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Dinh Vu

Finance & Banking

Last updated: Friday, May 25, 2018


More Than 70 Pct Income of Many Banks Comes from Credit Activities

Posted: Monday, February 20, 2017

Statistics show that none of the banks in Vietnam in 2016 had the ratio of net interest income per total operating income of below 70 per cent, despite a lot of efforts to increase bank revenues through non-credit services.

Some banks have net interest income accounting for 91 per cent of revenues
Encouragingly, many banks posted profit of trillions of VND in 2016. However, according to recent financial statements, profits of many banks largely depend on credit activities.

Profits of many banks, including large banks such as Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), still relied heavily on credit activities. As for small banks, credit rates account for 80-90 per cent, even compensating for other unprofitable business activities.

No bank in Vietnam in 2016 had the ratio of net interest income per total operating income of below 70 per cent, despite a lot of efforts to increase bank revenues through non-credit services. This proves that the revenue of non-credit activities is very modest.

A financial expert said that non-credit services of commercial banks in Vietnam are simple and of small scale, and the competition is limited; marketing activities are not efficient with limited engagement of the individual clients; level of technology and high-quality human resources for development of non-credit services with high-tech applications such as derivative trading, electronic banking, trust funds have not been maximized to match the capabilities and advantages of banks.

Besides, cash habits in Vietnam are posing a major obstacle in development of the network of cards in particular and non-credit services of banks in general.

Traditional non-credit services will create sustainable income for the bank. The development of non-credit services contributes to diversifying banking products and services, thereby attracting and expanding to multiple customers and diversifying risks of banks; providing a stable source of revenue for banks, increasing the profitability of commercial banks and promoting cooperation and international economic integration in the banking sector.

Therefore, banks need to maintain and improve the quality of banking services to ensure openness and transparency, to simplify procedures and enhance accessibility and attractiveness to customers, to improve the mechanism of mobilising savings at appropriate interest rates in the bank.

The more reliance on credit, the more unlikely banks cut interest rates
In Vietnam, operations of enterprises rely heavily on bank loans. Meanwhile, bank’s profits depend mainly on credit services.

Banks need profits while they need to enhance the provisioning and bad debts, which obstruct the lower interest rates.

Furthermore, pressure of increasing deposit rates always puts on small banks so lending rates are unlikely to decrease in accordance with the objectives of the State Bank of Vietnam. The difference between lending rates and deposit rates has declined dramatically in the past 3 years and much lower than that of other countries in the region. The smaller difference is, the less incentives banks have to reduce the lending rates. Therefore, banks are required to raise revenue from non-credit activities for sustainable development.

At the New Year’s meeting at Vietcombank, Deputy Prime Minister Vuong Dinh Hue directed the banking sector in general and Vietcombank in particular to thoroughly understand the vision of Resolution of the 12th National Party Congress and the basic guidelines of the Decree of the State. Vietcombank is a pioneer in restructuring the banking system, credit institutions and bad debts, capital market and monetary market; making the market more balanced; further raising the proportion of sales of non- credit activities; and fulfilling the strategic and long-term vision.

Thus, in the future, banks should boost retail activities, personal services and develop non-credit services more effectively to change the structure of business results of the banks, especially in the conditions credit services are under many potential risks and interest rates are under pressure to increase.


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