BIDV weighed under bad debts

Bank for Investment and Development of Vietnam (BIDV) is one of the four biggest state-owned banks in Vietnam and its many customers could now be facing gigantic risks.

Customers are being served at BIDV.
Customers are being served at BIDV.

This is reflected in the figures of bad debts in the bank over the last few years, with more than VND 10,000 bn (USD430.9 million) of category-5 debts, which are very unlikely to be paid back.

Risk management erodes profits

In 2018, BIDV fundraising increased by 9% and debts of credit and investment rose by 7.2%, but the bank’s bad debts made up 1.8% and its gross profits reached VND 9,473 bn. In 2019, the bank set a goal of 12% credit increase, which is within the range required by the State Bank of Vietnam (SBV), and an 11% fundraising increase, bad debts below 2%, and a gross profit of VND 10,300 bn.

To achieve this goal, the bank set it’s 2019 plan to restructure investment activities of its subsidiaries, joint ventures, partnerships and overseas institutions in an effort to retain their capital. Particularly, the bank will review and evaluate the business performance of each investment, and investment portfolio and make decisions on whether to maintain, increase, decrease or withdraw capital, or withdraw all ineffective financial investments which are out of the sector.

Additionally, BIDV also has plans to take serious measures to cope with bad debts, strengthen measures to collect risky debts, outstanding debts, and bad debts which have been sold to VAMC, and strive to buy back immature VAMC shares in 2019.

By the end of the second quarter of 2019, however, the figures showed that the bank’s gross profits had reached only VND 4,772 bn, lower than some other commercial banks like Techcombank (VND 5,018 bn) and MB (VND 4,875 bn). According to the consolidated mid-year financial statement, BIDV’s total income in the first half of the year was VND 22,670 bn, of which the gross profits were at VND 17,646 bn, service income was at VND 1,968 bn, and gross profits from gold and foreign exchange business activities rose sharply over the previous period, reaching VND 734.6 bn. After deducting VND 7,216 bn for operational costs, the gross profits from business activities before credit risk management costs increased by 3% over last year, reaching VND 15,454 bn.

With respect to only the total income from business activities in the first half of this year, BIDV achieved quite positive results, only behind Vietcombank (VND 23,071 bn). At Vietcombank, however, the operational costs were at VND 8,451 bn, with VND 3,316 bn saved for risk management, and keeping gross profits high at VND 11,303 bn.

Meanwhile, BIDV has deducted VND10,745 bn for credit risk management, making a 7.1% year-on-year increase. However, this caused its total gross profits to reach only 45% of the annual plan, a 5.2% year-on-year fall. The net profits dropped by 5.8% to VND 3,770 bn.

Pressure still high

With the aforementioned amount withheld for risk management costs, BIDV is one of the banks with the biggest risk management fund, compared to other commercial banks as shown in financial statements announced for the first half of the year. Also, this bank tops the list for risk management and gross profit rate at 69%.

Yet this does not come as a surprise because BIDV also withheld a large amount from risk management, causing a plunge in profits. Particularly, its gross profit in 2018 was the highest in the system, with more than VND 28,300 bn, but the bank saved upto VND 18,800 bn (about 2/3 of the profit). It withheld such a huge amount for risk management because it has the highest bad debts in the system. In late 2018, this bank had bad debts of VND 16,697 bn, of which upto VND 7,170 bn of the principal amount is very likely to get lost.

Early this year, bank leaders planned to make profits of VND 10,500 bn, but then brought it down to just VND 10,300 bn. The other VND 200 bn would be used to increase the credit risk management funds. The bank’s profits in 2019 are expected to reach VND 30,000 bn, with VND 20,200 bn saved for risk management. This figure indicates that the bank itself does not hope its bad debts will be effectively dealt with.

Reality also shows that although credits increased by 7.7%, its bad debts also rose from 1.9% early in the year to 1.98% by the end of the second quarter. The total bad debts in the balance sheet were VND 21,121 bn, rising by 12.3% since the beginning of the year, leaving the bank with the highest bad debt rate in the system.

With more than VND 10,000 bn in category-5 debts, BIDV must have management funds for 100% risks. The greater the category-5 debts are, the more serious consequences and effects on bank profits, hence risk management funds need to be bigger.
The doubtful debts fell by 27% to VND 4,523 bn, but the debts which are unlikely to be paid back rose by VND 3,321 bn to reach VND 10,492 bn, making up almost 50% of the total bad debts. The increase in bad debts is not hard to explain because a major bank is always connected to giant customers and the risks become gigantic too.

Take the 2019 mid-year financial statement of Duc Long Gia Lai Corp. for instance, the auditors stressed that most of this corporation’s bad debts had been long overdue, especially the loans from banks, institutions and individuals, and debts of mature bonds. All the banks had stopped providing loans for this corporation.

The corporation may not be able to pay the payable debts in normal business conditions; and BIDV is the biggest creditor of Duc Long Gia Lai Corp. with a total debt amount of VND 1,781 bn, of which VND 1,540 bn is a long-term loan and VND 241 bn is a short-term loan. As a big creditor, BIDV is considerably affected by this situation.

In a recent statement, Viet Capital Securities (VCSC) showed that the total credit risks included special mentioned debts, bad debts and accumulated debts which made up 5% of the six-month debt balance, which was almost twice the average rate at other banks.  This rate does not include BIDV’s VAMC bonds.

According to the data released by BIDV at their AGM in April, the bank’s VAMC bonds were more than VND14,000 bn, with over VND 7,600 bn saved for risk management, together with VND 1,900 bn for debt balance funds.

Recently, BIDV has actively announced its bad debts are for sale, and in September alone, BIDV branches issued nearly 30 notices about choosing institutions for bidding for its guaranteed properties. However, some of its property areas have been offered for sale several times without success. Despite Resolution No.42, hardly anyone would be interested in buying them. It seems that BIDV will still need to withhold large amounts from gross profits for management of risks, but it will also need to struggle with the debts which are very unlikely to be paid back.

Translated by Nguyễn Gia

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