Usurious banks profit as businesses suffer

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A Vietcombank branch in Ho Chi Minh City. The lender posted gross profits of VND5.63 trillion, up 4.81 percent from last year.

Vietnam's major commercial banks have picked up from where they left off last year, recording huge gains for the first half of 2012 amidst a deepening economic slump, drawing accusations they have profited at the expense of vulnerable businesses.

The banking sector's strong performance marks a stark contrast to the economy in general. According to the General Statistics Office, 26,324 companies shut down completely or suspended operations in the first six months, up 5.4 percent from the same period last year.

Analysts say banks may have taken undue advantage of vulnerable local businesses and their dependency on banking credit by drastically increasing interest rates in order to maintain and even increase their profit margins.

Vietnam Export Import Commercial Bank, or Eximbank, incurred losses in several of its business operations including trading in foreign currencies and stock. However, a 28 percent increase in profits from lending to VND2.88 trillion (US$138 million) helped the bank post a net income of VND1.39 trillion, up 9.7 percent from the same period last year.

Meanwhile, Asia Commercial Bank reported an 18 percent increase in gross profit to VND3.61 trillion and the Vietnam Joint Stock Commercial Bank for Industry, VietinBank, raked in a handsome VND8.83 trillion.

The Joint Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank, posted gross profits of VND5.63 trillion, up 4.81 million from last year. Its net profit, however, fell 5.57 percent to VND2.15 trillion due to increased risk provisions for bad debts.

Analysts have noted that the banks have enjoyed huge earnings from their credit activities even though loans expanded at a sluggish pace, as low as 1 percent at some lenders, and even contracted by more than 3 percent at VietinBank in the first six months. This means their profits came mostly from very high interest rates forced on businesses.

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Professor Le Dat Chi of the Ho Chi Minh City Economics University said most of the profits that businesses could make flowed straight to the banks.

The lenders managed to post huge profits even during tough economic times by maintaining a large gap, of up to six percentage points, between lending and deposit rates, Chi said.

Given this, the government should not help banks deal with their bad debts. Instead, they need to be ordered to increase their bad debt reserves and deal with non-performing loans on their own, he said.

Meanwhile, economist Bui Kien Thanh said the high profits could be deceiving, as banks may have hidden some of their bad debts to avoid setting aside large sums for provisionary funds.

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.

Vietnam's bad debt totaled VND202 trillion ($9.69 billion), or 8.6 percent of all loans within the entire banking system, by the end of March, the State Bank of Vietnam announced in mid-July.

The central bank had earlier estimated the ratio at just 4.47 percent at the end of May, based on figures reported by banks.

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