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SSI identifies three biggest problems for banks   2009-07-16 - VietNamNet/DTCK

In its latest outlook report about listed banks, the Saigon Securities Incorporated (SSI) identified the three biggest problems banks will have to face in the time to come, including narrow margin between deposit and lending interest rates.


The happenings in the first half of 2009


At the beginning of the year, credit grew slowly due to the difficulties of the national economy. The credit growth rates were just 0.6 and 1.1 percent in January and February. Credit performance has become better since late February, when the Government launched the interest rate subsidisation package.


By the end of June 2009, the total outstanding loans had increased by 17.01 percent in comparison with the end of 2008. This is considered a satisfactory result in the context of economic downturn, though it is lower than the growth rate of the same period of 2008 (17.53 percent).


VND capital mobilisation growth has been proceeding stably, and in line with credit growth, thus ensuring good liquidity in the market. The total capital mobilised by the banking system in the first six months of the year increased by 16.2 percent, 0.81 percent lower than the credit growth rate.


VND deposit interest rates began increasing in February. The deposit interest rate reached the highest peak of the year in the last week of June. Joint-stock banks tend to raise deposit interest rates more rapidly than state-owned banks. Tin Nghia Bank is now offering the highest deposit interest rate of 10.2 percent for 36-month term deposits.


Three problems of banks


SSI believes that in the second half of the year, credit will continue seeing a high growth rate, while the driving force for credit growth is the interest rate subsidy package.


By July 2, 2009, banks had disbursed 372,000 billion dong under the interest rate subsidy programme, or 57 percent of the plan. It is expected that 280,000 billion dong worth of capital will be disbursed from now to the end of the year under the programme.


In order to prevent high inflation from returning, the State Bank of Vietnam has set the cap for credit growth at 30 percent for 2009. As such, the remaining ‘growing room’ for banks is 13 percent.


There are three big problems banks will have to face in the time to come.


First, the narrowing of the margin interest rate caused by increasing deposit interest rates. The average deposit interest rate of the banking system is now at 8.26 percent (it was 7.99 percent in May 2009). The average lending interest rate is 10.26 percent.


Second, the State Bank of Vietnam has released a document, asking commercial banks to check their consumer loans, which means that consumer loaning will be tightened in the second half of the year, thus leading to possible lower income from loan interest.


As consumer loaning does not have to obey the ceiling lending interest rate scheme (under the current regulations, the ceiling lending interest rate is 150 percent of the basic interest rate stipulated by the State Bank of Vietnam for every month), banks have tried to push up consumer loaning. Outstanding consumer loans had reached 85 trillion dong by the end of May 2009, up by 11.6 percent over the end of 2008.


Third, bad debt is expected to be a cause of concern for the banking system. The bad debt ratio of the whole banking system reached 3.85 percent of total outstanding loans by the end of May 2009, equivalent to 56,500 billion dong, up by 30 percent over the end of 2008.


The outstanding loans which funded securities and real estate investments by the end of April 2009 reached 155 trillion dong, or 11 percent of total outstanding loans (the figure was 13.7 percent at the end of 2008). However, the actual ratio may be higher than the reported figure.


The current status of listed banks


Three banks are listing shares at the HCM City Stock Exchange: VIetcombank (VCB), (Sacombank) STB, and Asia COmemrcial Bank (ACB); SHB is listing at the Hanoi Stock Exchange (HNX).


SHB is a small bank which has just shifted from a rural bank to urban bank, while the other three are all leading banks, which are also the ‘blue chips’ on the bourses.


Vietcombank has advantages which can serve well for sustainable development, such as operation scale, good brand name, sources of clients, good technology infrastructure and labour force. Moreover, it has been contributing capital to many big economic organisations, and it remains No1 in international payment services and card services in Vietnam.


However, originating as a state-owned bank, Vietcombank has problems related to corporate governance and risk management.


Vietcombank’s bad debt ratio is relatively high at 4.6 percent, higher than the average level at 3.5 percent.


It is expected that the main sources of income of Vietcombank, including interest and profit from foreign currency trading will decrease, which will lead to the lower total income of Vietcombank.


If Vietcombank can control its costs well and reduce expenses by lowering the provision rate, it is possible it could obtain 4,308 billion dong worth of pretax profit in 2009, up by 29.6 percent over 2008.


ACB, though smaller than Vietcombank, is now the bank with the highest ROE in the banking system. It is because ACB has well diversified its business and applied a good risk management policy. ACB, which has been following a cautious lending policy, has a very low bad debt ratio of less than one percent.


Besides income from loan interest, ACB also has income from gold and securities services and from gold and securities trading.


ACB’s pretax profit in 2009 is forecast to reach 3,179 billion dong, up by 24.2 percent.


STB is inferior to Vietcombank and ACB in terms of scale, profitability and governance quality. However, it still has specific advantages.


Sacombank has a wide network in Vietnam, ranking 4th after Agribank, BIDV and Vietinbank. Sacombank has a high number of Chinese clients and small- and medium-size enterprises. Sacombank is a well-known brand name which has also diversified business by trading gold and securities.


It is expected that Sacombank will see a more satisfactory result in 2009 after 2008 with a minus growth rate. Its profit is forecast to reach 1,921 billion dong, up by 73 percent over 2008.


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