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Banks report good news: they make lower profits
Commercial banks have reported unsatisfactory business results for 2012 with profits down dramatically. However, the unsatisfactory business performance of the banking system turns out to be the “good news.”
After many consecutive years of making huge profits, commercial banks have, for the first time, reported the sharp falls in their profits for 2012. Some banks reportedly have just fulfilled 20 percent of the business plan set up in early 2012.
High provisioning eat up banks’ profit
Sacombank, one of the biggest commercial banks in Vietnam, has reported the loss of VND802 billion for the fourth quarter of 2012. As a result, the bank’s pretax profit in 2012 was just VND1,315 billion, much lower than the targeted level of VND3.4 trillion.
The post tax profit of Eximbank was VND313.4 billion in the fourth quarter of 2012, a 69 percent decrease in comparison with the same period of 2011 which has been blamed on the sharp fall of 47 percent from bank loan interests. The income from bank services, foreign currency trade and securities investments all decreased sharply. This has resulted in the modest pretax profit of Eximbank at VND2.85 trillion.
Techcombank made a profit of VND1,017 billion in 2012, a sharp fall of 75 percent from that in 2011, just fulfilling 20 percent of the business plan set up by shareholders.
Meanwhile, SHB reported the modest profit of VND26.97 billion, because it has to bear the huge loss of Habubank, when taking over the bank.
ACB, which was always found in the list of the most profitable banks in previous years, has reported the low profit of VND1,201 billion in 2012, much lower than the VND4,202 billion in 2011. The loss of VND215.3 billion in the fourth quarter of 2012 was a part of the unsatisfactory business result.
Especially, the bank incurred the loss of VND1,863.6 billion in the whole year 2012 from the foreign currency and gold trade activities, though ACB is always a “big guy” in the field. It also took a loss of VND213 billion from the securities investments, and VND96 billion from other business activities.
The sharp falls of the profits made by commercial banks have been attributed to the high provisioning against bad debts.
SHB, for example, after taking over Habubank and bearing the high bad debt ratio of Habubank, had to make provision of VND1,413 billion against the bad debts. Of this amount, VND1,251 billion has been provisioned against the credit bad debt, while the remaining against the risky securities investments.
Pham Huu Phu, President of Sacombank, said the bank’s profit before provisioning was VND2.8 trillion. However, since it has to make provisions of VND1 trillion against the risky securities investments made by SBS, a subsidiary of the bank, the pretax profit has dropped to VND1.315 billion.
Low profits means good news
Truong Van Phuoc, CEO of Eximbank, said the provisioning would lead to the lower profits and lower dividends for shareholders, but this is really a must to ensure the healthy operation of the banks.
Therefore, the lower profit made by banks should be seen as the good news, because this means that banks have taken precarious measures to ensure their liquidity safety.
Nguyen Minh Phong, a well-known economist, said the business performance of the banking system would still be unsatisfactory in 2013 due to the minus credit growth. In principle, banks would only get high profits if they can push up lending, because 90 percent of the banks profits come from credit activities.
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