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Bad debt causes bank shares to lose lustre

Update: May, 25/2013 - 09:10

HA NOI (VNS)— Bank shares are losing their attraction due to low profits caused by increasing bad debt in many lending institutions.

Although shares listed remain stable, it is not easy for them to rise in the sluggish market.

Finance experts think local banks, especially the big ones, have potential growth. However they also predict that banks profits will be less, making their stocks less attractive.

For example, Eximbank is considered one of the top banks with an expected dividend rate of 12 per cent. It plans to have pre-tax profit of VND3,200 billion(US$152.3 million) this year, an increase from VND2,828 billion ($134.6million) in 2012.

However, bank chairman Le Hung Dung says the bank is under pressure to complete the above target. He said that if Circular 02/2013/TT-NHNN of the State Bank on bad debt classification and risk management in the banking system is applied this June, his bank's profits will definitely be affected.

"In the first four months, Eximbank has only VND500 billion($23.8million) in pre-tax profit, failing to meet its target. If bad debts increase, Eximbank will have to reduce dividends.

In the same situation, Sacombank only set its target of VND2.8 trillion($133.3million) this year. Sacombank chairman Pham Huu Phu said the current bad time plus debts made it hard to achieve high returns. Like Eximbank, Sacombank thinks it must spend more on the provisional fund. This year, Sacombank expects to have the dividend of 9-10 per cent.

Despite complaining, Eximbank and Sacombank are still doing much better than other small banks whose dividend rate to shareholders were reduced significantly, even much lower than the saving rates of 7.5 per cent per year.

Dividends in the Southern Bank in 2012 was 2.1 per cent, in the Mekong Bank 3 per cent and in Nam A Bank more than 3 per cent.

Besides bad debts, the current trend of bank restructuring and mergers also directly impacts on shares of small banks, which merge to become stronger.

Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, said bank restructuring put so much pressure on small banks and the trend would increase in the near future.

Nghia also said bank stocks could not gain points at present. — VNS


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