Even when launching hundreds of trillions of dong credit package to support businesses, bad debt will still increase this year.
Accumulated from August 15, 2017 to the end of March, 2020, the whole credit system handled 299.8 trillion dong bad debts determined under Resolution 42. However, with the impact of the Covid-19 pandemic, business activities suspended, and the risk of bad debts at banks also grew, especially the debt group which could lose capital. Along with increasing provisioning for credit risks, commercial banks promoted the sale and liquidation of mortgaged assets to recover and handle debts such as condominiums, high-class appartements, land plots, cars, machinery, and factories.
The year of 2020 is the due date of five-year term for handling debts sold to Vietnam Assets Management Company (VAMC). If not completed, banks must buy back to continue processing. VAMC also aggressively offers a series of assets to deal with and recover debts bought from credit institutions.
According to leaders of some commercial banks, the wave of liquidating collaterals to handle debts is indispensable in the context that customers are facing more difficulties, unable to pay debts due to the impact of the Covid-19. “In 2020, the bank aims to handle 11 trillion dong of bad debts, so the time from now to the end of the year will surely exceed the set target,” said Nguyen Duc Thach Diem, general director of Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank).
At Sacombank, in the first five months of the year, bad debts were auctioned and were undergoing transfer procedures of up to 9.7 trillion dong. The actual amount received is over 1.8 trillion dong. Meanwhile, Sai Gon Joint Stock Commercial Bank (SCB) is selling directly seven real estate assets with the lowest value from several billion dong to hundreds of billion dong. Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) has recently sold many debts and mortgaged auctions for loans with selling prices from several hundreds of million to hundreds of billion dong.
According to Nguyen Quoc Hung, Head of Credit Department of Economic Sectors, currently 1.8 quadrillion dong (accounting for about 23 percent of total outstanding credit) is affected by the disease, not to mention the debts that are affected indirectly. Earlier, Governor of the State Bank of Vietnam (SBV), Le Minh Hung, also worried that bad debts would increase due to the impact of the disease because about 23 percent of the industry’s total loan balance was affected, potentially affecting banking activities.
By the end of the first five months of this year and by the end of June, the large banks have completed 40-50 percent of the profit plan for the year. However, the credit situation grew slowly. Representatives of many banks acknowledged that the trend of selling mortgaged assets would increase sharply in the near future when the risk of bad debts was increasing, causing a significant decrease in bank profits due to provision for credit risk. Nguyen Dinh Tung, general director of Orient Commercial Joint Stock Bank (OCB), said that the business determined to deal with business downturn, even bankruptcy. Non-performing loans at banks also grew.
A property auction is the best way for a bank to recover a customer’s debt. However, the debt recovery of banks is currently very difficult. Many information shows that the assets of great value, from 30 billion dong or more, are hard to find customers at this time.
The total credit package that the banking industry supports businesses to deal with damage caused by the disease has reached more than 300 trillion dong. “The policy of debt restructuring, rescheduling and interest rate reduction has contributed to mitigating difficulties for customers and keeping bad debts from growing”, said Dr Can Van Luc. For example, debt restructuring for customers affected by the pandemic at Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) was said by the Chair of the Board of directors Nghiem Xuan Thanh at this time, was about 10 trillion dong of outstanding loans, while more than 20 trillion dong of outstanding loans was debt restructuring.
However, even when launching a large credit package to support customers, NPLs will certainly increase. Banks have policies to extend loans to customers within 3 months. If this time is over, the borrower still cannot repay the loan, it will become a bad debt, greatly affecting the bank’s profit.
According to the statistics of the first quarter of 2020 financial statements of banks, in many banks, debts of groups 3, 4 and 5 increased sharply, pushing up the ratio of bad debts to a higher level compared to the beginning of the year. Kien Long Commercial Joint Stock Bank (Kienlongbank) has the highest bad debt ratio when the value of bad debt increased by 5.7 times to 2.293 trillion dong, bringing the ratio from one percent to 6.62%. Tien Phong Commercial Joint Stock Bank (TPBank) increased its bad debt by 53 percent to 1.884 trillion dong. Bad debts of Saigon Bank for Industry and Trade (Saigonbank) grew by 95 percent to 377 billion dong, mainly due to the sharp increase in substandard debts.
After years of dealing with bad debts, banks’ bad debts have tended to change positively in 2019. However, with the current difficult situation, the bad debt ratio will be brought back below three percent this year. It will be hard to come true. If the Covid-19 pandemic is controlled in the second quarter, the bad debt will be at 3.7 percent by the end of 2020 and may be higher, depending on the economic recovery. According to Dr Le Xuan Nghia, Member of the National Financial and Monetary Policy Advisory Council, the speed of dealing with bad debts depends heavily on the recovery of the real estate market because most of collaterals are real estate assets.
