According to an expert, banks’ profit increase is mainly thanks to the rise in credit. The risks will be greater for loans with higher profits.
Despite taking the lead in profit with 11.3 trillion dong, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) also surprised with a six-time increase in substandard debt group (debt group 3) by the end of the second quarter (Q2) of 2019 compared to the end of last year.
According to statistics, the debt group 4 and 5 of Vietcombank slightly declined, but the debt group 3 increased by nearly six times from 291.8 billion to 1.670 trillion dong, bringing the total bad debts of Vietcombank as of June 30th 2019 to 7.134 trillion dong, up by 911 billion dong (14.64 percent) compared to December 31st 2018. The ratio of bad debts on total outstanding loans to customers also inched up from 0.98 percent (by the end of 2018) to 1.02 percent at the end of Q2 2019.
Not only Vietcombank, some other the banks recording over trillion dong in profit also recorded significant increase in bad debt ratio. For example, the debt group 3 of Military Commercial Joint Stock Bank (MBBank) increased by 73 percent, and the debt group 4 of Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) increased by 2.7 times.
At Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), although the debt group 5 (irrecoverable debts) plummeted by more than 164 billion dong compared to the beginning of the year. However, the bank’s debt group 3 and 4 rose by nearly 220 billion dong, causing the Q2 2019 total bad debts to increase by about 5 billion dong to 5.702 trillion dong.
The most notable case is Tien Phong Commercial Joint Stock Bank (TPBank) when the bank posted over 60 percent rise in debt group 3, twofold increase in debt group 4 and nearly 20 percent rise in debt group 5 by the end of Q2, making the total bad debts to go up by 55 percent.
Banking and finance expert Nguyen Tri Hieu said that the main reason for banks’ bad debt increase is the volume of unsettled bad debts while banks still strongly granted loans in the first two quarters of 2019 and have used up or almost used up their assigned credit growth limit. As credit increases, the risk of bad debts also goes up.
For example, the credit growth in the first two quarters of 2019 grew by nine percent, while it was assigned 15 percent credit growth in 2019. In Q1 alone, Sacombank’s credit growth was 5.61 percent, while the limit granted for the whole year is seven percent. With the highest growth in total outstanding credit of 9.8 percent in Q1 2019, including other components, the total outstanding credit of TPBank has grown up by about 11 percent, while the assigned credit limit is 13 percent.
Hieu also added that the profit increase of Vietnamese banks heavily depends on credit growth. The risks will be greater for loans with higher profits. These two factors always go hand in hand.
Tran Hai Yen, Department of Macroeconomic Research of Bao Viet Securities said that banks now tend to focus on retail activities through the acceleration of consumer loans. This is a potential field that brings high profits, because consumer loans are often unsecured with high interest rates, but the possibility to become irrecoverable debts is also high.
In addition, the first half of 2019 is also when the first five-year bonds issued by Vietnam Asset Management Company (VAMC) come to maturity. Volume of VAMC’s special bonds issued in 2014 is fairly large in terms of both value and quantity. Therefore, in the first six months of 2019, many banks have started to buy back these debts and put them back to their balance sheets. Some typical names such as Vietcombank, Vietnam Technological and Commercial Joint Stock Bank (Techcombank), MBBank, Orient Commercial Joint Stock Bank (OCB), Vietnam International Commercial Joint Stock Bank (VIB) and recently Asia Commercial Joint Stock Bank (ACB) have officially cleared off all the bad debts sold to VAMC in the past. This is also one of the factors leading to the bad debt increase at banks.
