19 banks have over 126 trillion dong of bad debts at Vietnam Assets Management Company (VAMC) by the end of 2018, and only five banks have settled all VAMC special bonds.
Statistics from 24 banks published Audit Financial Statements showed that by the end of 2018, the total amount of VAMC special bonds that these banks held was up to 126.7 trillion dong, only slightly down 0.5 percent compared to the end of 2017.
This is just a statistic figure from 24 banks; in fact, this number of the whole system will be even greater when accounting for 10 more banks, including banks that have sold a large amount of debt to VAMC like Vietnam Bank for Agriculture and Rural Development (Agribank).
There have been five among 24 banks completely settled debts at VAMC, including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Military Commercial Joint Stock Bank (MB), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Orient Commercial Joint Stock Bank (OCB) and Vietnam International Joint Stock Commercial Bank (VIB). Compared to the end of 2017, this list had the presence of OCB and VIB: at the end of 2017, VIB still held over 1.5 trillion dong, and OCB held 317 billion dong of special VAMC bonds.
15 out of 24 banks have the amount of VAMC bonds lower than in early 2018. Five banks continued to increase bad debts at VAMC including Saigon Bank for Industry & Trade (Saigonbank), Bao Viet Joint Stock Commercial Bank (BaoViet Bank), An Binh Joint Stock Commercial Bank (ABBank), Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank), Saigon Joint Stock Commercial Bank (SCB).
Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank) is the bank with the largest amount of non-performing loans (NPLs) at VAMC, amounting to 40.233 trillion dong, down slightly by 7.5 percent compared to the beginning of 2018. Followed by SCB with outstanding loans of over 26.6 trillion dong, up 10.6 percent; Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) with more than 14.1 billion dong, down sharply by 36.8 percent.
Ranked 4th in joint stock banks in terms of bad debts in VAMC is VietinBank with the amount of over 13.4 trillion dong, a strong increase of 81.6 percent. Notably, the bank once cleared its debts at VAMC at the end of second quarter of 2018. That means, in the last six months of 2018, VietinBank sold more than 13.4 trillion dong bad debts to VAMC.
Selling debt to VAMC is a major debt handling method of banks to be supported in the process of handling bad debts, and also a way to beautify the balance sheet. However, selling debts to VAMC does not mean that banks will escape the burden of these bad debts.
Bad debts are still can appear again to the bank if after five years (the tenor of special bonds) they have not been processed. Moreover, although the debt has been sold to VAMC, banks still have to continue to set up a provision with a relatively high ratio of 20 percent for the par value of the bond within five years (except for a few special cases of restructuring, the provision is set at 10 percent according to the 10-year bond tenor.
Currently there are many different data on bad debts announced by different agencies and organisations. In general, the figures show that the bad debt ratio of commercial banks has decreased quite a lot, which is the result of the diversification of bad debt settlement measures.
For example, the State Bank of Vietnam (SBV) said that by the end of 2018, the internal NPL ratio was 1.89 percent, down from 2.46 percent at the end of 2016 and 1.99 percent at the end of 2017; including potential bad debts and debt sold to VAMC at 6.67 percent.
In a study, Dr Tran The Sao, Hochiminh City Open University said that the internal NPL ratio was low but off-balance sheet bad debts were still high. In the measures to resolve bad debts of commercial banks, mainly selling debts to VAMC, setting up risk provision for off-balance sheet, etc. while bad debts obtained from selling secured assets, from customers accounted for small portion.
Undeniably, since VAMC was born, it has supported many credit institutions in the process of handling bad debts, however, as many experts say, VAMC is not “magic wand” and credit institutions need to be more proactive in dealing with their own debts.
That is also the reason that Resolution 42 was issued in 2017, helping banks have more ways to handle bad debts. In fact, in the last two years, commercial banks have tended to limit pushing bad debts to VAMC, instead actively handling bad debts through such forms as selling debts, selling security assets, using use of credit risk provisions, etc.
In 2018 alone, Agribank recovered debt after handling risks and debts sold to VAMC up to nearly 12 trillion dong, exceeding the plan of assigning bad debt ratio of Agribank to 1.51 percent. Since the Resolution 42 took effect so far, Agribank has recovered bad debts and post-processing debts with amount of 89.822 trillion dong, particularly in 2018, reached 66.789 trillion dong. In 2019 the government aims for Agribank to clean up debt at VAMC. Worth mentioning, before that Agribank used to be a bank with bad debt ratio as well as resale bad debt largest in VAMC system.
Newly announced its business plan in 2019, Tien Phong Joint Stock Commercial Bank (TPBank) also said that it plans to buy all or part of VAMC bonds this year, depending on the amount exceeding the pre-tax profit plan. The situation seems to be supporting the bank’s plan when in the first quarter of 2019, it recorded profit of 853 billion dong, up 66 percent over the same period and reached 26.7 percent of the year plan.
A number of bad debts sold to VAMC will soon return to banks in the near future, when looking back on the process of buying VAMC’s debt, the peak falls in 2015, accordingly, a large amount of maturity will be on 2020. The good news is that the banking sector is in a period of high profitability and the internal NPL ratio has decreased, creating conditions for active banks to receive back part or all of the debts sold to VAMC without causing much disturbance in business results.
Management agencies also continuously urge banks to strengthen the handling of bad debts recently. The latest directive of SBV Governor requires banks to push the bad debt ratio, debts sold to VAMC and classified debts to below 3 percent from now until 2020. This will be a big challenge since this rate is currently over 6 percent.
In particular, SBV also required credit institutions to coordinate with VAMC to take measures to solve difficulties in dealing with bad debts and collateral of debts sold to VAMC, and continue to promote the handling of bad debts according to market mechanism.
