VietNamNet Bridge – Total funds provided to cover any risk reached VND77.3 trillion (US$3.6 billion) by the end of June, up 10.9 per cent over the 2013-end figure. If the funds are put to use, the entire bad debt ratio will fall to 2.2 per cent.

The Vietnamese commercial banks' bad debt ratio rose to 4.84 per cent by late June 2014, up from 3.61 per cent in late 2013.— Photo bizlive.vn

Deputy Chief Inspector of State Bank of Viet Nam's Dao Quoc Tinh told Dau Tu Chung Khoan (Securities Investment) that by the end of June, total bad debts stood at VND160.94 trillion ($7.6 billion).

The Vietnamese commercial banks' bad debt ratio rose to 4.84 per cent by late June 2014, up from 3.61 per cent in late 2013.

"Risk provisioning at credit institutions is on the rise. Thus, the issue of bad debt is under control and not worth worrying," Tinh said.

Nguyen Hoang Minh, deputy director of the State Bank of Viet Nam's HCM City branch, said that bad loans in the city have been showing an upward trend. Debt facing capital loss risk (potentially irrecoverable debts) now amounts to more than seven per cent of the total outstanding loans in HCM City, compared to the previous level of 4.6 to 4.8 per cent.

In Viet Nam, debts are classified into five groups based on the degree of risk: (1) standard debts, (2) debts needing special attention, (3) subprime debts, (4) doubtful debts, and (5) potentially irrecoverable debts.

Commenting on the rise in instances of "potentially irrecoverable debts" during the first half of the year, Tinh said that among the reasons was complicated and time-consuming handling of collateral, and a rather dull property market.

However, he said that the system was trying its best to control and handle potentially irrecoverable debts by ramping up risk provision funds.

"I think bad debts increase through the year and will be falling by the end of the year," Tinh said.

Several small Vietnamese banks posted losses in Q2 after setting aside risk provision funds to mitigate any risks and push ahead with restructuring.

Thoi Bao Ngan Hang newspaper (Banking Times), a unit of the State Bank of Viet Nam, reported that PGBank announced a loss of VND12 billion ($566,000).

The bank had to put all its profits into risk provision funds because the total overdue debts reached VND1.7 trillion ($80 million) as of June 30, equivalent to 12 per cent of the total outstanding loans.

In the first half of this year, National Citizen Bank, till recently known as Navibank, gained VND598 billion ($28.2 million) in pre-tax profits, up 26 per cent when compared to the same period last year. After risk provisioning, profits came down to VND3.76 billion ($177,400).

VietA Bank spent VND600 billion ($28 million) on risk provisioning by the end of June, leaving its Q2 profit thin at VND150 billion ($7 million), down 12.8 per cent over the same period last year.

According to Thoi Bao Kinh Doanh (Business Times), An Binh Bank's Q2 financial report showed that the bank increased risk fund provision by ten times in H1 this year to VND107.64 billion ($5.1 million), from VND11.54 billion ($540,340) in H1 last year.

The large risk funds trimmed An Binh's pre-tax profits in H1 by 80 per cent to VND170.35 billion ($7.997 million), down from VND214.36 billion ($10.06 million) during the same period last year.

Vietcombank, one of the country's four largest banks on the basis of assets, spent half of its pre-tax profits, equivalent to VND2.4 trillion ($108.6 million), to build risk provision funds in the first six months of this year.

VIB transferred 75 per cent of pre-tax profits, or VND447 billion ($21 million), to risk funds in H1.

Experts said that the motivation behind the banks' moves toward risk provisioning was to prepare themselves better before the new debt regulations in Circular No 09/2014/TT-NHNN issued by the central bank are officially implemented.

The circular dealing with classification of bank assets, setting up risk provisions, and the way provisions against credit risks are to be deployed will force an increase in risk provisioning. The document will also allow banks to continue restructuring existing loans and retain them in the same debt group until April 01, 2015, instead of reclassifying them by using more rigorous standards by June 1, 2014, as planned previously.

VNS/VNN