More than 10 banks had released their financial statements for Q1/2020. While the increase in the last year was even, the profit picture for Q1/2020 was very colourful, with negative growth, slight rise, and also exponential rise. But in terms of bad debts, most of these banks had increasing bad debts ratio.
The most remarkable case was that at Kien Long Commercial Joint Stock Bank (Kienlongbank), the bank’s bad debt suddenly increased from 342 billion dong to 2.24 trillion dong, up to 6.6 times. Accordingly, Kienlongbank from a bank with the non-performing loan (NPL) ratio in the lowest group jumped to the highest group. The bank’s NPL ratio at the end of March amounted to 6.62 percent while at the beginning of the year was only 1.02%.
This sudden change was due to the bank’s ability to lose its capital up to nine times to 2.127 trillion dong. According to Kienlongbank, in 2.127 trillion dong potentially irrecoverable debt, 1.895 trillion dong was the balance of customers with collaterals being stocks of another bank classified as Group 5 debt according to the State Bank of Vietnam (SBV)’s regulations. It was known that these were shares of Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank). Kienlongbank had been selling these shares since the beginning of the year but had not been successful.
Another bank with a strong increase in bad debt was Tien Phong Commercial Joint Stock Bank (TPBank). TPBank’s bad debt at the end of March was 1.884 trillion dong, up by 53 percent YoY; meanwhile, balance increased by five percent to 100.509 trillion dong. Accordingly, the ratio of bad debt to total balance rose from 1.29 percent to 1.87%.
In another small bank, Saigon Bank for Industry and Trade (Saigonbank), NPL increased by 95 percent in the first three months to 377 billion dong, mainly due to a sharp increase in sub-prime debt. Accordingly, the ratio of bad debt to the balance of this bank increased sharply from 1.96 percent to 2.65%.
Meanwhile, large banks also raised their bad debt, but not much. For example, Sacombank’s NPL at the end of March stood at 6.046 trillion dong, an increase of over 300 billion dong compared to the beginning of the year. The ratio of bad debts in the balance sheet to the total balance increased from 1.94 percent to 1.97%.
Notably, it seemed that Sacombank’s debt settlement was slowing compared to last year when interest from other banking activities dropped sharply by 76.6 percent YoY, reaching only 71 billion dong. Meanwhile, bad debt at Vietnam Asset Management Company (VAMC) had not changed significantly.
Or at Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), the bad debt at the end of March 2020 increased by 387 billion dong comparing to the beginning of the year to 5.191 trillion dong. Accordingly, the NPL ratio also increased but remained low, at only 0.79%.
In addition to the banks above, several other banks also had a bad debt ratio (on customer balance) increasing in Q1/2020. Typically, the bad debt ratio of Bac A Commercial Joint Stock Bank (Bac A Bank) increased from 0.69 percent to 0.79%; that of Southeast Asia Commercial Joint Stock Bank (SeABank) increased from 2.31 percent to 2.34%; that of Vietnam International Commercial Joint Stock Bank (VIB) increased from 1.96 percent to 2.19%. Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) was a rare bank with bad debt reduced in the first three months, from 8.798 trillion dong to 7.984 trillion dong (by 9.3%). Accordingly, the ratio of bad debt to total balance decreased from 3.42 percent to 3.03%.
In general, bad debt increased in many banks in Q1/2020, but most of the increase was not strong. This was partly thanks to rescheduling, having not transferred the debt group of customers affected by Covid-19. As reported by SBV at the end of March, credit institutions had initially restructured the repayment period, keeping the debt group for over 52,000 customers with a debt balance of 17.927 trillion dong, of which Vietnam Bank for Social Policies (VBSP) was 1.4 trillion dong.
The risk of rising bad debts this year had been warned by many experts. And in fact, as the most recent estimate of SBV, there was 2 million balance affected by the disease, accounting for 23 percent of the system’s total credit. SBV also assessed the potential of bad debt increased this year and gave two scenarios.
In the first scenario, in case the epidemic was controlled in Q1, the bad debt ratio (on-balance sheet, sold to VAMC and debts that had implemented debt classification measures) would be at 2.9 percent to 3.2 percent to the end of Q2 and from 2.6 percent to three percent to the end of 2020.
In the second scenario, in case of the complicated disease situation in Q2, the bad debt ratio would be close to four percent by the end of Q2 and 3.7 percent by the end of 2020 and possibly higher. This result would affect the progress of implementation of the restructuring plan associated with dealing with bad debts of credit institutions and the resilience of credit institutions.
