Banks have to reconsider their 2020 profit plans as the Covid-19 epidemic has recurred. Since the epidemic outbreak in the first quarter (Q1) of 2020, banks have had to quickly step up the debt restructuring and rescheduling for customers in order to control the risks of bad debt increase. According to Circular 01/2020/TT-NHNN, banks shall not collect accrued interests during their restructuring and rescheduling of debts for customers until the end of September 2020.
This is the main reason why the reports of banks in Q2 2020 were no longer bright.
At Asia Commercial Joint Stock Bank (ACB), the Q2 pre-tax and after-tax profit fell by one percent to 1.895 trillion dong and 1.522 trillion dong, respectively. In the first six months (H1) of the year, the bank’s pre-tax and after-tax only grew by respectively five percent and six percent compared to the same period of 2019, reaching respectively 3.820 trillion dong and 3.059 trillion dong, although the bank’s H1 net profit from business activities recorded an increase of 17 percent (reaching 4.352 trillion dong).
At the 2020 Annual general Meeting (AGM) of ACB, which was held in April the time of assessing the impact of the epidemic, shareholders approved a pre-tax profit target of about 7.636 trillion dong in 2020, less than the initial profit target set at the beginning of the year (8.7 trillion dong).
Similarly, the Q2 pre-tax and after-tax of Export Import Commercial Joint Stock Bank (Eximbank) fell by up to 77 percent over the same period of 2019, reaching only 94 billion dong and 74 billion dong, respectively.
In H1 2020, Eximbank’s pre-tax and after-tax profit both declined by about 28 percent compared to the same period of last year, reaching just nearly 552 billion dong and 441 billion dong. After the first two quarters of 2020, Eximbank has completed 42 percent of the 1.318 trillion dong pre-tax profit goal of the whole year. However, this goal was already adjusted down by 40 percent compared to the initial goal set at the beginning of the year.
In H1 2020, Eximbank restructured about six trillion dong of outstanding loans of customers hit by the Covid-19 epidemic (accounting for six percent of the bank’s total outstanding loans). That has decreased the bank’s profit by 150 billion dong as accrued interests have not been collected.
At Bac A Commercial Joint Stock Bank (BacABank), the pre-tax profit in Q2 2020 was 175 billion dong, down by 8.4 percent over the same period of 2019 due to the rise of provision expenses. In H1, the bank’s provision expenses increased by up to 45.6 percent to 166 billion dong, causing its H1 pre-tax profit to fall considerably by 19 percent over the same period of last year.
Kien Long Commercial Joint Stock Bank (Kienlongbank) and Nam A Commercial Joint Stock Bank (NamABank) also could not maintain the growth momentum in Q2 2020 due to the impact of the Covid-19 epidemic, which caused the banks’ net interest revenue and non-interest revenue to decrease.
According to Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), the bank has so far restructured debts for over 1,000 customers with an outstanding credit of more than 7.3 trillion dong. The bank has also exempted or reduced interests for nearly 700 customers with an outstanding credit of more than 5.1 trillion dong.
It is estimated that Sacombank’s profit in 2020 will drop by about one to 1.5 trillion dong to support customers affected by the epidemic. In the first seven months of 2020, Sacombank’s consolidated pre-tax profit was estimated at about 1.6 trillion dong, five percent higher than the schedule and completing 63 percent of the year plan.
Sacombank’s 2020 profit plan was also lowered by 20 percent compared to 2019′s, reaching only 2.573 trillion dong of pre-tax profit.
Bad debts increase and the profit picture of banks is no longer bright.
The Q2 2020 financial statements showed that the profit of most banks declined according to the scenario which predicted the impact of the epidemic. However, banks still expect their profit to be improved more positively from September 2020 when the debt restructuring and rescheduling end in accordance with Circular 01/2020/TT-NHNN.
However, the fact that Covid-19 epidemic continues to spread around the world and its recurrence in Vietnam has had a double impact on the banking industry’s activities. Thus, the profit picture is said to become greyer.
Dr Can Van Luc, a banking and finance expert said that the complicated developments of the Covid-19 epidemic will continue to slow down the credit growth and it may reach only 10 percent for the whole year.
This will affect banks’ operations, because the main source of income contributing to their profit is still the net interests, while bank’s non-interest income has fallen significantly in H1 this year due to the epidemic.
Meanwhile, the bad debts at many banks have tended to increase sharply. At Sacombank, although the credit growth was negative 2.79%, its on-balance sheet bad debts by the end of June 30th 2020 were 321 billion dong, up by 39 billion dong compared to the beginning of the year. The bank’s on-balance sheet bad debt ratio rose from 1.94 percent to 2.27%.
Similarly, the Kienlongbank’s bad debts expanded by 5.5 times to 2.249 trillion dong, focusing on irrecoverable debts with over 2.145 trillion dong. Accordingly, the bank’s bad debt ratio soared from 1.02 percent to 6.59%.
However, according to Kienlongbank’s explanation, the bank’s debt group 5 included nearly 1.9 trillion dong loans of a group of customers with secured assets being STB shares of Sacombank (classified according to the decision of the State Bank of Vietnam (SBV)). From the beginning of the year, Kienlongbank has continuously lowered the prices for selling these shares, but not yet succeeded.
The total bad debts of Tien Phong Commercial Joint Stock Bank by the end of June 2020 grew by 20 percent compared to the beginning of the year, causing its bad debt ratio to inch up from 1.29 percent to 1.47%.
Saigon Hanoi Commercial Joint Stock Bank (SHB) and Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) both recorded an increase of 54 percentage points in their bad debt ratio, reaching respectively 2.45 percent and 1.7%. This number at Military Commercial Joint Stock Bank (MB) was 174%, reaching 1.614 trillion dong.
At Eximbank, the irrecoverable debts increased by 98 percent after the first two quarters of the year, while the doubtful debts also rose by 140%.
The total bad debts as of June 30th 2020 of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) grew by 11 percent over the beginning of the year, causing the bank’s bad debt ratio to increase from 0.79 percent to 0.83%. In particular, the bank’s substandard debts increased by 58 percent and doubtful debts increased by 56%.
The bad debt increase has led to the sharp rise in banks’ provision expenses. Typically, ACB had to strongly raise its provisions for credit risks in Q2 2020 by four times compared to the same period of last year. In H1 2020, the bank’s surged by 5.5 times over the same period of the year, reaching 532 billion dong. Thus, its profit growth was only six percent.
The reason for Eximbank’s sharp profit decline in Q2 2020 was the more than 155 billion dong of provision expenses for credit risks, while the bank recorded more than 36 billion dong of reversal in the same period of last year. In H1 2020, Eximbank also set aside more than 220 billion dong of provisions for credit risks, while the reversal in H1 last year was more than 43 billion dong.
According to banking and finance expert Dr Nguyen Tri Hieu, Circular 01 helps the debts of some businesses avoid being classified as bad debts, so that the businesses can continue to borrow from banks. However, this has posed risks to banks. Dr Hieu said that the arising bad debts actually still exist, because Circular 01 has made a part of the bad debts to not be seen on the Q2 2020 financial statements.
Banks should be cautious and have the necessary provisions for the restructured bad debts. Thus, many banks are currently considering and further adjusting the profit target of 2020.