Banks expect leaner second half
08-AUG-2008 Intellasia | 06/Aug/08 Dau Tu Chung Khoan page 24
Aug 8, 2008 - 7:00:00 AM
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Many banks reported high profit in the first half however, given the economic downturn, profit is expected to be leaner in the months ahead. Some have admitted it would be difficult to achieve full-year profit targets that have already been revised twice since the start of this year.
According to Le Dac Son, general director of the Vietnam Bank for Private Enterprises (VPBank), in the first six-month, his bank posted 140 billion dong in pre-tax profit. VPBank planned this year's pre-tax profit of 500 billion dong. However, Son admitted that it is very hard to reach the above target and he only hoped that his bank's pre-tax profit would be equal to last year's figure of 315 billion dong. If VPBank must reconsider its profit plan, that is because the bank restricts disbursement of new credit although its credit growth by the end of July is over 20% against last year.
"That we restrict disbursement of new credit is not because of the central bank's regulating to limit credit growth of 30% or less. What is important is that we should be aware of potential and risks when developing new credit. In recent months, we have almost not been offered new loans but we have lent to only close clients, who are in turn capable of paying debts," said Son. By the end of July, VPBank's outstanding loans were only 14.6 trillion dong and the bank planned to reduce such a figure from now until the end of this year.
Reduction of credit growth also means lower revenue from lending activities. Meanwhile, revenue that banks have long obtained is mainly from traditional activities, deposits and loans. VPBank has cut dong deposit interest rates. The bank's highest dong deposit interest rate is now 18.5% a year. However, according to Son, compared to the ceiling lending interest rate of 21% a year, the bank still finds hard to compensate for expenses.
As for services, although banks have made tremendous efforts over the last two-years, in fact revenue from services in the first half mainly comes from gold and foreign currency.
Truong Van Phuoc, general director of the Vietnam Export and Import Commercial Bank (Eximbank), by the end of July, Eximbank reported 823 billion dong in pre-tax profit. The main revenue source of Eximbank is from difference between deposit and lending interest rates. Additionally, revenue from gold and forex trading is also significant because Eximbank is one of the banks having strengths in such a sector. Nevertheless, according to a financial specialist, unlike the first six months, gold and forex trading activities at banks are slowing down because purchase power reduce.
As planned, Eximbank will post pre-tax profit of 1.3 trillion dong. However when being asked amidst the current situation whether the bank will revise its profit plan, Phuoc said that it is very difficult to say anything in advance.
Two listed banks in the stock market, Saigon Thuong Tin Commercial Bank (Sacombank) and Asia Commercial Bank (ACB) have not yet announced their profits in July. Some other banks such as Vietnam International Bank (VIBank), Vietnam Technological and Commercial Bank (Techcombank) declined to announce July pre-tax profit.
A executive chair of a HCM City-based bank said that compared to the first six months, the situation in the rest months will be more tense. He said that credit contracts signed between March and May carried lending interest rates of only 16-18% a year [the ceiling deposit interest rate at that time was 12% a year]. However, after that the central bank had to raise the basic interest rate to 14%, deposit interest rates increased highly accordingly. Banks have strived to negotiate with banks on raising lending interest rates in order to share difficulties with banks. However, only a few of close clients have agreed to increase lending interest rates while small clients all have declined. His bank can revise lending interest rates for some 60% of credit contracts while his bank has to accept losses for the rest 40%.
The above chair said that from now until the end of this year, many bank would have to adjust their profit plans and some small banks will find hard to avoid losses.
Disposable incomes of banks are forecasted to be abundant in the last months. Meanwhile, it is likely that there will be a strong wave of slashing deposit interest rates.
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