Banks are expecting modest profits this year as bad debts continue to rise and lending sees only slight increases. — Photo anninhthudo

HA NOI (Biz Hub) ― Many banks are expecting only modest profits this year as bad debt ratios continue to increase while lending sees only slight rises, according to Dau tu Chung khoan (Securities Investment) online.

Orient Commercial Bank (OCB) general director Nguyen Dinh Tung told the website the bank was accelerating lending cautiously, and it would be hard for credit growth to reach high levels by the end of the year without real economic stability.

The bank's lending grew by about 6 per cent in the first half and it was likely that growth would reach the 12-per-cent target this year.

"If the economy grows well, we'll ask for State Bank permission to raise our credit quota. But generally looking, there's little hope for breakthroughs in outstanding loan expansion during the remainder of the year," he said

Tung said this was the reason why OCB didn't expect significant profits this year, adding that the bank achieved nearly half of the whole year's profit target, earning VND154 billion (US$7.33 million), in the first six months.

According to Dau tu Chung khoan, many other banks were also forecasting unsatisfactory business results.

SouthernBank earned a profit of about VND637 billion ($30.33 million), mainly from securities trading and other investments, with lending value dropping 1.6 per cent in the first half.

Eximbank's six-month pre-tax profits reached only a fourth of the quota for 2013.

An unnamed chairman of a medium-size joint-stock bank in HCM City said if the lending situation didn't improve in the next few months, it would be likely that profits would be so low that they could only cover provisional funds for bad debt risks.

During the first seven months of the year, the bank had a profit of VND800 billion ($38.1 million), far lower than the year's target of VND3.2 trillion ($152.38 million), and thus, the bank would not be able to pay dividends for shareholders according to plans it had set at the beginning of the year.

DongA Bank general director Tran Phuong Binh said the bank's business performance was satisfactory in the first half, but whether profit targets would be fulfilled could only be clear after all provisional amounts were fully figured out at the end of the year.

He added that the bank had to add about VND140 billion ($6.7 million) into an existing provisional fund worth VND900 billion ($42.86 million) to ensure operational security.

Sacombank chairman Pham Huu Phu said persisting economic difficulties required banks to assure operational safety first, and thus, establishing provisional funds against risks was necessary although this would whittle profits away.

The bank last year had to reserve over VND1 trillion ($47.6 million) as provisions for its affiliate, Sacombank Securities Co, and the amount was not expected to be refunded into this year's profits. The funds were needed to ensure its health in the next few years, he said.

With bad debts still on the rise, businesses struggling to clear inventories and demand weakening on the market, the banking sector saw falling profits ahead, according to an other unnamed bank official.

At the end of May, the total value of provisions against credit risks in the banking sector reached VND71.7 trillion ($3.4 billion), up by nearly 12 per cent over the end of last year, according to the central bank. ― VNS