The risk of overdue debts currently exists. Banks’ financial statements in the first quarter of 2020 partly reflected this.
By the end of the first three months of the year, the debts that need attention (group 2 debts with loans that are overdue 10 to 90 days) at many banks increased sharply. The group 2 debts of Petrolimex Group Commercial Joint Stock Bank (PGBank) rose up by over 320 percent over the beginning of the year, while this number nearly doubled at Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), was 80 percent at Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) and 65 percent at Military Commercial Joint Stock Bank (MB), etc.
Although the debts in group 2 are not classified as bad debts, the unusual sharp increase of overdue debts showed that many borrowers are unable to pay their debts on time due to the Covid-19 epidemic, posting a potential risk of bad debts in the future.
When the debts are in group 2, banks will not be allowed to record the accrued interest in their income. In addition, the low credit growth or no growth made many banks to lower interest rates in the first three months of the year.
Besides the increase of group 2 debts, the bad debt ratio tended to increase at many large-scaled banks such as Vietcombank, Commercial Joint Stock Bank for Industry and Trade (VietinBank), Asia Commercial Joint Stock Bank (ACB), MB, Sacombank, and smaller banks such as PGBank, Kien Long Commercial Joint Stock Bank (Kienlongbank), etc.
MB, VietinBank and Tien Phong Commercial Joint Stock Bank saw the fastest increase of bad debt ratio in the first three months of the year. At VietinBank, the sub-prime debts rose up by fivefold from 2.060 trillion dong to 9.7 trillion dong. This is the main reason for the bank’s surge in bad debt ratio from 1.16 percent to 1.83%.
For MB, the doubtful and potentially irrecoverable debts increased by respectively over 90 percent and 47%, bringing the bank’s bad debt ratio to 1.62%. TPBank’s sub-prime and doubtful debts both rose by over 60%.
For Vietcombank and ACB, although the bad debt ratios were low compared to the sector’s average, they also increased sharply compared to the beginning of the year.
Kienlongbank was the one with shocking rise in bad debt ratio from 1.02 percent to 6.62 percent due to the amount of irrecoverable debts of up to 1.895 trillion dong arose in the period. This is the debt of a group of customers secured by Sacombank’s shares which has been offered for sale by Kienlongbank for many times but it has not been successful.
In the context when bad debts and debts that need attention are climbing due to the Covid-19 epidemic, some banks have dramatically increased provisions for credit risks to create a buffer. For example, the increase in risk provisioning costs was nearly 120 percent at MB, nearly 110 percent at TPBank, over 40 percent at Vietcomank, and 36 percent at VietinBank.
Currently, Circular 01 allows banks to keep the debt groups unchanged and restructure the loans hit by the epidemic. However, deputy director of Credit risk management of a state-owned bank said that restructuring or promoting lending could temporarily save businesses in one or two terms. However, for businesses with poor resilience and are not able to adapt in time, the debt extension is only to prolong the downtime because the market is basically no longer the same, said the leader.
A report of the SBV recently mentioned that the outstanding loans affected by the Covid-19 are expected at 2,000 trillion dong, accounting for 23 percent of the system’s total outstanding loans. According to forecast of the management agency, with the best scenario in which the epidemic is controlled in Q1, the ratio of on-balance sheet bad debts, debts sold to Vietnam Asset Management Company (VAMC) and classified debts would be 2.9 3.2 percent by the end of Q2 and 2.6 three percent by the end of 2020. However, this scenario did not occur.
If the epidemic is controlled in Q2, this ratio, according to the SBV, will increase to four percent and 3.7 percent respectively by the end of Q2 and by the end of the year. The bad debt ratio may be even higher, affecting the progress of the debt restructuring and settlement of banks and the ability to recover of weak banks.
