Businesses bitter as banks rake in the moolah

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An employee counts money at an Eximbank branch in Ho Chi Minh City. The bank posted a 68.6 percent increase in net profit last year.

Many business executives feel like they have been ripped off by local banks which continue to post high profits even in generally dismal business condition.

According to the General Department of Taxation, the majority of businesses in Vietnam earned lower profits or posted losses last year.

The banking system, on the other hand, managed to buck this downward trend with combined profits of VND97 trillion (US$4.7 billion), up 45 percent from the previous year. Even after risk provisions, the bank profits grew by around 30 percent, the department said.

VietinBank, Vietnam's largest partly private lender by assets, led the pack with a net profit of nearly VND6.3 trillion last year. It posted revenues of more than VND22 trillion, of which around 80 percent came from lending at interest rates of up to 25 percent. Its first-quarter net profit jumped 64 percent year-on-year to VND 1.54 trillion.

Meanwhile BIDV, or the Bank for Investment and Development of Vietnam, reported a 41 percent profit surge for the first quarter.

The positive results came as a surprise to many business executives who said it was unreasonable for banks to earn huge profits by charging struggling companies high interest rates.

Tran Chi Gia, chairman of Meko, a garment company in the Mekong Delta city of Can Tho, said his firm took out loans from several banks worth about $1 million. Even though most of the loans have been cleared, the company now finds it hard to repay the rest.

"Banks set interest rates at very high levels, so businesses can't make enough money to repay their loans," Gia said. "Interest rates in China are around 5 percent and their businesses are already struggling. The rates in Vietnam are too high."

Tran Thanh Van, deputy director of rice exporter Gentraco, said the company could barely afford interest rates of 17-18 percent.

"Recently, banks have announced lower rates of 13 percent, but we are not able to access these yet. And actually, businesses can only start thinking about making money if interest rates are cut to 12 percent," Van said.

Last week, the central bank issued a report saying that last year's profits of local banks were not really high compared to their equity and assets. The return on equity (ROE) of the banking system was 11.86 percent last year compared with 14.56 percent in 2010, while the 2011 return on assets (ROA) ratio dropped to 1.09 percent from 1.29 percent.

An expert who asked not to be named said even banks with low ROA can earn hefty profits. For instance, lenders can easily increase their assets within two days by borrowing from the interbank market, sending the ROA down quickly if they want to.

Statistics obtained by Vietweek showed that for major banks like VietinBank and Eximbank, the ROE was higher than 20 percent.

VietinBank in particular had an ROE of 25.4 percent and an ROA of 1.96 percent, mainly thanks to a high net interest margin. The margin, or the difference between what a bank charges for loans and pays to depositors, reached 5.03 percent at VietinBank, the highest among all lenders.

Sacombank, Vietnam's fourth-largest publicly traded lender by assets, came second with a margin of 4.48 percent.

The general director of a small bank said that major lenders did not just make money on businesses, but also from lending to cash-strapped banks at high rates. When small banks faced liquidity crunches at the end of last year, it was the time for large lenders to earn big money, he said.

"Interbank rates skyrocketed while large banks made money, without caring for the life and death of small banks," said the director who asked to remain anonymous.

As public perception of the banking system worsens, many companies are now skeptical about new plans announced by several banks to bring interest rates down to 7 or 8 percent.

The banks, including Eximbank and Asia Commercial Bank, have been selling dollars to fund cheap dong loans. In order to take out the loans, corporate clients need to agree to cover any fluctuation in the exchange rates so that the banks do not lose money at the end.

Economist Le Tham Duong said this could be a good deal for many businesses. However, banks must have their own agenda, Duong said, noting that the new policy can be dollar lending in disguise.

The central bank has restricted banks from offering dollar loans. As a result, banks are not able to boost lending in the foreign currency even though some companies are willing to pay 10 to 14 percent interest on dollar loans. Interest rates on dollar deposits are capped at 2 percent.

Vietnam's outstanding loans at the end of April fell 0.59 percent from the end of 2011 to VND2,617 trillion Vietnamese ($125.2 billion), the central bank said on June 21.

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