Bad debt handling has been concentrated in the banking system for fives years. In addition to the efforts of the banks, Vietnam Assets Management Company (VAMC) has also supported significantly over the past period. The latest data from the State Bank of Vietnam (SBV) showed that the internal bad debts of the credit institution system have reached nearly two percent, while bad debts including potential bad debts and debts sold to VAMC is only 5.88 percent, instead of over 10 percent three years ago.
However, the bad debt decline in the whole system does not mean that bad debts in all banks are low. There are two groups. One includes the banks that have actively classified bad debts, sacrificed profits to make provision for the past few years and controlled the quality of newly arising debts. Another banks have kept their profits high by limiting the provision expenses and continued to follow risky credits in spite of the high-value bad debts.
Statistics from the audited financial statements in 2018 showed that among 17 banks that have been listed on the stock exchange, the majority of them controlled well bad debts at less than two percent, such as Asia Commercial Joint Stock Bank (ACB) (0.73 percent), Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) (0.97 percent), Military Commercial Joint Stock Bank (MBMBBank) (1.33 percent), HCM City Development Joint Stock Commercial Bank (HDBank) (0.97 percent on the separate basis and 1.53 percent including HDSaison consumption company) and Tien Phong Commercial Joint Stock Bank (TPBank) (1.89 percent). By quarter 1/2019, banks continued to make efforts to handle bad debts, some also recorded a significant decline such as HDBank, ACB and Vietcombank.
Among the banks mentioned above, HDBank’s case is a bit different from others of the group: the bank also has consumer finance company HDSaison. Although the consumer finance sector has a high level of bad debt, but the consolidated bad debt ratio of the bank and its consumer finance company is just under 1.5 percent. Particularly, the bad debt rate is 0.97 percent on the separate basis and has been controlled below one percent for many years.
Thanks to the efforts of handling bad debts and strongly setting up provisions, banks with low bad debt ratio also belong to very high profit growth group. In 2018, Vietcombank, Techcombank, HDBank and TPBank recorded profit growth of over 60 percent. According to Nghiem Xuan Thanh, Vietcombank’s chair, the bank has made provisions with a relatively high rate of bad debtat 170 percent, so the bank now wants the bad debts to be as low as possible. The leaders of ACB and HDBank shared the same idea that frankly acknowledging and cutting bad debts in previous years helped banks no longer have to worry about the provision of old debts, only need to control new debts.
While in some banks, bad debts have been recorded and aggressively handled, they are still a big burden in other banks with extremely low Return on Equity (ROE) and Return of Assets (ROA).
In addition, the greater concern is that the debts sold to VAMC for special bonds in the period of 2014 -2015, have now returned to the banks after 5-year term (except for cases where the tenor is being restructured to 10 years).
Statistics show that among more than 20 banks announced the 2018 audited report, there were more than 125 trillion dong of bad debts sold to VAMC, of which Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) took the first place with more than 40 trillion dong; followed by Sai Gon Joint Stock Commercial Bank (SCB) with over 26.6 trillion dong; Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) over 14.1 trillion dong and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) 13.4 trillion dong.
While bad debts are growing in many banks, they have to make more efforts in their business performance, which is quite tough as the competition is getting fiercer while the difficulties in dealing with debts also make them suffer. As Resolution 42 of the National Assembly on piloting bad debt handling in the past, it partly helps banks relieve the burden, but the problems have not been solved (such as real estate collateral is difficult to change the owner) make debt processing efficiency very low compared to the expectations. Some banks’ leaders acknowledge that if the difficulties in debt handling are not solved in the near future, the goals of recovering and reducing bad debts of many banks are still only dreams.
