Many Vietnamese banks reported impressive profit growth, while the bad debt ratio fell sharply by the end of the third quarter. However, according to their reports, irrecoverable debts (classified as debts of Group 5) increased, forcing banks to add provisioning. The sale of debts to Vietnam Asset Management Company (VAMC) seems not to be a thorough solution and bad debts remain unsettled.
Group 5 debts of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) might be the most startled. As of September 30, BIDV’s debts were classified into Group 3 to Group 5, totalled VND11.9 trillion, compared with more than VND9 trillion as of December 31, 2014. Notably, irrecoverable debts amounted to VND5,631 billion as of September 30, 2015, a sharp rise from VND32,66.8 billion, or growing 72.3 percent, and accounting for nearly half of total non-performing loans.
The sharp increase in irrecoverable debts was partly resulted from the merger with ailing Mekong Housing Bank (MHB). However, BIDV still reported a pre-tax profit of VND2,417 billion in the third quarter, bringing its pre-tax profit in the first nine months to VND5,535 billion, up 24.5 percent year on year.
Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) posted over VND7 trillion of bad debts as of the end of September, of which 69 percent was irrecoverable debts. Therefore, although its business operators were better, its increased provisions for risks and operating expenses bit into its profit. Compared a year ago, Vietcombank’s risk provisioning climbed 24.6 percent in the third quarter and 34.3 percent in the in the first nine months. The lender’s pre-tax profit was VND4,648 billion in the first nine months, up 11 percent year on year.
As of September 30, 2015, Vietnam Prosperity Bank (VPBank)’s irrecoverable debts trebled from the start of this year to VND1,563 billion. Bad debt to total loans ratio increased from 2.54 percent to 2.93 percent at the end of the current reporting period. Its total bad debt jumped 58 percent to VND3,141 billion.
The lender set aside VND1,757 billion to provision bad debts, a sharp growth from a year ago with VND316 billion. Special bonds issued by VAMC to VPBank was VND5,134 billion, up 30 percent from a year earlier.
Bad debts dragged down VPBank’s profits. In the third quarter, the lender bagged VND2,889 billion of net income, up 163 percent from the same period last year. Earnings from banking services jumped 48 percent to VND263 billion while other sources dramatically surged from VND22 billion to VND254 billion. Credit risk provisions valued VND760 billion in the quarter, while it took a reversal of VND19 billion in the same quarter of last year.
Vietnam Export-Import Bank (Eximbank) sadly witnessed a drop of 61 percent. The bank unexpectedly increased its risk provisions from VND84 billion to VND332 billion. Its profit before tax was only VND110 billion in the third quarter of 2016, down 61 percent. With its big provision value, its bad debts shed from 2.46 percent to 1.64 percent.
Sacombank reported a total of VND2,345 billion of bad debts as of the middle of this year, accounting for 1.6 percent of its total outstanding loans, compared with 1.18 percent at the start of the year. However, Group 5 debts reached VND1,794 billion, or three-fourths of total bad debts. Upcoming data may be worse after it adds data of the merged Southern Bank.
According to the State Bank of Vietnam (SBV), as of June 30, 2015, debts classified to Group 3 (subprime debts) and Group 5 (potentially irrecoverable debts) rose 51 percent and 22 percent, respectively, while debts classified to Group 4 (doubtful debts) declined 14 percent from the end of 2014. Among them, 13 banks (BIDV, VCB, VietinBank, STB, VIB, VPBank, SHB, Techcombank, ACB, MB, NCB, PGBank and EIB) faced a combined loss of VND23,850 billion, accounting for 50.6 percent to bad debts.
The rapid credit growth in the first two quarters possibly resulted in the sharp rise in Group 5 debts. Outstanding loans of these 13 banks increased 10.6 percent from the beginning of the year, leading to a growth of 21.2 percent of bad debts. The seven-month credit growth was almost double from the same period of 2014. According to the National Financial Supervisory Commission, credit growth was 7.32 percent in the year to July 20. Credit growth in Hanoi was 12.5 percent in the first seven months and the growth rate in HCM City was 7 percent.
After the rush to sell debts to VAMC, banks successfully brought their bad debt ratios to below 3 percent as desired by the SBV. As of the September 30, 2015, 39 banks sold VND225,518 billion of bad debts to VAMC.
Bao Chau
Vietnamese
