Bad debts continue to squeeze banks’ profits

Hanoi (VNA) - In the third quarter of 2016, Kienlongbank’s gross profit decreased by nearly 12 percent.

As a result, in the first nine months of the year Kienlongbank’s pre-tax profits were worth only 19.8 billion VND (880,000).

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 187 billion VND (8.3 million USD).

Kienlongbank will thus find it difficult to achieve the year’s pre-tax profit target of 300 billion VND (13.3 million USD).

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 80 billion VND.

In the first nine months of the year Eximbank had a pre-tax profit of 202 billion VND but an after-tax loss of 43 billion VND.

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 400 billion VND.

State giant BIDV had to make risk provision of nearly 7 trillion VND 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 91.374 trillion VND as bad debts provisions, much higher than the 74.828 trillion VND in 2015 and 59.287 trillion VND in 2014.

Of this figure, provision for bad debts amounted to 53.098 trillion VND, and bonds issued by the Vietnam Asset Management Company against bad debts were worth 38.276 trillion VND.

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