Why are banks making huge profits?

In 2017, many banks achieved significant profits thanks to increased lending and reduced bad debts… In the photo: at a bank counter in Ho Chi Minh City - Photo: Q. DINH

The profit figure for 2017 is the highest achieved by a commercial bank to date.

Notably, Vietcombank's pre-tax profit before risk provisions reached VND 17,206 billion, an increase of 17.5% compared to the same period in 2016 and exceeding the set plan.

Similarly, BIDV also announced record profits with consolidated pre-tax profit for the entire system reaching VND 8,800 billion, while Vietinbank achieved over VND 9,200 billion.

Several other banks saw pre-tax profits increase by 40-169%. For example, Military Bank (MB) reached VND 5,355 billion, a 44.3% increase compared to the previous year.

A number of banks such asEximbank,TPBank and HDBank also significantly exceeded their profit targets.

There are many reasons why banks have achieved positive business results. For example, at Vietcombank, by the end of 2017, non-performing loans on the balance sheet had decreased by 705 billion VND.

Sacombank, in 2017, resolved 19,000 billion VND of bad debt, of which the sale of three assets related to Mr. Tram Be's group in Long An alone generated 9,200 billion VND.

Associate Professor Tran Hoang Ngan, Director of the Ho Chi Minh City Academy of Cadres, argues that the 2017 profits of banks are the result of sacrificing profits in previous years due to having to use profits to set aside provisions for handling bad debts, and shareholders did not receive dividends... Now, the portion that was set aside has been reversed, creating what is called an "extraordinary" profit for the banks.

In addition, divestment also brought significant profits to some banks, for example, Vietcombank earned over 513.14 billion VND from selling shares in Saigonbank, Cement Finance Company, etc.

In addition, banks are also implementing various cost-cutting measures.

Following reports of large profits, some banks are considering paying out higher dividends.HDBank plans to distribute dividends in cash and bonus shares at a rate of 25-30%.

OCB's leadership stated that the dividend for 2017 will be around 15%, higher than the 10% of the previous year. Another joint-stock bank headquartered in Hanoi also plans to raise its dividend from 12% to 15%...

Regarding lending interest rates, following the Prime Minister's Resolution 01 and the State Bank of Vietnam's guidelines, some banks have begun to reduce lending interest rates by 0.5-1% for businesses in five priority sectors such as small and medium-sized enterprises, startups, etc.

However, most banks stated that despite high profits in 2017, they still had to continue dealing with bad debts and restructuring, so reducing lending interest rates would mainly benefit priority groups and would be difficult to apply universally.

According to Mr. Do Gioan Hao, lecturer at the Faculty of Taxation and Customs, University of Finance and Marketing, Resolution 42 will continue to be effective in 2018, helping banks to quickly handle bad debts.

However, Mr. Hao still noted that banks must carefully control cash flow, limiting the concentration of capital in risky or rapidly growing sectors to avoid generating more bad debts, as has happened before.