Tough but Profitable Year for Banking Sector

In 2010, interest rates on average were raised to such a high level that it was difficult, not only for enterprises, but also for banks to mobilise capital. Besides, the Government tightened money policy and gold trading. However, despite these difficulties, some banks earned profits up to thousands of billions of Vietnamese dong. Although few banks have released final profit figures for 2010 yet, experts estimate many banks’ profits to be even higher than the planned figures.

Vietnam Commercial Bank for Industry and Trade (Vietinbank – CTG) is the first to release its profit for 2010. Accordingly, pre-tax profit in 2010 was estimated to be VND 4,500 billion, in which VND 1,400 billion was submitted to national budget.

 

As of the middle of December 2010, Vietinbank’s credit balance was approximately VND 225,000 billion, increasing 38 percent year on year and 10 percent against the plan. Bad debt at the end of 2010 was 0.75 percent. Capital mobilized was over VND 320,000 billion, increasing by 42 percent from earlier this year.

 

By December 15th 2010, total assets were VND 350,000 billion, up 41 percent this year and 17.5 percent above the plan; in which credit balance was about VND 225 thousand billion, increasing by 61.6 thousand billion (growth rate of 38 percent), which was 10 percent higher than planned.

 

The current charter capital of the bank is over VND 15,000 billion, increasing by 34.8 percent over the initial amount. Vietinbank’s charter capital for the end of 2011 is VND 30,000 billion.

 

With VND 604,5 billion of pre-tax profit by October 2010, An Binh Bank (ABBANK) nearly reached the year’s goal. From the VND580 billion of targeted profit which was proposed in the annual shareholder meeting, the Management Board of the bank increased it to VND 630 billion based on positive business output since the beginning of the year. Considering this new target, ABBANK’s pre-tax profit by October 2010 nearly reached the year’s target and by the end of the year, it will exceed as planned.

 

Vietnam Commercial Bank for Export and Import (Eximbank) also targeted 2010 profit of VND 2,200 billion. However, by the middle of December, Eximbank made profit of nearly VND 2,300 billion. Saigon Commercial Bank (Sacombank) released its profit as of November 2010 of VND 2,192 billion and expects to exceed the targeted profit of VND 2,400 billion. TrustBank said by early December 2010 it made over VND 200 billion of profit. Ocean Bank’s 2010 pre-tax profit in the first 11months was VND 682 billion, equal to 130 percent of the 2010 plan.

 

Other banks such as Military Bank and Habubank also announced their expectation to reach targeted profit by the end of the year.

It cannot be denied on banks’ advantages when they make profit from money. With difference of input and output interest of three percent, banks always have advantage in making profit.

 

Especially, banks always catch in front information of basic interest rate, mortgage interest rate on valued documents to borrow capital from State Bank (open market) to get advantage in balancing cash flow, bringing immediate profit, especially big banks. When State Bank pushes out money through open market, some big banks put mortgage of bonds to borrow capital from State Bank at rate of seven to nine percent per year and then lend other smaller banks at rate of 10 to 30 percent per year. Therefore, “the rich get richer”.

 

In addition, banks are not charged when foreign currency continuously fluctuates. For example, with enterprises wishing to buy foreign currency, banks will buy USD dollar from export institutions, services etc and resell to enterprises since there are only banks to provide legal documents on buying and selling USD dollar. If enterprises buy USD from outside sources to enter their account, banks also increase income when making that amount of foreign currency legal for enterprises, Therefore, actual transaction exchange rate will be determined by banks. Enterprises always charged for difference in exchange rates etc.

 

However, despite banks’ great advantage in business, it is important to improve credit quality, not credit growth rate, in meeting of implementing Banks’ duties in 2011, said Governor of State Bank Nguyen Van Giau, targeted credit growth rate in 2011 of all network is 23 percent.

 

Credit growth rate of each bank will be considered according to their scope and working quality. Credit will focus on areas of manufacturing, stop and reduce gradually in non-manufacturing areas.

 

As estimated by some financial experts, credit growth rate of 23 percent is reasonable since smaller number will not ensure target of economic growth rate of 7 to 7.5 percent.

 

The core is that banks increase credit quality, not number of credit growth rate.