The large risk funds trimmed An Binh's pre-tax profits in H1 by 80 per cent to VND170.35 billion ($7.997 million) from VND214.36 billion ($10.06 million) in the same period last year.

HA NOI (Biz Hub) — Several small Vietnamese banks have posted losses in Q2 after setting aside risk provision funds to control risks and push ahead with restructuring.

Thoi Bao Ngan Hang newspaper (Banking Times) of the State Bank of Viet Nam reported that PGBank announced losses of VND12 billion (US$566,000).

The bank had to put all its profits into risk provision funds because total overdue debts reached VND1.7 trillion ($80 million) as of June 30, equivalent to 12 per cent of total outstanding loans.

In the first half of this year, National Citizen Bank, till recently known as Navibank, gained VND598 billion ($28.2 million) in pre-tax profits, up 26 per cent against the same period last year. After risk provisioning, the profit came down to VND3.76 billion ($177,400).

A representative of the National Citizen Bank quoted by Banking Times said, although their current bad debt ratio was within control, the uptrend was likely to continue.

VietA Bank spent VND600 billion ($28 million) on risk provisioning by the end of June, leaving its Q2 profit thin at VND150 billion ($7 million), down 12.8 per cent over the same period last year.

Banking experts said that most of the income of small commercial banks came mostly from credit activities. However, the growing pressure from bad debts had discouraged banks from lending as they could face more risks in their own businesses.

"The market in H1 had to contend with many challenges, including East Sea tensions, weak purchasing power and increasing number of bankrupt enterprises, along with mounting bad debts and related policy concerns. These, coupled with differences in interest rates among banks, will see them faced with big challenges while completing the projected targets," said Nguyen Dinh Tung, General Director of OCB cited by Banking Times.

Central bank's Deputy Governor Nguyen Phuoc Thanh, who was Vietcombank's general director, said that risk provisioning might temporarily cut profits of small banks but it was necessary to build strong sovereign credit institutions in the future.

In the banking system, not only are small banks feeling the pinch of growing bad debts and associated risk provisioning, but medium and big banks are likely to try their best to get them prepared ahead of the official implementation of new debt regulations in Circular No 09/2014/TT-NHNN by the central bank.

According to Thoi Bao Kinh Doanh (Business Times), An Binh Bank's Q2 financial report showed that the bank raised the sum for risk funds ten times in H1 this year to VND107.64 billion ($5.1 million) from VND11.54 billion ($540,340) in H1 last year.

The large risk funds trimmed An Binh's pre-tax profits in H1 by 80 per cent to VND170.35 billion ($7.997 million) from VND214.36 billion ($10.06 million) in the same period last year.

Vietcombank, one of the country's four largest banks by assets, spent half of its pre-tax profits, equivalent to VND2.4 trillion ($108.6 million), to build risk provision funds in the first six months of this year.

VIB transferred 75 per cent of pre-tax profits, or VND447 billion ($21 million), to risk funds in H1.

The bad debt ratio in Vietnamese commercial banks rose to 4.84 per cent by late June 2014 from 3.61 per cent in late 2013. The SBV reported last week that total bad debts stood at VND240 trillion ($11.3 billion).

In Viet Nam, debts are classified into five groups based on the degree of risk: Standard debts, debts needing special attention and subprime debts along with doubleful debts and potentially irrecoverable debts. — VNS