Bitter-sweet 2011 for banks

Bank profit margins in 2011’s first half were split on the back of economic uncertainties.

Ho Chi Minh City-based Sacombank raked in VND301 billion ($14.5 million) worth in profits in June 2011 alone, driving up its pretax profit margins in the first six months to VND1.515 trillion ($73.2 million) or 56 per cent of the year’s projection, said general director Tran Xuan Huy.

Interest-based incomes contributed a lion’s share of 83 per cent to the bank profits in the first half, with 40 per cent coming from credit activities.

“Given our full-year profit target of VND2.7 trillion ($130.4 million) Sacombank hopes it would fulfill and even surpass 2011 profit target,” Huy said.

Huy, however, admitted that for a big bank with a total asset value of VND140 trillion ($6.76 billion) that full-year profit target was modest.

DongA Bank reaped around VND675 billion ($32.6 million) in pretax profits in the first six months of 2011, over 50 per cent of 2011 profit target, according to the bank’s general director Tran Phuong Binh.

Binh said the bank would strive to achieve its full-year profit target and maintain dividend rate of at least 15 per cent for this year.

“It is too early to say if the difficulties were over. However, I hope the lending rates will be pulled down in the remaining months since inflation began to slide,” Binh said.

In fact, the credit growth at DongA Bank as well as at many other local banks was low in the first half of the year, giving those banks an opportunity to push up lending in the second half to raise profit margins.

Vietcombank chairman Nguyen Hoa Binh, however, took a more prudent approach saying that the banking sector still grappled with difficulties in the remaining months of 2011.

One could hardly expect the interest rate to drop early and quickly though inflation was going down, Binh said. That was why Vietcombank set a modest profit target of VND5.650 trillion ($273 million) in 2011, up 3.1 per cent on-year.

Vietcombank earned around VND3 trillion ($145 million) in pretax profits in the first six months.

Unlike those banks which scored fairly with their profit targets, a number of banks, particularly those small- and medium-sized, reportedly only achieved 20-30 per cent of profit targets in the first six months of the year.

Escalating capital costs on the back of high deposit rates, slow credit growth and growing bad debts are major challenges to banks.

Despite its full-year profit target of VND500 billion ($24 million), OCB just posted VND115 billion ($5.5 million) in profits in the first five months of 2011. That was partly because the bank only posted a meager credit growth of 5 per cent in the first five months against late 2010 and it had to restructure lending to non-productive sector to bring the rate down to 22 per cent by end of June as requested, said OCB’s general director Trinh Van Tuan. – VIR

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial