The first two quarters of 2020 recorded high numbers in banks’ results, but bad debt warnings continued.
At Asia Commercial Joint Stock Bank (ACB), by the end of May 2020, the loan growth was 5 percent compared to the target of credit growth of 11 percent for the whole year. By the end of June 2020, ACB was capable of fulfilling its maximum of at least 50 percent of the plan. Bank profit targets were likely to complete with the current progress. The figure showed a positive picture. The general director of ACB, Do Minh Toan, admitted that this was just an immediate forecast and depended on the recovery of the economy. Concerned about each post-crisis was still bad debt, the goal of ACB this year was to control bad debt at one percent to two percent.
According to Toan, it was not until the end of Q3 for the impact of the disease to be clearly assessed. However, the Board of directors of ACB proposed that in the worst situation, the Bank still controlled it, this was the reason why ACB set the maximum target of 2 percent for the bad debt ratio of the Bank until the end of this year. Currently, ACB’s debt of group of six companies was 806 billion dong, including bonds, accounts receivable, principal and more than 1 trillion dong of interest. The collaterals of 806 billion dong, capable of recovering debts in the near future, made 100 percent provision. If recovered, ACB’s profit would increase by 806 billion dong.
The general director of a medium-sized joint-stock bank also said that it had restructured about a quarter of total balance to customers. However, what the bank leaders were concerned about was that the restructured debt could still become bad because the customers had not yet recovered production. The Bank must continuously review and closely monitor the business situation of customers to ensure bad debt to be under control, the general director said.
According to Nguyen Dinh Tung, general director of Orient Commercial Joint Stock Bank (OCB), a bad debt increase in the context of disease was unavoidable. The reason was that the demand for goods of enterprises decreased sharply, including exports and domestic sales, causing production to shrink, inventories to rise. OCB had focused on solutions to support businesses, reduce maximising operating costs, and strictly controlling risk management to limit arising bad debts, Tung said. Although the possibility of increasing bad debts at banks was challenging to avoid, which banks having a large portfolio dispersion, reasonable liquidity reserves, and functional financial capacity, would be less influenced.
Tran Du Lich, a member of the National Financial and Monetary Policy Advisory Council, said that credit in 2020 was considered difficult to increase at a high level. Still, bad debts were warned to increase due to the impact of Covid 19, affecting production and business activities of enterprises, unable to pay debts on time, even though banks had restructured debts.
BIDV Research and Training Institute, in its six-month macroeconomic report, forecasted that the non-performing loan (NPL) of the whole banking system could increase to four percent, higher than the 1.89 percent at the end of 2019 due to the low increase in credit growth. Also, Circular 01 expired at the end of the year, making the loan balance affected by the Covid-19 epidemic (about 23 percent of total loans) no longer remained in the group of debts, causing the scale of bad debts to increase.
Credit quality forecasts were also included in the SBV’s report very early. The agency put the scenario, where the Covid-19 epidemic was controlled in Q1/2020, the bad debt ratio (including on-balance sheet, sold to Vietnam Asset Management Company (VAMC) and debts in which debt classification was implemented) would be at level 2, 9 percent to 3.2 percent by the end of Q2/2020 and from 2.6 percent to 3 percent by the end of 2020. In the case of a more complicated and controlled epidemic in Q2, this rate would be close to 4 percent by the end of the second quarter and 3.7 percent by the end of 2020 and beyond.
With what happened, scenario two seemed reasonable. NPL would increase, bank profits had to be reduced, but not so high as they happened nearly 10 years ago (8.82 percent in 2012).
