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Banks benefit from exorbitant lending rates

05-May-2012 Intellasia | Saigon Times Daily | 7:05 AM

Many banks have announced their first quarter earnings that were higher than in the same period last year even though the economy is still in a bad way.

Vietnam Bank for Industry and Trade (VietinBank) reported VND1.39 trillion in after-tax profit in the first quarter, up 60.4 percent from the year-ago period. The rise partly resulted from a strong drop in risk provisions from VND1.98 trillion in last year’s first quarter to VND845.4 billion in quarter one this year.

Military Bank is also on the list of banking institutions earning big with the first quarter’s net profit amounting to VND1.6 trillion and pre-tax profit reaching VND885 billion, which rose over 36 percent and around 25 percent year-on-year respectively. But a rise of VND257 billion in its risk provisions affected this bank’s profit.

Meanwhile, Asia Commercial Bank (ACB) obtained a pre-tax profit of VND960 billion, compared to the VND900 billion achieved in the year-ago period.

The pre-tax profit of Saigon Thuong Tin Commercial Bank (Sacombank) was around VND1 trillion, up nearly 71 percent from the year-ago period. Its foreign exchange and securities services started to be profitable again with VND45 billion and VND75 billion respectively.

However, in the current tough economic conditions, such high profits of banks are not a healthy sign because most profits resulted from the difference between deposit and lending rates, said Le Dat Chi, a lecturer at the HCM City University of Economics.

Chi said the lowering on March 7 of the deposit rate cap to 13 percent had yet to affect banks’ profitability in the first quarter. Banks may scramble to cut deposit rates while keeping lending rates unchanged, thus leading to higher profits, he added.

He noted such high profit figures showed banks lacked a symbiotic relationship with enterprises as seen in other countries where banks often incur losses in times of economic hardship. But it is the opposite in Vietnam, with banks earning high profits at a time of enterprises struggling for survival.

Chi said monetary policy should be designed in a way that makes it easy for enterprises to gain access to loans and that punishes banks that do not reduce lending rates in sync with deposit rates.

“If deposit rates are reduced while lending rates are not, the lowering of the deposit rate cap to support enterprises is effectively neutralised,” he said.


Category: Finance

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