Banks reap hefty profits while firms suffer losses
Banks reap hefty profits while firms suffer losses
While most local businesses have been struggling to escape from financial troubles, all seventy one commercial banks in Vietnam raked in a handsome sum of profits in 2011 and the first four months of this year.
The total revenues of local businesses in 2011, according to figures from the General Department of Tax, were some VND7,500 trillion (US$360 billion), but total expenses, including raw material and labor costs, and loan interests, were as high as VND7,200 trillion, or 97 percent of revenues, with expenses earmarked to clear bank loans worth VND466 trillion.
Meanwhile, contrary to the businesses’ hardship, the 71 commercial banks countrywide saw their 2011 profits soar dramatically, figures from the tax watchdog show.
The credit institutions’ profits from business operation in 2011 amounted to some VND97 trillion, up by 45 percent compared to 2010.
Moreover, according to the general department, in the first quarter of this year while as much as 70 percent of the 258,000 businesses incurred a massive VND40 trillion loss, banks were still earning fat profits.
“Basically, banks are still operating with a gain from credit businesses, with profits increasing in both ratios and scales,” the General Department of Tax commented.
The tax authorities also said that during these hard economic times, when businesses have been scrambling to cut operation costs and tightened spending, operational expenses in banks still rose from VND54 trillion in 2010 to over VND76 trillion in 2011.
Accordingly, wages for those working at banks have rapidly soared over the years, from VND7 million per capita per month in 2007 to VND15 – 21 million in 2011, two to threefold the country’s basic wage.
“This is because the credit policies have allowed banks to reap whopping profits in the recent past,” the tax watchdog stated.
Profits from old debts
Banks said lending is the largest source of profits.
Le Duc Tho, deputy CEO of Vietinbank, said revenues from lending activities account for around 70 percent of the bank’s total profit.
The deputy CEO of a commercial bank in District 1 also confirmed that the policy allowing banks to negotiate lending interest rates with borrowers, while the deposit rate is capped, have created huge advantages for banks.
While the deposit rate cap has been constantly lowered over the last few months, banks are still able to earn profits from the old loans with high rates.
To date, the difference between the lending interest rate and deposit rate has amounted to 3.5 – 4.5 percentage points.
The Business Tax Management Agency and the General Department of Tax have thus called on the State Bank of Vietnam to restrict the gap to 2.2 – 2.5 percentage points to curb inflation and control credit growth.
Doctor Nguyen Dai Lai, former deputy head of the Bank Development Strategy Agency under the central bank, also urged banks to cut operation costs to reduce lending rates to assist borrowers.
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