The second half of 2010 will be a barren field for local joint stock commercial banks to cultivate profits.

Most banks reportedly earned a lean profit in the first half of 2010 due to severe credit competition among banks.

The country’s largest private bank in terms of chartered capital Eximbank saw an estimated pre-tax profit of around VND930 billion ($49 million) in the first half, far lower than its targeted VND2.2 trillion ($116 million) for 2010 for the period.

An Eximbank executive said the figure created heavy pressure on the bank to reach its full year target. “Gaps between deposit and credit interest rates have been narrowing, while credit growth is unfavourable,” he said.

A Viet A Bank source said the bank set a pre-tax target of VND498 billion ($26 million) for 2010 and the target had created serious pressure on the bank. “Credit operations have not improved in the first months of this year and once credit growth is limited it will be difficult for the bank to reach the target,” said Hung.

The bank set a credit growth rate of 25 per cent for this year and expected to post credit revenue growth rate of 41 per cent.

The credit revenue accounted a big part in the banks’ total revenue. The credit revenue of VP Bank, for instance, accounted for 70 per cent of the bank’s total revenue and the remaining came from services. “Profit targets will depend on the performance of credit operations in the second half,” said a VP Bank executive.

Other banks like ACB, Sacombank and Techcombank have yet to release pre-tax profits. However, the high profit targets will be challenging. Techcombank, for instance, set a pre-tax profit target of VND3.4 trillion ($179 million) for 2010 against its pre-tax profit of VND2.2 trillion ($116 million) in 2009.

The State Bank reported that credit growth in June this year peaked at 3.06 per cent, raising the total credit growth in the first half of the year to 10.52 per cent. The central bank targeted a 25 per cent credit growth for this year.

The central bank’s Circular No13/2010/TT-NHNN, effective from October 1, 2010 regulating safe ratios for credit institutions, states that banks can only use 80 per cent of its deposits for lending. The circular also forces banks to raise the capital adequacy ratio (CAR) from 8 per cent to 9 per cent.

Rol.vn - Source: Vietnam Investment Review