Banks’ profits take a big hit

Even though lending rates have reduced significantly, the disbursement of capital into the economy is still very slow. According to State Bank statistics, in the year to the end of September, the credit growth of the whole banking system reached only 2.5 per cent  compared to the end of 2011.

Many experts had lowered the projected  figure for the whole year to 4-5 per cent, instead of 8-10 per cent as previously expected. Even at many major commercial banks with lending for government projects and support packages, credit growth was limp.

At Vietcombank, credit growth for the first nine months of 2012 is estimated to reach only 8.5 per cent over the end of last year, while the targeted rate for the year is 17 per cent. Vietcombank Securities (VCBS) recently forecasted that Vietcombank could achieve only VND6,250 billion ($297.6 million) in pre-tax profits, with credit growth reaching 13 per cent, much lower than the targeted VND6,550 billion ($311.9 million) approved by its shareholders’ meeting this year.

Similarly, at Asia Commercial Bank (ACB), the yearly target seems distant as its pre-tax profit as of August 22 reached only VND2,345 billion ($111.7 million), less than 50 per cent of its targeted VND5,500 billion ($261.9 million) for the year.  Meanwhile, Eximbank obtained VND2,300 billion ($109.5 million) pre-tax profit, equivalent to 50 per cent of its yearly target of VND4,600 billion ($219 million).

Le Hung Dung, chairman of Eximbank’s board of directors, said the bank was attempting to fulfill the target, but faced pressure as lending activities experienced difficulties. In a similar  situation, Sacombank achieved 60 per cent of the expected annual profit of VND3,400 billion ($161.9 million) in the first nine months, but bank leaders said it would be tough going during the remainder of the year.

Apart from difficulties in boosting credit growth, increasing stockpiles amid decreasing purchasing power also threatens banks’ profits by reducing enterprises’ ability to pay back loans.

Non-performing loans (NPLs) require banks to set aside provision for credit losses, which eats into their profits.

Besides, the recent gold rushes have led banks to buy in gold to compensate for the unequal balance of gold before gold mobilisation is stopped on November 25, this year.

At small-scaled commercial banks, difficulties are even greater. Some banks’ credit growth was negative or little compared to their approved credit ceiling.

For instance, credit growth at Orient Commercial Bank (OCB) in the first nine months was less than half of its appointed target of 15 per cent. Thereby, OCB has only obtained half of its annual target for 2012 of VND500 billion ($23.8 million).

Meanwhile, half-year financial reports of KienLong Bank showed that its after-tax profit was 174.7 billion ($8.32 million), down 13.6 per cent over the same period last year, reflecting losses in equities trading and services.

Notably, its NPLs in groups three, four and five - the groups with highest risk of losing capital - reached 2.7 per cent.