Banks expected to face difficulties in second half after happy first half
Banks have every reason to worry that the road will be tougher in the last six months of the year as credit growth will slow down due to the policy on credit tightening.
Explaining the satisfactory profit of banks in the first half, a securities expert said that credit grew rapidly in the first half of the year, partially thanks to the interest rate subsidy programme. Moreover, as things improved in the economy, banks received reimbursements for the provisions they made late last year against stock price decreases and bad debts. The reimbursements contributed a lot to the high earnings of banks.
In late 2008, businesses faced a lot of difficulties due to the global financial crisis and they could not pay bank debts on schedule. The increased bad debt ratios and then forced banks to make provisions against credit risks. Moreover, as banks also made financial investments, they also had to make provisions against the stock price decreases.
Eximbank had a high ratio of bad debts in late 2008 (debt groups 3,4 and 5), accounting for 4.71 percent of total outstanding loans (1,001 billion dong). The bad debts, which mostly were real estate loans, forced the bank to make a provision of 320 billion dong. The bank also made a provision of 206 billion dong for its financial investments.
However, the situation has been improved much so far this year. Overdue debts of the bank have been taken back thanks to the real estate market’s warming up, thus leading to higher house sales. The bad debt ratio of the bank had decreased to 3.3 percent by the end of May 2009.
Meanwhile, profit from stock investments also made contributions to the total profit Techcombank obtained in June 2009. The bank got 39.9 billion dong from selling the stocks it purchased before, which helped the bank obtain the pretax profit of 1,031 billion dong in H1. This means that the bank has fulfilled more than 50 percent of its plan for 2009.
Third quarter will still be favourable
According to Ly Xuan Hai, General Director of Asia Commercial Bank (ACB), the conditions of the economy were very favourable for banks in H1, particularly in the second quarter.
However, he said that he is not sure about the fourth quarter of the year, adding that the conditions will still depend on the national economy’s performance. Hai has predicted that some changes may occur in terms of business conditions and the credit growth rate may slow down.
ACB anticipated possible changes when it set the profit target of 2,700 billion dong for 2009, including 2,300 billion dong from banking activities.
According to Hai, banks’ earnings in the third quarter of the year will be stable. Credit will still increase though loans have been narrowed in some credit products, while income from services will grow stably.
Sacombank said that if there are no big changes in the last six months of the year, Sacombank will fulfill its yearly plan early or even obtain higher than expected profit. Eximbank has also confirmed the possibility of fulfilling its yearly plan as it has already reached 813 billion dong of the 1,500 billion dong worth of profit set for 2009 as a whole.
However, analysts have predicted that credit growth will slow down in H2, which will affect banks’ profit. The credit growth slowdown proves to be unavoidable as the State Bank of Vietnam has decided that credit growth must be curbed at less than 30 percent this year.
