Vietnam bank profits shrink in 2012 due to loan loss provisions.

Many Vietnamese banks failed to achieve their profit targets in 2012 due to bad loans.

This resulted as banks had to set aside huge loan loss provisions as a non-cash expense to account for future losses on loan defaults. 

Large profit reductions were recorded in many Q4/2012 and full-year financial reports announced by banks.

Sacombank incurred a VND802 billion loss in the fourth quarter, pulling its full-year profits down to only VND1.315 trillion, excluding taxes, way lower than the target of VND3.4 trillion or US$48.08 million. Similarly, enormous loan loss provisions dropped Sacombank’s full-year profits from VND2.8 trillion to VND1.31 trillion, chairman Pham Huu Phu said.

Eximbank reported a post-tax profit of VND313.1 billion in Q4/2012, a 69 percent decline compared to the same period in 2011. Eximbank’s 2012 pre-tax profit stands at VND2.85 trillion, while the 2011 figure was VND4.05 trillion.

Techcombank saw an enormous 75 percent decrease in its pre-tax profit, from VND4.22 trillion to VND1.01 trillion. The full-year figure accounts for less than 20 percent of the target it planned at the annual shareholder meeting in April.

Saigon – Hanoi Bank (SHB) posted a modest VND26.97 billion full-year profit as it had to make up for the losses of Habubank before merging with the latter.

ACB suffered a VND215.3 billion loss in Q4/2012, and saw its full-year profit drop from VND4.2 trillion in 2011 to only VND1.2 trillion. The bank lost VND1.8 trillion from foreign exchange and gold trading activities, VND213 billion from trading securities, and VND96 trillion from other operational activities.

Although the cushion provisions have reduced their profits, most banks said provisioning is a necessary move as it will help stabilize them in 2013.

“As we already set aside the adequate amount of money for provisions in 2012, we don’t have to do so this year, thus profits will be higher,” Phu of Sacombank said.

“After provisioning, Sacombank saw lower credit risks, while non-performing loans are under control,” he added.

A top official from SHB also said the loan loss provisions will make the banking operation more transparent and healthy.

“The provisions will be added back to bank’s profits once the economy recovers and bad debts are fully settled,” he said.

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