Bad debts put dark clouds on bank profits

The question was where bank profits came from?

In the previous years, credit incomes often made up 80-90 per cent of bank profits. In the face of recent sliding credit growth many banks could still score upbeat profits thanks to their services’ strong performance.

Ho Chi Minh City-based Southern Bank witnessed VND189.3 billion ($9 million) after-tax profits in the first six months of 2013, up five times on-year. 

The bank incomes mainly came from securities investment.

In 2013’s second quarter, state giant VietinBank posted after-tax profits surging 3.5 times on-year albeit the bank’s credit just expanded 0.37 per cent only in the first six months.

Its incomes mainly came from services, in which securities investment brought the bank over VND90 billion ($4.3 million) in profits.

 Another state giant Vietcombank is in a similar situation. When the bank’s credit contracted 1.47 per cent in the first six months, the incomes from securities investment, foreign exchange business and other services saw a robust growth.

In 2013’s second quarter, the bank’s net profit, though sliding 4.8 per cent on-year, still amounted to VND864 billion ($41 million).

TienPhong Bank chief executive officer Nguyen Hung said the bank would focus on boosting services growth in the upcoming time since credit was not its core competitive advantage.

According to banking expert Nguyen Tri Hieu, banks bolstering services activities like currency transfer, guaranteeing and advisory services or import-export funding are smart moves in current difficult context.

“Spurring services growth would be the only path for small banks possessing copious capital sources in current context since they could hardly compete with big banks in luring depositors in a safe manner,” said Hieu.

Dr. Cao Si Kiem, member of the National Monetary and Financial Advisory Council, however, was doubtful of banks’ impressive profits, arguing that several banks might not make full provisions for their hiking bad debts.

For instance, despite scoring high profit growth, VietinBank saw its bad debts doubled compared to end of 2012.

As of June 30, 2013, the bank’s bad debts were reported at VND7.027 trillion ($334 million), tantamount to 2.1 per cent of its total outstanding loans against VND4.890 trillion ($232 million) or 1.46 per cent by end of 2012.

Similarly, the Saigon-Hanoi Commercial Joint Stock Bank (SHB), after more than a year  merging with Habubank, is now saddled with bad debts and sliding profits.

Particularly, by June 30, 2013 the bank’s bad debts covered 9.04 per cent of its total outstanding loans with VND3.186 billion ($152 million) facing being lost.

State Bank of Vietnam’s Monetary Statistics and Forecast Department recent survey showed that 50 per cent of credit organisations saw profits going down 20-30 per cent in  the first six months of 2013, meanwhile 71.4 per cent of them expected profit upsurges in the second half this year.