Banks had aggressively dealt with non-performing loans (NPL) in recent years, and so far only NPL had accounted for less than two percent of total balance. Bad debts, including potential debts and debts sold to Vietnam Asset Management Company (VAMC) were only five percent. However, the number calculated for the absolute number was still huge.
The online conference summarising the two years of implementing Resolution 42 and Decision 1058 took place in mid-October, summarised, on average, from August 15, 2017 to August 31, 2019, the whole system handled monthly at about 9.6 trillion dong of bad debts, higher than 4.7 trillion dong compared with the average handling results from 2012 to 2017 before Resolution 42 took effect.
In particular, the results of handling bad debts following Resolution 42 showed that customers’ sense of repayment had improved significantly. The situation of customers refusing to pay debts had reduced as Resolution No. 42 allowed credit institutions to seize collaterals when the debtor deliberately did not cooperate. As a result, of the 9.6 trillion dong of bad debts handled each month, nearly half were due to self-repayment by customers, much larger than the period before the Resolution was issued.
Also according to the information at the Conference, the bad debt ratio, including the bad debts sold to the VAMC and the debts likely to become bad debts by the end of August 2019, was 4.84 percent, declined sharply from 7.36 percent in 2017 and 5.85 percent in 2018. At this rate, it was estimated that by the end of August 2019, the size of the debt to be handled was about 368.3 trillion dong.
Compared to the Q3/2019 financial statements published by banks, the scale of these debts was more significant than the total assets of the ‘runner-up’ of the banking industry’s profit, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), with over 360 trillion dong. The debts also exceeded 28 trillion dong compared to the total assets of the group of seven small banks combined, including Saigon Bank for Industry and Trade (Saigonbank), Petrolimex Group Commercial Joint Stock Bank (PGBank), Viet Capital Commercial Joint Stock Bank (Viet Capital Bank), Kien Long Commercial JointStock Bank (Kienlongbank), Vietnam Thuong Tin Commercial Joint Stock Bank (Vietbank), Vietnam Asia Commercial Joint Stock Bank (Viet A Bank), National Citizen Commercial Joint Stock Bank (NCB).
The specific report of the restructuring of the credit institutions system associated with dealing with bad debts at the Conference said the internal NPL ratio as of August 31, 2019 was 1.98 percent. In turn, remarkably, this number had increased by 0.07 percent compared to the updated data as of June and also higher than the 1.89 percent published by the management agency for the finalised figures in 2018.
Thus why had bad debt increased again?
According to some experts, NPL increased partly because the debt was returned to banks from VAMC. VAMC started to buy bad debts from credit institutions from the end of 2013, and two years later, there was a peak of the NPL flow to this company. At the moment, when the five-year term of bad debts sold to VAMC came to an end, bad debts, if not yet processed, would be returned to banks. That increased the NPL ratio of credit institutions.
However, there were other opinions that VAMC’s return of unresolved debts could only increase the NPL ratio when banks did not make enough provision for such debts. Because during the period of selling bad debts to VAMC, with a deduction rate of 20 percent per year, after five years the banks had sufficient reserves to cover the loss of capital. Therefore, debts received from VAMC after five years were no longer considered NPL. Even if there was a solution, the bank could earn a small amount of other income.
Besides, another cause of the increase in the ratio of NPL came from the current lending trend of banks as they were promoting the development of retail banking and expanding consumer loans. Because of the high profits that this service brought, the potential risks were much higher than traditional credit.
Also, these new bad debts might come from previously existing bad debts, but they would be accidentally or intentionally ignored so that they would become bad debts in the balance sheet of banks.
In 2019, despite a significant step in the handling of bad debts of banks, outstanding NPL was still enormous. Therefore, this amount of bad debts need handling more and more thoroughly soon.
