Small banks expect changes to central bank crimp on credit growth

The State Bank of Vietnam has confirmed there will be no concessions to any bank that attempts to ‘hurdle’ credit increases this year. But many banks are still expecting a change in the central bank’s policy, reflected in the profit plans made by banks.

In the draft plan submitted to the shareholders’ meeting on April 11, Ficombank said that the implementation of Directive No.01/CT-NHNN, the Ficombank Board planned to meet the credit growth target of below 20 percent and expected to make before tax profit of 285 billion dong compared with 141 billion dong achieved last year. Meanwhile, the bank’s capital has recently reached 2 trillion dong and Ficombank is expected to complete the chartered capital increase to three trillion dong by the end of April.

So the Ficombank Board said that, if credit growth is below 20 percent, the bank is allowed to lend some 549 billion dong compared with its current outstanding loans, meaning it will not use the number of increased capital in 2011 (one trillion dong). Therefore, according to Ficombank, it will be difficult for the business activities of the bank, especially the optimal use of capital resources as well as additional funds mobilised during the year. As planned in 2011, Ficombank set targets for capital mobilisation (from economic organisations and residential areas) to increase by 385 percent over the previous year, reaching 10 trillion dong. Thus, under the plan, if credit growth is below 20 percent, the efficiency of capital use at Ficombank will only reach 8.02 percent compared to the credit growth plan of 20 percent, the effective use of funds reaching 10.7 percent.

So, Ficombank has offered two scenarios for its business activities in 2011. With a plan that credit growth is below 20 percent, its pre-tax profit is expected to reach 285 billion dong; dividend rate at 5.6 percent (in 2010, Ficombank’s dividend rate at 4.5 percent). Now with the scenario 2, if credit growth is allowed to exceed 20 percent, its profit will be 381 billion dong and dividend rate at 7.6 percent.

Navibank has also built the similar scenarios in its business plan to submit to the shareholders’ meeting scheduled on April 15. Specifically, in the first scenario, Navibank’s outstanding credit growth is no more than 20 percent compared to 2010 and its pre-tax profit is expected to reach about 276 billion dong.
But in its second scenario, outstanding credit growth would reach about 77 percent compared to 2010, its pre-tax profit will reach 450 billion dong. Under the yearly plan, Navibank will raise its chartered capital from more than 1.8 trillion dong to three trillion dong by the end of this year.

However, achieving business plans with credit growth of below 20 percent is impossible because in fact, many small-joint stock banks have had to adjust its credit growth target of 20 percent at shareholders’ meetings after the directive of the SBV. In particular, VietA Bank has adjusted downward its credit growth from 74 percent to 20 percent; Nam A Bank from 47 percent to 20 percent. Latest is GiaDinh Bank, on the shareholders’ meeting on April 8, this bank launched a business plan in 2011 with the goal of credit growth standing at 20 percent compared with the earlier plan of 189 percent posted on the website of GiaDinh Bank.

Although the SBV Governor has confirmed its goal of crimping average credit growth to 20 percent this year for all the banks, but it seems that small banks expect to see a change in the central bank’s credit growth target. Because according to small bankers, the ratio of their outstanding credit currently reaches a fairly low level, if only 20 percent growth this year, the absolute numbers are not significant. Meanwhile, the major revenue is banks’ credit activities that usually contribute 80-90 percent of their profits.