COVID-19 Costs and potential bank impact

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Vietnam continues to have the COVID-19 epidemic well in hand, with just 16 cases, all cured. This appears to have been helped by quarantines, school closures, not allowing cruise ships to dock, and flight cancellations. It is hard to prove, but it appears to have worked so far.

Interestingly, the virus appears to be popping up all over the world.

So while Vietnam has got a handle on it, we are starting to really get a sense of the economic impacts:

  • The tourism sector is going to lose something like $7.7bn from the lack of tourists, according to state media.

  • The timber sector exported $1bn to China alone in 2019 and imported almost $400 million (some of which were likely inputs into other products).

  • Overall exports to China were $41bn in 2019, with another $7.2bn to Hong Kong. That’s almost $50bn, some of which are just not going to happen.

  • Imports from China were $75bn, with another $1.3bn from Hong Kong.

  • Exports to Japan and Korea were about $20bn each. Now Vietnam has stopped all flights to South Korea, and has decided to quarantine all people coming from Japan and South Korea.

  • We talked about agriculture as well.

Overall, a former government official said that GDP growth could be 1 percentage point less. I haven’t done the full math, but I would say that was impressive. So many sectors of the economy are going to be impacted, and there is little that people or businesses can do about it.

Because of this, the government is starting to look at stimulus (we talked about the potential for stimulus for the tourism sector last Friday).

Source: World Bank, SBV, chart by Vietecon.com

Source: World Bank, SBV, chart by Vietecon.com

Now the central bank has ordered banks to cut interest rates for firms in suffering from COVID-19. This story offers a bit more color and says it could also include deferred payments and keeping the companies in the “current debts” group. It will be interesting to see how this works. Questions:

  • By my estimation, almost every company is at risk, so are interest rates everywhere going to decrease and all payments deferred?

  • Will the government or the SBV compensate the banks for this, or will they have to take the cost on?

  • What if companies can’t pay these lower interest payments? What if deferral of payments are still unlikely to make the debt viable in the long term? At what point do they then move them out of “current debts”? Right now, NPLs are similar to other ASEAN countries, but are much higher than developed countries.

Ultimately, unless the government steps in, this is bad news for the banks if they do offer better terms. At least the official statistics will be

The market is mostly shrugging the announcement off. It was up today, and banks are still up for the year, in many cases.