The year 2006 is a record year in profit and marks outstanding development among banks. However, the year 2006 is possibly the final point for prime time profit, marking a transition to a new development period for quality of commercial banks.
Following are 10 outstanding events this year:
1. This year, interest rates continued rising and were followed closely after recovery and sharp growth in 2004 and 2005.
Since the start of this year, interest rates have risen at least three times, mainly US dollar deposit interest rates which are not required to follow negotiated rates fixed by the Vietnam Banks Association.
However, US dollar interest rates in the world market became stable. This created a narrow gap between world market and domestic market interest rates.
Meanwhile Vietnamese dong interest rates saw a slight increase, mainly at commercial joint stock banks. The Vietnam Banks Association warned of breaking the negotiations among banks.
Interest rate increase in both US dollar and Vietnamese dong have nearly hit their limits and adversely impacted safety of banks and the whole economy.
For economic growth target, the central bank still maintains its key rates.
It is projected that interest rates will hardly rise further. Some banks even cut their interest rates slightly.
2. Chartered capital sharply increased
Within this year, almost all commercial joint stock banks raised their chartered capital to VND1 trillion. These banks target chartered capital of VND2 trillion next year.
Banks met with favorable conditions for hiking their capital, namely high profit, fast developing capital market, and indirect investment inflow of foreign credit organizations.
In 2006, banks have been forced to increase capital, partly to improve their competitive capacity and to meet central bank requirements. Recent statutes of the central bank do not allow establishment of small banks, even asking small and bad-performing banks to go bankrupt. All banks must have chartered capital of at least VND1 trillion by 2008.
3. Non-performing loans (NPLs) were significantly down
It is estimated that NPLs of commercial banks now stayed at some 3.2 per cent of total outstanding loans, down by a half compared to last year when banks were required to categorize loans under Decision 493 on classifying loans. As for commercial joint stock banks, NPLs reported around 1 per cent, even less than 1 per cent in many banks.
4. Big investment influx of foreign banks.
Although investors failed to convince the government to raise foreign ownership ratio in domestic banks from 30 per cent to 40 per cent, ownership ratio of a single foreign investor in Vietnamese banks is scheduled to increase to 20 per cent from the current 10 per cent.
This year, the Saigon Thuong Tin Commercial Ban (Sacombank), the Asia Commercial Bank (ACB), the Vietnam Technological and Commercial Bank (Techcombank), and the Vietnam Bank for Private Enterprises (VP Bank) have clinched cooperation deals with foreign partners. The participation of these foreign partners has significantly improved efficiency in domestic banks.
5. Outstanding profits.
Many Vietnamese joint stock banks have announced impressive business results with sharp growth of profit, although fiscal year 2006 has not yet closed.
The Asia Commercial Bank (ACB) continued to lead joint stock banks in terms of performance efficiency. ACB posted a pre-tax profit of VND568 billion, over the yearly target. Following it were the Saigon Thuong Tin Commercial Bank (Sacombank) with a pre-tax profit of VND447 billion, or 146 per cent of last year’s figure, and the Vietnam Export and Import Commercial Bank (Eximbank) with a pre-tax profit of over VND340 billion, fulfilling 120 per cent of the annual target.
Meanwhile the Orient Commercial Bank (Oricombank) reported a pre-tax profit of VND140 billion, doubling last year’s figure, and the Saigon Commercial Bank (SCB) VND151.4 billion, tripling last year’s profit.
These are all-time high profits. What is more notable is the positive change in quality and diversification of profit sources in addition to credit sources.
Nevertheless, it is projected that these prime profits may decline after 2006 when more and more foreign banks enter the Vietnam market.
6. Escalating share prices.
This year, shares of banks on the OTC market continued rising except for a short time of slight decline. This was because banks report efficient businesses, high profit, whereby improving value of banks in investors’ eyes.
7. Entry into stock exchange
Sacombank, the country’s largest commercial joint stock bank, became the first bank to go on bourse, paving the way for other banks to follow its suit.
Following Sacombank, ACB, which was assessed to be the most attractive to investors, also entered the Hanoi Securities Trading Center this year.
In addition, other banks considered listing this year however they failed to complete their documents on time.
For example, the Hanoi-based Vietnam International Joint Stock Bank (VIBank) decided to withdraw its trading and custodian registration on the Hanoi bourse, fearing it did not have enough time to complete the bid in 2006.
8. Booming services and technology development
Following strong investment in technologies in 2005, banks started launching services this year.
This year saw numerous kinds of modern cards with many utilities. Services such as Internet Banking, Home Banking, Mobile Banking and others have become popular.
Many banks have applied the T24 software technology of Temenos which enables performance of 1,000 transactions a second and allow 110,000 to access the software at the same time and manage up to 50 million accounts.
Banks have also pumped large sums of money into the technology system this year. Sacombank invested some US$4 million into the Core Banking system, VIBank spent millions of US dollars completing the multifunctional banking system, SYMBOL, supplied by System Access (Singapore) and so on.
9. Preparation for integration
Banks face new and wider integration as Vietnam enters the World Trade Organization (WTO).
Upon preparing for international integration, domestic banks must deal with weaknesses including financial capacity, management experience, and technology. It can be said that banks have spared no effort to overcome their weaknesses. Banks have improved their scales, financial capacity and technologies. Regarding management, big banks have been advised by prestigious strategic partners in the world.
10. Vietcombank’s missing equitization plan
Vietcombank failed to conduct equitisation as planned because of troubles in legal procedures, benefit considerations and others. The delay disappointed many investors, especially when they are holding convertible bonds of Vietcombank with an interest rate which is not equal to two thirds of the common interest rate of the market.
However some positive signals have been made this year when the Prime Minister agreed to equitise state owned banks from 2007. Vietcombank will complete privatization in 2007, which will be the first precedent for equitisation of other banks. (VnEconomy)
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