Although efforts have been made to speed up the settlement of bad debts, the difficulty in selling secured assets and the upward trend of the debt group 3 (substandard debts) have led banks to increase their risk provisions right in the first quarter (Q1) of 2018.
One of the banks recording the largest provisions for risks in Q1 is the Commercial Joint Stock Bank for Investment and Development of Vietnam. Specifically, according to the bank’s Q1 financial statement, all of the bank’s revenue sources increased, but the risk provisioning has eroded 70 percent of the profits before provisioning, reaching an amount of up to six trillion dong. Thus, BIDV posted a pre-tax profit of nearly 2.5 trillion dong after the first three months of the year and an after-tax profit growth of only 8.5 percent. By the end of Q1, the bad debt ratio of BIDV was 1.62 percent, unchanged compared to the previous quarter.
Orient Commercial Joint Stock Bank (OCB) has released its Q1 financial statement with total income from business activities reaching 1.157 trillion dong, up by 93 percent compared to the same period of 2017. The bank’s risk provisioning increased by 89 percent to 140 billion dong. The absolute bad debts of OCB went up by 253 billion dong to 1.117 trillion dong, mainly due to the sharp rise of the debt group 3. OCB’s bad debt ratio rose from 1.79 percent in late 2017 to 2.13 percent in the end of Q1 2018.
At the annual general meeting (AGM) held in late March 2018, leader of OCB said that the bank’s budget for risk provisioning in 2018 is 500 billion dong (including 20 percent of the bad debts sold to VAMC under the regulation and on the balance sheet); and the bank is likely to recover all the bad debts worth 728 billion dong from VAMC’s bonds and will not have to provision for this amount. However, OCB’s Management Board has not included this into the two trillion dong pre-tax profit estimates in 2018.
In the opposite direction, the unchanged bad debt ratio of 0.7 percent is the main reason for Asia Commercial Joint Stock Bank (ACB) to lower provisions for risks in Q1 2018. In particular, the bank’s Q1 consolidated financial report showed that during the quarter, the net interest income of the bank was 2.373 trillion dong, up by 14 percent, while its risk provisioning fell sharply to just 134 billion dong.
After deducting the provisions for risks, ACB’s pre-tax profit was 1.490 trillion dong, 2.5 times higher than the same period of 2017. Thus, ACB has completed 26 percent of its 2018 plan (with profit target of 5.699 trillion dong).
According to a financial expert, although Resolution 42 allows credit institutions to sell bad debts at lower prices than book values, both VAMC and commercial banks remain very cautious when setting the selling prices and can hardly offer a low starting prices, due to the worry about taking responsibility when being inspected or audited regarding the loss of state capital.
Dr Bui Quang Tin, a banking and finance expert also said that in order to set a starting price when auctioning bad debts, the concerned parties must agree with each other. If the debtor and bank cannot come to an agreement, the parties can tale legal proceedings. At that time, the court can apply Resolution 42 to proceed according to the shortened procedures. However, even if there is a verdict, the execution will again fall into the vicious situation of not agreeing on selling price to liquidate the assets.
This has hindered the acceleration of settling existing bad debts at banks, while the new bad debs have arisen, causing the burden on risk provisioning.
However, in general, since the profitability of many banks is currently very high, the risk for the handing of bad debts is not yet a matter of concern. This is proved by the positive business results posted by banks in Q1 2018 with many banks reporting profits of trillions dong.
Specifically, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) recorded a pre-tax profit of 4.359 trillion dong in Q1 2018, one and a half times higher than the same period of 2017, completing 31 percent of the annual plan. Meanwhile, Commercial Joint Stock Bank for Industry and Trade of Vietnam reported a profit of over three trillion dong, up by 20 percent compared to the same period of 2017.
Vietnam Prosperity Commercial Joint Stock Bank (VPBank) announced to achieve nearly 2.620 trillion dong pre-tax profit in Q1, up by 36 percent. Military Commercial Joint Stock Bank (MB) attained pre-tax profit of 1.746 trillion dong, up by 65 percent compared to the same period of 2017. The pre-tax profit of Hochiminh city Development Commercial Joint Stock Bank (HDBank) in Q1 2018 grew by threefold to 1.045 trillion dong over the same period of 2017. Some other banks also posted Q1 profit of over 500 billion dong, such as Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), Tien Phong Commercial Joint Stock Bank (TPBank), Vietnam International Commercial Joint Stock Bank (VIB) and Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank).
In the first three months of 2018, many banks have released very high business efficiency indicators. In which, HDBank recorded 1.5 percent Return on Asset (ROA) ratio and 19.2 percent in Return on Equity (ROE) ratio. Similarly, the ROA and ROE of VPBank were respectively 3.3 percent and 34.2 percent, while the ROA of VietinBank was 1.12 percent and ROE was 15.33 percent.
