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Bank profits dip as credit growth slows
Commercial banks in HCM City are concerned that they might not be able to meet their year-end business targets because lending has declined in the last seven months.
According to the State Bank of Viet Nam, in the first seven months of the year, credit in the banking sector grew by only 1.06 per cent compared with the figure recorded late last year.
In July, credit growth dipped to negative numbers, compared to 1.4 per cent for the first six months.
By the year-end, the entire banking sector will have 6-8 per cent credit growth, according to the central bank.
Independent market observers said that credit still remained the main source of income for banks.
Although in the last seven months, it met 50 per cent of its business plan for the year, DongA Bank says it remains under pressure.
The bank's general director, Tran Phuong Binh, said income from credit activities in the first seven months contributed to 70-75 per cent of the bank's profit.
However, the bank's credit growth in the last seven months was only 4 per cent, compared to its target of 15 per cent for the year.
Because of this, the bank has decided to adjust its profit target of VND1.5 trillion (US$71.4 million) for the year.
In the last seven months, the Orient Commercial Joint-Stock Bank (OCB) achieved credit growth of only 1 per cent, much lower than the 15 per cent set for the year.
Trinh Van Tuan, chairman of the OCB executive board, said that increasing lending at this time was not an easy task, so the bank would have to make extra efforts to meet its profit target of VND1.5 trillion ($71.4 million) for the year.
"Adjusting the profit target is inevitable," Tuan told Dau Tu (Investment) newspaper.
Major banks are also meeting difficulties in realising their profit targets for the year.
For example, Sacombank's pre-tax profits in the first six months was VND1.49 trillion ($70.9 million), accounting for only 43 per cent of its yearly plan.
According to a Sacombank representative, market fluctuations will prevent the bank from reaching a high profit level this year.
By August 22, the Asian Commercial Bank (ACB) has obtained pre-tax profits of VND2.34 trillion ($111.4 million) , while the bank plans to reach VND5.5 trillion ($261.9 million) in profits for the year, according to its newly elected general director Do Minh Toan.
Market experts said the rapid increase in bad debts at commercial banks had corroded profits because they were forced to set aside more money to set up reserve funds, as required by the central bank.
Although many banks, including major ones, have fulfilled half of their profit targets for the year, their profits have dropped significantly because of the mandatory contributions to reserve funds.
Dr Tran Ngoc Tho of HCM City Economics University said banks' earnings had dropped, but were still higher than many other industries.
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