Operating results announced recently by banks in Vietnam provide a pessimistic view of the system. Difficulties this year can be easily identified. Bad debts remain almost untouchable, despite significant efforts. Profit drops, loss rises
Some banks announced their second quarter business operation reports in late third quarter although some others released their reports earlier, but not sooner than mid-August. The time of announcement is later than in previous years with robust development. The third quarter reports are forecast to come to public even much later. Report data showed that profit dropped sharply in the first half of this year. Some banks even admitted their losses.
Outstanding profit-making lenders are BIDV, VCB and MBB. VCB’s huge profit of VND2,700 billion in the first half was good to the overall industry but it dropped 6 percent from a year ago. ACB and Eximbank exited the club of banks with profit of more than VND1,000 billion.
In a tough year, it is still better for big banks notwithstanding profit drop than small lenders. According to the State Bank of Vietnam (SBV), 24 out of 124 credit institutions suffered losses as of May. 57 out of 100 profit-making banks saw a drop in profit value from a year ago.
According to SBV, nearly half of credit institutions witnessed a huge decline in profit before tax in the first half of this year from the last six months of 2012. Most banks reported a profit drop of 20 – 30 percent.
Navibank incurred the second quarter loss of VND11.3 billion although it made a profit in the previous quarter. In combination, Navibank still made a profit of VND10.5 billion in the first two quarters of 2013 down 88.5 against the same period of 2012.
Some other banks like Viet Capital, Nam A and Dai A reported to fulfil 20-30 percent of their plans.
The sharp drop in banks’ profits was attributed to two reasons: Narrower margin in interest rates and higher provisioning burden.
The SBV said if provisions for credit risks are taken into account, the real interest rate margin will be reduced from 3.03 percent to just 1.93 percent, lower than 2.33 percent in 2012. Slower credit growth caused the most important income source of the banking system to decline significantly.
The increased provision for subprime loans also shrank profitability. However, commercial banks still have to express thanks to SBV for enforcing the Decision 780 on loan classification, debt adjustment and debt payment rescheduling. If debt classification is not performed, the list of banks with loss-making business will be longer and the profit value will be further shrunk.
Strong hand on weak banks
The world economy is gradually stepping out of crisis with clear signs of strong recovery of leading economies. But, Vietnam is still in the doldrums period with existing difficulties of the entire economy and the business system. Therefore, although bad debts at banks are classified and regulated, a quick improvement is unlikely. Customer risk is also the risk of the banking system because the burden of bad debts remains in sight. Therefore, more than 50 percent of credit institutions expected their bad debt ratios at the end of 2013 will be unchanged or not increase over 2012.
However, bad debt ratios dropped sharply in the second and third quarters in their reports. Until now, most banks had nonperforming loan (NPL) ratios of less than 3 percent.
But, there were negotiations in debt classification. ACB’s financial report did not show the debt owed by Vinalines. ACB’s loan to VND464.733 billion to Vinalines together with VND500 billion of Vinalines bonds and VND135.949 billion of bond interest receivables was classified Group 2 debt, not bad debt.
This cannot be blamed on ACB because ACB realised the spirit of the Prime Minister’s Decision 276/QD-CP approving restructuring scheme of Vinalines from 2012 to 2015 and the request of the central bank, sent to all credit institutions, on restructuring debts of Vinalines and its member companies for new ship purchase and building. However, Vinalines’ debts cannot be considered prime.
Similarly, Vinashin’s debts were previously not displayed as bad loans by commercial banks.
Or, ACB’s termed deposits of VND772 billion and VND1,193 billion placed at some other banks were extended or converted into loans, helping the lender to avoid adding them to bad debts. No one knows for sure that these will not be excluded from classification list in the future.
Debt classification eases pressures on banks with their periodical reports but their bad debts are still in sight and they cannot handle completely now.
SBV has recently signalled aggressive action on weak banks. From September 20, 2013, SBV Governor is entitled to designate credit institutions to contribute capital and purchase stake at specially controlled banks. Specially controlled banks have accumulative losses in excess of their registered capital and reserves funds. The operating termination of a specially controlled credit institution may undermine the system safety of credit institutions.
Bao Chau
Đăng ký: VietNam News
