VietNamNet Bridge – How to make profits once the credit growth rate is curbed at 20 percent has become a headache for all banks. Expanding the scale of business through subsidiaries is one of the solutions.

It is not by chance that at the shareholders’ meetings these days, the board of directors of many joint stock banks submit plans to shareholders to set up new subsidiaries. Banks’ managers try to persuade shareholders that in current circumstances, when the central bank restricts banks from having the credit growth rate of more than 30 percent, this is the best way to ensure high profits.

It seems that commercial banks now well understand that they should not rely too much on expanding credit, and that they should seek profits from other kinds of services as well. The idea has prompted banks to rush to diversify their business fields.

Sacombank obtained a satisfactory business result in 2010 with a profit exceeding the target by 101 percent. However, the bank’s managers have anticipated that 2011 will be a difficult year due to the tightened monetary policies. Therefore, the bank has decided to set up a finance company in an effort to expand its business scale.

Viet A Bank’s shareholders have agreed to the plan to set up some subsidiary companies, including an investment company, a finance company, a real estate trading and service company, a banking informatics service company, a banking service company and an overseas remittance service company, which are believed to help expand the business of the bank.

In order to optimize profit, Viet A Bank will also have to fasten their belt by cutting down expenses and practicing thrift. It was decided that the increases in expenses must not be higher than the total increases in profit, while the management costs must not be higher than 40 percent of the net income.

Saigon Commercial Bank (SCB), whose clients are mainly small merchants and small investors, has also decided to set up subsidiaries this year to diversify business fields.

Nevertheless, many analysts have voiced their concern about the information, having warned that attempts by a series of commercial banks to set up subsidiaries should not be seen as good news.

Especially, the analysts believe that banks are trying to “dodge” the laws and try to push up credit to the higher-than-allowed levels by setting up subsidiaries. In fact, existing finance companies belonging to commercial banks also provide banking services: they take deposits, provide loans get entrusted capital from individuals and institutions, or join foreign currency supply services.

At the workshop on the finance market prospects in 2011, held in Hanoi several days ago, Truong Dinh Tuyen, former Minister of Trade, said that macroeconomic factors in 2011 would have big impacts on the banks’ operation. They have been told to curb the credit growth rate at less than 20 percent, while they must restrict lending to fund securities and real estate investments.

While the State Bank is trying to control the credit in some “hot” fields, commercial banks are trying to foster the operation of their subsidiaries in the fields.

Tuyen has noted that the policy to force commercial banks to mobilize capital at interest rates of no higher than 14 percent per annum will not bring the desired effects. In fact, many banks are still offering the sky high interest rates of 17-18 percent per annum. It would be easier for banks to mobilize capital at high interest rates through their subsidiaries.

Cao Sy Kiem, former Governor of the State Bank of Vietnam, also said that though the functions of subsidiaries belonging to commercial banks are clearly stipulated in the law, in fact, banks still can find many ways to circumvent the limitations.

Source: VnMedia