Commercial banks suffer losses from foreign currency trading
Several commercial banks have announced satisfactory results of pre-tax profits over the first nine months of 2011 despite existing difficulties in the monetary market.
However, these banks share one thing in common. They all have suffered losses from foreign currency trading although the foreign currency and gold market have been fairly favourable for banking operations.
Technical losses Bank A reported losses from foreign currency trading climbing to 83.7 billion dong in Q3 and 187.6 billion dong over the first nine months of the year whereas the activity saw a profit of 44.7 billion dong in Q3 and 320 billion dong over first nine months last year.
Yet, the net profit in Q3 enjoyed a significant year-on-year increase of more than 60pct.
In principle, the higher foreign exchange rate is, the more profitable commercial banks are. Therefore, commercial banks’ losses fail to coincide with the market movements in Q3 2011.
Noteworthy, Bank E. which normally benefit from such operation as importing and exporting enterprises are their major clients also posted losses of 18.7 billion dong in Q3 while it gained more than 20 billion dong year-on-year.
Likewise, Bank N. suffered losses of 49 billion dong in Q3 and 66.6 billion dong over the first nine months this year.
In fact, the central bank’s closer monitoring of the free market early this year has bolstered banks’ foreign currency trading. Credit institutions could then purchase foreign currencies right at the official quoted rates, which would make related losses unlikely.
Early September saw a bustling free market following the movement of the gold market.
Yet, interbank rates were adjusted accordingly to be more flexible so as to be line with the actual interest rates and those on the free market.
However, many enterprises admitted higher prices of dollar at commercial banks than the ceiling rate and the difference would come under the forms of different fees.
As such, the aforementioned figures would be technical losses that are calculated on forex rate stipulated by the central bank and lenders are actually enjoying profits from this type of operation.
The actual capital mobilisation cost hovered around 17pct-19pct p.a, even to 20pct at some in the last nine months, said a manager of a commercial bank.
Input capital costs have been recorded at 14pct p.a while the negotiated lending rates hiked to 22pct-24pct, which makes credit activities the largest contribution to commercial banks’ profit.
Yet, the late quarter 3 till present has seen the central bank’s tougher measures to ensure the mobilisation ceiling rate and closer monitoring of off-balance sheet accounting as well as trust investment in commercial banks’ financial reports.
Therefore, it is very likely that the cost of mobilising capital at higher rate than the cap rate has been recorded as foreign currency and gold trading, thus leading to losses in these two sectors.
The mobilisation and lending cap rates have seemingly failed to prove much effective as yet. The implications of lower lending rates are expected to be more evident in Q4 on stronger demand for capital in the end of the year.
Many commercial banks revealed modest credit growth in Q3; credit limit has even been lower compared with last year. Yet, profits from credit activities this quarter have surprisingly exceeded that from other areas.
The difference between the actual and stipulated interest rates would mean adjustments of figures so as to be line with the central bank’s regulation, which is important for competition and survival in the context of capital shortage, said a manager of a commercial bank.
As such, administrative measures have clearly resulted in the distortion of the banking industry.
Accordingly, there would exist parallel accounting at commercial banks with a view to cope with the central bank’s investigation and to monitor their own operations. – Source: Vietbiz24.com
