Bad debts were partly pushed back, but newly arising bad debts made the risk provision increase sharply in the last quarter of the year, leading to heavy losses in Q4/ 2018.
Provision for sudden increase
Ending the operation in 2018, Vietnam Joint Stock Export Import Bank (Eximbank)’s profit before tax only reached 827 billion dong, down 19 percent compared to 2017. The reason is high provisioning, leading to losses in the fourth quarter of 2018. Eximbank’s Board of directors said that the accumulated revenue and expenditure difference in 2018 reached 1,705 billion dong compared to the plan for pre-tax profit of 1,600 billion dong. However, in order to accelerate the handling of bad debts, Eximbank decided to use the large difference in pre-tax revenue and expenditure to make more provisions (totally 904 billion dong).
Meanwhile, Saigon Bank for Industry & Trade (Saigonbank) also saw a loss of nearly 70 billion dong in Q4/ 2018. In addition to the negative credit growth of more than three per cent in the last quarter of the year, the net interest income of this bank only increased by 4 billion dong compared to the same period in 2017, reaching 661 billion dong. The provision had significant impact on the operating profit of this bank.
Specifically, the risk provision expense of Saigonbank increased by 22 percent to 344 billion dong. For the whole year of 2018, Saigonbank recorded a pre-tax profit of 52.5 billion dong, down 26.1 percent compared to 2017, in which the loss of the fourth quarter was nearly 70 billion dong.
Not only small banks, but even big banks such as Vietnam Joint Stock Commercial Bank of Industry and Trade (VietinBank) also reported a loss of 853 billion dong in the fourth quarter of 2018, due to the sudden increase in potential non-performing debts. With a profit before tax of 6,742 billion dong in 2018, VietinBank fell to the 7th position in the profit ranking of banking system, less than one third of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)’s.
VietinBank’s profit dropped sharply in the fourth quarter of 2018 mainly due to the sudden increase in interest expenses. According to the fourth quarter of 2018 financial report, VietinBank had a reversal of provisions of 582 billion dong, so the profit before tax was only 853 billion dong.
Efforts to reduce bad debts
Dr Tran Du Lich, a member of the prime minister’s Economic Advisory Group, said that the risk provisioning or more specifically the handling of bad debts and credit quality control had a great impact on the profit results of the banks. Many banks had to spend more than half of their profits to supplement their risk provisioning costs in the previous year. However, according to Lich, the cost of provision is one of the best options for banks to handle bad debts. Many banks continue to actively sacrifice profits to increase risk provisions.
Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) is the bank with the highest net profit from business activities last year, reaching more than 28,300 billion dong, higher than Vietcombank (25,679 billion dong). However, BIDV is also the bank that has to extract the biggest risk provision in the system, amounting to over 18,800 billion dong, “consuming” up to two third of its profits. BIDV’s pre-tax profit was only over 9,400 billion dong, far behind Vietcombank (18,300 billion dong), because Vietcombank only had to deduct more than 7,300 billion dong for risk provision for the whole year.
The reason BIDV has to sacrifice profits to make provisions is because it is hugging the biggest bad debt in the system. By the end of 2018, internal bad debt at BIDV was 16.697 billion dong, up 18.7 percent compared to that at the beginning of the year.
Thanks to the provision increase, the bad debt of Eximbank was pushed back. By the end of 2018, Eximbank’s total assets reached 152,709 billion dong, up 2.2 percent compared to the beginning of the year. The bank’s internal bad debt also decreased by 16.4 percent compared to the beginning of 2018, to 1,921 billion dong, accounting for 1.84 percent of total outstanding loans at Eximbank.
Nguyen Canh Vinh, Eximbank’s deputy general director, said that the Bank’s view was to ensure safety in operations, and increase reserve provision.
Similarly, due to high risk provisioning, by the end of 2018, bad debt in Saigonbank was 301 billion dong, down by 28 percent YTD. Bad debts at Saigonbank have decreased by 66 percent in the last two months.
The bad debt has plummeted over the past time, according to Vu Quang Lam, a member of the Board of directors of Saigonbank, due to the increase in provisioning, focusing on debt settlement according to the approved scheme.
