Bad debts continue to squeeze banks’ profits

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Bad debts continue to squeeze banks’ profits

Vietnam News - 1/3/2017 2:19:26 PM

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In the third quarter of the year Kienlongbank’s gross profit decreased by nearly 12 per cent.

As a result, in the first nine months of the year Kienlongbank’s pre-tax profits were worth only VNĐ19.8 billion (US$88,000).

The bank management attributed the profit drop to increasing operation costs and risk provision for bad debts.

The lender’s bad debts ratio increased from 1.12 per cent at the beginning of the year to 1.46 per cent. Significantly, irrecoverable debts increased by 54 per cent to VNĐ187 billion ($381,111).

Kienlongbank will thus find it difficult to achieve the year’s pre-tax profit target of VNĐ300 billion.

Eximbank, quickly recognising the difficult business situation, has tweaked its business plans.

By late second quarter the bank’s bad debts had increased sharply to 5.3 per cent despite the fact its credit growth rate was minus 4.62 per cent.

Consequently, its first half pre-tax profit was only VNĐ80 billion.

In the first nine months of the year Eximbank had a pre-tax profit of VNĐ202 billion but an after-tax loss of VNĐ43 billion.

Its bad debts were 3.35 per cent of total outstanding loans.

In the face of the downbeat situation, Eximbank’s executive board slashed the full-year profit target by 44 per cent to VNĐ400 billion.

State giant BIDV had to make risk provision of nearly VNĐ7 trillion in the first nine months of 2016, an 80 per cent rise over the same period last year.

According to the HCM City Banking University, in 2016 the banking sector had to set aside VNĐ91.374 trillion as bad debts provisions, much higher than the VNĐ74.828 trillion in 2015 and VNĐ59.287 trillion in 2014.

Of this figure, provision for bad debts amounted to VNĐ53.098 trillion, and bonds issued by the Việt Nam Asset Management Company against bad debts were worth VNĐ38.276 trillion.

These ate into the profits of banks, including major ones, and as a result shareholders did not get dividends.

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