on loans) of a bank. Therefore, interest rates directly influence NIM.

During the first nine months of 2023, the continuous fluctuation in interest rates was predicted to affect the NIM of banks. In the October 2023 Strategic Report, KBSV expects that the NIM of banks will reach its bottom in the third quarter and start recovering from the fourth quarter. However, it may not reach the high levels of 2022.

KBSV also notes that the risk to the recovery of NIM may arise from the decrease in the Short Funding for Long Loans (SFL) ratio to 30%, which would require some banks to adjust their funding portfolios and increase the proportion of long-term funding, leading to higher capital costs. Additionally, the interest rate competition among banks when Circular 06 is implemented (allowing borrowing from one bank to repay another) will have a negative impact on the overall NIM of the industry.

Data from VietstockFinance shows that all 28 banks recorded a decrease in their average NIM in the third quarter compared to the second quarter.

VPBank had the highest NIM coefficient in the third quarter, reaching 5.65% but declined from 6.32% in the second quarter and 6.96% in the first quarter. Next were MB (5.24%), VIB (4.73%), HDBank (4.66%), and ACB (4.13%).

The NIM has narrowed, but low-cost funding sources are starting to show effectiveness.

In a sector report published on November 8, 2023, VNDirect stated that the decrease in NIM was due to the slower increase in lending rates compared to the growth of funding costs to support customers, which is in line with the recommendations of the State Bank of Vietnam (SBV).

Among joint-stock commercial banks, only STB, VIB, and CTG have the ability to maintain stable or higher NIM compared to the same period. Particularly, VIB and CTG have utilized interbank lending with a higher proportion compared to the same period (the lowest level since 2022) in their funding structure to reduce the cost of funds (COF).

For STB, the absence of pressure from accrued interest has driven strong NIM growth in 2023.

Meanwhile, the NIM of banks with a high proportion of corporate bonds such as VPB and TCB continued to decrease the most.

However, the positive signal is that the industry's cost of funds has decreased due to the effective implementation of low-cost funding sources, and the CASA ratio has increased (from 18.1% at the end of Q2 2022 to 18.9% at the end of Q3 2023).

In Q4 2023, VNDirect expects the COF to decrease further as low-cost deposits will account for a higher proportion in banks' funding structure (deposit interest rates have declined significantly, by 40-100 basis points, across all terms in Q3 2023). However, NIM may not improve immediately in the current context of weak credit demand.

VNDirect believes that some banks with a high proportion of consumer lending and a low ratio of USD-denominated deposits will have a better opportunity to improve NIM compared to other banks. In 2024, the securities company expects NIM to have the potential for recovery due to the return of credit demand along with economic growth.