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Banks likely to fall short of revenue targets   2008-12-29 - Viet Nam News

Domestic banks haven't been immune from the global financial crisis and few are likely to meet their profit targets for the year.

Out of 38 domestic commercial banks, only Asia Commercial Bank (ACB) - one of only two banks with shares listed on the stock exchange - is expected to hit the revenue target it set earlier this year.

With outstanding performance at the end of 2007, most banks then projected that they would double their 2007 profits this year.

But, out of 38 domestic commercial banks, only Asia Commercial Bank (ACB) - one of only two banks with shares listed on the stock exchange - is expected to hit the revenue target it set earlier this year. As of early December, the ACB had met the target by netting VND2.5 trillion (US$142.86 million).

Ha Noi-based Vietcombank was still in the hunt, having targeted to earn VND3.4 trillion ($195.4 million) in revenues this year and, by the end of November, reaching VND3.1 trillion ($178.16 million).

Vietcombank general director Nguyen Phuoc Thanh cautioned, however, that although the bank was within striking range of the target, earnings in the last month of the year were likely to be modest.

HCM City-based Sacombank - the nation's other listed bank - had projected profits of VND2 trillion ($114.94 million) earlier this year, only to watch profits sag quarter- by-quarter. In the first quarter, the HCM City-based bank generated about VND412 billion ($23 million) in profits, a figure that shrank to VND325 billion ($18.68 million) in the second quarter and VND214 billion ($12.3 million) in the third quarter.

The bank has since lowered its target for the year to VND1.5 trillion ($86.20 million), and, by the end of November, even this seemed out of reach, with Sacombank having racked up profits of just VND1.1 trillion ($63.22 million) in the first 11 months of the year. Chairman Dang Van Thank admitted that total profit for the whole year was likely to reach only VND1.2 trillion ($68.96 million).

DongA Bank, meanwhile, also said it may reach its announced target of VND700 billion ($40.22 million) for the year, having posted earnings of 627 billion ($36 million) in the first 11 months of the year, and with DongA Bank general director Tran Phuong Binh saying they were trying their hardest to reach the target by year's end.

Economists believe the problems being faced by domestic banks took root in the hot growth of the banking industry in 2006-07, which put more pressure to focus even more on credit growth and assumed higher risks in 2008.

Early in the year, banks fell into an interest-rate war, competing for customer deposits by offering returns as high as 19.5 per cent per year, while lending rate as high as 21 per cent.

The aggressive lending practices took their toll on some banks. Eximbank has announced figures showing that it is carrying VND1.36 trillion ($78.16 million) in past due loans - an amount equal to about 6.09 per cent of total outstanding loans - of which about VND619 billion ($35.57 million) were bad debt and another VND200 billion ($11.49 million) likely to be written off.

The State Bank of Viet Nam moved to tighten monetary policy, raising compulsory capital reserve requirements from 10 per cent to 11 per cent and requiring banks to buy up VND20.3 billion ($1.17 billion) in compulsory treasury notes.

Then the global financial crisis struck in September, credit began tightening worldwide, economic growth began to slow, and inflationary pressures started to reverse.

The central bank moved to cut the prime interest rate from 14 per cent to 8.5 per cent over a period of about eight weeks, and with deposit interest rates also pegged to the prime rate, the deposit interest war cooled, with maximum lawful rates currently no higher than 12.75 per cent a year.

"We couldn't actually predict what we were going to do," one HCM City banker told Viet Nam News. "Sometimes, we definitely felt passive in managing money flows."

An economist from the Central Institute for Economic Management said: "2008 has seen a great crash in the global financial system, and Viet Nam is no exception. No one could imagine what has happened in the last few months... Managing monetary policy to fit the sudden market turbulence was the right move for the sake of the entire economy."

"It may not be that application of monetary policy was absolutely accurate and proper, but managing monetary policy in accordance with market rules has been a success," said Nguyen Duc Kien, a member of the National Assembly's Economic Committee. "Clear evidence is that the local financial system has overcome some difficult times and is becoming stable again."

Bankers predict that the financial crisis will last through at least the middle of next year and were setting their sights low for 2009.

Thanh said that Sacombank would not set its 2009 profit target any higher than its 2008 target of VND1.5 trillion ($86.21 million), and even ambitious DongA Bank expected to net VND900 billion ($51.72 million) in 2009, up only about VND20 billion ($1.15 million) over this year's target.

And bank staff who enjoyed millions of dong in Tet bonuses last year aren't holding their breath this year.

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