Banks profits to head south

Dr. Tran Hoang Ngan, Ho Chi Minh City Economics University’s deputy rector and member of National Financial and Monetary Policy Advisory Council, predicted that 2013 would continue to be another year of hardships for the banking sector because of the burden of non-performing loans (NPLs) and the slow pace of remedial actions.

Most of banking sectors’ NPLs is directly or indirectly related to properties, Ngan pointed out. Property has fallen significantly compared to those three years ago, making it difficult for banks to take back loans.

Bad debt pressures, Ngan said, could complicate the overall economy. The government has to concentrate efforts into tackling bottlenecks relevant clearing inventory and addressing bad debts in 2013, he said.

Banks would then need to set aside higher amounts for making provisions, thus dampening their profit perspectives.

Vietcombank is among those adjusting accordingly.

“Vietcombank just posted VND5.7 trillion ($272 million) pretax profits by the end of 2012 against more than VND6.5 trillion ($310 million) projection. Hence, we need to be cautious with 2013 business targets which would not be higher than 2012,” said its chairman Nguyen Hoa Binh.

Binh said that combating bad debts remains the banking sector’s greatest challenge in 2013, and will make banks more cautious in choosing customers.

The top executive of a Ho Chi Minh City bank suggested that bank profit targets in 2013 would be set lower since banks must concentrate efforts into addressing bad debts and make provisions.

State Bank Ho Chi Minh City branch deputy head Nguyen Hoang Minh said city-based bank profits in 2012 were just 30 per cent of those in the previous year.
Minh forecast banks would report better lending in 2013 on the back of lower borrowing costs, but bad debts could hamper bank efforts to boost outstanding loan amounts.

Supportive of this idea, Dr. Nguyen Van Thuan, head of Finance-Banking Faculty at Ho Chi Minh City Open University,  said  many firms were facing default as banks had become more prudent in lending due to fear of bad debts.

Banks, therefore, could hardly raise outstanding loan amounts though lending rates are going down. Meanwhile, bank profits mostly come from traditional channel of credit services.