Vietnamese commercial banks posted major profits for the first half of this year, though the country's economy and businesses are in dire straits.
In February, the government approved a plan to slash annual credit growth to less than 20 percent from the initial target of 23 percent. One month later, the central bank ordered all lenders to limit credit to non-production businesses at 22 percent of total loans by June 30, and at 16 percent by the end of the year.
Many expected the banks would take a major hit this year. Instead, they have reported healthy returns.
VietinBank, Vietnam's biggest partly-private lender by assets, said Monday that its pre-tax profits during the first half hit VND3.62 trillion (US$176 million), or 71 percent of the annual target for 2011.
The Hanoi-based lender, also known as the Vietnam Joint Stock Commercial Bank for Industry and Trade, said its loans had experienced a 12.3 percent year-on-year increase at the end of June, reaching a total of VND261.69 trillion ($12.7 million).
Meanwhile, Vietcombank, the country's second largest partly- private lender, reported a gross profit of more than VND3 trillion in the first six months of the year, up 8.2 percent from a year ago.
Other large lenders, like Sacombank and DongA Bank, also posted impressive earnings.
Sacombank said H1 net profits increased 11 percent from a year before to VND1.14 trillion ($55.4 million). DongA Bank reported gross profits of VND676 billion ($32.9 million), or 52 percent of its annual goal for the whole year.
Small lenders have also announced striking earnings. Navibank, for instance, has declared a H1 pre-tax profit of VND128 billion ($6.2 million), up 72 percent from the same period last year.
Tuoi Tre newspaper on Wednesday quoted Nguyen Thi Ngoc Van, deputy general director of DongA Bank, as saying that its profits mainly came from lending.
Other banks gave similar reports.
Nguyen Phuoc Thanh, general director of Vietcombank, cited the high ratio of loans over deposits as a main reason for increased profits compared with several years past.
"Previously, our ratio of lending was around 60 percent of total deposits. However, since the beginning of this year, it has witnessed a sharp increase as the capital coming from deposits has fallen, given that many other banks are offering higher deposit rates than the 14-percent cap," Thanh told the newspaper.
A financial expert, who wished to remain unnamed, said, "Banks have said that it is hard to lower lending interest rates as borrowing costs are still very high. But based on their fat profit figures, we can see that they are still "˜thriving' though the economy is facing many difficulties and most companies are struggling to keep their businesses afloat."
Vietnam's inflation accelerated for the 11th straight month in July to 22.16 percent, the highest rate among 17 Asian economies tracked by Bloomberg. The country's benchmark VN-Index is also Asia's worst performer and has slid 16 percent this year.
Le Xuan Nghia, vice chairman of the National Financial Supervisory Committee recently told Tuoi Tre that though lenders are making profits, the banks are still hurting in the bigger scheme of things.
"Currently, the return ratio is only around 1 percent of banks' total assets and about 10-11 percent of their equity. This level represented a major fall compared with 2009 and 2010, when the return on equity was up to 15 percent," said Nghia.
Cao Sy Kiem, a former governor at the State Bank of Vietnam, agreed with Nghia, saying that it is essential to take lenders' equity into account when assessing their profits, according to Tuoi Tre.
Burden to firms
From another angle, Kiem said the central bank should issue specific regulations to control lending and deposit rates to make sure that the gap is reasonable.
"For the past months, the regulations have been unclear," he said. "Authorities cannot monitor the real deposit interest rates at banks. As a result, lending rates have been pushed up to very high rates, placing a burden on businesses."
Kiem said that many companies have reported losses during the first months of the year due to high borrowing costs.
In the latest report released by the central bank on July 19, the highest lending rate was recorded at 25 percent.
At the same time, some businesses are reportedly paying as much as 30 percent on their loans.
Many projects are facing delays due to high borrowing and input costs, according to a report issued by the National Assembly's Economic Committee last week.
"Production and business, if facing delays for a prolonged period of time, could lead to more bad debts in the last months of 2011 and 2012," the report said.
As of June 10, non-performing loans rose to 2.72 percent of outstanding loans, up from 2.17 percent at the end of 2010, the central bank said.