Because of the difficulties seen for the financial sector, small and medium-sized banks are tending to set expectations low for profits this year.
Credit growth quotas affect banks’ profit targets
Despite being given high credit growth quotas in 2012, ranging from 15%-17%, several banks, such as SeaBank, SouthernBank and NamABank, are finding it difficult to realise those targets, forcing them to set modest profit plans during the year.
An anonymous senior official of DaiABank said the bank set the same profit target as last year. In 2011, the institution made a pre-tax profit of VND502 billion (USD24.07 million), compared to its initial target of VND600 billion (USD28.77 million).
Many banks explained that they have opted to set modest profit targets for 2012 due to current high interest rates, which may make it harder to increase liquidity in the system.
In addition, due to economic difficulties, many enterprises are finding it more difficult to get access to credit from banks. At the same time, private lending has become almost non-existent to the interest rates of between 22% and 24% per year.
Trinh Van Tuan, General Director of OCB Bank, said the bank has set its target to make a pretax profit of VND550 billion (USD26.37 million), just slightly more than the year before.
According to Tuan, last year OCB’s pretax profit was VND450 billion (USD21.58 million), lower than the target of VND500 billion (USD23.98 million).
“Because interest rates are currently so high, we may have to struggle to attain the quota. If the situation is going to improve anytime soon a decrease of both deposits and lending will be needed. High interest rates have hurt both financial institutions and businesses,” Tuan noted.
Marginally larger banks seem to be in the same situation, setting the bar low for 2012.
DongABank has set their target at a profit of VND1.65 trillion (USD79.13 million) for 2012, compared to VND1.255 trillion (USD60.19 million) last year.
The anonymous head of DongABank said this year would continue to pose problems, adding that it could well be worse than 2011, as the Government's economic restructuring policies are at the beginning stage and the debt crisis continues in Europe.
“Under these circumstances, banks have to put a priority on curbing inflation and maintaining economic stability. As a result it would be difficult to lower interest rates this year,” he emphasised.
