Provision for bad debt risks climbed significantly in many banks in 2018. This story may continue in
In 2018, Vietnam Prosperity Joint Stock Commercial Bank (VPBank)’s financial statements showed that the Bank raised the risk provisioning cost by 40.6 percent compared to 2017, with 11,252 billion dong. This figure accounted for 55 percent of net profit from the Bank’s business activities.
Some other banks also dramatically increased provision expenses last year. Specifically, the provision expense of Orient Joint Stock Commercial Bank (OCB) increased by 3.7 times, to over 900 billion dong, accounting for 30 percent of net profit; Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank)’s risk provision expense is nearly 1,600 billion dong, up 95 percent compared to 2017.
A study by Hochiminh City Securities Corporation (HSC) shows that Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)’s provision expense in 2018 was at a record high. Notably, the bad debt ratio after settlement by BIDV at the end of 2018 was 1.69 percent, while the same period in 2017 was at 1.61 percent.
Accordingly, there was 2,747 billion dong of newly formed bad debts in 2018, in which loans of Group 4 and Group 5 took main portion. BIDV made provision at a record high of 18,893 billion dong (up 27.3 percent compared to 2017), “consuming” up to two third of the Bank’s net profit.
Total accumulative provision expenses of BIDV from 2013 up to now amounted to 62,080 billion dong (equivalent to 18.3 percent of total outstanding loans in 2012 and 9.98 percent of the average outstanding loan in the period 2012-2018). This also shows the great effort of BIDV in provisioning, especially from 2017.
BIDV’s 2018 contingency cost structure was also clearly indicated by HSC. Specifically, 999.28 billion dong of general provision expenses was spent on loans to customers of group 1-4 (up 3.5 percent); 16,513 billion dong for specific provisions (up 84.82 percent); 1,380 billion dong for Vietnam Assets Management Company (VAMC) bond provision (down 72.1 percent).
BIDV still has 17,600 billion dong of VAMC bonds with accumulated provision expenses up to June-end 2018 of 8,000 billion dong. Accordingly, VAMC bond, which has not been provisioned, is 9,400 billion dong (equal to 0.95 percent of total outstanding loans).
In addition, the ratio of cumulative provision expense over maximum contingency cost at the end of 2018 was 44 percentlower than 53.6 percent at the end of 2017 and 48 percent at the time end of 2016.
“We have not mentioned the un-provisioned VAMC bonds (valued at 0.95 percent of total outstanding loans), or” hidden “bad debts that BIDV may still hold both on and off the balance sheet. BIDV still needs another two years to handle all its bad debts.
“We forecast that provision expenses in 2019 will increase slightly to 21,549 billion dong (up 14.1 percent). BIDV will continue to drastically set provisions in the next two years to erase the majority of bad debts before 2020. And it seems that BIDV is at the end of this journey, “said HSC expert.
At Vietnam Joint Stock Commercial Bank of Industry and Trade (VietinBank), the internal debt settlement process is said to be on going, which will help improve asset quality. VietinBank’s bad debt at the end of September 2018 increased by 35 percent compared to the same period in 2017, reaching the rate of 1.4 percent (1.1 percent in the same period in 2017). Accordingly, the Bank made an additional provision of 7,800 billion dong for internal bad debts in the first nine months of 2018.
“VietinBank will continue to record high provision expenses in 2019 due to the increase in bad debts. Therefore, we believe that VietinBank’s provision expenses will continue to be high in the next five to six quarters and affect profit results. In addition, we expect that provision expenses will continue to increase compared to 2018 because VietinBank is still in the restructuring process “, experts of Viet Dragon Securities Company said.
Le Duc Tho, Chair of VietinBank’s Board of directors, also admitted: “The central task in 2019 of the Bank is to focus resources on effectively implementing the restructuring plan in combination with handling bad debts, ensuring to complete the contents and objectives of the plan according to the roadmap.
Deploying in a synchronous and drastic manner debt handling solutions; consolidating personnel to carry out debt quality management and debt recovery effectively; speeding up debt settlement according to market mechanism; improving inspection, internal control, appraisal capacity, risk assessment and standardisation of credit granting processes and policies “.
Talking to the Securities Investment Newspaper around the story of handling bad debts, setting up risk provisions of banks in 2019, a senior leader of the State Bank of Vietnam (SBV) said: “Some credit institutions has low Non-performing loan (NPL) ratio, but latent amounts that become NPLs are still quite high. The handling of bad debts mainly comes from the use of risk provisions.”
