Despite the first-five-month negative credit growth, plenty of banks have seen satisfying business performance results that briefly come from lending activities.
Trillion dong profits
Besides growth rate of merely 2.4pct, Eximbank’s credit growth suffered a negative rate of nearly 7pct for three first months and stood at negative 5pct by the end of April. Yet, the report on business results for the quarter 1 2012 indicated profit of 1,472 billion dong, a year-on-year 48pct increase. In the meantime, earnings from services, foreign currency trading, securities investment and capital contribution and stake purchase considerably plunged year-on-year.
Similarly, HDBank witnessed negative credit growth of 5pct yet profits of 140 billion dong in the first quarter. Sacombank posted pre-tax profit of nearly 1,600 billion dong for the first five months in comparison with the year target of 3,400 billion dong.
Another giant, Vietcombank saw bad debt ratio jumping from 2.03pct in the early year to 2.87pct in late March, pulling profit of quarter 1 down 8.4pct year-on-year due to additional credit loss provisioning of 950 billion dong. However, this lender still posted 1,346 billion pre-tax profits for the first quarter of 2012.
Given commercial banks’ most lucrative business segment – lending that has faced up to tremendous difficulties since the early year, such impressive figures have triggered much curiosity. However, many bank mangers claimed it is normal in the light of large banks’ charter capital of tens of thousands of billions dong.
According to Associate Professor, Dr Tran Hoang Ngan, the member of the National Advisory Committee on Monetary and Financial Policy, the negative credit growth could stem from many banks’ raising virtual outstanding loans in the previous year end in order to have more room for credit growth for 2012, which has subsequently driven up their bad debt ratios.
Despite lending difficulties and increasing bad debts, loaning is still expected to be the major contributor to total profits. Income from credit activities accounted for some 70pct of DongABank’s 500 billion dong pre-tax profit, according to Tran Phuong Binh, general director.
This year’s profit targets are all fairly demanding at many lenders namely Vietcombank 6,500 billion dong; ACB 5,500 billion dong and Eximbank 4,600 billion dong. Commercial banks all expect credit growth improvement for the remaining months so as to fulfil the given goals, yet appear rather cautious about lending in the context of soaring bad debts.
In addition to lending activities, such credit institutions’ remarkable profits have been put down to investment in government bonds, said a senior financial manager.
According to Mohit Mehrotra, senior expert and consultant at Deloitte Consulting, interest rates, capital raising and competitive capacity are major challenges for domestic commercial banks for the time being. The competitive market would present significant opportunities for large banks to prosper particularly given the increasing number of small and medium sized enterprises. Yet, these potential market movements may exert significant pressure on local lenders in the time to come, of which development of financial services and financial service charges would be of most importance.
In fact, lending rather than financial service fees has been the principal source of income for local banks. Therefore, the first and foremost task for the present time should be banking reorganisation and restructuring that could gradually strengthen competitiveness as well as raise operating income.