A bright spot in the banking picture in 2017 was the improvement of asset quality of the credit institution (CI) system. according to estimates of the National Financial Supervisory Commission (NFSC), the bad debt ratio of the system by the end of 2017 was about 9.5 percent, significantly lower compared to the 11.9 percent recorded in late 2016, mainly thanks to the reduction of the restructured potential debts, corporate bonds, and external receivables.
Figures from the 2017 financial statements of 13 surveyed banks showed that the total bad debts reached 60.533 trillion dong, slightly up by 0.7 percent compared to the beginning of the year. In absolute number, eight out of 13 banks recorded bad debt rise in the 2017. Nevertheless, thanks to the acceleration of credit growth, only five out of 13 banks saw increase in the ratio of bad debts on total outstanding debts, including Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Saigon Hanoi Commercial Joint Stock Bank (SHB), Vietnam Prosperity Commercial Joint Stock Bank (VPBank), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), and Tien Phong Commercial Joint Stock Bank (TPBank). Another good sign is that the total group 5 debts (irrecoverable debts) by the end of 2017 fell by 8.3 percent compared to the beginning of the year.
Specifically, Asia Commercial Joint Stock Bank (ACB) had the lowest bad debt ratio in the surveyed group, reaching only 0.7 percent compared to 0.87 percent recorded in the beginning of the year. The bank’s irrecoverable debts also dropped from 0.64 percent to 0.4 percent. Meanwhile, although the bad debt ratio remains at high level, Sacombank has made significant progress in settling bad debts. Accordingly, as of late 2017, the bank’s bad debt ratio declined to 4.16 percent from 6.91 percent in the beginning of the year.
The strong bad debt decline of many banks in 2017 was thanks to CIs’ acceleration of bad debts after the issuance of Resolution 42/2017-NQ14, particularly in the last months of the year. CIs limited the sale of bad debts to Vietnam Asset Management Company, while other bad debt settlement forms such as sale of bad debts, sale of secured assets, especially the use of provisions for risks were also promoted.
Hence, provisioning for risks is the pressure for many banks. ACB set aside 49.1 percent of the bank’s net profit (2.565 trillion dong) to provision for risks in 2017. Meanwhile, this number at BIDV was 62.9 percent of the net profit, reaching 14.915 trillion dong.
According to assessment of financial experts, in 2018, CIs will continue to provision at 20 percent of the special bonds after selling debts to VAMC. Accordingly, CIs having large amount of outstanding special bonds will continue to be negatively impacted by the provisions for risks, while a small number of CIs which have completed settling bad debts at VAMC will see a more favourable business year.
Chair of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) Duong Cong Minh said that the bank’s bad debt ratio was 6.68 percent in early 2017 and 4.28 percent in late 2017. It is expected to be lowered to 3 percent in 2018. Sacombank sets 2018 pre-tax profit target cautiously at 1.640 trillion dong.
Bad debts and risk provisions are still the burden for Sacombank in 2018. Data gathered from financial statements showed that Sacombank currently has the highest bad debt ratio in the system. The surge of Sacombank’s bad debts was due to the merger with Southernbank in October 2015.
Meanwhile, according to SSI Retail Research, in 2018, after completing the handling of existing bad debts, ACB may record a pre-tax profit of 5.249 trillion dong, up by 130 percent compared to the realised figure in 2017. The bank’s credit growth is estimated at 18 percent, equivalent to the overall level of the system. Meanwhile, its profit from business activities may increase by 10.2 percent to 11.740 trillion dong.
As forecasted by the NFSC, in 2018, the bad debt settlement will be more positive and substantial, thanks to the stable macroeconomic factors, the growth momentum of the economy, the betterment in the situation of enterprises, stock market and real estate market, and the gradual improvement of the legal framework for bad debt and secured asset handling.
Financial expert Huynh Trung Minh believed that the issuance of Resolution 42/2017-NQ14 has helped the settlement of bad debts become increasingly positive, especially when the real estate market gets warmer. Despite raising the 2018 profit targets, banks have also been cautious in building plans as the risk provision pressure still exists.
