Bank profit woes

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A recent survey of business trends released by the Monetary Statistics and Forecast Department under the State Bank of Vietnam showed that credit institution business results and profits in the first half of this year below-par.

Only 30.4 per cent of credit institutions estimated that the business situation in the first half had improved compared the second half of last year, while that proportion in the previous survey in December 2012 stood at 40.2 per cent.

Nearly 50 per cent of credit institutions surveyed said that their profits had declined in the first six months of this year against the last six months of 2012, with an average fall of between 20-30 per cent.

Deputy Governor of the State Bank of Vietnam Nguyen Dong Tien said that a sharp decrease in lending rates had remarkably affected profitability.

"The current difference between saving and borrowing rates stands at 3 per cent if banks fail to make risk provisions. However, if these provisions are made, profits would shrink to about 1.93 per cent," said the deputy governor.

After the first six months of 2013, Eximbank announced pre-tax profits of VND800 billion ($38 million), equivalent to only a quarter of the year plan of VND3.2 trillion ($152 million).

Eximbank chairman Le Hung Dung said the main reason for the hugely disappointing figures was the sluggish growth of credit within the banking system, which only grew 5.7 per cent in the first seven months.

"Given the current context of low credit growth, banks can hardly expect higher profits, so they should focus on controlling the quality of the credit and restrict bad debts. Then lower risk provisions linked to those bad debt would push up their profits," said Dung.

Meanwhile, in the first half of 2013, Vietcombank achieved pre-tax profits of VND2.6 trillion ($123.8 million), equal to 45 per cent of the year end target, while its credit growth remained at -1.1 per cent compared the end of last year.

The bank also remained cautious about business targets for 2013, predicting a pre-tax profit of VND5.51 trillion ($262 million), only by 95 per cent of the year plan.

A manager at another commercial bank also said that in current situation, it was difficult for banks to expect a high credit growth, adding that the current average contribution from credit activities made up only 60-65 per cent of the total revenue, instead of 70-80 per cent as previously.

The Monetary Statistics and Forecast Department's survey also showed that based on the performance in the first half of 2013, credit institutions had expressed more cautious expectations for profit growth over the whole year. Specifically, 65 per cent of credit institutions expected higher profits compared 2012 while the in the previous survey for the first six month of 2013had stood at 78.4 per cent.

Other banks also released their business results for the first six months, including Sacombank which made VND1.448 trillion in pre-tax profits, equivalent to 52 per cent of its annual plan.

Vietinbank has not released its profit results for the first half of the year yet but according to its financial statement from the first quarter of 2013, the bank's pre-tax profits reached just VND1.4 trillion ($66.6 million), down 32 per cent compared the end of last year, while its profit target for the whole year stood at VND8.6 trillion ($409 million).