By this time, nearly 20 banks have released their financial statements for the third quarter of 2019, in general the accrued interest rates increased sharply. The hike of acccrued interest rate along with the credit growth of banks is normal, but in some banks, the rate of accrued interest is too large, or the rate of increase is too strong will be a warning for investors. In some cases, accrued interest is not simply the interest that the bank expects to earn in the future, but also the potential bad debts.
In nine months of the year, Southeast Asia Commercial Joint Stock Bank (SeABank) announced that profit before tax increased sharply compared to the same period last year (reaching 683 billion dong). However, the point to be noted is that the bank’s accrued interest income also increased sharply, from 2.842 trillion dong to 4.194 trillion dong, up nearly 48 percent.
At Bac A Commercial Joint Stock Bank (Bac A Bank), in nine months of the year, the bank gained 646.2 billion dong (70 percent of the year plan), bad debts by the end of September was only 503.5 billion dong (0.72 percent) compared to the beginning of the year. However, the expected interest income increased by nearly one trillion dong compared to the same period last year and has reached the threshold of nearly four trillion dong.
Vietnam Thuong Tin Commercial Joint Stock Bank (Vietbank) also increased its accrued interest rates very strongly. Nine months of the year, accrued interest of this bank was 1.566 trillion dong, up 74.2 percent over the same period.
A number of other banks, although the interest rate increase is slower, but also accounts for a large proportion. Specifically, Military Commercial Joint Stock Bank (MBMBBank) had a profit of 4.086 trillion dong, an increase of 19 percent over the same period last year.
Among the banks that have released their financial statements, Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) leads in accrued interest, but the progress of accrued interest of this bank is very positive. Interest and fee receivable as of September 30 was 20.61 trillion dong, much lower than 23.154 trillion dong at the beginning of the year. The process of resolving non-performing loans is positively improving this bank’s profit.
Interest accrual is a profession in accordance with accounting principles, but in fact, some banks are overly optimistic (or deliberately optimistic) about the ability to recover interest in the future, to record this source of revenue into total operating revenue. In fact, many of the accrued interest are unable to recover the principal, not to mention interest.
Talking to a reporter of the Vietnam Investment Review, a banking expert said that in many financial statements of banks, there are many items that should have been bad debts, but they were recorded as accrued interest. The reason banks have anchored high interest rates is to avoid bad debts.
“A number of small banks, the profit of the whole year only account for a few dozens to several hundred billion, while bad debt sometimes has reached hundreds of billion. If this bad debt is included in revenue, the bank will continue to collect interest, but if it is converted to bad debt, the bank must increase the provision, then the profit will be worn down, even negative. Currently, many banks have not yet settled their debts at Vietnam Asset Management Company (VAMC), while bad debts in the balance sheet tend to increase. Therefore, banks let interest rates accrue to a large level is understandable,” the expert said.
In the context of the restructuring of Vietnam’s banking system, it is understandable that banks continually anchor their accrued interest. Resolution 42/2017/QH14 on piloting the handling of bad debts of the National Assembly also allowed the bank to extend the time to handle bad debts with accrued interest. However, there are actually “accruals” for many years, but banks still have not earned them. As a rule, such accruals must be withdrawn gradually, but in reality banks continue to anchor from year to year in the financial statements. Because if divesting accrued interest (selling debts and handling debts), the bank’s profit will drop sharply.
Le Xuan Nghia, an economist, said: “The slow settlement of bad debts is partly because banks do not want to lose accrued interest. Although Resolution 42 has allowed banks to write some bad debts into accrued interest and gradually account (instead of immediately accounting), many banks still do not dare to do it because at that time, profits will drop strongly”.
Many argue that SBV should set out an appropriate roadmap and have general regulations on withdrawing accrued interest for banks (there may be special exceptions for restructuring banks). The fact that interest rate has to be withdrawn is likely to be turned into bad debt will help regulators to monitor banks’ health promptly.
