Banks continue to be in a pickle

In the face of surging bad debts and blocked credit, banks have had to scale down lending rates to fuel demands.

Parallel to offering competitive rates to new loans, banks have softened the rates of old loans to 15 per cent per year maximum as regulated by the State Bank. In doing so, banks have sacrificed part of their profits to woo customers.

Their dividend payment was then inevitably affected.

Orient Commercial Bank (OCB) chairman Trinh Van Tuan said the bank could hardly achieve its proposed full-year pre-tax profit of VND500 billion ($23.8 million) this year.

“OCB credit expansion was just a half of the bank’s allocated credit growth target of 15 per cent for this year in ending October. Rising bad debts made OCB to put more money into provision which has eaten up bank’s profits,” said Tuan.

Tuan added the bank’s proposed dividend payment  of 10 per cent would be slashed to 5 per cent in this context.  

Joint stock banks’ financial statements in the first three quarters mirrored banks’ grey profit picture.

KienLong Bank just scaled down its 2012’s pre-tax profits by 14.5 per cent with lower asset value, mobilising and dividend targets against surging bad debt rate.

Accordingly, its pretax profit was pulled down to VND530 billion ($25.2 million) from a proposed VND650 billion ($30.9 million) tantamount to 14.5 per cent, whereas the bad debt rate was revised from less than 2 per cent as proposed in early 2012 to 3 per cent.

Consequently, its dividend rate was revised from more than 12 to 10 per cent in 2012 in the face of falling profits.

According to the bank’s third quarter financial statement, its accrued pre-tax profit was around VND414 billion ($19.7 million) in the first nine months, down 7 per cent on-year.  As of September 30, 2012 the bank’s bad debt rate stood at 2.78 per cent against 2.77 per cent by the end of 2011.

At DaiA Bank, the bank’s credit expanded 11.6 per cent and lending hiked 15.8 per cent in the first nine months.
However, its accrued after-tax profits fell to VND225 billion ($10.7 million) in the first nine months of 2012, down 21 per cent on-year due to higher operating costs and falling net interest.

Ho Chi Minh City-based banks saw their profits in the first 10 months tantamount to 28.5 per cent of 2011’s full-year profits due to persistent bad debts and modest credit growth, according to Ho Chi Minh City State Bank branch office deputy director Nguyen Hoang Minh.