Some banks have published the business results in the first quarter (Q1) of 2019 with very positive profit figures. However, what experts are concerned about is the continuously rising accrued interests.
Profits significantly increase
Taking the lead in profit is still Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) as the bank earned over 5.78 trillion dong of pre-tax profit right in Q1 this year, up by 34.84 percent over the same period of 2018. This result is thanks to the 2.302 trillion dong increase in net interest income compared to the same period of last year (reaching 8.499 trillion dong, up by 37.1 percent). The net interest income from service activities of the bank also increased by 188 billion dong (up by 21.3 percent) to 1.069 trillion dong. The bank’s net income from foreign exchange trading rose by 313 billion dong to 928 billion dong, up by 51 percent. With these results, it can be affirmed that the bank’s 2019 target to expand pre-tax profit by 12 percent to 20.461 trillion dong compared to 2018 is completely feasible; because as usual, banks’ profits often increase gradually in the last quarters of the year.
The pre-tax profit of Vietnam International Commercial Joint Stock Bank (VIB) and Tien Phong Commercial Joint Stock Bank (TPBank) even increased stronger in Q1. Accordingly, VIB’s pre-tax profit was nearly 810 billion dong, up by near 292 billion dong (56.3 percent) over the same period of 2018. In particular, the bank’s net interest income grew by 31.6 percent to 1.385 trillion dong, and net income from services grew by 167.3 percent to 348 billion dong.
By the end of Q1 2019, TPBank attained nearly 853 billion dong of pre-tax profit, up by 340 billion dong (66.3 percent) compared to the same period of 2018. In which, the net interest income was up by 351 billion dong (37.6 percent) to 1.284 trillion dong, and net income from services increased by 142 billion dong (190 percent) to 217 billion dong.
Among banks which have announced their business reports in Q1, only Vietnam Prosperity Commercial Joint Stock Bank (VPBank) recorded negative profit growth although it earned a trillion dong of pre-tax profit in Q1 2019. Accordingly, by the end of March 2019, the bank’s pre-tax profit was nearly 1.783 trillion dong, but this number was still 31.94 percent less than the realised figure in 2018.
Although the net interest income of VPBank rose by up to 978 billion dong to 6.785 trillion dong compared to the same period of 2018 (equivalent to an increase of 16.83 percent) and the bank’s net income from services also increased by 232 billion dong to nearly 745 billion dong, other business segments of VPBank were less positive. Particularly, the bank’s operating expenses increased by more than 610 billion dong and the risk provisioning also increased by 552 billion dong compared to the same period of 2018. That caused VPBank’s profit to drop.
Nevertheless, experts concerned that the accrued interests of banks continued to increase in the first quarter of the year.
The Q1 financial statement of Vietcombank showed that the bank’s interest and fee receivables as of March 31st 2019 reached nearly 7.965 trillion dong, 556 billion dong higher than the end of 2018. VPBank also recorded more than 79 billion dong increase in interest and fee receivables in the first three months of the year, reaching nearly 4.507 trillion dong as of March 31st 2019. VIB’s interest and fee receivables as of March 31st 2019 reached more than 1.450 trillion dong, up by 45 billion dong compared to the end of 2018.
Only TPBank recorded a decline in accrued interest compared to the end of 2018. Accordingly, as of March 31st 2019, the interest and fee receivables of the bank were nearly 1.169 trillion dong, down by nearly 171 billion dong compared to the end of last year.
According to experts, the accrued interest is the interest that banks have not yet collected and expect to collect in the future from credit items. However, this amount is still recorded in banks’ income statement and hence creates profits.
Moreover, in principle, banks are only allowed to calculate the accrued interest of debts in group 1 and must stop recording accrued interest if the debt starts to be moved to group 2. Nevertheless, some banks still keep the accrued interest item unchanged although the debt principal has been shifted to another group, or even rated as bad debts.
A banking expert said that, banks did that for some reasons. Firstly, they wanted to beautify the profit figures in the financial statements to make it easier to deal with shareholders. Secondly, banks did that to hide bad debts and reduce the risk provisioning.
Thus, accrued interest is often considered a “virtual interest” in financial statements, and the larger the accrued interest, the higher the risk of suffering losses of banks. It is because when the accrued interest increased higher than the actual profit figure, many banks still had to record it as if excluding it, the banks would suffer loss and experience bad debt rise such as the case of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) in the fourth quarter of 2018. Accordingly, in Q4 2018, VietinBank accepted a pre-tax loss of 853 billion dong, while its bad debt rose by 1.390 trillion dong compared to the previous quarter in order to reduce the accrued interest at the end of the year to 6.905 trillion dong, down by 8.398 trillion dong compared to the end of Q3 2018.
Therefore, in the recently issued Official Letter No. 1968/NHNN-TTGSNH, the SBV requires banks to make accrued interest in line with the current situation of debts to ensure compliance with the provisions of law to reflect the business results. Banks also need to regularly review the actual situation of the debts of which accrued interest is recorded, particularly those with large accrued interest. This helps units promptly withdraw the accrued interest for cases where it is difficult to collect and withdraw accrued interest as prescribed.
