A customer withdraws cash at a Techcombank ATM in Ha Noi. The profitability of the banking system is currently low, about half of earlier levels. — VNS Photo Doan Tung

HA NOI — Profitability of domestic commercial banks has reduced compared to previous years due to rising risk provisions for non-performing loans, according to a report from the National Financial Supervisory Commission (NFSC).

The October report of the Government's financial watchdog NFSC on the country's economy in the first ten months this year showed that the return on equity (ROE) of commercial banks in 2015 through October 31, continuously slid to 4.16 per cent from 4.6 per cent in 2014, and 6.4 per cent in 2013.

The return on assets (ROA) of banks also reduced to 0.32 per cent from 0.36 per cent in 2014, and 0.6 per cent in 2013.

Tran Du Lich, a member of the National Financial and Monetary Policy Advisory Council, admitted that risk provisions for bad debts were the cause for low profits at commercial banks as they had to allocate sizeable resources to resolve the bad debts.

It is estimated that provision funds would equal nearly half of the pre-provision profits that commercial banks are set to earn in 2015.

Due to the rising risk provisions, the profitability of banks dropped this year despite a high credit growth and a slight rise in net interest margin (NIM).

According to the State Bank of Viet Nam's statistics, credit by October 26 rose 12.51 per cent against December last year and a 19.09 per cent year-on-year rise. The central bank also estimated that the lending would rise roughly 17 per cent for the entire of 2015.

By the end of October, NIM also inched up to 2.8 per cent against 2.7 per cent in 2014. The rate is equal to that of 2013.

However, banking expert Can Van Luc said that the current 2.7 per cent NIM remained low, explaining that NIM should be roughly between 3 per cent and 3.5 per cent for commercial banks to make reasonable profits.

Saying that the profitability of the banking system was currently low, at half the earlier levels, Le Xuan Nghia, director of the Business Development Institute, expressed concerned that if financial capacities of banks were weak, they would not be able to purchase needed technological applications and might risk lagging behind their competitors.

Under the October report, NFSC also assessed that the banking system to date this year was stable in general with good liquidity for both local and foreign currencies. The loan to deposit ratio (LDR) in Vietnamese dong has been maintained at less than 80 per cent while LDR in the US dollar also stands at less than 85 per cent, which are at safe levels, the NFSC said.

Credit restructuring in the period also shows positive signs with a rise in short-term loans. The ratio of short-term loans and total outstanding loans has reduced to 45.62 per cent from 49.74 in 2014, and over 50 per cent from 2011 to 2013. — VNS