Vietnam banks shy away from lending, lower profit targets

By Mai Phuong, Thanh Nien News

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A customer fills out a form at Asia Commercial Bank in Ho Chi Minh City. PHOTO BY DIEP DUC MINH

Citing the the bad debt turmoil that has burdened them for years now, Vietnam's commercial banks have lowered profit target and focused on restructuring.
During at a recent annual shareholders meeting, Eximbank, one of Vietnam’s biggest lenders by assets announced a pretax profit target of VND1.8 trillion (US$85.5 million) this year, down 44 percent from 2013.
Maritime Bank, the country’s 13th largest partly private bank by registered capital, reduced its pretax profit goal by 34 percent from the previous year to VND265 billion.
The bank has said it plans to merge with Mekong Development Bank (MDB) to boost their financial strength and competitiveness. Maritime bank fired 1,060 people last year and is set to let nearly 700 others go this year citing reduced lending.
As of March 31 credit growth for the year was reported as a mere 0.01 percent, according to the State Bank of Vietnam.
The Ministry of Investment and Planning said business closures and suspensions have continued to increase, rising by 12.2 percent year-on-year to 13,124 by the end of February.
Bank leaders say they're shooting for sustainable, long-term growth.
Ho Hung Anh, board chairman of Techcombank, said his institution will maintain the tight policies they've implemented for the past several years now to keep bad debts below 3 percent of total loans.
Techcombank will continue to focus on individual customers and small and medium enterprises, while improving the quality of its service in order to raise income from fees from 13 percent to 19 percent.
A representative of DongA Bank also said it would choose a “slow but safe” path, betting more on individual customers, retail businesses and those providing common household services. The bank is still in midst of restructuring itself.
Dr Le Dat Chi, chief finance lecturer at Ho Chi Minh City University of Economics, said banks should focus now on perfecting their systems instead of looking for new customers.
Once the lending process is tightened and standards for selecting customers are improved, banks will have a better handle on bad debts, Chi said.
Last November, Vietnamese banks were estimated to be holding VND152.18 trillion ($7.22 billion) in bad debt, or 4.55 percent of outstanding loans.
That figure represented an increase of VND19.76 trillion ($937.5 million) from January 2013 when the ratio was estimated at 4.3 percent.
Economist Nguyen Tri Hieu said that commercial banks need to strongly restructure themselves to survive.
Improved credit quality will increase shareholder and customer confidence, Hieu said.
Among the nine weak banks identified by the State Bank in 2012, eight have been dealt with while PGBank has proposed selling its assets to foreign partners.
Three small lenders in Ho Chi Minh City have merged to form the Saigon Commercial Bank, while Habubank has been acquired by Saigon-Hanoi Bank.
Navibank’s restructuring plan has been approved, with the participation of new shareholders.
Even the big lenders favor merging.
Shareholders at Eximbank and Sacombank (another leading partly-private lender) agreed to a merger when they signed a strategic partnership pact in 2012. The merger is expected some time in the next few years.
The central bank said it will deal with a further six or seven weak banks this year.

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