Bad debt reserves cut Vietcombank gains

14:20 | 09/07/2015 Economy

Provisional funds for bad debts whittled away significant profits of the Bank for Foreign Trade of Viet Nam, or Vietcombank, during the first half of this year.

Bad debt reserves cut Vietcombank gains

A Vietcombank transaction counter. Provisional funds for bad debts slashed significant profits of the bank during H1. — Photo

Vietcombank Chairman Nghiem Xuan Thanh reported at a conference last week that the bank earned about VND6.04 trillion (US$287.62 million) in profits during H1, an increase of 16.6 per cent over the same period last year.

However, the establishment of a provisional fund of nearly VND2.30 trillion ($109.52 million) resulted in the real H1 profit of only VND3.04 trillion ($144.76 million), which represented a year-on-year increase of 9.45 per cent.

The H1 profit represented more than half of the quota set for 2015. The goal for the entire year is reachable and the bank will prioritise operational security, he affirmed.

Thanh said the situation of provisions caused Vietcombank's profits to be modest compared with those of the other major State-run banks, but it also showed that the bank had adequate resources to handle bad debts.

He specified that Vietcombank was among a few commercial banks whose ratio of provisions on bad loans had been high since 2014. The ratio amounted to 90 per cent at his bank at the end of H1 2015.

Vietcombank registered to sell bad debts worth VND1 trillion ($47.62 million) to Viet Nam Asset Management Company during H1, while some other State-run banks registered VND4 trillion to VND8 trillion ($190.48 million to $380.96 million).

By June 30, 2015, deposits at the bank grew 7.67 per cent, while its outstanding loans expanded 6.52 per cent.

However, Thanh remarked, the quality of credit at Vietcombank remained worrying.

The ratio of bad loans fell to 2.34 per cent at the end of Q2 from 2.97 per cent at Q1, but overall, in H1, the bank witnessed an additional bad debt of some VND1 trillion.

The bank recovered more than VND1 trillion of bad debts during H1, about one-third of the annual target – a result assessed as "limited" by the bank's leaders.

Vietcombank has reportedly proven to have the best capacity among domestic commercial banks to attract foreign capital. In Q2, it bought government bonds worth $1 billion from the Ministry of Finance.

This was the first time that the government had separately issued bonds in foreign currencies for a bank and for such a huge value./.

Source: VNS