August 17, 2018 12:01

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A “deep look” at bad debts of banks

15:36 | 17/05/2018

VCN- The banking industry is brighter and its profitability is predicted to be optimistic in the coming time. However, looking into the bad debt of banks, there are still many worries.

a deep look at bad debts of banks
Bad debts of banks tend to increase. Photo: ST.

Bad debt in many banks increase

The profitability of banks has been improved dramatically in the past few years, so many banks have announced that ROA and ROE in the first quarter of 2018 are at high levels thanks to the favorable economic conditions and the direction of development which keeps up with the market trend. Therefore, profit targets in 2018 of many banks with a trillion VND are no longer rare. Nevertheless, many banks’ leaders should not be subjective as the signs of bad debts are increasing.

According to the separate financial statement of Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), by the end of the first quarter of 2018, its pre-tax profit reached more than 3,000 billion VND, increasing by 19% compared to the same period in the last year, meanwhile other indicators have a positive growth. However, as of the end of March, this bank had over 10,276 billion VND of debt of group 3, 4, 5 (subordinated debt, doubtful debts, potential loss), an increase of about 14.48 % compared to the beginning of the year. In particular, the bad debt is at 6,665 billion VND, increasing by 28.5% compared to the beginning of the year. Although VietinBank's bad debt ratio only accounts for 1.25% of its total outstanding loans, the bank should be cautious in its business strategy because of the above growth figures.

Another bank that has loomed with bad debt is Saigon - Hanoi Commercial Bank (SHB). The bank's separate financial statement for the first quarter of 2018 also shows that its debt-to-equity ratio increased by nearly 5% since the beginning of the year, from 2,761 billion VND to 2,899 billion VND, increasing by 1,140 billion VND compared to the end of 2016. Talking about the cause of this situation, the SHB’s Board of Directors said that due to the increase in the size of the bank's operations, the credit growth rate increased, so the substandard debt also increased if comparing by the absolute number. In addition, according to the new regulations of the State Bank of Vietnam, though many SHB's customers have outstanding loans at SHB, subordinate debt arises at other credit institutions, thus SHB must transfer debt groups of these customers.

In addition to these two banks, the list of banks with bad debts and substandard debts in the first months of 2018 has also been expanded such as: Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) with over 7.894 trillion dong of debt group 3, 4, 5, increasing by 27% compared to the beginning of the year, of which debt group 3 jumped from over 684 billion VND to nearly 2.009 billion VND. Orient Commercial Joint Stock Bank (OCB) with outstanding loans of group 3, 4, 5 reached over 1,117 billion dong, increasing by 29.2% compared to 864 billion VND at the end of 2017.

No longer concern?

In order to solve the problem of bad debt, the Military Bank (MB), provision has been increased to 19.5% compared to the same period, in which new provisions for loans increased five times in the first quarter of 2017. However, the bank's bad debt ratio rose to 1.4% from 1.2% at the end of 2017. In addition, the debt write-off in the first quarter of 2018 has tripled over the same period in 2017. Therefore, the bank needs more solutions to be able to handle bad debt more effectively.

Another bank that also needs to be cautious in planning its bad debt is the Housing Development Commercial Joint Stock Bank (HDBank). At the end of April 2018, the General Shareholders' Meeting of HDBank's and Petrolimex Commercial Joint Stock Bank (PG Bank) agreed to merge. However, PG Bank is a small bank with a low bad debt ratio of only 3.3% in 2017 by writing off debt and selling debt to VAMC, but the rate of problem assets remains high as a total bad debt and VAMC bonds accounted for 13.7% of total outstanding loans. ROE dropped to 1.8% in 2017 due to the burden of provisions for bad debt. Therefore, if the merger is completed, many are concerned about the burden of bad debt for HDBank. However, experts said that bad debt will be able to be handled as HDBank has enough financial resources to settle, thanks to the favorable growth prospects of banks and the customer base significantly expanding after the merge.

It can be seen, the war with bad debts of commercial banks is still "persistent". Therefore, at the end of January 1, 2018, the State Bank of Vietnam has written to urge credit institutions to actively deal with bad debts, effectively implement Resolution No. 42/2017/QH14 of the National Assembly on the pilot of handling bad debts at credit institutions. Therefore, the banks have actively accelerated the progress, applying many measures to handle bad debt effectively, helping to earn thousands of billion. According to Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), in 2017 alone, the bank handled more than 19,660 billion VND of bad debt and outstanding assets. Although the bad debt is still a lot, the bank's leaders still insist that they will complete the restructuring of the bank together with a detailed roadmap for bad debt treatment, which is expected to handle at least 15 trillion VND in 2018. Similarly, Mr. Vo Tan Hoang Van, General Director of Saigon Commercial Bank (SCB) said that in 2018, SCB plans to collect overdue debts, bad debts and debts which are sold to VAMC in 2018 of about 4.300 billion VND.

Though the large amount of bad debt is still pervasive and increasing risk, experts are optimistic that there is no worry thanks to the profit growth, asset quality, provisions of the banking sector, especially when bad debt has been handled under the Resolution No. 42. However, some small banks need to be cautious as the potential of borrowers have certain risks.

By Hương Dịu/ Kiều Oanh