Businesses facing big difficulties, banks earning fat profit?

VnnNews – It has been asked why banks have been able to earn fat profit, while other businesses have been facing big difficulties.

“While big banks in the world and businesses in < ?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Vietnam all have been suffering from the economic crisis, commercial banks in Vietnam are still earning fat profit. We, the producers, are jealous,” said Nguyen Huu Sia, Deputy General Director of Da Nang Port, at a workshop on financial measures for businesses in the central region in the post-crisis period held in Da Nang late last week.

In fact, the profit of banks has been a hot topic for years. A big state-owned bank suddenly stopped providing figures about its profit in the last months of 2008, though it regularly released information before. The reason was that the bank did not want people to know that it was earning substantial profit while other businesses were suffering losses.

However, Nguyen Ngoc Bao, Director of the Monetary Policy Department under the State Bank of Vietnam, also said at the workshop that the profit levels of banks were somewhat misleading

Bao said it is necessary to thoroughly analyse the figures released by banks.

“The figures about banks’ profit are pre-tax profit. Meanwhile, most banks have the capital of over 3 trillion dong, a big sum. Therefore, when analysing banks’ profit, it is necessary to analyse the ratio of profit to capital as well,” Bao said.

Some commercial banks have announced they fulfilled yearly business plans in the first eight months of the year, while others have announced the fat profit of several trillion dong.

Yet, is this still a high level of profit considering that the banks have tens of thousand billion dong in capital and tens of thousand billion dong in total assets and tens of thousands of employees?

In order to answer the question, many key financial indexes, like returns on assets (ROA) or returns on equity (ROE) need to be analysed. However, most people are unable to do this.

General Director of Lien Viet Bank Nguyen Duc Huong said that it is necessary to consider the sources of banks’ profit to understand that banks have been making every effort to obtain high profit. At Lien Viet Bank, for example, credit can bring some 30 percent of profit, while the other 70 percent comes from derivatives. In some cases, profit has come from gold trading or financial investments.

“I’m representing a profitable bank, but no bank could get big profit if it lived just on lending,” Huong said.

The story about information exposure

Bao from the State Bank of Vietnam said that the bank is reconsidering the legal framework in order to ensure that figures about banks’ profit will be more accurate and clearer when they are released publicly.

Currently, different commercial banks follow different ways in providing information to the public. Some commercial banks provide a lot of indexes and related figures (chartered capital, total assets, ROA and ROE…), while other banks only give figures about profit or credit growth rates in comparison to specific times.

Most state-owned commercial banks do not have the ‘habit’ of exposing information about their monthly and quarterly business results, while joint-stock banks have been providing updated information regularly.

VietNamNet/VNE

Tags: Banks Profit, Commercial Banks, Physics games

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