Banks continue to hedge bets when it comes to profits

About 18 banks, including large and small-scaled ones, are holding annual general shareholder meetings (AGM) this week, with modest profit expectations for 2013.
 
  Specifically, giant state-run Vietcombank envisions  profit growth of only 0.6 per cent this year, reaching VND5,800 billion ($278.5 million). In 2012, the bank targeted a profit growth of 15 per cent but in fact, its profit only grew by 1.17 per cent. This lackluster  performance prompted the low profit target this year.

  Eximbank, a large commercial bank with total chartered capital of VND12,355 billion ($593.2 million), plans to increase its profit to VND3,200 billion ($153.6 million) this year. While in 2012, the bank’s profit was expected to reach VND4,600 billion ($220.8 million), it in fact  achieved only 62 per cent of the year-plan.

  Oceanbank, a small-scaled bank with total chartered capital of VND4,000 billion ($192 million) in 2012, aimed for a pre-tax profit of VND750 billion ($36 million), but it could earn only VND310 billion ($14.9 million). In 2013, the bank set the profit target of only VND216 billion ($10.37 million). 

  Lower profit growth is stated in business plans of many banks such as Military Bank, BIDV, Sacombank and ACB. Based on the documents sent to shareholders prior the AGMs, many banks forecast that the financial market and banking sector in 2013 would be  bleak. The problems include little sign of improving settlements of non-performing loans, inflation pressures, an unstable macro-economy and low demand for loans. 

  Another factor affecting the profit of the banking system in 2013 is the State Bank’s requirement to increase loan loss provision. Based on the State Bank’s Circular 02/2013/TT-NHNN, which will come into force on June 1, 2013, many current debts of banks may be classified as bad debts, which means that banks will have to spend more on their risk provisions. 

  According to Phan Huy Khang, general director of Sacombank, the impact of this circular meant that, the overdue debts of the banking system could increase, and banks’ profit would be affected by increased provisions.

  Nguyen Van Le, general director of Saigon-Hanoi Bank, said that Circular 02 would not make the bank’s non-performing loan increase, but agreed that it made the provision cost increase and lower bank profit. 

  According to Alan Pham, chief economist of VinaSecurities, many banks told him they expected the State Bank to adjust the effective time of Circular 02. The State Bank issued this circular in January, 2013 which will take effect  this June. “They hoped that Circular 02 will become effective at least at the beginning of next year. Given both current capital demand and supply being low, the State Bank could adjust the effective date to create breathing space for banks,” said Pham.