Vietnam - 2012 may prove to be difficult year for banks: Bankers

Rising bad debts and liquidity concerns along with the process of restructuring the economy, especially restructuring the banking sector in the initial stages are said to make banks continue to experience difficulties in 2012.

Tran Phuong Binh, General Director of East Asia Commercial Joint Stock Bank (DongA Bank) predicted that in 2012, banks will continue to face more difficulties and challenges than 2011. According to him, that is the year that the economic restructuring process of the government is in the first step, while in the world, the European debt crisis is still going on.

In this context, the operational objectives of the banking sector in 2012 under the direction of government are still to curb inflation, and stabilize macro-economy. "Therefore, interest rates, and credit growth will continue to be an intractable problem for banks in the business period this year," Binh said.

Facing these difficulties, Binh said, in 2012, DongA Bank set capital increase as its top priority to continue to increase financial capacity and confirm its leading position in banking technology. Besides, this bank also aims to bring its total assets to 100 trillion dong and consolidated profit to 1.650 trillion dong in 2012.

With the same point, general director of Orient Commercial Bank Trinh Van Tuan said that the operational status as well as the development of the financial sector depends heavily on the policy of the State Bank. Because of the first year of the implementation of economic restructuring, especially the banking sector restructuring, he assessed that 2012 is not an easy year for banks.

According to Tuan, only when banks operate stably, they will be able to develop. Meanwhile, if in uncertainty, credit institutions must focus on ensuring liquidity, and maintaining safe operations. And so, shareholders could hardly put expectations on the high profitability.

Meanwhile, a member of the National Monetary Policy Advisory Council said that the use of administrative orders to force banks to raise capital with interest rates not exceeding the current ceiling as currently is a temporary solution. However, in this context, the State Bank is required to use such heavy-handed solution to achieve the larger economic goals.

Accordingly, he said that this would be one of the important causes making banks continue to experience difficulty in attracting deposits in Vietnam dong in 2012. In addition, prudent monetary policy also will limit money supply into the market, which is believed to have big impacts on the liquidity of banks.

In addition, this expert also pointed out shortcomings of the banking system that have been revealed in recent years such as weak liquidity with higher bad debt situation. "Debt group 2 tended to increase, if corporate customers continue to delay repayment for banks, which will force banks to change the debt group. That means the risk reserve ratio will increase and banks’ profits will drop," he said.

ANZ Bank also said the economic data early 2012 showed the economy continues to slow with the clearly low inflation trend. The State Bank of Vietnam began to desire to reduce interest rates. However, this bank said that at first, the State Bank should assess the pressure on prices due to the Lunar New Year’s impacts and if the relaxation is guaranteed, it may be prudent to be able to achieve its objectives set out.

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