Many Banks Have To Make High Risk Provisioning

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Although the profit of many banks surged in 2018, in part due to the reversal of risk provisioning, many banks still had to provision for bad debts at high levels.

Nguyen Dinh Tung, general director of Orient Commercial Joint Stock Bank (OCB) said that the bank ended year 2018 with over 2.2 trillion dong of pre-tax profit. The number would be much higher if including the provisions for bad debts. In fact, OCB’s pre-tax profit in the first nine months of the year rose by 133 percent over the same period of 2017, reaching 1.846 trillion dong. However, its bad debts also significantly increased.

Therefore, the bank spent more on operating expenses and risk provisioning, causing the provisions for risks in 2018 to increase by half to 548 billion dong. The bank is holding 242 billion dong of the bonds issued by Vietnam Asset Management Company (VAMC), down by 67 percent compared to the beginning of 2018, in which the provisions for risks reached 154 billion dong.

The bad debts of Tien Phong Commercial Joint Stock Bank by the end of 2018 was 861 billion dong, up by 25 percent compared to the beginning of the year. Accordingly, the bank’s bad debt ratio increased from 1.09 percent to 1.12 percent. The bank is currently holding more than 756 billion dong of the bonds issued by VAMC, after repurchasing the bad debts sold to VAMC and using the provisioning fund to clear off the bad debts in 2018. Nevertheless, closing the year 2018, TPBank’s pre-tax profit still reached 2.258 trillion dong, nearly doubled compared to the same period of 2017.

Nguyen Canh Vinh, deputy general director of Export Import Commercial Joint Stock Bank (Eximbank), the bank’s estimated profit before risk provisioning at 1.6 trillion dong. However, after setting provisions for risks, the number of pre-tax profit was modest.

Similarly, for Kien Long Commercial Joint Stock Bank (Kienlongbank), the bank’s pre-tax profit in 2018 was just 300 billion dong, although it was higher before setting provisions for risks. The bad debt ratio of Kienlongbank as of late 2018 was controlled below one percent.

Notably, in 2018, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) only attained above 6.8 trillion dong of pre-tax profit. Although this number exceeded the bank’s adjusted plan by two percent, it was a sharp decline compared to the 9.2 trillion dong of pre-tax profit achieved in 2017. The reason is that VietinBank’s credit growth in 2018 was only 6.1 percent, as the bank has not yet managed to increase its charter capital in line with the plan, and the bank has to set high provisions for risks.

Specifically, although the annual risk provisioning has not been announced, in the last quarter of 2018, the provisions for risks of VietinBank was 1.5 trillion dong higher than the same period of 2017, making the bank’s pre-tax profit in the fourth quarter (Q4) of 2018 to be modest at 2.330 trillion dong, down by 3.7 percent.

The data recently published by the National Financial Supervisory Commission showed that the value of bad debt settlement in 2018 of banks increased by about 30 percent compared to 2017. The bad debt ratio slightly declined compared to Q4 2017 (2.5 percent), reaching 2.4 percent.

The provisions for credit risks rose by about 30.1 percent, while the ratio of credit risk provisioning to reported bad debts was improved to 78.2 percent (65.4 percent in 2017), but not including the bad debts sold to VAMC.

Bank leaders said that although the profit achievement in 2018 is positive compared to the previous years, banks still had to set aside for risk provisioning as prescribed as well as to ensure security in operation. This provisioning amount is considered a “reserve”. If the bad debts are handled next year, this “reserve” will be reversed into banks’ profit.

In fact, the settlement of bad debts of the banking sector has more or less been facilitated with the issuance of Resolution 42, but has not been accelerated as expected. Therefore, the best way to deal with bad debts is to actively make provisions for risks.

Dr Le Xuan Nghia, a banking and finance expert said that in the current context, there are some obstacles that need to be remove in order to speed up the bad debt settlement process. For example, many countries in the world allow banks to buy back the assets which were bad debts in order to quickly clear of the debts. At that time, the bank is allowed to repurchase real estate assets from bad debts, to sell at any time to anyone quickly without bidding.


Category: Finance, Vietnam

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