Fees to make up more bank revenue

Saturday, Aug 05, 2017 10:25

Service fees will roughly contributed 20 per cent to the total earnings of the local banking system by 2020, according to the State Bank of Viet Nam. — Photo doanhnghiepvn.vn

The income from service fees will contribute roughly 20 per cent to the total revenue of the entire banking system by 2020, doubling the current rate.

This was stated in the project on restructuring credit institutions in the period between 2016 and 2020, released by the State Bank of Viet Nam (SBV) recently.

Compared with the rates in other regional countries, Viet Nam’s proportion is currently equal to Indonesia’s but is much lower than Malaysia’s (20 per cent) and Thailand’s (30 per cent).

According to experts, the target is challenging because it requires banks to prioritise resources in product development, which can help firms get funding but not through bank loans as currently. The products are derivatives, which are the combination of the stock market and the monetary market. At that time, banks will only play the role of intermediary to bring the capital of people directly to the firms.

However, it is a must as it will help banks avoid risks from too much lending. The country experienced the negative consequence in the period between 2006 and 2011, when credit growth was at 30 per cent, causing banks to suffer a large amount of bad debts that have yet to be settled.

To meet the target, the SBV states in the project that it will take measures to force banks to meet the credit growth quota assigned by the SBV. The SBV has allocated credit growth limit for credit institutions based on their health and performance in the previous years since 2012 to control the lending. The institutions will be classified into four groups, with well-performing lenders clubbed in the A group and weaker lenders in the D group.

Under the new project, governance to manage risks is also detailed with all credit institutions having to build the risky governance system.

Commercial banks have performed well in the first half of this year, and business results show that many have already met more than half their annual profit targets. However, most of their profits come from lending. According to statistics from the SBV, credit growth in the first half of this year was 9.06 per cent, the highest level compared with the same period in the last five years.

Experts are concerned that the high credit growth can cause potential risks for banks in the next two or three years like in the period between 2006 and 2011. — VNS

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