Banks’ business ethics eroding

A lot of banks reported fat profits for the first six months of the year, while enterprises have to struggle hard to survive the current difficulties. Doubts have been raised about the banks’ business ethics and the fairness of the management policies.

According to the State Bank of Vietnam, the total outstanding loans of the banking system are equal to 1.2 GDP, while the figures in other countries are just 0.6 or 0.7. Banks remain the key channel that provides capital to the national economy, satisfying 97 percent of credit activities, while non-bank institutions can only satisfy three percent, because Vietnam’s stock market remains a fledgling. Therefore, it is understandable why commercial banks can get fat profits.

Profits come from… management policies

Huynh The Du, a well-known economist, in his published article, pointed out four main reasons behind the fat profits of banks in the current difficult period.

According to Du, banks can buy cheap and sell high thanks to the current ceiling interest rate mechanism. They can earn profits from the current circumstances, when the official exchange rate is much lower than the actual rate. They can also make profits from the gold import quotas and increase the nominal profits from the inflation.

It is clear that banks’ profits come from some management policies, but this has put a burden on the national economy.

The banking sector remains one of very few sectors which still can overcharge clients in the context of the decreasing purchasing power due to the high inflation. In 2005, the gap between the deposit and lending interest rates was 3.42 percent only, while the gap got widened in 2006 to 4.63 percent and then slightly decreased in 2008-2009.

In 2011, commercial banks quote the deposit interest rates at 14 percent per annum, while they lend at over 20 percent and in some cases, at 25-27 percent, according to the Vietnam Chamber of Commerce and Industry VCCI.

Banks have also tried to increase their income by setting up different kinds of new fees or raising the existing fees. According to the Deputy Director of the Tax Policy Department under the Ministry of Finance Nguyen Van Phung, the VAT Law 2008 stipulates that all the input invoices with the values of 20 million dong and more are deductible if the transactions are carried out via banks. The policy aims to the transparency and the limited using of cash.

By 2010, the individual transaction speed has increased by three times, while the figure had reached 10 times for businesses. In principle, when the output increases, the expenses would go down. However, banks continuously raise the fees year after year.

According to Phung, a lot of kinds of fees imposed on credit cards and loans should be seen as the methods of raising prices, which can help bring higher profits to banks. With the fees, banks have attained all the profits, ignoring the enterprises, which have been moaning about difficulties.

Banks’ business ethics eroding

Dr Le Xuan Nghia, Deputy Chair or the National Finance Supervision Council, said that commercial banks now want the State Bank to intervene the market with administrative tools, because with the tools, they can easily dodge the laws. Meanwhile, if market tools are applied, they would not be able to avoid.

“The financial system has never before witnessed the ethics degrading so seriously like now,” Nghia said.

According to Nghia, the dual book and dual price schemes have existed in the banking system: banks quote the deposit interest rates at some rates, but they actually pay in accordance with quite different interest rates.

The risks from the banks’ downgrading business ethics have increased, while the management agencies have not taken actions to punish the violators. The State Bank has threatened to punish the banks which offer the interest rates higher than the ceiling rate stipulated by the bank. However, to date, no bank name has been punished. – Vietnamnet

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial