Bad debts and risk provisions remain on top of banks’ agenda

Throughout the AGM season, bad debt resolution and risk provisions were the most worrisome issues emerging in the banking sector in since the beginning of 2017.
bad debts and risk provisions remain on top of banks agenda

Bad debt resolution and risk provisions were among the most talked-about problems in banks' AGMs

According to the National Financial Supervisory Commission (NFSC), bad debts in the financial system sank to 9.5 per cent at the end of 2017 from 11.9 per cent in 2016 due to the sharp decrease in the ratio of potential bad debts over restructured debts, corporate bonds, and uncollectible accounts receivable.

As shown in financial statements provided by 13 random commercial banks, total bad debts at such banks hopped to VND60.533 trillion ($2.65 billion) in 2017 which was only 0.7 per cent up against 2016. Specifically, only 8 of the 13 selected commercial banks saw negligible rises in their bad debts over the p of 2017.

Duong Cong Minh, chairmand of the Board of Directors at Sacombank, noted that the percentage of bad debts at the bank went from 6.68 to 4.28 per cent over the course of 2017 and is expected to end up at 3 per cent by the end of 2018.

Since risk provision topped the bank’s agenda of resolving financial issues, Sacombank set a rather “humble” target for pre-tax profit at VND1.640 trillion ($72.03 million) in 2018.

Likewise, in late 2017, total debts recorded in the five banks of VietinBank, SHB, VPBank, Techcombank, and TPBank shrank by 8.3 per cent in comparison to early 2017.

For instance, ACB, the worst-performing randomly-surveyed commercial bank, also saw a reduction in bad debts from 0.87 to 0.7 per cent as well as in the ratio of uncollectible bad debts from 0.64 to 0.4 per cent over 2017.

Consequently, the commercial bank set aside the largest volume for risk provision, up to VND2.565 trillion ($112.65 million), which was equivalent to roughly 49 per cent of the bank’s full-year net profits. At BIDV, the reported volume of risk provisions shot up to VND14.915 trillion ($655.08 million).

Regarding the provision planning for 2018, several financial experts asserted that FIs should set aside at least 20 per cent of the value of special bonds after trading bad debts with Vietnam Asset Management Company (VAMC).

Thanks to Resolution No.42/2017-NQ14, the process of resolving bad debts among FIs sped up immensely across the spectrum of methods, such as selling bad debts to VAMC, selling collateral assets, and using risk provisions.

Source: VIR

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