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VietNamNews

Banks exercise caution as provisional funds rise

Update: July, 04/2015 - 09:25

This year, commercial banks will have to sell roughly VND80 trillion (US$3.73 billion) NPLs to VAMC, raising the total NPLs sold to the company to roughly VND200 trillion ($9.34 billion). — Photo TNCK

HA NOI (VNS) — Requirement for large provisional funds to support the risk of non-performing loans (NPLs) has forced commercial banks to use caution, despite their positive performance in the first half.

According to the current regulations, Viet Nam Asset Management Company (VAMC) is allowed to issue special bonds to acquire bad loans from credit institutions. However, commercial banks are required to establish yearly provisional funds amounting to 20 per cent of the value of the bonds they had bought from VAMC.

This year, commercial banks will have to sell roughly VND80 trillion (US$3.73 billion) NPLs to VAMC, raising the total NPLs sold to the company to roughly VND200 trillion ($9.34 billion).

With this sales, it is estimated that the profits of banks will be negatively affected as they need about VND40 trillion ($1.869 billion) for provisional funds in a year. The number is equal to around 85 per cent of last year's profits of nine listed commercial banks.

This year, Vietcombank will have to sell some VND1 trillion ($46.72 million) worth NPLs to the VAMC, while the figure for the bank for Development and Investment of Viet Nam (BIDV) will be VND8 trillion ($373.83 million), in addition to the VND6 trillion ($280.37 million) sold last year.

Sacombank's NPLs sold to VAMC this year is estimated to rise sharply after its merger with Southern Bank whose NPLs accounted for roughly 6 per cent of total outstanding loans.

DongA Bank general director Tran Phuong Binh said this year, his bank would sell NPLs close to VND7 trillion ($327.1 million) to VAMC, while Saigon Bank will sell an estimated VND500 billion ($23.36 million) worth NPLs.

Though it need not have to sell NPLs to VAMC thanks to the NPL ratio of less than 2.2 per cent, after selling more than VND1 trillion ($46.72 million) NPLs last year, ACB this year has still registered to sell another VND1 trillion to VAMC.

Member of the National Financial and Monetary Policy Advisory Council Tran Du Lich said selling NPLs to VAMC was a good way for banks to clean up their accounting balances, but the requirement for provisions would put significant pressure on them. — VNS

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