Deceptive interest in banks has increased sharply recently, which may lead to consequences such as increasing bad debts, threatening profits, and affecting the financial situation of banks.
Banks’ accrued interest (not yet collected) is an important item, but it is ignored or hardly noticed.
This item is banks’ future interest income but included in the current profit. According to experts, it is deceptive profit in financial reports, leading to banks’ deceptive growth.
Summing up the 2018 financial statements, one can recognise a number of banks with accrued interest to increase rapidly. Notably, the three large stated-owned commercial banks still hold the top position of banks with the highest accrued interest.
At the top is Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) with the highest accrued interest of 11.897 trillion dong, up 25.5 percent compared to 2017; next is Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) with 7.41 trillion dong, up 23 percent. In 2018, although Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) was the leading bank in reducing the accrued interest rate (52 percent) from 14.524 trillion dong to 6.905 trillion dong, it still ranks third in the banking system.
Right below are the commercial banks such as Vietnam Technological and Commercial Joint Stock Bank (Techcombank) (48 percent), Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank) (33.2 percent), LienViet Post Joint Stock Commercial Bank (Lienviet Post Bank) (29.7 percent), and Military Joint Stock Commercial Bank (MB) (20.7 percent).
Experts said that a large proportion in banks’ accrued interests has become bad debts that cannot be collected and must be included in bad debts to make provision according to regulations. However, many banks have not adjusted their accrued interest accordingly.
The more deceptive interest increases, the greater the risk of bad debts that threaten bank profits. If this amount is not collected, it will adversely affect banks’ financial situation.
In addition, the recognition of deceptive interest from accrued interest may lead to consequences related to dividend payment and tax payment.
Before this fact, many experts have proposed the Ministry of Finance and the State Bank of Vietnam (SBV) to evaluate and review the current situation of recording accrued interest as well as make appropriate adjustments to ensure the true reflection of real income of banks, ensuring financial capacity enhancement and creating a resource to deal with bad debts.
Recently, the SBV has issued the 1968 document to require credit institutions to seriously, effectively and effectively carry out the tasks in Directive 01 on organising the implementation of key tasks and solutions of the banking industry in 2019 and Directive 05 on restructuring the system of credit institutions associated with handling bad debts.
Governor Le Minh Hung asked credit institutions to seriously record accrued profit in accordance with actual situation of the debt, ensuring compliance with the provisions of the law to reflect business results.
At the same time, credit institutions must regularly review the actual situation of interest-bearing debts, especially those with large amounts of accrued revenue, in order to promptly withdraw interest from the cases where it is difficult to recover and reduce the accrued interest receivables according to the provisions of law and the guiding documents of the SBV.
An expert evaluated that, as the Governor of the SBV has proposed to control interest receivables, credit institutions need to reconsider this situation and calculate an implementation plan.
In addition, the SBV’s supervisory agency should pay attention to the issue of accrued interest to remind each credit institution in time, avoiding the accumulation of old accrued interest and new generated accrued interest that affects the operations of banks in particular and the system in general.
However, from the perspective of banks, this expert also considers that the accrued interest will still need a lot of time and a roadmap to handle, because it will affect the profit index.
Recently, only VietinBank divested about 7.5 trillion dong of accrued interest, accepting bad debt increase (due to debt group transfer) to 50 percent in 2018 and a sharp decline in profits.
As of the end of 2018, VietinBank’s interest receivables have reached over 6.9 trillion dong, equivalent to 0.59 percent of total assets, the lowest rate among banks in the system, even lower than banks regarded as ‘healthy’ such as Vietcombank (0.69 percent).
VietinBank’s Chair Le Duc Tho once shared that the reason for the decrease in profit compared to 2017 is its restructuring towards the application of Basel II; the bank has actively adjusted and assessed debt classification, which affects its profits.
As such, VietinBank has a new direction, ready to step back to consolidate the foundation before returning to the ‘race’ in the future.
However, not all banks dare to cope with and accept the truth. In fact, many banks realise that they are not able to collect the interest but still do not withdraw it from accrued income to make up their profits in books.
Dr Nguyen Tri Hieu, a banking expert, said that the most important issue is to clarify the accrued interest of each bank (based on the financial status of banks) to have a schedule of withdrawing accrued interest; and it should not be a general application rule.
