Banks express concern that they won't meet profit targets due to narrowing margins between deposit and lending rates. — Photo vnexpress.net

HA NOI (Biz Hub) — In light of hard-up companies waiting with baited breath for lending interest rates to fall further, pressurised banks expressed concern they wouldn't meet profit targets due to the increasingly narrow margins between deposit and lending rates, according to a report by Dau tu Chung khoan (Securities Investment) online.

Viet Nam Leather and Footwear Association general secretary Nguyen Duc Thuan said although lending rates had gradually dropped – now hovering around 11-12 per cent – they were still causing significant difficulties for enterprises.

Such rates were much higher than the overseas market average of 3 per cent, making domestic enterprises less competitive than foreign firms, he said.

He added that the gap between deposit and lending rates should be narrowed to 2-3 per cent, down from the current 4-5.

Meanwhile, Eximbank chairman Le Hung Dung said banks now mostly rely on credit to earn revenue at a time when gold and foreign currency trading activities had been curtailed.

Banks were having to cut lending rates to attract borrowers, but were finding it tough to attract deposits while the deposit cap remained at 7.5 per cent, he said.

He noted that besides incurring large expenses luring deposits, banks had to spend significant amounts to cover asset depreciation, establish provisional funds and pay wages and dividends. With current lending rates, banks could only just break even or scrape miniscule profits.

Due to the declining trend of interest rates and bad debt pressure, virtually no banks could reach profit targets in the first four months of this year, he said. Eximbank, in particular, was able to reach just one fifth of its 2013 profit quota over the period.

According to Vietinbank's first quarter financial reports, bad debts at the bank topped VND5.4 trillion (US$257.1 million) by the end of March, up 11.3 per cent on December 2012. The significant bad debt increase forced the bank to raise its provisional fund value by 50 per cent in the quarter to VND1.35 trillion ($64.3 million).

Consequently, Vietinbank's total profits slumped by over 30 per cent year-on-year to roughly VND1.37 trillion ($65.2 million) in the quarter.

Sacombank vice chairman Nguyen Gia Dinh said investors and shareholders need to share difficulties related to profits and dividends, currently a puzzle for banks due to the narrowing deposit-lending rate gap and credit growth remaining low.

He said it was now extremely hard for banks to pay dividends at rates as high as 14-16 per cent like they did five years ago when the stock market was thriving.

"An important consideration for bank managers now is how to run their institutions safely and demonstrate reliability to customers," he added.

An unnamed member of the National Financial and Monetary Policy Advisory Council told Dau tu Chung khoan it was not easy for banks to meet profit targets this year as non-performing loans had swelled at almost all banks, when lending levels were declining across the board. — VNS