Behind the trillion VND profit of banks during the pandemic

	Top banks by profits switch places on pandemic fallout
	Banks racing to catch digitisation
	Difficulties in handling bad debts

Profit and profit growth of banks in first six months of 2019 – 2020. Chart: H.DUU

Reduce reliance on credit

According to second quarter financial reports, many banks achieved positive growth in profits, many of them even grew by double digits such as BIDV reached VND2,640 billion, up 21%; VPBank reached VND3,873 billion, up 51%; and HDBank increased by 49%. Because of the negative effects of the Covid-19 pandemic, the economy's ability to absorb capital has been very weak since the beginning of the year, so what has helped banks achieve such "huge" growth?

BIDV’s second quarter financial report showed that net interest income dropped by 24% to only VND6,940 billion. However, other banking activities saw growth. For example, net interest income from service increased by 8% to VND1,179 billion; net profit from trading securities was VND240 billion, five times higher than in the same period in 2019; and investment securities trading brought in profit of VND797 billion, 6.4 times higher than the same period last year.

At OCB, net interest income from service activities recorded a growth of nearly 63% in the second quarter of 2020, hitting VND183 billion; interest from trading securities increased by 172%; and interest from forex trading jumped by 15%.

TPBank's profit also increased by 25.6% compared to the same period last year. The bank's leader said it was thanks to focusing on developing digital banks, helping reduce dependence on credit and increase proportion of non-interest income.

Comparison of changes in bad debt ratio at the end of 2019 and first six months of 2020. Chart: H. Diu

According to FiinPro’s business results, a market research company, some banks that broke rules and noted high credit growth rates have retail services or consumer credit. Most of them have credit, retail or consumption activities, accounting for a large proportion in their credit balance structure. Besides, unlike enterprises directly affected by the pandemic, the consequences of Covid-19 were delayed for banks.

Bad debt is "worse"

The concern in the six-month business results of banks is that bad debt tends to increase again, both in general bad debt ratio and in bad debt group 4 (doubtful debt) and group 5 (potential loss).

At TPBank, for instance, NPLs in the subordinate debt group (group 3) saw the highest increase to more than 47.2%, the doubtful debts (group 4) increased by 22% in six months, pushing the bank’s NPL ratio from 1.29% in early 2020 to 1.47%. Similarly, VIB’s subordinate debt increased to 79.6% and doubtful debt increased by more than 49.2%. As of June 30, MB's total non-performing loans (NPLs) was VND3,577 billion, up 23.5%, which brought the ratio of bad debts to total outstanding loans to increase from 1.16% at the end of 2019 to 1.37%. Meanwhile, at LienVietPostBank, total bad debt jumped by nearly VND500 billion, equivalent to 23.4%, exceeding VND2,506 billion. However, in the gray picture of bad debt, some banks reduced their bad debt ratio such as Techcombank and VPBank.

According to experts, the bad debt figures of banks have been covered by the debt restructuring under Circular 01 of the State Bank. The agency is working on amending and supplementing Circular 01 to extend the support period to the end of 2020 or longer depending on the evolution of the pandemic. PhD. Nguyen Tri Hieu, a financial - banking expert, said Circular 01 allowed bad debts and potential bad debts to be kept intact and be concealed for normal debt liquidity.

Despite the potential bad debt, provision expenses at many banks decreased in the second quarter. VietinBank, for example, only made a provision of VND2,207 billion in provision expenses in the quarter, down 47% compared to the same period last year. Similarly, VPBank also reduced VND546 billion of provision expenses compared to the second quarter of 2019, a decrease of 17%.

Therefore, when the debt restructuring period has expired and the customer cannot repay the principal, debts will become bad debts and the bank must make provisions for both the principal and the interest receivable from these debts that have been recorded in the second quarter financial statements. Meanwhile, profit recorded in the second quarter will become a burden to decrease profits of banks in the future. Despite high interest rates, many banks are also "worried" when the pandemic is complicated and increasing the risk of bad debts returning and driving away profits in the future.

Has profit increased?

Economists said the economy was affected by the pandemic this year, so banks’ profit would be lower than last year. Therefore, along with the increase in non-credit income, banks are implementing cost cutting policies to save hundreds of billions, significantly increasing their profits.

Accordingly, in the second quarter of 2020, VPBank cut nearly VND500 billion in operating expenses over the same period in 2019, a decrease of 16%, bringing total operating expenses in the period to VND2,555 billion. Vietcombank saved nearly VND950 billion in the second quarter of 2020, a decrease of 23% compared to the second quarter of 2019. Many other banks also saw large cost reductions like HDBank down 13%, Sacombank down 14%, ACB down 8%, BIDV down 6%, and VietinBank down 9%.

The results of a survey on business trends of credit institutions in the third quarter of 2020 of the Statistical Forecasting Department under the State Bank showed credit institutions lowered the forecast on credit balance growth in 2020 for two consecutive surveys. The survey results also showed 54.3% of credit institutions expected business results in the third quarter of 2020 would be improved compared to the second quarter. However, 15.3% of credit institutions are concerned business results will decline.