Moreover, the profit margin from credit activities is much higher than that from services. However, more banks will focus on services in the future.
Commercial banks’ 2011 financial statements show that fee and commission incomes remain a drop in the ocean when it comes to banking profits. The statements also indicate that despite a tight monetary policy with a 20 per cent credit growth limit in 2011, 80 per cent of Vietnamese banks’ profits last year came from credit activities.
At the end of 2011, top-tier bank ACB had a total fee and commission income of VND775.3 billion ($37.2 million), a 5 per cent increase on-year, while the bank’s total net interest income was 8.6 times higher, at VND6,701 billion ($321.6 million).
State-owned commercial bank Vietinbank’s fee and commission income was down from VND1,474 billion ($70.7 million) in 2010 to VND1,056 billion ($50.7 million) in 2011. Medium-scaled private creditor Navibank suffered that same fate with a fee and commission income of VND19 billion ($912,000), down 31.3 per cent on-year.
Medium-sized outfit Saigon-Hanoi Bank doubled its fee and commission income in 2011, but that figure was equal to only one-eighth of the bank’s net interest income. Meanwhile, requiring banks to improve services and reduce an unhealthy dependence on credit activities is part of the State Bank’s plan to create a stable and sustainable banking system.
Phung Duy Khuong, Maritime Bank’s deputy general director, said banks still focused on traditional credit activities, despite potentially lucrative commission incomes. “Although the State Bank encourages banks to improve services, it is still hard for banks to change their attitude towards profits in the short-term.
“Service activities have been developed for only a few years, thus it will take time to earn more profits from such activities. So far, banks have still been reluctant to develop fee-generating products,” said Khuong.
Dang Tuyet Dung, Tecombank’s vice president, said customers’ demand for credit was very high, despite the State Bank cooling credit growth since 2011. “Moreover, the profit margin from credit activities is much higher than that from services. However, more banks will focus on services in the future,” she said.