​The banks increases the loan-loss provisions to prevent risks

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More than half of the bank’s profits are "eroded" by the loan-loss provisions of risk.

To take the initiative in making provisions

According to Sacombank's consolidated financial statement for the third quarter of 2018, the bank's risk provision expense increased sharply in the first nine months of 2018. As a result, Sacombank's net operating profit reached 2,493 billion VND, up 99% over the same period last year. However, the bank's provisioning expenses of third quarter amounted to 1,178 billion VND, 5.2 times more than the same period of last year and accounted for 47% of the bank's net profit. The tax rate dropped to only 28%, reaching 1,315 billion VND.

Even so, the highlight of Sacombank's total bad debts was 8,067 billion VND by the end of third quarter, 2018, accounting for 3.18% of total outstanding loans. Meanwhile, the figure at the beginning of the year was 10.404 trillion dong and 4.67% respectively. Earlier this year, Sacombank Chairman Duong Cong Minh announced the ratio of bad debt to below 3% in 2018.

Similarly, VPBank's cost of risk provision increased sharply by 69% in the third quarter of 2018 compared to the third quarter of 2017, up to 2,748 billion VND. Therefore, although net profit increased 13%, the pre-tax profit decreased 26%, only reached 1.749 billion dong. For the first nine months, VPBank spent 8.194 trillion VND on risk provisions, up 46% from the same period last year and accounted for 57% of the bank's 9-month net profit. Accordingly, pre-tax profit of this bank was only 6,224 billion, but still reached the growth of 9% compared with 9 months of 2017.

At LienVietPostBank, the cost of provisioning for credit losses in the third quarter of 2018 rose 89% to 204 billion VND. This dramatic increase brought the bank's pretax profit down to 348 billion VND, down 34% compared to the previous period. In the first nine months of 2018, the bank's provision cost was 351 billion dong, pre-tax profit was only 1,014 trillion dong, lower than the same period of last year at the level of 1,434 billion dong. Along with the growth of loan-loss provision costs, the bad debts of LienVietPostBank by September 30 also increased compared to the beginning of the year, with 1,523 billion VND, accounting for 1.32%, while the beginning of the year was 1,074 billion VND and 1.07% respectively.

VietABank also spent 88% of its profit for risk provisioning (195 billion VND), leaving pre-tax profit only 27 billion VND. In the first nine months of 2018, provision for risk has eroded 72% of VietABank's profit (358 billion VND). As a result, although net profit increased by 68% to 497 billion VND, the pre-tax profit remained at 138 billion VND with the increase of 17%.

At the same time, Saigonbank also accepted a decrease in profit due to the increase in cost of risk provisioning. Accordingly, net profit in the third quarter of 2018 reached 91 billion dong, up slightly 3% over the same period. However, the provision for risk was up to 81 billion VND (accounting for 89%), making the pre-tax profit be over 10 billion VND, down 85% compared to the same period of 2017. In the first 9 months, Saigonbank's risk provision cost had more than doubled to 158 billion VND, resulting in a pretax profit of 122 billion VND, down nearly half compared to the same period last year.

The 14 banks' risk provisions accounts for most of their earnings. Table: N.Hien.

Towards sustainable growth

Despite the sharp increase in provisioning in the third quarter, overall, in nine months of 2018, the ratio of provisioning to net profit of most banks declined. According to statistics of the reporter of Customs News, the total loan-loss provisions of 14 banks including BIDV, Vietcombank, Sacombank, Techcombank, VPBank, ABC, MBBank, Saigonbank, OCB, TPBank, VIB, VietABank, LienVietpostbank and BacABank was 36,032 billion VND in the first nine months of this year, accounting for 41% of the banks nine-month net profit. During the same period last year, the provisioning level of these banks was 46% (under the statistics table).

Of which, four banks have a provisioning ratio on net profit increase compared with 9 months of 2017. Specifically, VietABank had the risk provisions to net profit at the highest of 72% with 358 billion dong. This rate of VietABank has also increased sharply by 60% in the same period last year. Along with VietABank, three other banks also had higher provisioning ratios on net profit such as Sacombank, VPBank and Saigonbank. Meanwhile, ACB had the lowest ratio of the provisions to the net profit margin (12%) with 660 billion VND. This figure has also decreased significantly for 42% in the same period last year.

According to financial experts, under the State Bank of Vietnam's Circular 02 on debt classification and provision for credit risk, the credit institutions must name bad debts correctly to classify debts according to the more strict regulations. Accordingly, the bank has to set aside their provision for both loan of group 2. This has led to a sharp increase in the provisioning figure in many banks.

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In addition, since the issuance of Resolution 42, the banks have been handed over authority to handle bad debts, the banks also limited selling bad debts to VAMC, most of them dealt with selling their debts by themselves, selling the security assets by order of the court and provisioning the risk for loan-loss. In addition, many banks have stepped up their risk provision in order to buy debt from VAMC to handle their own debt in order to speed up the debt collection process.

In addition, when the bad debts are handled, the bank will be able to reverse the provisions into their profits. So, the provisioning for risk is also considered as a reserve for the future.