Many commercial banks in Vietnam have announced high profit growth target for 2012 despite a lot of difficulties anticipated in 2012. Will banks have much room for strong growth this year?
Growth from 20 percent to 100 percent
In 2012, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), a top lender in the country, expected a 20 percent growth in pre-tax profit and total assets, a 25 percent growth in deposits, a 20 percent growth in outstanding loans, bad debts of 3 percent, incomes of collection services on total operating revenues accounting for 10 percent, registered capital of VND30,000 billion, and capital adequacy ratio (CAR) equalling or exceeding 10 percent.
In 2011, the partly private lender posted the profit before tax of VND8,105 billion, total assets of VND460,421 billion, bad debts accounting for 0.74 percent of outstanding loans, return on equity (ROE) of 25.4 percent, return on asset (ROA) of 1.96 percent, and dividend of 20 percent.
The Bank for Investment and Development of Vietnam (BIDV) has recently announced its 30 percent growth in pre-tax profit in 2012, reaching VND5,800 billion. The ROE is expected to reach 17 percent from 13 percent in 2011. The lender also expects CAR at above 10 percent, total assets of VND50 trillion (an increase of 17 percent over 2011), and bad debts of 2.8 percent.
DongABank expects the profit to increase 131.5 percent in 2012 from 2011 (up 146.3 percent from 2010), the registered capital to rise from VND4,500 billion to VND6,000 billion, the total assets to expand to VND100 trillion from VND64,559 billion, outstanding loans to reach VND50.6 trillion (from VND44,005 billion in 2011).
Military Bank (MB) has announced the 2012 targets to increase the total assets by 22 percent; the registered capital by 64 percent, deposits by 21 percent, outstanding loans by 15 percent over 2011. The Hanoi-based lender strives to have 240 transaction points in 2012.
Smaller lenders like KienLongBank also announced relatively impressive earnings targets. KienLongBank expects pre-tax profit of VND710 billion, dividend payout of 30 - 40 percent, and nonperforming debt of less than 2 percent on total loans outstanding, and supplementation of 30 branches and transaction offices. In 2011, its profit before tax reached VND522 billion, up 102 percent over the previous year.
Advantage for big banks
Giving explanations for the earnings basis, Tran Phuong Binh, General Director of DongABank, said: Despite warning about operating hardships for banks, it is not the reason for lowering the target because this will weaken efforts of the bank’s units.
He added that difficulties usually go hand in hand with opportunities, especially banks with their own development ways like DongABank. The plan to merge 5 - banks announced by the State Bank of Vietnam (SBV) is also the reason for banks to lift up earnings prospects.
According to experts, big banks are confidently announcing high earnings growth prospects. For example, VietinBank is expected by the Governor of the State Bank of Vietnam (SBV) to be a top lender in the region.
However, most small and medium commercial banks appear to be quite tight-lipped with profit plans expected to be presented at shareholders meetings in 2012.
According to a bank director, there will be a clear differentiation in profit plans among commercial banks this year because of tight credit policy and specific credit growths applied to different banks.
Big and healthy banks will have the opportunity to increase profits from an array of credit while small ones are possibly the targets of restructuring or merger and they will find it harder to make profits. Possibly, the central bank will close the credit ‘room’ for problematic banks.
However, a banking expert noted that impressive earnings growths do not mean much because the registered capital of banks is rising very quickly, particularly those with the charter capital of VND5,000 billion - VND10,000 billion.
Notably, bad debt ratios tend to be higher than the last year because borrowers will have fewer chances to reschedule loans when the State Bank fills loopholes in credit growth.
Then, commercial banks will have to set aside more for risk provisions and this will dent into their earnings. In fact, some lenders announced losses in the fourth quarter of 2011 because of rising provisioning costs.
Habubank disclosed the loss of VND41 billion in the fourth quarter of 2011 due to increasing operating costs in couple with risk provisions worth over VND132 billion. Certainly, small banks will have to consider earnings targets carefully before submitting to shareholders at annual meetings.
DTTC
Vietnamese
