News \ Banking & Finance
Seeking stability

Bankers dislike inflation, as the high-rising consumer price index (CPI) affected business performance in 2010. Recent reports from Vietnam’s commercial banks show that not all earned large profits in 2010, while many are yet to release their full balance sheets.

In particular, the Vietnam Export Import Bank (Eximbank) said in December that gross profits hit VND2.3 trillion ($115 million) last year, exceeding its target. The Ho Chi Minh City-based Saigon-Thuong Tin Bank (Sacombank) also announced profit of VND2.2 trillion ($110 million) in the first eleven months of 2010 compared to its full-year target of VND2.4 trillion ($120 million). Hanoi-based Maritime Bank last month announced its full-year pre-tax profit was VND1,518 billion ($75 million) after deducting provisions.

Meanwhile, Ho Chi Minh City’s Housing Development Bank (HDBank) said it had already achieved its yearly profit target of VND300 billion ($15 million). At Ocean Bank, pre-tax profits in the first eleven months were said to be VND682 billion ($34 million), equivalent to 130 per cent of its yearly. Another new player, TrustBank, also reported VND200 billion ($10 million) in profit by December.

While banks such as ABBank, Military Bank and Habubank have also ensured that they will achieve their yearly targets, some smaller and newer banks had to adjust their targets. For example, Viet A Bank has reduced its 2010 profit target to VND300-350 billion ($15-17.5 million) from the previous VND498 billion ($24.9 million), but there are doubts as to whether even this new figure is achievable. At Habubank, according to CEO Ms Bui Thi Mai, 2010 pre-tax profit was VND750 billion ($37.5 million) after setting aside provision deductions. It did, though, raise its registered capital to VND4,050 billion ($202 million) in 2010 after issuing more shares and listing on the Hanoi Stock Exchange (HNX).

As the economy began facing high-rising CPI late in the third quarter of 2010, the banking sector saw business performance decline. According to the General Statistics Office (GSO), the CPI hit double-digits in 2010, exceeding the government’s target of less than 8 per cent. The GSO figures put inflation at 11.1 per cent year-on-year in November and 11.75 per cent in December, rising 1.98 per cent month-on-month in the last month of the year.

This resulted in a race among bankers to raise deposit rates - up as high as nearly 17 per cent plus bonuses - while the common rate was 14 per cent per annum. High deposit rates mean higher lending rates - some 20 per cent per annum in December and early January, squeezing borrowers at commercial banks. “2010 was a challenging year for the banking sector due to fluctuations in the gold market, exchange rates and interest rates,” said Ms Mai from Habubank. “These resulted from ups-and-downs in global gold markets and higher domestic inflation.”

In addition, she went on, Vietnamese enterprises are yet to escape from the global financial meltdown that forced bankers to be more cautious in their lending activities. The State Bank of Vietnam (SBV)’s Circular 13 on the capital adequacy ratio (CAR) was also said to have affected the sector’s performance in 2010. “Banks faced difficulties in having to comply [with the Circular] while still ensuring lending activities,” Ms Cao Thi Thuy Nga, Deputy CEO of Military Bank (MB) was quoted as saying.

Despite this, a number of local banks viewed 2010 as a time for expansion overseas. In particular, five commercial banks either established or are preparing to establish overseas, mostly in Southeast Asia. MB recently opened a branch in Laos with capital of $12 million, while Vietinbank has similar plans. 2010 was a special year for Sacombank, when its two branches in Laos and Cambodia, after cutting losses, began to be profitable.

In early November, the Sacombank Securities Company (SBS) officially received a licence to operate in Cambodia. For the state-run Bank for Investment and Development of Vietnam (BIDV), its member unit BIDV Insurance Company (BIC) began earning profits from its insurance joint venture in Laos.


Unforeseeable 2011

With high inflation yet to be tamed, the SBV has cautiously set a target of credit growth in 2011 of 23 per cent. Both the government and SBV leaders have affirmed that the top priority for 2011 is to “stabilise” the economy and contain inflation, and that 23 per cent credit growth in 2011, SBV Governor Nguyen Van Giau told a banking conference in December, is “aimed at supporting Vietnam’s GDP growth of 7-7.5 per cent in 2011. Capital will be prioritised for the manufacturing sector.” 

Challenges, however, remain. As Vietnam still faces a high trade deficit, of $12 billion in 2010, the Vietnam dong (VND) will come under more pressure in 2011, analysts say. Official forecasts even predict that the trade deficit could rise to $13-14 billion in 2011, since the country has cut import taxes under its WTO commitments. 


Nearly 1,000 types of goods will enjoy an import tax cut of 1-6 per cent this year, according to the Taxation Policy Department under the Ministry of Finance (MoF). Such goods mainly include agricultural products, seafood, construction materials and electrical appliances. The average cut for most items will be 2-3 per cent. The Ministry of Planning and Investment estimates that imports this year will increase 11 per cent, to $92 billion.

Meanwhile, the most optimistic forecast is for lower inflation to be seen in the second half of 2011, with lower bank lending rates then becoming possible. “A lowering of interest rates is feasible and expected in the year’s first quarter, but probably only after the Tet holidays when pressures have abated,” said Mr Huynh Phu Sy, Chief Assistant Economist at VinaSecurities in Ho Chi Minh City.

Asia Commercial Bank (ACB) announced last month it would build a new data centre with investment capital of $2 million to standardise its information technology infrastructure to meet future development requirements.


Tien Phong Bank has just completed raising its chartered capital to VND3 trillion ($150 million) from VND2 trillion through a share issue, thus meeting the requirement from the central bank for commercial banks to raise capital to such levels.


The Ho Chi Minh City-based Housing Development Commercial Bank (HDBank) and two card services firms - Smartlink and VNBC - have linked up in a merchant network that accepts all kinds of plastic.


VietinBank is likely complete negotiations to sell a 15 per cent stake to Canada’s Bank of Nova Scotia in the second quarter of 2011.
Theo Vneconomy
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