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Banking & Finance

Bank earnings to rise as credit growth gains momentum

Released at: 11:38, 17/10/2017

Bank earnings to rise as credit growth gains momentum

Illustrative image (Source: cafef.vn)

Profits rising on back of credit growth, NFSC report notes.

by Duy Anh

Credit institutions in Vietnam reported a combined profit of VND47 trillion ($2.07 billion) in the first three quarters this year, soaring 39 per cent from a year earlier, the government’s financial watchdog noted in its monthly report.

Operating profits from lending activities increased 15.8 per cent and pre-provision profits for credit risks 30.2 per cent in the nine-month period from a year earlier, according to the National Financial Supervisory Commission (NFSC).

The net interest margin (NIM) improved slightly, to 2.8 per cent from 2.7 per cent in the comparable period of 2016. Total outstanding loans in the local banking system grew 11.5 per cent between January and September. Of the sum, lending in VND accounted for 91.65 per cent. Notably, credit in foreign currency rose 12.9 per cent year-on-year, compared to a 5.4 per cent increase a year earlier.

The commission added that the bad debt ratio had climbed to 2.9 per cent by the end of September from 2.46 per cent at end-2016, with the majority being at weak and poorly-managed banks.

In the first seven months of the year, banks resolved an estimated VND45 trillion ($1.98 billion) in non-performing loans (NPLs). One-third came from clients’ payments, one-third from sales of troubled loans to the State-run Vietnam Asset Management Company (VAMC), and one-third through provisions for credit risks and mortgage foreclosures.

Local banks also set aside around VND110 trillion ($4.84 billion) for reserve funds to handle bad debts, up 22 per cent from end-2016, the report said.

In a banking sector report released last month, the Ho Chi Minh Securities (HSC) wrote that it believes that the Prime Minister’s call for higher credit growth of at least 21 per cent would lead to stronger earnings growth for banks in 2017.

“If we start assuming credit growth of 18-20 per cent for this year, this should make a significant difference to year-end earnings,” the report stated. HSC calculated that the seven listed banks it covers posted an aggregate pre-tax profit increase of 22.7 per cent, to VND18 trillion ($792.4 million), in the first half.

Assuming an average of 17.2 per cent credit growth, the Ho Chi Minh City-based securities firm forecast that the same banks will show aggregate pre-tax profit of VND36.2 trillion ($1.6 billion), an increase of 18 per cent year-on-year, for full year 2017.

Hence, if credit growth were instead to expand by 20 per cent and all other variables remained the same, aggregate pre-tax profit could overshoot its forecasts by 12 per cent or so, yielding growth of 32 per cent year-on-year.

In the meantime, collateral repossession processes have sped up dramatically since regulations were changed. According to VAMC Chairman Mr. Dang Tien Dong, NPL settlement would be accelerating from now on thanks to the National Assembly’s Resolution No. 42, which took effect on August 15 and grants VAMC a special regime to cope with bad debts.

Most recently, VAMC seized the third-tallest building in Ho Chi Minh City, Saigon One Tower, a secured asset of the Saigon One Tower JSC, to collect debts of over VND7 trillion ($331 million), which originally belonged to Maritime Bank and DongA Bank before being bought by VAMC in 2015.

With the involvement of the police and people’s committees, HSC believes the bad debt settlement process will quicken, not only for the current VND250 trillion ($11 billion) of NPLs VAMC is holding but also some VND153 trillion ($6.73 billion) held within the banking system.

“As many commercial banks have said they would seek support from VAMC to handle their bad debts, VAMC could use their special regime to not only handle current bad debts but also help banks clear bad debts in the banking system,” the report noted.

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