NPLs rein in bank profitability

Non-performing loans have had a major impact on bank profitability Photo: Le Toan

This year, VIB’s three-quarter after-tax profit was around VND26 billion ($1.24 million), equal to just 2.2 per cent of its target. Such dire result surpassed the disappointment of 2012 when the bank achieved only 41 per cent of its pre-tax profit target.

The low profits have been blamed on the increase in non-performing loans (NPLs). Potentially the bank’s irrecoverable loans, known as debt group 5, increased by 89 per cent, reaching VND516 billion ($24.57 million). Meanwhile, the lender’s credit growth was only 1.72 per cent.

NaviBank and PGBank both set markedly low profit targets for the year, aiming to make just VND120  billion and VND400 billion respectively. Yet even these modest targets look out of reach with Navibank completing just 11 per cent of the plan and PGBank’s completion ratio standing at only 18 per cent to date.

These two banks have the undesirably distinction of holding the highest ratio of NPLs and the lowest credit growth among Vietnam’s commercial banks. According to their financial statement, for the first nine months of the year,  Navibank and PGBank’s NPL ratios stood at 8.78 and 9.5 per cent, while their credit growth was minus 8.53 and minus 5.3 per cent, respectively.

In the first three quarters of this year, a number of banks completed less than 50 per cent of their profit target, including Techcombank, Southern Bank, VPBank, DongABank and Eximbank.

In 2012, profits in the banking system decreased by around 50 per cent, and the troubled performances of many commercial banks look likely to see the slum continue.

Banks which have fared better, completing the lions share of their profit target, were  BIDV (86 per cent), VietinBank (94 per cent), Saigonbank (94 per cent) and Sacombank (79 per cent).

Earlier in the year, VietinBank reduced their pre-tax profit plan to VND7,500 billion ($357 million) from VND8,600 billion ($409 million). In the first three quarters of this year, the bank earned VND7,047 billion ($335 million) in pre-tax profit, up 10 per cent on-year, and leaving them on target to meet expectations in the final quarter.

According to  Nguyen Hoang Minh, deputy director of the State Bank’s Ho Chi Minh City branch, there is no surprise at such decline in banking profit. Bank’s main profits come from lending, but credit growth is very low. To try to counter this, some banks even reduced their lending rate below the deposit rate of 7 per cent in an effort to attract customers.

National Financial and Monetary Policy Advisory Council member Tran Du Lich said the profit decrease was a consequence of over lending to the real estate sector in 2008-2010. “Then when this market collapsed, NPLs began spiraling out of control at many commercial banks.”

The fourth quarter is generally considered the peak season for banks to pump capital due to the rise in demand from enterprises. However, with increasing NPLs as well low or even negative credit growth, profit targets are unlikely to be met by many banks.