Why banks achieved strong profit growth despite Covid-19?

By Quynh Trang   July 23, 2020 | 11:53 pm PT
Why banks achieved strong profit growth despite Covid-19?
A bank employee counts Vietnamese banknotes at a bank in Hanoi. Photo by VnExpress/Giang Huy.
Banks have reported excellent figures in the second quarter by delaying provisioning for doubtful debts, which will eventually cut into their profits in future.

Some lenders achieved pre-tax profit growth of over 20 percent year-on-year, including VIB (up 41 percent), HDBank (40 percent) and Vietinbank (39 percent), despite earlier forecasts the Covid-19 pandemic could hit their profits this year.

Eighteen out of 19 listed banks target average growth of 4.9 percent in pre-tax profit this year, a turnaround from their earlier forecast profits would fall 11.9 percent, according to a report by financial data provider FiinGroup.

Industry insiders said banks are reporting good numbers because they have not made full provisions for doubtful debts.

The State Bank of Vietnam has allowed banks to not declare debts related to Covid-19 as bad debts this year to support them amid the pandemic.

At several banks, the value of debts overdue for 10-90 days has surged by hundreds of percent from a year earlier, implying imminent bad debts.

Some banks have not made provisions for Covid-19-related doubtful debts. VPBank, for instance, only increased them marginally to VND4.2 trillion ($181 million) by the end of June.

As the lenders will eventually have to make provisions for doubtful debts, their profits in the upcoming quarters could slump, according to FiinGroup.

Nguyen Thi Phuong, deputy CEO of Agribank, said since bad debts would reduce profits, the first half business results do not truly reflect the impact of the pandemic on banks.

Banks have also been cutting costs: Vietcombank cut its operating costs by 23 percent year-on-year in the second quarter, VPBank by 16 percent and Sacombank by 14 percent.

Some others like BIDV, SHB and HDBank have cut employees’ bonuses and salaries by 10-30 percent, and senior leaders’ by even more.

TPBank has stopped recruiting. Its management said at its recent annual general meeting that the bank would "do everything it can" to lower costs and increase revenues to sustain profits.

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