Banking profit margins not high: State Bank governor

State Bank Governor Nguyen Thi Hong on Thursday rejected allegations that banking profits were huge when the Covid-19 pandemic wrecked havoc on the local business community.

Hong was responding to a delegate’s question at the National Assembly's Q&A session about huge banking profits amid the economic downturn during 2020-2021.

"Profitability ratios on total assets among Vietnamese banks are not high compared to other enterprises. Assets of a state-owned bank is about VND1,600-1,700 trillion ($73.3 billion). A profit of VND20 trillion ($863 million) on that assets is not big," she said.

The governor clarified that banks are for-profit businesses with huge amounts of charter capital and assets. Vietnam’s credit institution system had total assets of VND14,000 trillion ($604 billion) by the end of 2020, and jumped to VND16,000 trillion by March 2022. Of this, about 12,000 trillion involves credit.

However, the delegate believed that, given the country's record-low economic growth rate, banking efforts to support firms and individuals during difficult times were not commensurate to their profits.

The governor argued that credit institutions have exempted and reduced interest rates by up to VND48 trillion ($2.07 billion) since the beginning of 2020, in line with the State Bank’s call.

This is a notable number as the banking system is a financial mediator that profits on interest and services. Therefore, lender support in interest rate reductions has proven their support of consumers and companies.

In addition, banking activities are also associated with risks and bad debt, requiring credit institutions to deploy provisions that could deal with problems, she added.

Vietnam’s credit growth expanded by 8% in the first five months of this year, which is high according to the governor. This has allowed enterprises to continue borrowing in order to recover from the pandemic.

During the session, Deputy Prime Minister Le Minh Khai praised the recent monetary policy as proactive, flexible, and not causing inflation. He attributed the rising inflation to surging prices of goods, mainly gasoline.

With 13 adjustments in the first five months of the year, gasoline prices have jumped by 59.49%, raising the overall consumer price index by 1.8%.

The government will continue to instruct the central bank to maintain reasonable interest rates, exchange rates, and stable foreign exchange markets, as well as strengthen foreign exchange reserves to support people and businesses, improving economic resilience, he added.

It will also closely monitor the global situation to control inflation in line with government goals, supporting economic recovery.

The executive body urged banks to keep interest rates low and retain appropriate credit growth to supply capital for production and business.

Regarding tightening credit into real estate, the deputy PM stated that it is vital to assess recent lending to ensure that it complies with the necessary standards and conditions. The process may continue if appropriate. "Banks may continue to finance effective projects, ensuring credit for the economy."