Letter from Hanoi: Vietnam banks under pressure

(Editor's note: this story was provided by our editorial partner VietNamNet)

VietNamNet Bridge – Commercial banks, luckily enough, could raise their chartered capital before the deadline. However, a new problem has arisen that they do not know what to do with the additional capital.

When planning to raise chartered capital, banks said that they would use the capital to improve material facilities, expand the networks and expand credit. However, the economic difficulties have put pressure on banks in their plan on using the additional capital.

The capital increase proves to be the good opportunity for banks to expand credit, which explains why many banks have set high targets for credit growth this year. However, in the context of the economic difficulties, it would be not so easy to push up loaning.

In the first two months of the year, though the lending interest rats have dropped significantly to 10.5 percent at maximum, and the Government has launched the interest rate subsidy program, banks still complain that the outstanding loans have still been growing slowly.

According to the HCM City Statistics Office, by the end of February 2009, local banks had mobilized VND 587 trillion in capital, an increase of 20.2 percent over the same period of 2008, while the total outstanding loans had reached VND 501 trillion, up by 13.2 percent over the same period of 2008, and by 0.7 percent only over the previous month.

Banks have also thought of opening more branches and transaction offices which proves to be very necessary to expand the market share in the global integration. However, commercial banks have learned the lesson that the massive establishment of branches and transaction offices will incur losses.

SCB, for example, planned to have 118 transaction points by the end of 2008. However, the plan failed due to the economic difficulties, and by the end of 2008, SCB had had 88 transaction points only.

Nguyen Duy Hung, Deputy Chairman of VietBank, whose initial chartered capital was VND 500 billion and has been raised to VND 1 trillion, said that a part of the sum of money has been invested in fixed assets, while the remaining money will be used for loaning.

In Q1 2009, VietBank opened its new branches in Hanoi and HCM City, Hai Phong, Da Nang, and Can Tho. The bank plans to have 30 transaction points by the end of 2009.

SCB plans to raise the chartered capital to VND 3.37 trillion this year, obtain the total assets of VND 41.5 trillion and pretax profit of VND 900 billion. The bank plans to open 12 new branches and 57 transaction points nationwide, raising the total transaction points to 153 by the end of the year.

Meanwhile, Sacombank plans to raise the chartered capital by 26 percent this year, to VND 6.4 trillion. The bank hopes to get the credit growth rate of 50 percent this year over the previous year.

Sacombank has announced the plan to issue two-year convertible bonds which will become shares in 2010-2011. Dang Van Thanh, Chairman of Sacombank, said that the additional capital will be used for the purpose of developing the bank this year and the next year. Sacombank also plans to open 31 more transaction points in 2009.

Dai A bank said that it hopes to obtain the total assets of VND 10 trillion this year and have the pretax profit of VND 250 billion. The bank, which has just fulfilled the chartered capital increase to VND 1 trillion, plans to raise the chartered capital further to VND 2 trillion in 2009.

It is clear that banks feel heavier burden on their shoulders when they increase capital, as bank managers have to get more profit to ensure dividends for shareholders. However, it is also clear that a bigger bank has a better capability of struggling with difficulties than a smaller bank. Therefore, banks still plan further capital increases once their shareholders still accept to pay more money.