Vietnam commercial banks get much lower profit than the nominal average difference between the borrowing and the lending rates of 6% after the central bank targeted lending rate at 15% and capped deposit rates at 9%, the following are reasons why
Suppose that banks raise VND100 short-term deposit at the interest rate of 9%, then, the banks have to spare VND3 for risk provision and VND10 for liquidity reserve under Decision 581/2003/QĐ-NHNN on June 9, 2003 by the State Bank of Vietnam (SBV), the country’s central bank, leaving the lendable amount of VND87, the state-run online newspaper VnEconomy reported, citing a banking expert’a analysis.
The rule actually sends the banks’ borrowing cost to 9% : 87% = 10.34% (1) and plus with (2) general provision of 0.75%, the real fund raised cost of 11.09%.
Other fees that banks have to add in include: depreciation for investment assets, product development, office rent, salary payment… of around 1% of deposit raised.
In short, the banks have to spend around VND12.09% versus the lending rate of around 15%, and their profit before tax is 2.91% not as high as 6% as some see.
Also, banks have to raise funds at 12-14% before the central banks adjusted the deposit rate cap to 9%.
And more importantly, banks have to spare more provision funds for credit of group 2, 3, 4, and 5 which will reduce their lending capacity, the analyst pointed out and concluded that Vietnam commercial banks have to struggle hard to reach profit target and maintain operation.