Slow credit growth may hurt profits of banks

Although banks have achieved more than half of their pre-tax profit target set for 2010, however many banks are now much worried about slow credit growth, which may affect their profits.
Chair of the Foreign Trade BPN, said that at the end of August 2015, it earned a pre-tax profit of 3 trillion dong, after setting up a prevention of risks. Its pre-tax profit target for this year was set at 4.5 trillion dong, according to Binh, the bank is likely to achieve this goal. But if compared with the pre-tax profit levels achieved last year at approximately 5 trillion dong, then its profit plans for this year was rather modest.

Binh said that, with the marketplace today, especially when the interest rate difference of input and output is relatively small, the pressure on banks to complete the profit target set is quite heavier. On the other hand, the growth of outstanding loans is not easy to be drastically improved, and banks must be concerned with more quality to ensure safety, so they cannot massively develop loans. Indeed, in recent years, banks have sought to diversify revenue sources, but the ratio of contribution to profits is mainly from credits. With Vietcombank, income from lending operations account for about 60 percent of total revenues contributed to its profits.
Meanwhile, the foreign exchange trading segment in 2010 is a hard part, because the ask and bid rates are relatively close.
Besides, gold trading activities are limited. For revenues from payment services, although Vietnam’s exports have showed signs of improvement, according to the evaluation of some commercial banks, the improvement of exports was not very significant. Therefore, banks said that revenues from export service activities are difficult now to expect a good growth from now to the end of this year.
Many leading banks said, revenue from credit operations in the period from now to the end of this year can not increase respectively, because the growth rate of outstanding credits will not see many positive changes.
At Vietcombank, Binh said, the goal of his bank’s credit growth in 2010 is to increase only about 23-26 percent over the previous year, but Vietcombank must also base on the market performance to attempt to achieve this target. Up to now, the outstanding credit growth of Vietcombank is about 20 percent, and is not likely to rise from now to the end of this year.
In Asia Commercial Bank (ACB), Ly Xuan Hai, general director of ACB, said that as of August 31, pre-tax profit of ACB was 1.814 trillion dong after setting a credit risk provisioning; its oustanding loans were 79.5 trillion dong, and NPL ratio was below 0.4 percent and this bank reched more than 280 branches and transaction offices over the country.
In the first eight months of 2010, ACB’s credit growth reached 30 percent and is expected to achieve 50 percent later on this year.
According to Hai, the bank is likely to gain 20 percent credit growth in the last four months. So, with the targeted 2010 before tax profit of 3.6 trillion dong, ACB is confident enough to reach its profit target. Income from credit operations contributed total revenues of ACB in 2010 would be about 25 percent.
Also, in the first eight months of the year, pre-tax profit of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) was 1.533 trillion dong, fulfilling 63.9 percent of its profit plan for 2010 (after deduction of a credit risk reserve). Its first six month pre-tax profit in its audited consolidated financial statements for the quarter II/2010 was 1.501 trillion dong.
In Vietnam Technological and Commercial Bank (Techcombank), Nguyen Duc Vinh, general director of Techcombank said, compared with the pre-tax profit target of Techcombank set for this year (adjusted from 3.207 trillion to 2.8 trillion dong), it is possible that Techcombank will exceed the planned target this year. According to initial plans, 2010 before tax profit targets of Techcombank was at 3.467 trillion dong, of which pre-tax profits of the parent bank was expected to reach 3.207 trillion dong. According to Vinh, Techcombank has adjusted profit targets in June to better suit the market place.
In the first 8 months in 2010, HDBank reached 201 billion dong of before tax profit, currently completing 67 percent of its yearly plan.
OceanBank it reached 374.7 billion dong of pre-tax profit in first 7 months compared with the target that the bank set for this year at 520 billion dong.
In fact, if basing on the seasonal business of banks, as well as capital needs of enterprises, the last quarter of the year is considered the most exciting in the years. Therefore, banks are expected to gain high profits in the fourth quarter every year. However, predictions are made from economic experts that the market performance from now to the end of this year is more difficult than the previous year. The growth rate of outstanding loans will not result in expected revenues from credit operations – the largest capital contribution to the total profit of banks, will decline.
According to Ho Huu Hanh, director of State Bank – HCM City branch, this year, banks must consider the credit growth target to match the target to control the overall growth of the sector at around 25 percent. Thus, the possibility to achieve profit targets as banks expected is not easy. Thus, banks are also cautious and considering when making a profit target. However, due to the chartered capital increase of banks, especially for small and medium scaled banks who are rushing to issue shares to increase the capital to meet the request of the government Decree 141/2006/ND-CP, so the pressure on profit and dividend will get tougher.

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