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Banking & Finance

Vietcombank Chairman warns of possible risks

Released at: 11:00, 07/07/2015

Vietcombank Chairman warns of possible risks

Credit growth and non-performing loans cited as areas of concern for bank.

At a preliminary meeting to summarize its operations during the first half of the year and to implement plans for the second half, Vietcombank Chairman Nghiem Xuan Thanh warned the bank may face operational risks in the future, primarily from credit growth and non-performing loans.

As at June 30, Vietcombank’s credit growth was higher than the sector average, after increasing 6.52 per cent since the end of 2014. The growth, however, was mainly based on increases in foreign exchange activities and long-term lending, which led to inefficient use of short-term capital, limiting banking services and putting pressure on liquidity.

In particular, medium to long-term credit growth rose from 36 per cent to over 40 per cent compared to the first half of 2014. Vietcombank also had the largest amount of mobilized foreign exchange capital within the banking system, as in the second quarter it completed $1 billion worth of transactions to invest in government bonds.

Regarding liquidity risk, the bank must continue maintaining a loan-to-deposit ratio (LDR) of around 75 per cent, as its interest rates remain low compared with other banks.

He also spoke about credit quality and the process of collecting bad debts in accordance with plans. “Credit quality is really at a level of concern and the amount of bad debt provision is at its highest ever,” he told the meeting.

A report tabled at the meeting showed that bad debts fell in the second quarter against the first (from 2.97 per cent to 2.43 per cent), but compared to 2014 some VND1 trillion ($45.85 million) had been incurred. In the first half Vietcombank collected VND1.01 trillion ($46.30 million) in bad debts but bank leaders consider this to be a modest result given it represented just 34 per cent of the annual plan.

Vietcombank is one of only a few banks to have set a high rate of provision by the end of second quarter, so it has the capacity to actively deal with its bad debts. However, the high level of provision affects its profit, with Vietcombank recording lower profits than other banks with State ownership.

Specifically, in the first six months the pre-provision profit of Vietcombank stood at VND6.03 trillion ($276.47 million), an increase of 16.6 per cent over the same period last year, but provisions of VND2.99 trillion ($137.09 million) saw its profit come in at VND3.04 trillion ($139.38 million), an increase of only 9.45 per cent against the same period of last year. The result was, however, 50.7 per cent of the annual plan set at its annual general meeting.

Hung Nguyen

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