VietNamNet Bridge – Banking authorities will halt the issue of licences to domestic credit institutions that propose network expansion over the next few months.

A Vietnam International Bank transaction office. Banking authorities will halt the issue of licences to domestic banks that propose network expansion over the next few months to control bad debts. — Photo cafef.vn

The authorities will not allow new establishments such as branches, transaction and representative offices, as well as automated teller machines to be set up. The provision of new business services will also be suspended.

The State Bank of Viet Nam (SBV) made the announcement in a document dated July 6. It said the move was part of efforts to reduce the overall ratio of non-performing loans (NPLs) to less than three per cent before October 1.

The government wants the bad debt cap to be achieved by the end of this year, but the SBV has revised the deadline after reviewing banking operations at a meeting with local lenders late last month.

The central bank said credit institutions that failed to match the cap by October 1, would not be able to request for expansion at least till December 31.

SBV Governor Nguyen Van Binh said foreign banks and their branches, along with joint-venture credit institutions, should present bad debt settlement plans to the central bank by July 20, for accomplishing the general goal.

HCM City credit institutions recently said the general NPL ratio remained high at more than five per cent, while several banks nationwide reportedly said they would need more provisional funds to support the risk of NPLs.

These banks were Asia Commercial Bank, Saigon Joint Stock Commercial Bank and Vietnam International Bank, as well as Eximbank.

The country's major lenders — Vietcombank and VietinBank — have said provisional funds for bad debts had whittled away their significant profits this year.

Vietcombank Chairman Nghiem Xuan Thanh said the bank earned about VND6.04 trillion (US$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.

VietinBank earned VND3.07 trillion ($146.19 million) in business profit in Q1, up nearly 24 per cent over the same period last year.

However, with a provisional fund increasing by 1.5 times to touch VND1.51 trillion ($71.90 million), its Q1 pre-tax profits grew by only 7.3 per cent year-on-year to reach VND1.56 trillion ($71.428 million).

Prime Minister Nguyen Tan Dung directed the SBV last month to increase supervision to ensure that the lending services of credit institutions was effective and safe and used for their intended purpose.

VNS