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Asia Commercial Bank staff prepare dong bank notes for a customer withdrawing cash at an outlet in Hanoi in August

A darker picture about the banking system is emerging, analysts say, as some commercial lenders report sharp drops in profits or even losses.

The time has come when banks can no longer hide their weaknesses, they add.

Asia Commercial Bank reported losses of VND520.67 billion (US$24.9 million) in the third quarter, compared to a profit of VND658.6 billion the same period last year.

According to the Ho Chi Minh City-based lender, often known as ACB, the loss was caused by its forex and gold trading business.

As the central bank has ordered a ban on all gold deposits beginning November 25, banks are trying to buy enough gold to repay their clients and close all accounts. That means banks will face losses if they had sold the deposits for cash earlier and now have to buy back the gold at higher prices.

ACB, which was also hit by a scandal in August that led to a temporary run on its deposits, said if gold prices continue to surge, it will face further losses in the fourth quarter.

Other smaller lenders have also posted disappointing results. Nam Viet Commercial Joint Stock Bank reported a 87.3 percent decline in third quarter net profit to VND6.57 billion ($315,360), while LienVietPostBank had a profit of VND67.6 billion ($3.2 million), down 20 percent from the same quarter last year.

Bankers attribute the drop in profits to the central bank ordering them to lower interest rates on existing loans. At the same time, they've had to set aside large provisions for bad debts, taking another large bite out of their profits.

ACB, for instance, earmarked a sum of nearly VND576 billion ($27.6 million) as bad debt provision in the first nine months, a whopping 90 percent increase from a year earlier.

Vietcombank, the largest listed lender by market value, had bad debt provisions of VND2.56 trillion ($123 million), up 52 percent from the same period last year.

Analysts say banks have apparently started taking bad debts seriously this year, announcing larger amounts of non-performing loans and provisions.

In fact, with the State Bank of Vietnam strengthening its efforts to restructure the banking system, it has become much harder for banks to hide their problems and bad debts.

Governor Nguyen Van Binh said October 7 that the monetary authority will crack down on violations by Vietnamese banks.

Not all lenders have admitted that they are in a bad situation. Several banks have still reported healthy numbers for the first nine months, raising some skepticism that they may have understated their non-performing loans.

The central bank said in a recent report that its inspectors have found many banks that previously reported profits had actually made losses. Some of them lost some or even all of their registered capital.


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Most major banks saw the amount of loans that are likely to become uncollectible double from the end of last year, with some banks even recording a 50-fold increase, the report said.

Economist Nguyen Tri Hieu said banks typically earn more than 90 percent of their profit from credit activities. But this year, loans have expanded at a sluggish pace.

There is no bright prospect for banking profits now, since credit will not see a sharp growth in the last quarter, he said, adding that risks related to gold trading are also emerging.

According to Vietcombank Securities, the brokerage arm of Vietcombank, loans grew 2.77 percent in Vietnam as of mid-October. That compared to an 8.61 percent growth seen a year ago.

Professor Le Tham Duong of the Ho Chi Minh City Banking University said the fourth quarter is usually the time when companies ramp up production and need to take out more loans. However, the economy is still slowing down, so it will not be easy for banks to boost lending.

He said seeking profits outside their main business scope is not much an option for banks either, with both the stock and real estate markets remaining weak.

"So this year banks are facing more difficulties than advantages," he said.

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