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Banking sector in 2011: Bigger capital, more pressure
With at least three trillion dong in chartered capital as required by the State Bank of Vietnam, Vietnamese banks have become bigger than ever. However, bankers say the big capital puts extreme pressure on the banks, because more capital requires more profit and bigger dividends.
Most commercial banks raised their chartered capital to three trillion dong at required by the State Bank of Vietnam. Other banks had had more than three trillion dong even before the central bank made the request to raise capital. Only a few banks still do not have enough capital and they have received permission from the State Bank to delay the deadline of the plan on to increase capital until December 31, 2011. However, these few banks all have affirmed that they will increase capital soon.
In principle, higher chartered capital will help banks improve their financial capabilities and expand their scale of operation to compete more effectively with other banks.
However, the banks have been warned that with bigger capital comes bigger responsibility. The banks have more capital and therefore need to earn bigger profits. Meanwhile, it will be not easy for banks to expand operations, because the government has decided that monetary policies need to be tightened to control inflation.
Bankers have anticipated the big difficulties they will meet in 2011: Exchange rate fluctuations, high interest rates and policies on credit restriction. The difficulties will place pressure on the capital costs and the capital demand of banks.
Ha Van Tham, Chair of OceanBank, said that the bank plans to increase its chartered capital to five trillion dong in 2011. It hopes to obtain the pre-tax profit of 1 trillion dong, higher than the profit of 700 billion dong gained in 2010. The bank also plans to pay dividends of 16-17 percent, or lower than 18-19 percent of 2010.
Tham said that the targeted profit would be a difficult task for the board of directors, and in order to obtain profit, it would be necessary to restructure the profit by increasing income from services.
Similarly, HD Bank, which has successfully completed the process of increasing capital to three trillion dong by the end of 2010, now plans to increase its chartered capital again to four trillion dong in 2011. However, the bank admitted that with higher capital, the pressure on the bank will increase because shareholders will require dividends at reasonable levels.
The same pressure will also be put on small banks that once had a modest chartered capital of one trillion dong and have increased the chartered capital to three trillion dong. These include Dai A Bank, Vietbank, Mekong Bank.
Le Huu Tinh, Deputy Chair of Dai A Bank, said that the bank still needs to thoroughly consider all options before setting the targeted profit for 2011. In 2010, Dai A got a profit 106 billion dong in profit as a result of its chartered capital of one trillion dong.
In fact, both small and big banks alike remain cautious when setting their targets for 2011. Sacombank, for example, has predicted a pre-tax profit of 2.8 trillion dong, just above the actual profit level of 2.6 trillion dong in 2010.
Experts believe that the national economy will be more prosperous in 2011, but this does not mean that this will mean favorable conditions for banks, mostly due to post-crisis problems.
Dr Tran Hoang Ngan, Deputy President of the HCM City Economics University, also thinks that with the policy to control inflation and curb the credit growth rate at 23 percent, tightening of monetary policies will occur in the first quarters of 2011.
In 2010, despite the big challenges in the national economy in general, and in the banking sector in particular, most commercial banks have reported sizable profits.
vietnamnet
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