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Vietnamese banks increase provisions for growing bad debts
Bad debts and loans have risen due to the impact of the Covid-19 pandemic, inducing commercial banks to increase provisions in order to ensure the financial health of the banking system.
Commercial banks’ net interest income has seen a strong increase
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Increased pre-tax profits
Despite the impact of the Covid-19 pandemic, commercial banks’ net interest income grew by 37 percent on average in the first nine months of the year compared to a year ago.
The Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) continued to take the lead in pre-tax profit in the first nine months of the year with VND19.311 trillion, followed by the Vietnam Technological and Commercial Joint Stock Bank (Techcombank) with VND17.098 trillion and the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) with VND13.911 trillion. In particular, the Saigon Hanoi Commercial Joint Stock Bank (SHB) reported an increase of 94 percent in nine-month pre-tax profit compared to the same period last year, reaching VND5.055 trillion.
Due to the resurgence of the Covid-19 pandemic and the application of social distancing measures, banks have promoted digital banking services to help customers make transactions. In addition, many incentives and fee exemptions and reductions for online transactions have also been implemented.
A policy of fee exemptions and reductions for online transactions has helped banks mobilize capital through deposits. When online payment habits increase, the amount of deposits also grows, giving the banks a capital source for lending and increasing profit margins.
Rising bad debts
Most banks reported profit growth in the first nine months of the year, but bad debts posted a significant increase due to the pandemic. Analyst Bui Nguyen Khoa from the BIDV Securities Joint Stock Company said the application of social distancing measures prevented firms from repaying debts, resulting in an increase in bad debts.
As of October 2021, the total bad debts at 27 banks reached more than VND113 trillion, an increase of nearly 26 percent compared to the beginning of the year. Credit institutions restructured repayment periods for 278,000 customers with total outstanding loans of VND238 trillion in the first nine months of the year.
In the face of rising bad debts, banks have increased risk provision fund expenses. As the bad debt ratio reached 1.67 percent, the highest recorded in the last four quarters, VietinBank’s provisions for loans to customers rose to VND21.5 trillion by September 30, VND8.9 trillion higher than in early 2021.
Vietcombank’s provision cost was reported to climb to VND8.012 trillion in the first nine months of the year, an increase of 33 percent compared to a year ago. In the third quarter alone, the bank raised its provisions by VND2.5 trillion, a 25-percent increase compared to the same period last year. According to Vietcombank, its bad debt has doubled since the beginning of the year from VND5.23 trillion to VND10.884 trillion (from 0.62 percent to 1.16 percent), resulting in great pressure to allocate even more funds to its provisions.
| According to the State Bank of Vietnam, increasing risk provision fund expenses is an urgent task in the context of rising bad debts. |
VietNam Economic News
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