VIETNAM - Different viewpoints kept about banks’ profit

by lexie Thu Nov 17, 2011 12:57 pm

Last update 17/11/2011 08:10:00 AM (GMT+7)

VietNamNet Bridge – While businesses complain that banks’ profits are surprisingly high in the context of the current economic difficulties, economists have pointed out that in fact, the banks’ profitability is low.

Trillions of dong in profit have been created by banks on the basis of the huge bank capital, wide networks and the huge assets of banks (from tens of trillions of dong to hundreds of trillions of dong).

Profitability low

The average capitalization level of nine listing banks is 16,686 billion dong. Meanwhile, the level of the enterprises listing their shares at HCM City Stock Exchange (HSX) is 1445 billion dong, and the figure of the enterprises listing shares at Hanoi Stock Exchange (HNX) is 300 billion dong only.

Meanwhile, according to StoxPlus, the banks’ average return on asset ratio (ROA) is 1.4 percent, much lower if comparing with other fields, such as consumer goods production companies (18.3 percent), information technology (9.7 percent), industries and oil & gas (6 percent) and finance sector (5.3 percent). The average ROA of banks is clearly lower than the average level of the enterprises on both HSX (9.7 percent) and HNX (4.3 percent).

The return on equity (ROE) of the banking sector is 19.5 percent, which is higher than the average ROE of enterprises on HNX (14.3 percent), but lower than that of HSX (22.1 percent), and lower than that of consumer goods producers, information and oil & gas sectors. Only the ratio of profit on turnover of banks is high (34 percent), higher than that of the enterprises on HSX (31.5 percent) and HNX (17.6 percent).

Meanwhile, analysts have also pointed out that banks have to bear a lot of risks, including the high and increasing bad debts.

The business result of banks in the first nine months of the year, which have been released by Vietinbank, Vietcombank, Eximbank, Sacombank and Techcombank, show that the lowest profit is 1500 billion dong and the highest level is 4000 billion dong. The figures have given a start to many people. Prior to that, StoxPlus’ report showed that besides commercial banks, the number of the enterprises, which had the post tax profits of trillions of dong, was very modest. These included the well known names such as VNM (3176 billion dong), DPM (2291 billion dong), FPT 1508 billion dong, MSN 1371 billion dong and HPG 1140 billion dong.

Commercial banks’ profit big thanks to central bank’s support?

Despite the low ROE and ROA of banks, the high profits of banks have raised jealousy from the businesses in other business sectors.

The thing that the State Bank of Vietnam needs to do is to build up a reasonable legal framework which allows to generate a healthy business environment and create the harmonization in the benefits of banks and businesses, and among banks.

Since the beginning of 2011, the monetary policies have been tightened to fight against inflation. However, the “interest rate tool” still cannot bring the desired effects. The problem is that the central bank only set a cap on the deposit interest rate (14 percent per annum), while did not set up a ceiling for the lending interest rate.

As a result the low deposit interest rate could not encourage people to deposit their idle money at banks. Meanwhile, banks raise the lending interest rates to 22-23 percent, which are really unaffordable to businesses.

It is now clear that the inflation rate in the whole year 2011 would not be lower than 20 percent. Businesses have to borrow money at sky high interest rates of 22-23 percent, which help banks earn high profits.

Source: SGTT

http://english.vietnamnet.vn/en/business/15379/different-viewpoints-kept-about-banks--profit.html