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Experts have qualms about banks' profit claims


  An employee carries a bag of money behind bundles of Vietnamese dong banknotes at a bank in Hanoi. The government said it is focusing on dealing with the bad debt issue to increase liquidity in the banking system. Photo: Reuters

Credit growth has been low, but some commercial banks have still announced handsome profits, inviting skepticism and concern about the accuracy of the figures.

Experts are repeating a charge they have leveled earlier against the banks, saying they may be hiding some of their bad debts to avoid setting aside large sums as provisions.

VietinBank, the nation's second largest partly-private lender by assets, has posted a net profit of VND4.5 trillion (US$218 million) in the first nine months, up 10.4 percent over the same period last year. Vietcombank, the third largest partly-private lender, has reported third quarter net profit of more than VND1 trillion, up 5.5 percent from a year ago.

DongA Bank reported a pre-tax profit of over VND1 trillion, gaining nearly 70 percent of its annual target.

Economist Bui Kien Thanh expressed his disbelief in no uncertain terms: "We should not assess business results or the health of Vietnamese banks via their profits. I, and many other people, cannot believe the figures they announce. In the current context of slow credit growth, they cannot earn such big profits, as 70-80 percent of the banks' profits come from lending."

By late August, bank deposits were up 11.23 percent for the year while loans had increased by just 1.4 percent, according to the State Bank of Vietnam.

Reiterating the suspicion that the banks are hiding some of their bad debts to avoid setting aside large provisions, Thanh warned that classifying non-performing loans as safe allows banks to pay out high dividends and look appealing to investors, but the practice exposes the economy to huge risks.

"A large bad debt burden will have a negative impact on the economy as a whole. I think it's necessary to strengthen surveillance to see how banks are classifying loans and dealing with bad debts," he said.

Economist Tran Du Lich agreed, saying the banks' profits could not be as high as reported if they had enough provisions.

Many banks have calculated the interest due on their loans to arrive at their profit figures, but the reality is that many of the loans cannot be recouped. The banks have not prepared provisions for these bad loans, he said. "Thus, their profits may be virtual figures."

The leader of a Hanoi-based commercial bank conceded: "Bad debts stand too high now. If they are calculated strictly, many banks may even suffer losses."

Bad debts were estimated at 8.6 percent of total loans at the end of March.

Talking with reporters on the sidelines of the ongoing National Assembly session, Deputy Prime Minister Vu Van Ninh said the government is focusing on dealing with the bad debt issue to increase liquidity in the banking system. However, the issue is complicated, so the government has to be careful in taking decisions.

However, one economist who did not want to be named said he was not very worried about the big profit figures. While they may look big, the return on capital ratio is not high. "So, a profit of trillions of dong is quite normal."

Nguyen Hoang Minh, deputy director of the Ho Chi Minh City Branch of the State Bank of Vietnam, said it is difficult for banks to meet their profit targets this year, given the low credit growth. "Many banks have not focused too much on gaining profits, but rather on ensuring safety and stable development of the whole banking system."

Credit growth is estimated at some 5 percent this year, he said.

Slow credit expansion prompted the State Bank of Vietnam, in July, to lower its 2012 growth rate target to 8-10 percent from a 15-17 percent projection earlier this year.

As the demand for loans remains low, some banks have turned to small sources of income such as credit card service fees and interest rates on card payments to seek profits.

Meanwhile, Fitch Ratings on Wednesday maintained its ranking for Vietnam's major banks at "B", among the lowest in Asia.

"The banking system is vulnerable to macroeconomic shocks, with pressures already mounting on asset quality, earnings and capital at the major Vietnamese banks," the agency said. It noted again that non-performing loans in the banking system were understated.

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