Customers conduct transactions at the BIDV branch in Dong Da District , Ha Noi. According to the State Bank of Viet Nam's debt classification regulations, large commerical banks had to set aside nearly half of their profits for credit risk povision in the first months of the year. — VNA/VNS Photo Pham Hau

HA NOI (Biz Hub) — Large-sized commercial banks had to set aside nearly half of their profits for credit risk provision in the first months of the year.

The move had been in accordance with the State Bank of Viet Nam's debt classification regulations.

Circular 02, which came into effect early this year, strictly regulates asset classifications, the levels and methods of risk provisioning, and the use of provisions to handle risks in the operation of credit institutions and the branches of foreign banks.

According to banks' statistics, 10 of them had to use nearly VND7.6 trillion (US$350.23 million) as risk provision funds, accounting for 46 per cent of their pre-provision profits, in the first quarter.

The ratio has been higher than that of the first quarter of last year, when risk provision often accounted for roughly 35 per cent of banks' profits. However, it remained lower than that of the fourth quarter of last year, when banks' risk provision represented 56 per cent of banks' profits.

In Q1 this year, Techcombank was at the top of the list, with about 77 per cent of its pre-provision profits, or VND1.387 trillion ($63.92 million), set aside for risk provision funds. Vietcombank and Vietinbank also used 51 per cent of their pre-provision profits, equal to more than VND1.5 trillion ($69.12 million) for credit risk provision, while the Bank for Investment and Development of Viet Nam (BIDV) roughly used 30 per cent of its VND3.251 trillion ($149.815 million) profits on provision.

The SHB also had to keep VND397 billion as risk provision funds.

Previously, the Tien phong (Vanguard) online newspaper reported estimates by Saigon Securities Inc researchers, which said that domestic banks will have to establish provisional funds, with a total value of about VND37.6 trillion ($1.732 billion), for bad debts this year. The figures were based on bad loan handling situations and current regulations.

It is expected that the funds, which equal nearly half of the pre-provision profits that banks are set to earn in 2015, will help reduce the NPL ratio of the entire banking system from 3.25 per cent in late 2014 to less than 3 per cent by the end of this year. — VNS