The rate decreases, but the value increases
Up to now, many banks have announced financial statements for the second quarter and the first six months of this year. Besides the huge numbers of profits, it should be considered that bad debts in most banks continued to increase in absolute value.
Accordingly, 12 banks announced bad debt data, only a few banks with bad debt reduced both in absolute value and relative ratio. In the first six months of this year, the absolute bad debt balance of the 12 above banks increased by 5.451 trillion dong to 57.936 trillion dong.
For example, at Asia Commercial Joint Stock Bank (ACB), although absolute bad debt only decreased by 19 billion dong compared to the end of 2018 to 1.656 trillion dong, thanks to an increase of 8.8 percent in credit balance during this period, by the end of Q2/2019, ACB’s Non-performing loan (NPL) ratio dropped to 0.67 percent from 0.73 percent at the end of 2018. This is also the bank with the lowest NPL ratio in the system. Similarly, the balance of bad debts of Southeast Asia Commercial Joint Stock Bank (SeABank) also decreased from 1.266 trillion dong to 1.186 trillion dong; NPL ratio also decreased from 1.51 percent to 1.34 percent.
Meanwhile, some other banks recorded bad debt continued to increase in absolute value, even though the ratio of bad debt to total outstanding debt decreased. For example, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), although the bad debt ratio of this bank decreased from 3.5 percent at the end of 2018 to 3.43 percent in Q2/2019, but the absolute amount of bad debt increased from 7.766 trillion dong to 8.491 trillion dong. Bad debt of SaiGon Thuong Tin Commercial Joint Stock Bank (Sacombank) also increased by 56 billion dong to 5.703 trillion dong, but the rate of bad debt still decreased from 2.2 percent to 2.04 percent.
Especially, bad debts in many banks increased in both ratio and absolute value. Typically, this was Lien Viet Post Joint Stock Commercial Bank (Lienvietposbank) when the bad debt balance of this bank increased by 226 billion dong in the first six months to 1.905 trillion dong, thereby raising the NPL ratio from 1.4 percent at the end of 2018 to 1.47 percent at the end of Q2/2019.
Similarly, the balance of bad debts of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) also increased by 911 billion dong to 7.134 trillion dong, so the bad debt ratio also increased from 0.98 percent to 1.03 percent. However, Vietcombank was still one of the banks with the lowest NPL ratio.
The above figures are also completely consistent with the statistics of the State Bank of Vietnam (SBV). At the Conference on implementing banking tasks in the last six months of 2019, Le Minh Hung, SBV Governor, informed that, from 2012 to the end of June 2019, the whole system of credit institutions handled 937.5 trillion dong of bad debts; In particular, in the year 2018, 163.14 trillion dong was handled. The internal NPL ratio estimated by the end of June 2019 was 1.91 percent, down from 2.02 percent at the end of Q1/2019.
However, this figure was still slightly higher than the internal NPL ratio announced by SBV at the end of 2018 of 1.89 percent. NPLs still increase, so experts have to consider.
Previously, the National Assembly issued Resolution 42/2017/QH14 in order to remove obstacles to quickly resolve bad debts in order to develop credit sources for the economy.
One expert said that bad debts in banks continued to increase in the first months of this year as many banks were boosting credit in segments with higher profit margins, but risks were also greater.
Indeed, currently many banks are boosting retail lending, pushing capital into consumer segments. For example, at Vietnam International Commercial Joint Stock Bank (VIB), retail lending growth rate in the first six months of this year increased by 21 percent. Currently, retail bank loans accounted for 78 percent of VIB’s total loan portfolio. Even big banks are shifting strongly to the retail segment.
Dinh The Hien, an economist, said that The main profit that banks came from credit, in which the highest performance was retail credit such as consumer loans, home loans, etc. with higher net interest margin (NIM). The trend of increasing consumer loans is mainly for home loans, investments and loans to real estate enterprises, high profits will also come with high risk of bad debt. This segment brought high profit but would also come with high risk of bad debt
Bad debt increased not only to erode profit but also to “freeze” a large amount of credit institutions, thereby reducing the ability to provide credit and create pressure to increase lending rates.
Currently, the handling of bad debts is still difficult. For example, it is difficult to handle collateral and debt recovery of weak banks because most of collateral for debts was being blocked, related to incomplete legal cases. Even solutions that are expected to deal with bad debts like buying and selling debts at market prices are facing many difficulties because there is no market for debt trading.
