Banks face reduced profits

by Ha Phuong

HA NOI — With annual shareholders meetings approaching for a number of commercial banks, bank executives are struggling with profit targets for the year, unsure of whether to set them ambitiously high, at the risk of disappointing shareholders, or lowball them as they did last year during the darkest days of the financial crisis.

Bank profits came in much higher than targets in 2009, which saw a boom in credit growth and soaring revenues from gold trading floors.

This year, the State Bank of Viet Nam has ordered banks to achieve a credit growth of no more than 25 per cent, considerab lower than last year's 37.7 per cent growth, driven by Government-subsidised loans.

Along with lower revenues from lending, commercial banks are also facing a loss of profits from gold trading floors, which have been a major component of a number of banks' profit pictures for the last two years. But the State Bank has ordered a suspension of these types of trading floors by the end of this month.

"I have gauged the balance sheets of banking groups for years, and I can say for sure that their profits will be cut due to tightened credit growth and suspended gold trading floors," said Ngo Hung Linh, a Ha Noi based analyst. "Or they have to change their income structures."

Asia Commercial Bank deputy director Nguyen Thanh Toai responded that "Asia Commercial Bank knows how to diversify revenues and expand profits other ways. We plan to increase income from credit business and services first, then boost other businesses."

Sacombank chairman Dang Van Thanh also said that the closure of gold trading floors would not cut into Sacombank's bottom line.

"While the executive board has approved a profit target of VND2.4 trillion (US$126.31 million) for this year, Sacombank expects the figure to be more like VND2.8 trillion ($147.36 million)," Thanh said.

Sacombank has already posted profits of over VND300 billion ($15.78 million) in the first two months of this year, up 35 per cent over the same period last year. Earnings from loans accounted for 22.9 per cent of profits, while income from services took 18.8 per cent.

The remainder came from "unnamed" business operations, some of which presumably included revenues from gold trading floors.

Compounding the problem of setting accurate profit targets this year is a looming requirement that commercial banks increase their charter capital.

Banks like Kien Long Bank and Western Bank, which now have less than VND3 trillion ($157.89 million) in charter capital, must increase charter capital by the end of the year and remain profitable, not an easy feat.

And even the largest banks are under pressure from stakeholders to boost capitalisation while still posting healthy profits.

"In the shareholders meeting on April 10, Asia Commercial Bank will discuss raising its charter capital from VND7.8 trillion ($410.52 million) to VND9.4 trillion ($494.73 million)," said the bank's general director, Ly Xuan Hai. But, he suggested, bank management would also be under pressure to meet higher profit targets than last year.

Asia Commercial Bank posted a gross profit of over VND2.8 trillion ($147.89 million) last year.

Taking a realist approach, Vietcombank, with VND12 trillion ($631.6 million) in charter capital, has projected that profits this year will shrink from VND5 trillion ($263.16 million) to VND4 trillion ($210.52 million).

But if the proportion of profits to charter capital shrinks, shareholders can get upset, which is what happened early last year at the shareholders meeting of Eximbank. The bank's management had set a profit target of just VND1.5 trillion ($78.94 million), despite having charter capital of VND7 trillion ($368.42 million). — VNS