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Small banks claim difficulties in restructuring outstanding loans
The State Bank of Vietnam has decided that banks must not have a credit growth rate higher than 20 percent this year. Meanwhile, small banks complain that the regulation is not fair for them.
The government has decided that curbing inflation must be a top priority for 2011. In order to do that, the credit growth rate must be restrained at 20 percent. However, in many cases, lower credit growth rate will also mean lower profits, and this will force banks to seek profit from non-credit services.
The director of a joint stock bank complained that the cap of 20 percent credit growth rate in 2011 will create big difficulties for his bank. Though the single cap of 20 percent is applied to all banks, the figures about the volumes of outstanding loans banks have to cut will be different. If a small bank with the chartered capital of two trillion dong like Gia Dinh Bank gains the a high credit growth rate of 100 percent, the increased outstanding loans will still be lower than that of a big bank like Agribank, which gains a modest one percent growth rate.
Therefore, the director said that the State Bank of Vietnam should define different credit growth rates for banks, depending on their operation scale and management capability, instead of imposing the single cap of 20 percent to all banks.
Nevertheless, Governor of the State Bank of Vietnam Nguyen Van Giau has not accepted the proposal, affirming that the single cap of 20 percent will be applied to all commercial banks. “This is the right decision to control the outstanding loans growth by setting the cap of 20 percent in credit growth rate,” he said. “You should not say that smaller banks should be given a higher credit growth rate quota than bigger banks,” he continued. “If smaller banks have a higher credit growth rate, then they will create bigger risks,” he added.
Another problem for small banks is that they have to restructure their loans as per request by the State Bank of Vietnam. Commercial banks have been told to lower the ratio of outstanding loans to non-production sectors to 16 percent of banks’ total outstanding loans from the current 18.7 percent. This can be an easy task for big banks, especially state-owned banks, which find it easy to seek the clients who are businesses. Meanwhile, this would be a very difficult task for small banks that have been relying on consumer loans.
Western Bank, for example, has outstanding loans to the non-production sector accounting for 52 percent of the bank’s total outstanding loans. Similarly, SeABank’s loans to non-production sectors account for 47 percent.
Reports show that currently, 18 commercial banks have outstanding loans to non-production sectors accounting for 25 percent of total outstanding loans or higher. The banks will have to lower the proportions of loans to non-production sectors to 16 percent by the end of the year.
In fact, the State Bank of Vietnam also set credit growth rate caps in previous years. However, the caps did not cause much worry for commercial banks because the outstanding loans at that time always exceeded the allowed levels. Therefore, banks still set high targeted credit growth rates for themselves. For example, when the central bank decided that the credit growth rate must not be higher than 25 percent, banks still set the credit growth rate target of 35 percent.
However, banks have been warned that the situation will be quite different this year. Curbing the credit growth rate at no more than 20 percent will be the top priority of the banking sector in 2011, and it must be attained at any costs.
Trinh Van Tuan, General Director of OCB Bank, said that after the central bank released the Instruction No 1, the bank has to reconsider the credit growth target. Meanwhile, representative of Dai A Bank said the bank needs to obtain the pretax profit of 600-700 billion dong in 2011 which is considered a hard pressure on the bank’s board of management.
It is clear that lowering the credit growth rate will influence the financial plan and profits of banks. For many years, the income from lending remains the main source of income for banks. In fact, banks have been trying to seek profits from other services, but the income from the services is decreasing, especially when the foreign currency and gold markets are being strictly controlled by management agencies.
VIETNAMNET
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