Credit institutions’ recent announcement of surprisingly high profits amidst enterprises’ heaped up difficulties has incited the State Bank of Vietnam (SBV) to conduct investigation.
According to the Banking Supervision and Inspection Agency (The State Bank of Vietnam), 2011 after tax profit of the industry edged up 15.1pct over 2010, much lower than the previous years’ whereas equity and asset growth stood at 22.85pct and 18.55pct respectively. Nearly 50pct of credit institutions witnessed profit falling against 2010, 10pct of which posted losses.
Moreover, two major indexes that imply operational efficiency and profitability including returns on assets (ROA) and returns on equity (ROE) altogether plunged from 1.29pct and 14.56pct in 2010 to 1.09pct and 11.86pct and in 2011 respectively. In the meantime, ROE of Southeast Asian economies commonly ranges from 14pct to 15pct and even 17pct at other international banks.
What is noteworthy is the remarkable difference among local credit institutions’ profits. The sector’s profit growth would primarily be driven by a few large banks. Small-scale banks of poor governance and weak competitiveness, meanwhile, are forced to mobilise capital at high interest rates, which, accompanied by surging bad debts, has resulted in huge losses for 2011.
According to this agency, both absolute figures and percentages of credit institutions’ bad debts have been on the rise particularly in late 2011 and early 2012, which has been reflected in their disappointing performance early this year.
In addition, credit risk provision is solely applied to credit granting leaving other highly risky assets such as corporate bonds unattended. Also, despite the recent property market turmoil and recession, property collateral has yet been re-valued making provisioning for real estate mortgage loans no longer appropriate.
Furthermore, several banks have granted credit recorded in other accounts like receivable leading to insufficient provisions.
As such, the above issues have resulted in profits announced by commercial banks misleading which fails to reflect their business results.
In fact, credit institutions’ profit increase for 2011 would be in line with their scale of assets and equity as well as governance capacity and economic conditions. Yet, figures released by these lenders should be thoroughly re-assessed.
Currently, regulations on debt classification, provisioning and risk management are under consideration for revision so as to produce more precise comprehensive data published by commercial banks, according to the central bank.