Banks in Q1 profit slump

Wednesday, April 16, 2008
Profit growth of banks, compared to the same period last year, are presenting slow-down signals this year. The main reason for business results of banks in first months of this year is unstable movements of the monetary market. Credit tightening policies in order to rein inflation that have been applied in the first quarter have adversely impacted banking activities. Notably, the central bank's limiting dong supply, withdrawing money from circulation has forced commercial banks to increase deposit interest rates sharply in a bid to ensure their liquidity. The growth of input costs has made banks impossible to maintain revenue and profit as high as previous years.
Namely, by the end of March, the Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) reached 435 trillion dong in pre-tax profit, a year-on-year increase of 44%, 75.205 trillion dong in total assets, rising by 135% against the first quarter of last year, 65.445 trillion dong in deposits, a year-on-year growth of 133% and 41.665 trillion dong in total outstanding loans, up by 141% against the end of March in 2007. Meanwhile, by the end of January 2007, the bank reported a pre-tax profit of 302 billion dong, up by 188% against a year earlier. According to a senior official of Sacombank, if Sacombank's profit in the first three months increased more slowly than previous years, that was because of different factors. According to Sacombank's plan approved by the recent shareholder meeting, the bank targeted a pre-tax profit of two trillion dong in 2008, nearly 500 billion dong lower than the initial target and up by only 38% against last year. Meanwhile, Sacombank reported a pre-tax profit of 1.452 trillion dong in 2007, a year-on-year increase of 167%.

By the end of the first quarter, Eximbank's pre-tax profit was estimated at 264.6 billion dong, rising by 54% against last year while in the first quarter of 2007, Eximbank's pre-tax profit was 2.6 times as much as the figure of 2006, reaching 177 billion dong. Eximbank targeted a pre-tax profit of 1.3-1.5 trillion dong this year, nearly doubling the figure of 2007. However, with complicated movements of the monetary market in first months of this year, the bank's activities will be adversely impacted in the upcoming time. Eximbank also said that it will find difficult to fulfil the above targets.

Similarly, Ly Xuan Hai, general director of the Asia Commercial Joint Stock Bank (ACB), closing March, ACB posted 501 billion dong in pre-tax profit compared to 413 billion dong in the first quarter of last year. According to ACB's plan passed by the recent shareholder meeting, the bank targeted to reach a pre-tax profit of 2.5 trillion dong in 2008, 500 billion dong higher than last year but some 300 billion dong lower than the initial target. ACB's pre-tax profit in 2007 was 2.127 trillion dong, three times as much as the figure of 2006. Nevertheless, ACB said that the bank will gain a pre-tax profit higher than the targeted figure.

Not only commercial joint stock banks, profit growth of many small-scaled banks in the first quarter also signalled a year-on-year reduction. The Viet A Bank gained a pre-tax profit of 96.5 billion dong in the first quarter. The bank had initially targeted a pre-tax profit of 370 billion dong in 2008, which was then cut to only 290 billion dong. As for the An Binh Commercial Joint Stock Bank (ABBank), the initial target of pre-tax profit had been 555 billion dong however this figure was then lowered to some 400 billion dong. Although having not yet specific figures of business results in the first three months, Luu Duc Khanh, general director of ABBank, admitted that his bank's pre-tax profit in the first quarter would surely be not as much as last year.

According to a reliable source of news, in addition to banks with slow growth of profit, some banks ran a loss after the recent dong crisis. The reason was that banks strongly offered loans in 2007. By early 2008 when the market was scarce of dong, clients tended to switch their capital to other banks, banks had to borrow capital from the interbank market with overly high interest rates of 38-40% a year in order to meet liquidity.

A general director of a HCM City-based commercial joint stock bank said that the slow growth of profit at banks in the first three months was attributed to the serious shortage of dong. Furthermore, that banks raised deposit interest rates to meet demand and supply pushed input costs. On the other hand, the first quarter had many festivals, holidays, demand for capital as well as financial services of clients was less, which impacting revenue and profit of banks. However, the general director also admitted that compared to last year, banks are facing up more difficulties. It is likely that macro-management policies, inflation curbing policies of the central bank will further affect business results of banks. (DTCK)