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Vietnam banks beat 2010 profit targets
Vietnamese lenders achieved its pretax profits in 2010 despite of the government’s tightening monetary measures. Vietnam Export Import Bank (Eximbank) said its gross profit hit VND2.3 trillion last year, beating its own target.
Ho Chi Minh City-base Saigon Thuong Tin Bank (Sacombank) also announced its profit VND2.2 trillion in the first 11 months of last year. Sacombank set the year target of VND2.4 trillion.
Ho Chi Minh City Housing Development Bank (HDBank) said it already achieved the year target of VND300 trillion profit.
Pre-tax profit in the first 11 months of 2010 of Ocean Bank was VND682 trillion, equivalent to 130 percent of the plan in 2010. ABBank, Military Bank, and Habubank, have also announced their profit target completions.
This resulted from the fact that banks had always kept the difference between lending and deposit rates of about three percent and force borrowers to accept interest rate increase when the market fluctuates.
Grasping advantages, opportunities for profitable lending
In 2010, the state tightened monetary policy and gold trading activities, the difference between lending and deposit rates has become increasingly narrowed, businesses are cautious in getting loans due to high interest rate.
But banks have their own way to keep obtaining great profit.
In fact, since having 70 percent of profit from lending, banks always maintain the difference between lending and deposit rates of about three percent, creating favorable conditions to be profitable.
Meanwhile, 80 percent of customers must have collateral when borrowing, of which the value should be much higher than the amount of loan.
For example, for a collateral house with market value of about one billion dong, banks only evaluate its value about VND700 million, and offer a loan of 70 percent of that evaluation amount. Thus, the borrower could only get a VND490 million loan, equivalent to 50 percent of the real value of the house.
This creates business advantage for banks to not be at loss. On the other hand, banks, in order to ensure profitability, always force borrowers to bear additional fees, commit to accept higher interest rate when there is fluctuation in the market.
Banks usually catch up with information on base interest rate, mortgage rates of valuable papers to borrow capital from the State Bank of Vietnam (SBV) (through Open Market Operation), in order to gain advantages in allocating cash flows, making immediate profit.
For example, when SBV injects capital via OMO, some large banks will quickly mortgage government bonds to borrow capital from SBV at interest rate of seven to nine percent per annum, then lend to small banks at interest rate of 10 to 30 percent per annum.
Meanwhile, reputed banks are always prioritized for low-interest-rate foreign currency loans, loans for export payment, budget revenues and expenditures, and salaries.
Those are the cheap sources of capital which could increase liquidity, reduce input costs; and that partly explains why large banks all exceed profit targets.
In addition, banks do not incur costs when foreign currency market fluctuates constantly.
For example, banks purchase dollars from export and service companies, and then sell to businesses wishing to buy dollars, because only banks could provide lawful proof of dollar purchasing and selling.
If companies purchase dollars from external sources and put into their bank accounts, banks could also increase revenues by legalizing that amount of foreign currencies for those companies. Thus, the actual trading exchange rate is decided by banks. Companies always have to bear the exchange rate difference.
Many opinions mentioned that thanks to a certain number of advantages, banks could obtain high profits. Banks' announcements on big profits could lead to thinking of business inequities among different types of business.
Many experts urged that the central bank should roll up sleeves to create a more specify lending contract towards more equality between lenders and borrowers.
Capital will be used for production in 2011
Recently, at the conference on mission of banking sector in 2011, SBV's Governor said the banking system targets 23 percent credit growth in 2011.
Credit growth target of each bank will be considered depending on specific size and operation quality of each bank. The target would focus on production area, be gradually reduced in non-manufacturing area.
Some financial experts believe that credit growth of 23 percent is reasonable because target of less than 23 percent could not ensure economic growth of seven to 7.5 percent. The important point is improving credit quality, not the credit growth figure.
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