Bank profits in free fall

The announced business results of the first quarter of 2016 show that the sudden increase in credit risk provisioning costs continues to affect the profits of joint stock commercial banks.

Vietnam Export Import Commercial Joint Stock Bank (Eximbank) is the most typical case for the above story. According to the consolidated financial report for the first quarter of 2016, Eximbank achieved 921 billion VND in net interest income, up 3%. However, the bank's after-tax profit was only 24 billion VND, a sharp decrease compared to the profit of 415 billion VND in the same period last year.

The main reason for Eximbank's "free fall" in profit is that the bank set aside 337 billion VND in credit risk provisions during the period, an expense that did not exist in the same period last year.

By the end of 2015, Eximbank had sold VND6,230 billion of bad debt to VAMC. Therefore, since 2016, on a quarterly basis, in addition to setting aside credit risk provisions, the bank must also set aside risk provisions for special bonds issued by VAMC.

Risk provisioning is a nightmare for banks. Photo: Securities Investment.

Another big player with a sharp increase in credit risk provisioning costs in the first quarter of 2016 is the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV).

BIDV recorded VND5,639 billion in net profit, up 23%. However, the provision for credit risks doubled to VND1,990 billion, causing net profit to drop to only VND1,682 billion, down 10% compared to the same period last year.

BIDV's 2015 audited consolidated financial statements show that the face value of special bonds issued by VAMC to buy back BIDV's bad debts is VND20,836 billion and the bank has reserved VND2,000 billion for special bonds.

Saigon - Hanoi Commercial Joint Stock Bank (SHB) is also heavily affected by the increase in provisioning costs, setting aside 168 billion VND in provisions in the first quarter of 2016, 20 times higher than the same period in 2015.

Therefore, although SHB recorded VND473 billion in net profit from business activities, up 119% compared to VND216 billion in the same period, credit risk provisioning costs pulled profits down to VND244 billion. Compared to the 2016 plan, SHB only achieved nearly 23% of the pre-tax profit target.

Accumulated to the end of 2015, SHB also sold 7,000 billion VND of bad debt to VAMC and has just set aside 464 billion VND in provisions for this special bond.

Although at Vietcombank, VietinBank and MBBank, the cost of credit risk provision is still quite high, it has tended to decrease.

In the first 3 months of the year, VietinBank set aside VND1,441 billion in provisions, a slight decrease compared to VND1,510 billion in the same period, with after-tax profit reaching VND1,923 billion. Similarly, Vietcombank set aside VND1,305 billion, achieving after-tax profit of VND1,840 billion, and MBBank set aside VND239 billion and achieving after-tax profit of VND706 billion.

According to VAMC, from 2013 to the end of 2015, the total bad debt VAMC purchased was 245 trillion VND in principal with the number of bonds issued being 207 trillion VND.

According to the banking industry outlook assessment report of the Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCBS) Securities Company, published in early April 2016, the entire system's profits will be negatively affected due to the pressure of high risk provisioning at many banks. Provisioning for VAMC special bonds may increase sharply in the system in 2016 after the cumulative amount of VAMC bonds issued nearly doubled in 2015.

According to zing.vn