Deck reshuffled to keep shareholders sweet

Banks are getting their houses in order to benefit shareholders

To underline the trend, HDBank and Gia Dinh Bank are to conduct the extraordinary general shareholder meetings this week to review business targets including profits.

HDBank earned a VND254 billion ($13.3 million) pre-tax profit by the end of October this year, meeting 84.6 per cent its full-year plan. The challenges of earning more profits will become greater once the bank completes its chartered capital increase to VND3.1 trillion ($163.1 million) later this year, doubling its current chartered capital.

“There will be a great pressure on banks’ operations in 2011 once the chartered capital is doubled,” said a high-ranking HDBank officer.

Gia Dinh Bank doubled its chartered capital to VND2 trillion ($105.2 million) on November 11 en route to its ultimate target of VND3 trillion ($157.8 million) in December.

November deposit interest rates have been quoted at around 12-14 per cent per year, pushing credit interest rate to around 17-19 per cent a year for the time being consequently. The country’s tightening monetary policies have hindered customers from accessing banking loans due to high interest rates, leading to banks’ eroded profits.

Viet A Bank, for instance, reduced its pre-tax profit target by nearly VND200 billion ($10.5 million) to VND300-350 billion ($15.7-18.4 million) for this year. The bank has completed raising chartered capital to VND2.0 trillion ($109.8 million) and targeting the VND3 trillion ($157.8 million) threshold.

Pham Duy Hung, general director of Viet A Bank, said credit growth rate was still slow. Meanwhile, the bank expects its credit-stemmed revenue to rise by 41 per cent against  last year.

Dai A Bank general director Le Huy Dung said once the deposit interest rate was hiked, the bank’s pre-tax profit would be hurt.

Local joint stock commercial banks are racing to fulfill yearly pre-tax profit targets after adjusting operations to meet new ratio regulations in October.

Among the 39 commercial banks, Techcombank has reduced its yearly pre-tax profit target by 14.5 per cent to VND2.8 trillion ($147.3 million), excluding its subsidiaries, given that the cut aimed to make proper adjustments in line with market movements.

According to Fitch Ratings’ latest report on Vietnamese banks on September 28, bank profitability was likely to remain under pressure in the second half of this year and in 2011.

Lending and deposit rates have been cut since the second quarter of this year in line with government guidelines and lending would likely decline more than deposits, it suggested.

Fitch expects provisioning charges to increase at some stage, given sustained weak underlying loan quality and excessive loan growth, which the agency believes has allowed borrowers with weak and marginal credit profiles to remain in operation, despite their leverage being estimated to have risen.