For nearly three years, the bank’s goal of breaking bad debt was entering near the target, when the Covid-19 outbreak had affected production and business activities, leading to sudden non-performing loan (NPL) resolution was broken.
Do Hoai Linh, Institute of Banking Finance, National Economics University assessed, the possibility of the banking industry fulfilling the target of bringing total bad debt to below three percent by the end of 2020 were not feasible, including on-balance sheet bad debt ratio of credit institutions, NPL sold to Vietnam Asset Management Company (VAMC), and which had been implemented debt classification measures. It was forecasted that the NPL ratio for the whole of 2020 would be around four percent.
NPL increased by 16.3%
According to the Project on restructuring and handling bad debts for the 2016-2020 period, the whole banking industry had a target to bring the on-balance-sheet NPL ratio of credit institutions, bad debts sold to VAMC, and which had been implemented debt classification measures, to below 3 percent (excluding weak commercial banks approved by the government).
Only after nearly three years of implementing the Project, the on-balance-sheet NPL ratio of the credit institution system in the 2016-2020 period had been controlled, maintained at less than three percent, and continuously decreased over the years. Accordingly, late in 2016, the rate was at about 2.46%; 2.45 percent in August 2017; 1.99 percent at the end of 2017; 1,9 percent at the end of 2018. At the end of 2019, it was only 1.63%. On average, each month, the banking system handled about 7 trillion dong of bad debts, which previously was 3.6 trillion dong.
Besides, the bad debt handling at VAMC had also made definite progress. According to VAMC’s statistics, out of a total of more than 20 banks that had sold debts to this agency, 17 banks had purchased all bad debts that were sold before. Nguyen Tien Dong, Chair of VAMC, said that nearly three years ago, the total bad debt of VAMC had been processed twice since its establishment date, and the processing speed was 1.5 times higher.
According to the State Bank of Vietnam (SBV), the Covid-19 epidemic was having a direct impact on the performance, asset quality, and business results of credit institutions when credit growth was lower than the same period of previous years. Therefore, the epidemic reduced the debt repayment capacity of customers when they were due in the near future, which thereby increased the bad debts of the whole industry, affecting the results of bad debt handling.
According to SBV, as of May 31, on-balance-sheet bad debts of the whole credit institutions system increased by 16.3 percent compared to the end of 2019. Corresponding to the bad debt ratio, the balance was at 1.86%, an increase of 0.23 percentage points compared to the end of the previous year (1.63%). However, since the Covid-19 epidemic occurred and lasted, affecting activities production and business activities make the financial balance difficult, many businesses were unable to pay debts, or pay late. Therefore, it had a significant influence on the handling of bad debts under the scheme.
SBV assessed that the credit quality of the whole industry tended to decline, bad debt was rapidly increasing in the first five months of 2020, the provision increased, which could lead to some impact on the business performance of credit organisations in 2020.
According to SBV’s estimate based on scenarios of the gross domestic product (GDP) growth in 2020 of about four percent, the NPL ratio at the end of 2020 was at 2.41 percent (up 0.78 percentage points compared to the end of 2019. In the case of GDP growth of about five percent, the NPL ratio at the end of 2020 would be at 2.16 percent (an increase of 0.5 percentage points compared to the end of 2019).
Would bad debt increase sharply at the end of 2021?
Experts said that, in the near future, the Covid-19 epidemic was forecasted to continue complicatedly and unpredictably, might adversely affect socio-economic development in general, as well as the results of bad debt settlement.
Dealing with increasingly complicated developments of the epidemic, although many countries around the world had implemented economic stimulus measures, the exact time of global economic recovery had not yet been determined. International organisations continued to adjust down the global growth forecast, and Vietnam was not outside this affected area.
Dong said that recently, the government and banks had taken many actions to remove and extend debt, interest exemption and reduction to support people and businesses. However, if the epidemic were still unpredictable, the global and the domestic economy did not recover, the bad debt would increase.
From the perspective of Pham Toan Vuong, deputy general director of Vietnam Bank for Agriculture and Rural Development (Agribank), the impact of bad debt was not immediate. However, it would be visible at the end of the translation, especially at the end of 2021. This was a difficult problem for the banking system.
Recently, banks were selling a series of collateral, which were cars. In the past, banks mainly sold collateral of great value, which were real estate projects, factories, warehouses, etc. This had shown that banks’ repayment and debt recovery process was becoming more difficult.
Typically, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) was selling 10 Kia Morning cars at prices from 60-70 million dong car. Alternatively, Vietnam International Commercial Joint Stock Bank (VIB) offered for sale 59 cars under nine seats from 286 million dong per car.
Thus, the bad debt, which seemed to be a ‘blood clot’ of the whole economy, not only the banking industry that was seeking measures to destroy during the past time, was coming back. Therefore, experts believed that anticipating the impacts from the epidemic on production and business activities to have a treatment plan was an effective way to minimise the impact of bad debts.
