Bank profits down on narrow rate margins

18:13 | 11/08/2014
Despite complaining about low lending rates, banks have performed strongly in the first six months of this year.

According to the chairman of one local bank, not only his bank but many others are watching their profits slide due to the deposit rate being cut down to 6-7.5 per cent a year and the loan rate to 8-10 per cent a year.

“Besides the cost of raising capital, commercial banks have suffered from higher labour costs, depreciation, dividends and 1-1.5 per cent of revenue going into risk provisioning. With a loan rate of 8-9 per cent, I think at least the spread should be raised from 0.5-1 per cent to 1.5-2 per cent,” said the chairman.

However, banks showed good results in the first half of this year, with some well on track to reach their year target.

Vietcombank reported pretax profits of VND2.8 trillion ($133 million) in the first half of this year, thanks to credit growth double the industry average. Viettinbank, despite lower than average credit growth, has completed nearly half of its VND4 trillion ($190 million) target.

Sacombank’s general director Phan Huy Khang announced that his bank would reach its VND3 trillion ($142 million) profit target this year, thanks to healthy credit growth in the first half. The bank reported pretax profits in H1 of VND1.5 trillion ($71 million).

Smaller banks have also achieved better than average results. General director of OCB Nguyen Dinh Tung said that in the first half the bank’s pretax profit was VND128 billion ($6.1 million), despite hardships such as weak market demand and the rising prevalence of bankruptcy.

While it has already completed 51 per cent of its pretax profit target for the year, with VND212 billion ($10.1 million) by the end of quarter 2, Kienlongbank is not as optimistic about its credit growth.

Both large and small banks like Eximbank, Sacombank and Techcombank depend on credit growth to reach their profit targets, since 80-90 per cent of banks’ profit is from credit activities. Experts have said that some banks will see very little or no profit this year if risk provisioning funds are included. In particular, VIB reported a pretax profit of VND151 billion ($7.2 million) in the first half of this year, which would have actually been VND598 billion ($28.5 million), up 26 per cent on-year, if its risk provisioning had been excluded.

The narrowed interest spread resulted in banks’ profit margins holding at only around 1-2 per cent per year. Some banks have even had to reduce their loan rates below their deposit rates.

By Van Linh

Based on MasterCMS Ultimate Edition Ver 2.8 2018