Fitch predicts low profit margins for Vietnam's banks

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Four major Vietnamese banks have been rated "B" by Fitch, with a stable outlook, but the ratings agency warned that their profitability may moderate from 2011 levels.

Vietinbank, the second largest bank in Vietnam in terms of assets, could see its asset quality deteriorate further due to slower economic growth and global economic uncertainty. Fitch also said the bank's profits can be affected by the government's lending rate cap on selective sectors.

Meanwhile, Vietnam Bank for Agriculture and Rural Development, often known as Agribank, has channeled a large part of its deposits, together with funds from government bodies and international organizations, into loans. As a result, the bank's liquidity has been fairly tight, with liquid assets representing only 17 percent of short-term liabilities, according to Fitch.

The agency also expected profitability of the nation's biggest bank to remain low due to a slower economic backdrop and a regulatory cap on lending rates on the agriculture sector.

The central bank last month asked banks to prioritize lending to strategic sectors and cap interest rates at 13 percent. Lenders have been ordered to cut rates on existing loans to below 15 percent since late last week, a move that may cause their earnings to drop.

Similarly, Fitch said Asia Commercial Bank's and Sacombank's margins are likely to tighten due to falling interest rates and recent orders to reprice loans. The agency noted that while credit costs can rise, the problem may be more manageable for both banks than their state-owned peers given their asset quality track record.

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