Vietnam - Lenders fear steep profit shortfalls

by lexie Mon Dec 12, 2011 4:32 pm

December 12, 2011

Lenders fear steep profit shortfalls

The main reason for BIDV’s lower than expected profit is that our bank has already decreased the lending rate three times this year. Local banks are braced for poorer than forecast profits for 2011 because of the Vietnamese government’s credit tightening policy.

With credit still contributing over half of all bank profits, the government’s credit squeeze policy is acting as a roadblock for banks trying to hit profit targets this year. Local creditors have also been subject to the central bank’s continuous requirements to lower their lending rates.

Ocean Bank is just one of the lenders struggling with the squeeze. Up to December 5, the private bank had earned profits of a little over $28.8 million, while planned profit for the whole year was around $38.5 billion, said Ocean Bank chairman Ha Van Tham.

Tham admitted that it would be difficult for his bank to achieve the remaining $10 million in profit because of the difficult economic backdrop. Similarly, state-owned BIDV has been forced to lower its targets.

This lender chalked up a pre-tax profit of $222 million in 2010, but BIDV chairman Tran Bac Ha said the bank’s total profit before tax this year was expected to come in at around $202 million, or down 10 per cent against last year.

“The main reason for BIDV’s lower than expected profit is that our bank has already decreased the lending rate three times this year,” said Ha. BIDV is offering among the lowest lending rates for agricultural producers and exporters. In the latest decrease, the creditor reduced its rate by 1-2 per cent, from 17 per cent to 15-16 per cent, per year.

Meanwhile, ACB’s targeted profit for 2011 is about $197 million. But by the end of the third quarter, the top-tier private bank’s profit was only 63 per cent of its whole-year plan, or $123 million.

Habubank’s after-tax profit was planned to reach $34-36 million for 2011. When the third quarter ended, however, the bank had earned a pre-tax profit of only $23.4 million.

Saigon Hanoi Bank is in the same situation. Having set itself a profit target of $50.5 million for 2011, the bank arrived at the end of the third quarter with a pre-tax profit of just $34 million.

According to Vu Dinh Anh, a senior economist at the Ministry of Finance’s Institute for Price and Market Research, these lower figures were understandable given most bank profits depended on credit activities. A restriction on these activities meant capital investment activities would not be developed and this would affect bank profits.

Credit growth at commercial banks this year has been capped at 20 per cent, and the banking system’s credit growth year-to-date is running at around 12-13 per cent. The figure is expected to rise to 15 per cent by the year’s end.

Next year credit growth is expected to be set 3 per cent lower, at around 15-17 per cent, according to the central bank. “With the adjusted credit limit, adjusted or decreased bank profits is quite normal,” said Anh.

http://www.vietfinancenews.com/2011/12/lenders-fear-steep-profit-shortfalls.html#more