Accrued interest has contributed to a huge profit of many banks in the first six months of this year. However, this may cause the banks to face the risk of “false profits, real losses”.
Business activities of banks continued to flourish in the first half of 2019 with high profit figures. However, in that joy, there are still many concerns when the accrued interest of many banks continued to rise.
For example, Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) ended the first six months of 2019 with the pre-tax profit of 1.116 trillion dong, up 181 percent compared to the same period last year, fulfilling 59 percent of the 2019 target. However, the interests and fees receivable at the end of Q1/2019 amounted to 4.081 trillion dong, up 7.2 percent compared to the same period last year.
Or at Viet Capital Commercial Joint Stock Bank (Viet Capital Bank), in the first six months of this year, although the credit risk provision has decreased by 61 percent compared to the same period last year, but the bank’s pre-tax profit only reached 48 billion dong, down 18 percent compared to the same period last year. It is noteworthy that interest and fee receivables of this bank increased to 1.171 trillion dong, up to 16.6 percent.
However, there are also some banks that sharply reduced the amount of accrued interest. The most notable of these is Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) when the bank’s interest and fee receivables decreased by 1.894 trillion dong in the first six months of this year.
The second notable bank is Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) when the bank’s interest income has also dropped by more than one trillion dong in the first half.
Remembering at the end of the first quarter of 2019, the Governor of the State Bank of Vietnam (SBV) issued a document to request credit institutions (CIs) to strictly carry out interest collection in accordance with the situation of debts, ensuring compliance with the provisions of law to reflect the correct business performance. At the same time, credit institutions regularly review the actual situation of interest-bearing debts, especially interest with large amounts of revenue to promptly accrue interest recovery for cases that are hard to recover.
Explaining this move by the management agency, a banking expert said, the accrued interest was the bank’s interest expected to be gained in the future from interest-bearing assets (including customer loans). The bank had not collected real money from this amount, but this amount was still recorded in the bank’s income statement.
Under the provisions of Circular 16/2018/ TT-BTC, credit institutions are only allowed to account the amount of accrued interest income in the period into income for standard debts which are not subject to risk provision (Group I debt). For accounts receivables which have been accounted as income but are later assessed to not be obtained or the maturity date cannot be collected, the CIs shall account for revenue reduction if it is in the same accounting period or accounted into expenses if otherwise accounting period.
However, the problem is, some banks are too optimistic about recording these accrued interest, leading to profit being inflated. “This can come from shareholders’ profit pressure or reducing the number of risk provisioning. However, that may cause the bank to face the situation of “false profits, real losses” and make shareholders and investors wrongly aware of the real situation of banks,” said, the expert.
Therefore, in order to ensure the soundness of the system, SBV should study, evaluate and review the current situation of recording accrued interest at the same time, consolidating and correcting to ensure proper reflection of banks’ real income.
