Taking aim at banks’ credit growth

In mid February 2012 State Bank deputy governor Nguyen Dong Tien said: “Some foreign credit institutions sharply hiked their chartered capital in 2011. In fact, they are good banks with risk management as well as business governance expertise. Hence, this bank group will be liable to see its credit hike to a level tantamount to chartered capital in 2012.”

In fact, the set credit benchmark will not be equally applied to all foreign banks and credit entities. Earlier, on December 13, 2011 central bank forwarded a dispatch to foreign banks and credit organisations requiring them to closely control credit activities in 2012 conforming to credit growth indexes assigned to each bank by the State Bank.

“Most foreign banks operating in the country are of group 1 or group 2 banks as per Vietnam’s classification standards for good risk management and high security standards. Hence, they should be given equal or maybe higher credit growth indexes compared to what were given to local banks,” said a foreign bank executive.

“For our bank, this means tightening since our total lending last year was almost equal to chartered capital amount,” said the bank chief.

Banking expert Nguyen Tri Hieu assumed the proposed credit growth was too modest since chartered capital often accounted for just 9-10 per cent of a bank’s total asset.

“Banks allowing  credit growth six to seven times more than chartered capital would be reasonable. Good local banks are given 15-17 per cent credit growth targets in 2012, so the same should be given to foreign players to create a level playing ground,” said Hieu.

“In fact, 15-17 per cent credit growth for some local banks means their maximum credit growth would equal 10-20 times their chartered capital,” said economist Bui Kien Thanh.

In fact, foreign bank branches and join venture banks currently account for 11.3 per cent of total banking market share in Vietnam.

The foreign bank group just saw around 7 per cent credit growth in 2011, according to State Bank Ho Chi Minh City branch which said foreign credit entities’ return-on-asset (ROA) rate averaged 0.16 per cent and return-on-equity (ROE) rate averaged 6.9 per cent by October 2011.  

2011 was a tough year to almost firms, but some foreign banks fared fairly well in 2011.

For instance, HSBC Vietnam eyed $82 million pretax profits in the first half of 2011, a 116 per cent jump on-year. Its full-year business figures would be aired this March and were expected to be rosy ones.

“2011 was a year of success for us with our credit growing 20 per cent against 2010,” said ANZ Vietnam chief executive officer Tareq Muhmood.

Foreign banks reportedly proposed the State Bank loosen 2012 credit growth targets to 17 per cent and even 20 per cent on the back of a 2011 bonanza year.

“We hope a 20 per cent credit growth for this year on the back of our stable operation in the past years,” said Sumitomo Mitsui Hanoi branch office general manager Noriyuki Watanabe.