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Profit of banking sector in 2011: Large profit from some banks only
In 2011, the Government managed the monetary and fiscal policis in a tight manner in order to control inflation and stabilize macro-economy. This policy has affected the whole economy, particularly enterprises and credit institutions. While enterprises were in difficulties, business and production came to standstill, even a lot of businesses went bankrupt, at the beginning of 2012, several banks announced huge profit in the mass media.
This has caused different opinions in the public. However, data from the Financial Supervision Agency (FSA) of the State Bank of Vietnam (SBV) shows that net profit of the whole banking sector in 2011 increased by 15.1% as compared to 2010, lower than the rates of the previous years; and profit in 2011 of nearly half of the credit institutions decreased as compared to 2010. While most banks have expereinced stable, safe and effective operations, there are over 10% out of all the banks in Vietnam operating inefficiently, resulting in their business losses. Related to the growth of banks’ revenues in 2011, FSA suggested some comments as follows:
Firstly, profitability of the banking sector in Vietnam is on an average level and lower than last year. Net profit of the whole banking sector in 2011 increased by 15.1% as compared to 2010, while the growth rates of equity and asset are 22.85% and 18.55% respectively. ROA (return on assets) and ROE (return on equity) of the whole banking sector in 2011 were lower than those of 2010: ROA and ROE were 1.09% and 11.86% respectively (while the indexes in 2010 were 1.29% and 14.56% respectively). In comparison with the indexes of other 10 sectors of the economy, it is found that ROE of the banking sector is on an average level while ROA is the lowest. Meanwhile, ROE of the banking sector in South East Asia is 14% -15% and the world generally at 17%.
Secondly, there is a great difference in profit amount among commercial banks in Vietnam. The profit of the banking sector increased primarily due to the growth of a number of banks with large- of total assets and equity, good governance, better risk management, and safe and effective operations. Meanwhile many banks are of a small scale, weak governance, lack of competitiveness in the market so that they had to mobilize resources with high interest rates in accordance with a sharp increase in bad debts, resulting in very low earnings, even larger losses in 2011.
Thirdly, the profit figures of credit institutions by December 31, 2011 do not reflect their full expenditures:
(i) According to the current regulations, the SBV’s loan classification and risk provisioning are conducted quarterly, and within 15 working days of December for the fourth quarter. Therefore, the expenditure by December 31, 2011 did not reflect the amount of provisioning conducted in the entire year of 2011. According to FSA’s data, the total amount and level of bad loans of credit institutions increased constantly, especially in end 2011 and early 2012, being shown through the downward trend in the operational results of credit institutions in early 2012, in particularly, the cumulative gap of expenditure and revenue of the whole banking sector by April 30, 2012 was very low and over 50% lower than that of the same period of 2011. The expenditure – revenue gap in April, 2011 was negative.
(ii) Debts which were classified and provisioned include only credits while other kinds of assets (like investments in corporate bonds are neither classified nor provisioned. According to the regulations on asset classification and provisioning, 50% of the collateral value of assets as real estate is deducted when provisioning. However, the volatility and constant downturn of the real estate market and other problems have resulted in inadequate figures of profit announced by credit institutions, not fully and accurately reflecting the actual business results.
Fourthly, other factors contributing to higher profits in 2011 include: (i) to implement Resolution No. 11 of the Government, SBV strictly controlled the money supply, capital mobilization from economic entities and residents faced many difficulties, credit institutions had to actively raise their capital usage coefficients to improve the capital efficiency, maximize profits and meet the requirements and expectations of shareholders, being shown most clearly by the tension in the liquidity of several credit institutions in end 2011; and (ii) credit institutions provided additional services and new products such as money transfer, various kinds of cards for payment, treasury services, forex trading ... to meet customers’ needs and contribute to increasing profits, therefore, the total revenue in 2011 of the entire system was up by 15% as compared to 2010.
The profitability of credit institutions in 2011 was on a upward trend in line with the of assets, charter capital, management and governance capacity of each credit institution and the common difficulties of the economy. That credit institutions operated stably, safely and effectively contributed to stabilizing the economy. However, there are still problems and it is necessary to make the full assessment of the profit figures announced by banks.
The Regulations on loan classification and risk provisioning of credit institutions are being studied by SBV to revise and remove inadequate problems. The profit figures of credit institutions will be reflected fully and accurately
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