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Bankers fear new policies will make profits low in 2011
Bank management boards have been told by shareholders to strive to obtain high profits in 2011. But, bankers say this is an impossible mission.
2010 was a difficult year
The management boards of Dong A and Viet A Banks had to report to shareholders at shareholder meetings held several days ago, that they failed to fulfill the 2010 business plans set early last year.
The pre-tax profit of Dong A in 2010 was 858 billion dong, an increase of 8.86 percent in comparison with 2009. Explaining why the bank could fulfill only 78 percent of the yearly business plan, managers of the bank said that “in order to ensure the capital adequacy ratio as requested by the State Bank, in 2010; Dong A had to focus on mobilizing capital at relatively high interest rates due to the stiff competition on the market.” This made the capital costs higher than that in 2009.
Besides, the State Bank set up a cap on lending interest rates, which led to the margin between the deposit and the lending interest rate narrower; thus, making the profit lower. Though Dong A tried to seek income from non-credit services, the earnings from foreign currency and gold trade decreased sharply; since the central bank has prohibited trading gold on account, and restricted the capital mobilization and lending of gold. The gloomy stock market could not bring profit to Dong A’s Securities Company. Therefore, the expansion of the ATM network made the operation costs of the bank increase.
The same explanations were given by managers of Viet A Bank. The bank’s managers were told early last year, that they need to make 498 billion dong worth of pretax profit, and have the dividend of 15 percent per annum. However, in 2010, the bank only got 347 billion dong in pretax profit and fulfilled 70 percent of the yearly plan. The dividend paid in 2010 was low, at 12 percent per annum; even lower than the average deposit interest rate in 2010.
2011 will be a more difficult year
Bankers complain that they are always under the pressure from shareholders, who always want high profits and high dividends. Meanwhile, this is a very difficult task, because the State Bank has decided to tighten the monetary policies, telling commercial banks to curb the credit growth rate at no higher than 20 percent this year.
Trinh Van Tuan, General Director of OCB, said “the policies on restricting credit growth will affect bank’s operation, especially small and medium banks who have been “living” on credit.”
Tuan said “the most difficult task for managers for 2011 is to obtain high profits. The government has forced commercial banks to increase their chartered capital to three trillion dong at least.” Meanwhile, investors only agree to pour more money into the banks if banks promise high dividends for them.
Banks have to seek profit to satisfy the investors who have injected money in the banks. The profit mainly comes from credit (For some banks, credit brings 60 percent, or even 90 percent of the source of revenue). However, the income source tends to get narrowed because of the new policy of the State Bank.
OCB plans to submit to the shareholder’s meeting, the plan to obtain the profit growth rate of 20 percent in 2011, which is equal to the credit growth rate. The bank plans to pay the dividend at 10 percent this year.
“We have no other choice. We have to restrict lending as told by the central bank. Meanwhile, we cannot find income sources from non-credit operations overnight,” Tuan said.
At the shareholders meeting, Viet A’s management board submitted the plan to have the 62 percent credit growth rate in 2011. However, a representative from the State Bank of Vietnam, who attended the meeting, said immediately that “the bank will have to adjust the targeted credit growth rate because no bank will be allowed to obtain the credit growth rate at higher than 20 percent.”
vietnamnet
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