A bank teller processes a transaction for a customer at Vietcombank. Many credit institutions made losses in the first five months of this year. — VNA/VNS Photo Tran Viet

HA NOI (Biz Hub)— Though business for the banking sector improved during the first five months of this year, 24 out of 124 credit institutions reported losses during the period, according to the State Bank of Viet Nam.

The remaining 100 credit institutions posted profits in the January-May period, however, 57 of them reported lower earnings than the same period in previous years.

Cumulative differences in income over spending in the entire banking sector during the period reached VND18.2 trillion (US$866.6 million), up 9 per cent over the same period last year but down 12 per cent and 39 per cent against the same period in 2010 and 2011.

This figure would have fallen even further with outstanding income reduced to only VND3.8 trillion ($180.95 million) if debts of credit institutions had not been restructured in accordance with Decision 780/QD-NHNN on classification of rescheduled loans. The decision helped institutions avoid having to make an additional provision of VND14.4 trillion ($685.71 million).

According to the central bank, non-performing loans of banks accounted for 4.65 per cent of total loans by the end of May this year. Thirty out of 124 credit institutions reported their bad loans to exceed 3 per cent of their total lending.

The 30 lenders will have to sell their toxic loans to the Viet Nam Asset Management Company, which will be operational by July 9, or else they will be inspected by the central bank.

The decline in business performance results of credit institutions during the first five months was also partly due to a relatively low interest rate spread, which currently stays at roughly 3.03 per cent. The spread after provisioning drops to 1.93 per cent against 2.33 per cent in late 2012.

Besides warning of a possible interest rate race, the central bank also cautioned credit institutions on risks related to their investments in corporate bonds, explaining that the investment may increase risks to banks as the capital primarily flows in real estate and construction firms (more than 50 per cent), or for the purpose of increasing scale and restructuring debts (30 per cent).

During the first five months, outstanding loans grew by only 2.87 per cent, while investments in corporate bonds rose 4.14 per cent. — VNS