Be careful of bright picture on banking profits

Profits in the first 9 months of banking system reach positive growth.

A year of great profits

Commenting on the picture of bank profits in the first nine months, the National Financial Supervisory Commission made a very positive assessment. Accordingly, after-tax profit of the banking system reached about 47 trillion vnd, rose by 39% compared to the same period in the last year that thanks to the contributions from credit activities and services. In particular, net interest income from credit activities of the system increased sharply (by 15.8%); net interest margin increased marginally to 2.8% (compared to 2.7% in the same period in 2016); pre-provision profit increased by 30.2% compared to the same period of 2016; provision for credit losses/ total pre-provision income was at 49%, decreased from 53% in the same period in 2016.

Thus, in October 2017, banks were eagerly announcing the business result with a great profit. It shows that 2017 will be a year of high profits, which has been earning much profit in the banking system since 2012. Not only great profit, but many banks have already completed and exceeded the target of the whole year.

Typically, in the medium banking group, Orient Commercial Bank (OCB) has completed its full-year profit plan in 2017 after the first nine months of the year; its pre-tax profit was 789 billion vnd, fulfilling 101% of the year plan. An Binh Commercial Joint Stock Bank (ABBank) achieved 489 billion vnd in pre-tax profit and 424 billion vnd in after-tax profit, surpassing 8% of the plan for the whole year (of 450 billion vnd). LienVietPostBank has nearly fulfilled its full-year plan with 9 months' profit of 1,450 billion vnd; the pre-tax profit of HDBank reached 1,713 billion vnd, making this bank expect to reach 2,400 billion vnd in a profit of the whole year.

For the giant baking group, the pre-tax profit was 12,186 billion vnd, increased by 14.1% compared to the same period in the last year; Pre-tax profit after the provision was 7,687 billion vnd, increase by 24.4% compared to the same period in the last year, fulfilling 80.9% of the plan in 2017. The financial report of the third quarter of the Bank for Investment and Development Development of Vietnam (BIDV) showed that the total income was 27,785 billion vnd, rose by 28% compared to the same period in the last year. Therefore, BIDV's pre0-tax profit in the first 9 months was 6.002 billion vnd, increased by 6.7% compared to the same period in the last year.

Thanks to that development, in 2017, the banking stocks are expected to be the most optimistic and have strong growth. Notably, the VCB shares have increased sharply since the early October, from 37,500 vnd to 39,400 vnd/ share; shares of Vietinbank, a BID of BIDV, MBB of MBBank are similarly.

Be caution

Commenting on the situation of the banking system in the first 9 months, financial experts – Dr. Nguyen Tri Hieu said that banks have had a great business season, high profits and high turnover due to the credit growth in 9 months reached the record high. However, the expert is still cautious because he thinks that, until the end of the year, when the banks make clearly the balance-sheet, quota of expenditures, the picture of profits will have significant changes.

“The banking system of Vietnam is always risky because the system of accounting books and vouchers of many banks are not highly transparent. The bad debt at some banks has been hidden in many ways, otherwise, if these bad debts are “exposed”, the profit and revenue of some banks will be decreased”, Dr. Hieu said.

In fact, if the total bad debt of the whole sector is lower than the previous year, but in many banks, the number of bad debts tends to increase. As economic experts say that the handling of bad debts under the Resolution No. 42 of the National Assembly is still at an early stage, there have been no significant steps that have made banks spend more provision for credit losses.

For example, at BIDV, despite announcing the profit of over 6,000 billion vnd, in 2017, this bank must increase its provision for loan loss of 13,259 billion vnd in the first 9 months, compared to over 9,410 billion vnd by the end of 2016. However, the bad debts of this bank tends to rise, as comparing to the end of 2016, the bad debts has increased by 0.5%, to over 9,710 billion vnd; doubt debt rose by 0.41%, to over 1,408 billion vnd; bringing the bad debt ration from 0.9% to 1.21% of total debt balance. Meanwhile, according to the bank’s latest financial report, the figures increase sharply, from the provision for losses on bad debts.

Thus, despite positive signs in profit, the banking system must be caution, notably, bad debts are hidden, the economy has many changes. However, the decisions on reducing interest rates, ensuring interest rate and the exchange rate of the management agency will be a great motivation for banks to continue to get the benefit, contribute to increasing profits.