Local banks miss the mark on yearly targets

Prior to the annual general meeting season for banks, various financial institutions have set their annual profit targets for the year. Although each bank has a different target, they all anticipated positive growth in their turnover.

Nam A Bank, for instance, expects to earn VND300 billion ($13.76 million) in pre-tax profits and VND40 trillion ($1.83 billion) in total assets, up 19 and 13 per cent against 2015, respectively.

ACB likewise set its pre-tax profit target at VND1.5 trillion ($68.8 million), up 14 per cent compared to 2015. The bank predicted its total assets would grow 18 per cent to VND237 trillion ($12.5 billion) in 2016.

Orient Commercial Bank (OCB) general director Nguyen Dinh Tung also said that OCB anticipated higher profits than in the previous year. However, he noted that as credit growth on real estate could be tightened in accordance with the draft amendment to Circular 36/2014/TT-NHNN, and provisions for non-performing loans (NPLs) have not been reduced, banks should not bet on massive profits by the year’s end.

In fact, NPL provisions have been washing up a significant proportion of profits in both small and big banks.

Eximbank last year reported a negative VND26 billion ($1.19 million) in post-tax profit, and a mere VND89 billion ($4.08 million) in pre-tax profit, far from its VND1 trillion ($45.87 million) pre-tax profit goal set at the beginning of the year. The bank has put aside VND935 billion ($42.88 million) in NPL provisions as part of an effort to bring its NPL ratio down to 1.85 per cent for the whole year.

Vietcombank, Vietnam’s second biggest lender in terms of assets, last year also reserved a whopping VND8.6 trillion ($394.4 million) in NPL provisions, up 21.4 per cent year-on-year.

Risk provisions will continue to chew into profits in 2016, which in turn will affect overall profit figures among banks this year.

According to Bao Viet Securities (BVSC), total provisions across banks could reach as high as VND91.37 trillion ($4.19 billion) in 2016, much more than the VND74.82 trillion ($3.43 billion) from 2015 and the VND59.29 trillion ($2.71 billion) from 2014.

Of the VND91.37 trillion ($4.19 billion), provisions for NPLs alone will account for VND53.09 trillion ($2.43 billion), with a remainder of VND38.26 trillion ($1.75 billion) coming from special bonds issued by the Vietnam Asset Management Company (VAMC).

BVSC noted that even with NPL ratios being cut back, the actual volume of NPLs has not changed. As of December 31, 2015, VAMC had bought a total NPL of VND200 trillion ($9.17 billion) from banks, while the ratio of bad debts was merely 10-15 per cent.