Banking system mired in trouble

The results are clearly shown in the “red ink” displayed on commercial banks’ consolidated financial statements for 2012.

The sharp decline in profit was not unexpected due to low credit growth as well as high non-performing loans (NPLs), prompting banks to rely heavily on loan loss provision.

Disappointing results from other business activities such as investments and foreign currency dealings also contributed to the sharp decline in banks’ profits.

According to Eximbank’s consolidated financial statement, its pre-tax profit for 2012 is VND2,850 billion ($136.8 million) with the credit growth of only 0.35 per cent and an NPL ratio of 1.3 per cent
However, in the fourth quarter of 2012, Eximbank suffered a loss in many activities including investment securities, forex and capital contributions. Especially, 2012’s income from forex activities reduced by VND209 billion ($10 million) to minus VND297.4 billion ($14.3 million).

Similarly, Sacombank also suffered heavy losses in the fourth quarter, reporting red ink amounting to minus VND25.3 billion ($1.2 million) in forex activities, minus VND255 billion ($12.2 million) in investment securities, minus VND122.5 billion ($5.88 million) in capital contributions and minus VND129.5 billion ($6.2 million) in other activities.

In total, Sacombank had a consolidated after-tax profit of VND714 billion ($34.3 million), a 64 per cent fall year-on-year, credit growth of 19 per cent and an NPL ratio of 1.89 per cent.

Meanwhile Saigon-Hanoi Bank, which merged with debt-ridden Habubank last year, announced a consolidated loss of minus VND95.5 billion ($4.6 million). This loss is due to high NPL ratio of 8.53 per cent and a huge loan loss provision of VND555.5 billion ($26.67 million), up by five times compared to 2011.

Military Bank fared better, but still had to used a loan loss provision of VND2,000 billion ($96 million), three times higher than 2011. Its pre-tax profit for 2012 reached VND3,090 billion ($148.4 million), falling 14 per cent short of year-plan target. The bank’s  NPL ratio is 1.85 per cent, while in 2011 is 1.61 per cent.

Techcombank last year only achieved 19 per cent of its year-plan profit, with VND1,017 billion ($48.8 million) in pre-tax profit and credit growth of 7.4 per cent.

Notably, these banks are all large joint stock commercial banks in Vietnam with total chartered capital higher than $2.9 billion, or 34 per cent of the total chartered capital of Vietnamese joint stock commercial banks.

For the banking system profit in 2013, many experts believed that there would be a clear difference between banks that chose to structure strongly and innovate service quality and the remaining. However, they said, 2013 would continue to be a year that only few banks could announce giant profits due to the inventories and NPLs are still high. According to the Ministry of Industry and Trade, the inventory of January, 2012 increased by 21.5 per cent against the same period last year.

Based on State Bank figures, as of February 19, 2013, banking system credit growth was only minus 0.16 per cent compared to the end of 2012.

However, banking profits and NPLs are closely connected to Vietnam’s stagnant real estate market, which is awaiting an expected thaw from the impact of new government policies to address the problem.