According to the State Bank of Vietnam (SBV), the whole system of credit institutions handled 149,220 billion dong of bad debts in 2018.
The internal non-performance loan (NPL) ratio of the system was 1.89 percent in 2018 (down from 2.46 percent at the end of 2016 and 1.99 percent at the end of 2017)the lowest level since 2012. This ratio also fell below the target threshold of two percent according to Resolution 01/ND-CP 2019 issued earlier this year.
Banks have just announced their financial reports of the fourth quarter of 2018, in which the bad debt has decreased significantly compared to the beginning of the year. Thanks to the accelerated handling of bad debts, the value of handled bad debts in 2018 increased nearly 30 percent compared to 2017. Notably, the NPL ratio in many banks dropped sharply in the last three months of 2018. In some banks, this ratio reduced more than 50 percent compared to the beginning of the year.
Statistics show that for banks that have published financial statements including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Vietnam Prosperity Joint Stock Commercial Bank (VPBank), Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank), LienViet Post Joint Stock Commercial Bank (LienVietPostBank), Vietnam International Joint Stock Commercial Bank (VIB), Military Joint Stock Commercial Bank (MBBank), Asia Joint Stock Commercial Bank (ACB), An Binh Joint Stock Commercial Bank (ABBank), Tien Phong Joint Stock Commercial Bank (TPBank), Petrolimex Group Joint Stock Commercial Bank (PGBank), Bac A Joint Stock Commercial Bank (BacABank), Saigon Bank for Industry & Trade (Saigonbank), Kien Long Joint Stock Commercial Bank (Kienlongbank) and Vietnam Thuong Tin Joint Stock Commercial Bank (VietBank), total bad debts were over 34,810 billion dong by the end of the fourth quarter of 2018, down 17.7 percent compared to the end of the fourth quarter of 2018.
For example, in ACB, bad debt in group three and five according to Circular 02/2013/ TT-NHNN was controlled at 0.8 percent at 2018-end, helping provision expenses down nearly 75 percent in the fourth quarter of 2018 and down 64 percent for the whole year. In Vietcombank, internal bad debt at the end of 2018 was 6,215 billion dong, decreased by 1,209 billion dong in the last three months. The NPL ratio at this bank is currently at 0.98 percentthe lowest group in the system.
Sacombank was one of the banks that settled the most debts last year, in which bad debt level dropped to 5,400 billion dong, down 48 percent, bringing NPL ratio from 4.7 percent at the beginning of the year to 2.11 percent at the end of the year. At this bank, the bad debt reduction pace was even more impressive. Specifically, bad debt level dropped by 66 percent in the fourth quarter of 2018 and by 28 percent to 301 billion dong for the whole year NPL ratio fell from 2.98 percent to 2.2 percent. Before that, there was a time when the NPL ratio in Saigonbank increased to over six percent. PGBank also brought the NPL ratio to below three percent by the end of 2018, compared with 4.5 percent at the end of September 2018.
In addition to banks that have bad NPLs, many banks have not been able to handle bad debts well, leading to high provisions. For example, at VPBank, by the end of 2018, the consolidated bank’s bad debt was 7,766 billion dong, down 1,600 billion dong compared to the end of September 2018, but up 25 percent compared to the beginning of the year. Accordingly, the NPL ratio increased from 3.39 percent to 3.51 percent. This ratio at VPBank was about 2.7 percent. The bank currently holds more than 3,100 billion dong of special bonds issued by Vietnam Assets Management Company (VAMC), down 21.9 percent compared to the beginning of the year. Risk provision expenses increased by 40.6 percent to 11,253 billion dong last year.
With Vietnam Bank for Agriculture and Rural Development (Agribank), bad debt according to Circular 02 was 1.51 percent at the end of 2018, which was lower than that of 2017. The recovering debt amount after processing was 11,936 billion dong, reaching 104 percent of the plan with risk provision of 25,590 billion dong. However, according to Agribank’s leader, the total provisioning for handling risks is nearly 20,000 billion dong so the bank can afford all debts sold to VAMC before maturity and promptly settle bad debts incurred in 2019.
It can be seen that bad debt is one of the important indicators to assess the health of banks. Many banks have cleared debts at VAMC in the last two years such as Vietcombank, Techcombank, MBBank, VIB, OCB, etc. However, many experts note that, in addition to dealing with old debts, banks need to control credit quality and avoid bad debt incurred.
In fact, although the bad debt settlement has improved since Resolution 42/2017/QH14 was issued, it is still facing many difficulties, especially when the five-year term bad debts sold to VAMC are now matured and banks must to take them back for processing.
Dr Can Van Luc, finance and banking expert, said that the initiative to buy back bad debts may increase the internal bad debts at some banks, but this also shows that these banks have enough capacity to handle bad debts on the balance sheet, instead of being too vulnerable and having to sell to VAMC like in previous years.
According to finance and banking expert Nguyen Tri Hieu, the year of 2018 has marked significant progress in dealing with bad debts of banks, but the outstanding bad debts are still very large. Therefore, this amount of bad debt needs to be settled more thoroughly in 2019.
