Small banks have big hill to climb

Local banks face mounting challenges to meet 2011’s profit targets on the back of economic vulnerabilities.

Some small banks have only fulfilled 20 per cent of their 2011 profit targets despite being halfway through the year.
The representative of a small bank with a charter capital of VND2 trillion ($96.6 million) said it raked in less than VND70 billion ($3.4 million) profits in the first five months of 2011 against a target of around VND400 billion ($19.3 million) in pretax profits. Similarly, the dividend was set at 10 per cent for 2011 against 4 per cent only in 2010.

Reaping over VND300 billion in the last half of 2011 to realise the year’s profit target was considered an uphill task to the bank on the back of ongoing state’s credit tightening policies to stabilise the macroeconomy.

Similarly in its 2011 business plan, which was green-lighted in mid April, a medium-size bank in Ho Chi Minh City set its 2011 profit target of VND600 billion ($29 million) against over VND500 billion ($24 million) in 2010 actual profits. In the meantime, it set to hike charter capital from current more than VND3 trillion ($145 million) to VND4 trillion ($193 million) in 2011.

However, the bank just reaped nearly VND100 billion ($4.8 million) in pretax profits in the first five months of the year.
“We expect banks’ interest rates will ease in the second half, paving the way for a steady growth in lending activities to help us fulfill our profit target,” said the executive.

OCB general director Trinh Van Tuan said the bank earned VND115 billion ($5.5 million) in pretax profit in the first five months against a full-year profit target of VND500 billion. OCB also plans to hike its charter capital from current VND2.6 trillion ($127.2 million) to VND3.4 trillion ($164.3 million) in the last two quarters and offer shareholders a 10 per cent dividend rate.
Tuan attributed modest profit growth in the first five months to low credit growth of around 5 per cent in the first half of 2011 compared to late 2010. Besides, OCB made great strides to bring down its lending rate to non-productive areas to around 27 per cent currently and is expected to fall to 22 per cent as regulated by central bank by late June.

At TrustBank, the bank gained VND100 billion in pretax profits in the first five months, only one-fifth of its set target of VND550 billion for 2011, according to chairman Hoang Van Toan.
Toan said the bank faced a host of challenges in fulfilling its 2011 profit target.

In the past months, TrustBank has stepped up efforts to drive down its lending rate to non-productive areas and by June 30, 2011 such rate may stay at around 23-24 per cent, a bit higher than the regulated 22 per cent and is expected to drop to less than 16 per cent by the year’s end to meet central bank’s set requirement, said the bank executive.

Like most other small and medium-size banks, TrustBank has increased credit supply to service priority targets such as lending small- to medium-sized enterprises and agricultural and rural development.

As planned, the bank set aside VND800 billion to materialise these goals in 2011 and this sum has almost disbursed in the first five months. – VIR

Tags: Small banks, Vietnam banking industry, Vietnam finance, Vietnam financial