Banks’ hefty profits eroded by risk provisions

Many banks have reported hefty profits in the third quarter and January-September period, but they are also seeing their actual sums sharply contracted due to big provisions set aside for risks now that bad debts are also rising.

Several banks that have listed shares on the stock market said they earned trillions of Vietnam dong in profits, but they had to set aside huge sums as risk provisions.

Profits soar on high interest rates

Profits of banks in the previous quarter mostly came from the credit activity as the wider margin between borrowing and lending rates helped spur banks’ earnings. The borrowing rate has continuously gone up since the start of the year and stayed high in the quarter. The interest rate cut as required by the State Bank of Vietnam has only become effective since September 7; however, most banks are still offering a rate of over 20% per year.

Besides, large banks have obtained big profits from making inter-bank loans to small banks who wanted to improve their liquidity.

Vietnam Bank for Industry and Trade (Vietinbank) had the highest profit among listed banks with a pre-tax profit of VND1.865 trillion in the quarter and VND5.540 trillion in the nine-month period, up 33% and 56% year-on-year respectively.

Income generated from the credit activity of VND5.275 trillion in the quarter and VND14.432 trillion in the nine-month period is the main factor leading to high revenue and profit growth of Vietinbank.

Vietnam Export Import Bank (Eximbank) in the quarter also had a good profit of VND759 billion, up 46% year-on-year. Its profit in the period doubles that in the same period last year to reach VND2.028 trillion.

Similarly, the pre-tax profit of Bank for Foreign Trade of Vietnam (Vietcombank) rose to over VND1.350 trillion in the previous quarter and VND4.384 trillion in the nine-month period.

Meanwhile, Saigon Thuong Tin Commercial Bank (Sacombank) has also announced the quarter’s profit of VND1.593 trillion, up 5%.

Risk provisions rise on bad debts

According to banks’ financial statements in the third quarter, it is noticeable that the bad debt ratio of all categories also rose sharply, especially those debts categorized as the most risky that require 100% provisions.

Specifically, Vietinbank in the nine-month period earmarked an amount up to VND2.185 trillion in provisions, doubling that in the same period last year. Meanwhile, Vietcombank’s provisions for bad debts also tripled to VND1.687 trillion.

The profit growth of Sacombank was lower than that of other banks due to its large amount of VND383 billion set aside for the purpose in the January-September period compared to VND153 billion in the year-ago period.

Statistics from the State Bank of Vietnam showed that the total bad debt of the banking system exceeded VND76 trillion in the January-August period, or 3.21% of the total outstanding loans now compared to 2.53% early this year.

Source thesaigontimes.vn

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial