Bad debts cause bank profits to plummet

By the end of September most banks reported negative credit growth while their non-performing loans (NPL) rose sharply stymying their profit goals.

By the end of the third quarter, privately held Navibank reported modest after tax profits of $476,000, down nearly 90 per cent on-year. Profits for the quarter were only $124,000, down 60 per cent.

This was attributed to the bank’s credit contracting 8.95 per cent and deposits by 21.4 per cent.

Bad debts rose sharply to 8.7 per cent of the bank’s total outstanding loans by the end of September. This required the bank to put more capital into loan loss provisions which have tripled against the same period last year.

Due to rising bad debts, Southern Bank saw its after-tax profits fall by 71 per cent to $1.7 million in the third quarter. In the second quarter when bad debts only accounted for 2.78 per cent of its total outstanding loans it reported profits of $9 million. Its total profits by the end of the third quarter were $10.7 million.

Last month Southern Bank signed a contract to sell around $10 million in bad debts to the state-owned Vietnam Asset Management Company (VAMC).

Petrolimex Group Commercial Joint Stock Bank’s (PGBank) bad debts hit a record high in September at 9.5 per cent of the banks total outstanding loans (tantamount to $57 million).

Soaring bad debts chewed through the bank’s after-tax profits which amounted to only $2.8 million by the end of the third quarter.

Bank executives are blaming failing business for their soaring bad debts.

Member of the National Financial and Monetary Policy Advisory Council Tran Du Lich specifically pointed out booming credit growth in 2008-2010, primarily to property businesses who reneged on debts after the market collapsed.

Soaring bad debts are certainly the culprit behind poor profit reports in the first three quarters and at present there seems to be no immediate solution.

“Controlling risk on new loans is doable, but it is very difficult to avoid old loans from turning into bad debts as firms are still struggling with their businesses and repayments,” said NamA Bank general director Tran Ngo Phuc Vu.

In the first half of 2013 NamA posted pre-tax profits of $2.4 million making it virtually impossible for it to achieve its pre-tax profit goal of $19 million.

DongA Bank reported modest credit growth of 1.2 per cent in the first nine months though its bad debts also rose quickly, making its goal of $47.6 million in pre-tax profits unrealizable, said bank executives.