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The operation of commercial banks in the crisis period
New business strategies have changed the way banks use and mobilize capital, as well as changed the profit flow.
In 2008, despite the big difficulties, the total assets of banks still grew considerably: Techcombank’s assets increased by 51%, reaching VND 59.5 trillion, Sacombank increased 5% and VND 67.7 trillion, Eximbank increased 45%, and East Asia Bank increased 26%.
Credit still makes up big proportion in total assets
Previously, all banks focused on credit as the main business field with the outstanding loans always accounting for more than 50% of total assets. However, the economic crisis has changed this. The outstanding loan proportion has been decreasing. Techcombank’s outstanding loans, for example, now accounts for 44% of total assets instead of 52% in 2007 (VND 26 trillion). Sacombank’s outstanding loans account for 50% of total assets instead of 55% in 2007 (VND 33.7 trillion), Eximbank’s dropped from 55% in 2007 to 43% in 2008 (VND 21.2 trillion).
Though commercial banks have been trying to apply strict measures on loaning, the ratio of non-performing loans (NPL) has been increasing.
Eximbank’s NPL ratio has increased to the relatively high level at 4.7% from 0.9% in 2007, Techcombank’s increased from 1.5% to 2.6%.
With the NPL ratio on increase, commercial banks have to make provisions at higher levels. Techcombank made a provision of VND 807 billion in 2008, of which 76% for credit risks, and 24% for securities risks.
Securities investments continue to be the interest of banks which account for between10-20% of the total assets of banks. The investments include equity securities (more than 90%) and debt securities (10% of the portfolio).
Mobilized capital keeps rising
Though 2008 was considered a difficult year for credit institutions to mobilize capital in the context of high inflation and devaluated local currency, commercial banks still could obtain the satisfactory capital mobilization ratio.
Techcombank’s mobilized capital from the public and economic institutions reportedly increased by 63% in 2008 over 2007, reaching VND 39.8 trillion, while the East Asia Bank also reported the impressive growth rate of 61%.
The higher proportion of the capital from the public and economic institutions helped commercial banks take initiative in arranging their capital, while avoiding to rely on the interbank market.
The effect on profit capital
Though the banks’ turnover in 2008 increased drastically, the higher capital cost, operation expenses, and high provisioning made the banks’ profit not increase accordingly.
Sacombank had the total turnover in 2008 reaching VND 9 trillion, up by 86% over the previous year, but the bank’s total expenses were VND 7.8 trillion, up by 139% over 2007.
Techcombank, Eximbank and the East Asia Bank also reported the impressive growth in turnover of 216%, 215% and 98%, respectively, but their expenses also increased by 249%, 254% and 110%, respectively.
Commercial banks have been trying to seek profit from non-credit services, including foreign currency trading, gold trading, and securities investments.
In 2008, the gold trading alone brought VND 715 billion worth of net profit to Eximbank, while Techcombank got VND 2 trillion from investments and securities trading. Sacombank also got VND 1.5 trillion from that kind of business. Meanwhile, the figures were VND 550 billion for Eximbank, and VND 84 billion for the East Asia Bank. The high provisioning of banks partially annulled the efforts made by commercial banks in such a hard year 2008.
VietNamNet, TBKTSG
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