Highly Profitable Year for Banks

Many of Vietnam’s banks are forecast to complete the year 2011 with big profits. Those profits will even exceed their planned targets, reaching hundreds or even thousands of millions of Vietnamese Dong.

 

While high interest rates causing difficulties for many Vietnam enterprises, this forecast leaves the public wondering whether banks are “eating” on the backs of enterprises?

 

Updating the latest business results to the end of November 2011, TienPhong Bank announced that its profit before tax reached VND376 billion, profit this year is expected to increase 140 percent in comparison with 2010. Ms Tran Thanh Hoa, General Director of ABBank said by the end of November 2011 its profit before tax reached VND391.3 billion.

 

“Our first priority is to ensure banking system safety, therefore we have implemented required provision funds,” said Ms Hoa.

 

According to Sacombank, its profit before tax was VND 2,618 billion by November 2011, accounting for 97 percent of the year’s plan. Earlier, in October, 8 banks whose stocks are listed in Hanoi Stock Exchange and Ho Chi Minh Stock Exchange posted their third quarter profits. Concerning net profit, in the first place stood Vietinbank with VND4,129 billion, followed by Vietcombank with VND3,309 billion, ACB with VND2,101 billion, and Eximbank with VND2,028 billion.

 

At a conference, Mr Le Cong, General Director of MB also said its profit before tax of the three quarters was VND 2,160 billion, while the bad loan rate was controlled at below 1.9 percent.

 

It is now safe to confirm that many banks will realise their profit plans of 2011, even exceed them. However, their happiness sometimes turns out to be the sadness of others. A banker disclosed that there were many banks expecting losses.

 

The main reasons for the losses of these banks are the fact that they have used short term capital resources to grant long term loans, as well as their property loan rate reaching too high a level, which puts them at risk of falling into the bad loan group. Therefore, aiming to ensure their liquidity, those banks have had to borrow money at a high interest rate in the interbank market, while bad loans keep increasing.

 

As for the profit structure, according to analysis, this year banks have kept traditional profits from credit operations. A member of the Management Board of a bank disclosed: This year we have “won a bumper crop” thanks to abundant capital resources to granting loans in the interbank market, especially at times when liquidity on the market was so tense that the interest rate jumped to over 30 percent a year.

 

According to the analysis, foreign currency trading has also contributed to high profits of banks implementing this operation such as Vietcombank and Eximbank. “Our net profit from foreign currency trading operation has reached VND700 billion or VND800 billion, contributing considerably to overall profit,” revealed a banker.

 

Moreover, banks with high market share have also gained more money from provisions of money transfers, payment fees, foreign currency remittance charges and fees for other services.

 

Answering questions of the public about enormous profits of the banking sector, a representative of State Bank of Vietnam said: Looking at the absolute number of many commercial banks’ profits, which have reached thousands of billion VND, those figures are really high. However, looking at them from other angles, profits of banks are not that high.

 

For example, market price of a stock is at a medium level, even close to or under its face value of VND 10,000 apiece, which happens even with stocks of banks with thousand-billion profits. Concerning the rate of total asset to charter capital, profits of banks are not high.

 

Taking Techcombank for example, by June 2011 its profit before tax reached VND1,500 billion, however its total assets were up to VND177,000 billion. As for return on equity (ROE) in 2010, ROE of Vietnam commercial banks was under 20 percent, which was as high as averaged ROE of international banks studied by the International Monetary Fund (IMF) in 2009.

 

While ROE in the first 6 months of 2011 of top ten banks such as Vietcombank and ACB did not reach 25 percent, ROE of VIC (Vincom) was 44 percent, VNM (Vinamilk) 48.3 percent, MSN (Masan) 34.4 percent, PGD (PVGas) 45 percent… Moreover, the money for required provision funds for loans will increase because qualified loans tend to move into other loans groups at higher levels (bad loans).

 

A startling figure shows that as of June 2011, total bad loans which require provision funds for probable risks of 8 banks listed in the Stock Exchanges reached VND18,000 billion, and this figure tends to increase through the end of the year.

 

A member of the Monetary Advice Council also admitted, in 2011 many banks have not realized expected profits. However, he said: “Looking at the common difficulties of the economy, when many enterprises are suffering big losses, even going bankrupt, sharing the same blanket with people on one side and enterprises on the other side, banks absolutely will not… get cold.”