Banks face new juggling act

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In light of banking authorities’ recent decision on retaining 2011 outstanding loans growth of less than 20 per cent, banks would have to pull down the proportion of non-production outstanding loans to 16 per cent of total by the year end compared to current 18.7 per cent on average, said State Bank governor Nguyen Van Giau.

The requirement will hurt banks, particularly small ones since lending non-production areas remains key income-raising sources of small banks and then the proportion often stays high.

For example, outstanding loans for non-production areas account for 52 per cent of total at Western Bank and reached 47 per cent at SeABank.

18 local banks reported the proportion of outstanding loans earmarked for non-production areas of up to 25 per cent while 24 other banks report the rate of more than 25 per cent.

Ocean Bank (OCB) general director Trinh Van Tuan said OCB downwardly revised 2011 credit growth targets after the State Bank’s enactment of Instruction 01/CT-NHNN covering banking activities and monetary measures to curb inflation and ensure macro-economic stability.

DaiA Bank was in the same position and the bank’s management said the pre-tax profit of VND600-700 billion ($28.9-$33.8 million) set for 2011 put them under big pressure.

Earlier, small banks proposed banking authorities to adopt flexible 2011 outstanding loan growth requirements towards banks based on banks’ capital size.

Banking authorities, however, decided to apply the same mechanism towards banks which are all required to keep 2011 outstanding loans growth of less than 20 per cent.

“It is unreasonable for small banks to enjoy higher [outstanding loans] growth for 2011 as this will make them face bigger risks,” Giau said.