Risk provision costs erode bank profits in Q3 2023
Your browser does not support the audio element. The increase in provision costs of banks in recent quarters was forecast previously as the sharp increase in bad debt of firms, especially in the real estate and export sectors.
Customers make transactions at Vietcombank’s head office in Hà Nội. The increase in the provision costs of banks in recent quarters was previously forecast due to a sharp increase in bad debt for firms, especially in the real estate and export sectors. VNA/VNS Photo
HÀ NỘI — Costs for credit risk provisions of many co妹妹ercial banks have continued to increase sharply, which was one of the causes for bank profit decline in the third quarter of 二0 二 三.
The ratio of bad debt to total outstanding loans of ABBank as of the end of September 二0 二 三 was at 三. 五 一 per cent, a sharp increase compared to 二. 八 八 per cent at the beginning of this year. In particular, outstanding loans in Group 三 (substandard debts) and Group 四 (doubtful debts) both doubled over the past nine months.
ABBank's credit risk provision costs therefore also increased by more than 九 九 per cent over the same period last year, reaching nearly VNĐ 一.0 五 trillion (US$ 四 三,000). The rise eroded ABBank's profits, bringing the bank’s total pre-tax profits down to just more than VNĐ 七0 八 billion, down 五 九 per cent compared to the first nine months of 二0 二 二.
It is the same at Techcombank, where the ratio of bad debts to total outstanding loans was 一. 四 per cent against 0. 九 per cent by the end of 二0 二 二.
Techcombank in Q 三 二0 二 三 set aside some VNĐ 二. 二 八 trillion for credit risk provision, an increase of nearly 八 四 per cent compared to the same period in 二0 二 二. The bank’s pre-tax profits therefore decreased by 一 七. 八 per cent over the same period to more than VNĐ 一 七. 一 一 trillion.
Meanwhile, TPBank aggressively spent nearly VNĐ 二 trillion on risk provisions in the past nine months, an increase of 一 四 per cent over the same period last year. Of which, in the third quarter of 二0 二 三 alone, TPBank set aside up to VNĐ 一. 二 九 trillion, four times higher than the same period in 二0 二 二. TPBank's post-tax profit in Q 三 二0 二 三 decreased by 二 六. 三 per cent over the same period to more than VNĐ 一. 五 七 trillion. Accumulated for the first nine months of 二0 二 三, the bank’s pre-tax profit decreased by 一 六. 三 per cent to VNĐ 四. 九 六 trillion.
The reason why TPBank made such a strong credit risk provision is that the bank's bad debt in the past nine months increased dramatically to more than VNĐ 五. 三 五 trillion, four times higher than at the beginning of the year, of which the sharpest debt increase was in Group 三 and 四 ( 八. 五 times and 三 times, respectively) compared to the beginning of the year. Therefore, the bad debt ratio at TPBank increased from 0. 八 四 per cent at the beginning of this year to 二. 九 七 per cent at the end of September 二0 二 三.
Viet Capital Bank is no exception, as its pre-tax profit in the third quarter of 二0 二 三 reached more than VNĐ 二 一 billion, down 六 九. 三 per cent over the same period last year. Accumulated for the first nine months of 二0 二 三, Viet Capital Bank recorded a post-tax profit of only VNĐ 六 一 billion, down 八 五. 六 per cent over the same period last year.
Besides a decline in main revenue sources, an increase in credit risk provision also contributed to dragging down Viet Capital Bank's profits. By the end of the third quarter of 二0 二 三, the bank spent more than VNĐ 一 四 一 billion on credit risk provision, an increase of 一 五 per cent over the same period last year. The bank's bad debt ratio increased from 二. 七 九 per cent at the beginning of this year to 三. 五 六 per cent, exceeding the 三 per cent regulatory cap set by the State Bank of Việt Nam.
The increase in provision costs of banks in recent quarters was forecast previously as the sharp increase in bad debt of firms, especially in the real estate and export sectors.
Trần Thị Khánh Hiền, director of MB Securities Company (MBS)’s research division, forecast that banks' provision costs will continue to increase in the fourth quarter of 二0 二 三 as banks are trying to write off bad debts and reduce the bad debt ratio to below 三 per cent by the end of 二0 二 三. This will continue to put pressure on banks' profits.
Forecasting bank profits for the last quarter of this year, Trần Ngọc Báu, general director of financial data and technology firm WiGroup, believed the operating costs of banks will increase sharply in Q 四 二0 二 三 due to seasonal factors. This, along with the possibility that provision costs may continue to increase, will cause banks' profits in Q 四 二0 二 三 to be lower than in Q 三 二0 二 三. However, compared to the same period last year, profits of the banking industry will likely stay flat or inch down.
Furthermore, credit growth, one of the important factors affecting banks' profits, is still quite far from the central bank’s target. According to data from the SBV, as of October 二 七, 二0 二 三, credit growth only reached 七. 一 per cent, much lower than the target of 一 四- 一 五 per cent set for the whole year.
Besides, low capital demands of firms and people amid the unclear recovery outlook of consumer production industries, Hiền attributed the low credit growth to the reason that banks have to be more cautious with their lending decisions and tighten credit standards to maintain credit quality as the bad debt ratio has exceeded 三 per cent.
The State Bank of Việt Nam (SBV) reported as of July 二0 二 三, the bad debt ratio on banks’ balance sheet was at 三. 五 六 per cent, higher than 二 per cent at the end of 二0 二 二. If including debts that banks sold to the Vietnam Asset Management Company (VAMC) and have not yet processed and recovered, the total bad debt ratio of the banking system was at 六. 一 六 per cent.
According to SBV’s Governor Nguyễn Thị Hồng, bad debt handling is still facing many difficulties because firms are suffering from negative impacts due to global uncertainties, which has caused a reduction in their solvency.
The legal framework related to restructuring credit institutions and handling bad debts has not been completed. The country is also lacking preferential policies to encourage domestic and foreign investors to participate in settling mortgaged assets and trading bad debts.
Nguyễn Hữu Huân, head of HCM City Economics University’s Financial Markets Department, proposed that to reduce bad debt pressure and to clear the flow of capital in the economy, the Government needs to focus on promoting more fiscal policy, as the disbursement of public investment capital has not been as expected to date. — VNS
Tags banking