Research on the impact of loan portfolios on profitability of joint stock commercial banks - 7

In addition, according to the Basel committee, when comparing the outstanding balance of an industry with the equity level of a bank at the same time, it will also assess the concentration of risk of the portfolio. The data on the annual reports of joint stock commercial banks show that at different times, the outstanding loans of a certain industry can exceed the equity level at the same time many times. Typically, in 2006, ACB's lending to the community for personal services was 4 times higher than equity, while Vietinbank's lending to processing industry was 5 times higher than equity in 2009, Vietcombank's production and processing activities were faster. 4 times equity.That is a manifestation of very large portfolio risk because as we know that the proportion of loans usually accounts for a very high proportion of the total assets of these banks and at the same time, credit interest income accounts for the total operating profit. also accounted for a very large proportion.

Below is a table showing the ratio of outstanding loans of some industries to equity representing the very large portfolio risk of some large banks.

Table 3.8: Proportion of outstanding loans of an industry to equity

Unit: Million VND

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Besides, we need to consider the operating costs of the bank to better assess the profit that the bank achieves. A typical expense of the banking industry is the provision for bad debts in the period shown on the income statement. This is one of the non-cash expenses, showing the bank's subjective assessment of lending activities, directly affecting the bank's profit statement in the period. The increased recognition of provision expense for bad debts shows that the bank lent too much in the previous accounting periods, did not carefully assess the loan quality and repayment ability of the customer, increasing the possibility of loss. bank's capital and forced to increase provision for bad debt.

In the case of Vietcombank, the forecasted growth for bad debt in each reporting period (year) of the period 2008-2013 is approximately 12%, lower than the average rate of other banks like MBB. (54%), ACB (40%), STB (42%)… Banks have started to increase provision for bad debts in recent years, depending on which bank is sooner or later in recognition and regularly recorded or not during this period. However, due to the overall effect of sluggish growth in the economy, loans are more likely to be classified as bad debt, and if so, forcing banks to make more provision for bad debts. Therefore, banks that make low provision for bad debts may have to increase their provision for bad debts more and more in the coming time,and profit reporting figures may therefore be affected and not be as “pink” in the coming years as those reported in previous years. The ability to lose capital of banks is likely to have happened, not until banks make adequate provisions for bad debts, the capital will be lost.

Provisions for bad debts during the period still go into the (accumulative) provision for bad debts on the balance sheet (Loan loss reserves, also known as Allowance for bad debts).

Table 3.9: Ratio of provision for bad debts to total outstanding loans in some banks

Unit: %