In 2018, the pre-tax profit in 2018 of 10 banks including Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Military Commercial Joint Stock Bank (MB), Asia Commercial Joint Stock Bank (ACB), HCM City Development Commercial Joint Stock Bank (HDBank), Vietnam International Commercial Joint Stock Bank (VIB), and Tien Phong Commercial Joint Stock Bank (TPBank) increased by 34.4 percent, although the total operating income was only up by 18.4 percent compared to 2017.
Viet Dragon Securities Company (VDSC) said that this was thanks to the downtrend of provisions for risks at the banks which cleared off all the special bonds of Vietnam Asset Management Company (VAMC) in the previous year, in which the strongest reduction was seen in ACB and Techcombank.
In addition, another positive point is that the Loan Loss Reserves (LLR) ratio continued to be increased in many banks, typically ACB, MB and Vietcombank.
For the banks which still have outstanding balance with VAMC, the bad debt settlement has progressed very well thanks to the positive impact of Resolution 42/2017/QH14 which took effect from September 2017.
By the end of 2018, BIDV, VPBank and HDBank managed to recover 20-25 percent of the outstanding balance with VAMC recorded in the end of 2017. Thanks to that, these banks only need to make insignificant or much lower provisioning costs compared to 2017.
“Thus, although the on-balance sheet bad debt ratio was not much improved, the actual bad debt ratio (on-balance sheet bad debts and debts at VAMC) at these banks continued to see considerable decline”, VDSC stated.
Considering the trend of bad debt formation in the above 10 banks, VDSC found that the on-balance sheet formation rate (excluding debts at VAMC) is maintained at low level, and even declining in ACB, HDBank, Vietcombank, and TPBank, although the trend of shifting to retail lending is still ongoing.
VDSC believed that those banks all have from medium to high growth prospects in 2019, and thus the proportion of provisioning costs to operating income will continue to fall.
In contrast, the bad debt formation rate increased fairly strongly in BIDV, VPBank and VIB, as well as in MB and Techcombank but with slightly lower level. For those banks, VDSC said that the provisioning costs will grow faster, but the impact on profits may be differentiated.
Specifically, VDSC, MB with high potential for income growth will still be able to make adequate provisions, clear off debts early and maintain good asset quality.
Meanwhile, BIDV, VPBank and VIB caused concerns due to their burden of provisions, as they tend to see higher bad debt ratio and lower provisioning rate, although their provisions were stronger than the growth of operating income.
BIDV is currently planning to settle all VAMC bonds this year. VPBank also has similar plan, but it is still having high bad debt ratio and much lower LLR than other banks’.
In addition to VPBank, VIB is also having high ratio of bad debts and low LLR, showing a fairly considerable bad debt risk.
