Provisional funds hit record high due to new regulations
Provisional funds hit record high due to new regulations
Credit institutions had to provide nearly VND89.7 trillion (US$4.13 billion) of provisional funds by the end of June, due to the application of new regulations earlier this year.
VnEconomy quoted a source from the State Bank of Viet Nam as saying that the amount of provisional funds was the largest ever. The provisional funds of credit institutions in the 2012-14 period averaged roughly VND70 trillion ($3.22 billion). By the end of May 2012 and July 2014, the funds stood at VND67 trillion ($3.08 billion) and VND78 trillion ($3.59 billion), respectively.
The central bank said the increase in provisional funds was due to new regulations related to debt classification and risk provision, such as Circular 09 and Circular 02 that came into effect early this year. Under the new regulations, which are aimed to help the Government make an accurate and adequate appraisal of the lenders' non-performing loans (NPLs) to control bad debts better, more loans have become NPLs, and banks need more provisional funds to support the risk of the bad debts.
According to the central bank, by the end of September 2012, the lenders reported to the central bank a total of VND133 trillion ($6.12 billion) in NPLs, equal to 4.93 per cent of the total outstanding loans. However, after cautious calculation, the central bank's figure was nearly VND465 trillion ($21.4 billion), or 17.21 per cent of the total outstanding loans.
By the end of 2014, NPLs reduced to touch VND214.9 trillion ($9.9 billion), or 4.83 per cent of the total outstanding loans, after the banking system handled VND311 trillion ($14.53 billion) of NPLs, or 67 per cent of the total NPLs unveiled by the end of September 2012.
Large amounts of provisional funds for bad debts whittled away significant profits of credit institutions in H1, though their credit growth was high.
For example, Vietcombank Chairman Nghiem Xuan Thanh said the bank earned about VND6.04 trillion ($287.62 million) in profits during H1, an increase of 16.6 per cent over the same period last year. However, the establishment of a provisional fund of nearly VND2.30 trillion ($109.52 million) resulted in the real H1 profit of only VND3.04 trillion ($144.76 million), which represented a year-on-year increase of 9.45 per cent.
The central bank recently also urged credit institutions to speed up the sales of bad debts to the Viet Nam Asset Management Company (VAMC), in a bid to reduce the overall NPL ratio in the domestic banking system to less than 3 per cent by the end of September this year.
