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Forced to tighten credit, banks still can obtain satisfactory profits
Contrary to all predictions, banks’ finance reports still show satisfactory business results for the first quarter of 2011, even though banks have been told to restrict the credit growth rate at 20 percent, and it is very difficult to look for borrowers since the lending interest rates have become sky high.
Navibank has reported a sharp pretax profit increase of 290 percent in the first quarter of 2011, in comparison with the same period of 2010. In the first three months of the year, the bank earned 60 billion dong in profit.
The pretax profits of “big guys” were also very high. The Asia Commercial Bank ACB has reported the profit of 900 billion dong in the first quarter, an increase of 50 percent. Meanwhile, Eximbank got 1000 billion dong in profit, fulfilling 35.2 percent of the yearly plan (The bank hopes to obtain the pretax profit of 3 trillion dong this year, an increase of 26 percent over 2010).
Vietcombank, the equitized bank, has also reported a satisfactory business result with the pretax profit of 1700 billion dong in the first quarter, and the post tax profit of 1335 billion dong, up by 20 percent over the same period of the last year.
When asked about the surprisingly high profits, most of bankers declined to give comments. Only the deputy general director of a joint stock bank based in HCM City, said that though his bank got a high growth rate in the first quarter, the real profit was not big.
Bankers decline to make comments about the profits partially because they fear that they may face criticism from the business community. Enterprises always complain that while they have to face big difficulties in the production, banks still can earn fat profit. In general, enterprises now have to borrow money from banks at overly high interest rates of over 20 percent per annum, while they believe that banks should have eased the interest rates in order to share difficulties with enterprises.
Tran Du Lich, Member of the National Assembly’s Economics Committee, said that it is necessary to look into bank profits from different angles. He said that one should compare the profits with the banks’ networks, labor force and investment capital, as well as the profits in other economic fields before making conclusion about if the banks’ profits are low or high.
According to Dr Nguyen Van Thuan, credit remains the key source of income for banks. In the first quarter of 2011, the outstanding loans increased by 3.67 percent, which was higher than the rate of the same period of the last year (3.34 percent).
The State Bank of Vietnam has set a cap on the deposit interest rates at 14 percent per annum, but the ceiling interest rate on loans has been removed, thus allowing banks to raise the lending interest rates in order to widen the interest rate margin. In general, banks are lending at 18 percent per annum to fund production projects, and at 20-27 percent per annum to fund non-production projects.
In fact, banks have been trying to “dodge the laws” and offering the deposit interest rates at higher than 14 percent in order to attract more deposits. However, Thuan has affirmed that even in this case, the gap between the deposit and lending interest rates is still high, which ensures big profits for banks.
Thuan has also warned about the stability of the profits of banks. He said that the high interest rates are clearly unbearable for normal businesses. However, many businesses still borrow loans, accepting the high interest rates. The banks, which provide loans at high interest rates, have to face high risks.
Despite big difficulties, banks still set high targets for themselves, because they hope that the interest rates would decrease gradually from the second quarter, when the inflation is put under control.
ACB, for example, decided that it needs to obtain the pretax profit of 4100 billion dong for this year, an increase of 32 percent over 2010. Sacombank’s board of management also submitted to the shareholders the plan to obtain the pretax profit of 2800 billion dong in 2011, higher than the 2010’s level at 2600 billion dong.
vietnamnet, VnExpress
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