Bad debt ratio drops to 2.18pc in five years

12:21 | 30/07/2018

The non-performing loan (NPL) ratio at Vietnam’s credit institutions has dropped from 3.61 per cent in 2013 to 2.18 per cent currently, according to the Vietnam Asset Management Company (VAMC).

bad debt ratio drops to 218pc in five years
Nearly VND310.52 trillion (US$13.5 billion) of bad debts were resolved through VAMC. - Photo vneconomy.vn

Deputy governor of the State Bank of Vietnam (SBV) Nguyen Kim Anh hailed the operation of VAMC over the past five years, saying that the company contributed significantly to lowering the NPL ratio of the entire banking system to below 3 per cent, while supporting enterprises during the debt-restructuring process.

According to VAMC chairman Nguyen Tien Dong, until June 30 this year, nearly VND310.52 trillion (US$13.5 billion) of NPLs were resolved through VAMC, accounting for 40 per cent of the entire banking system’s total NPLs. Of the total, VAMC coordinated with credit institutions to recoup nearly VND100 trillion.

Thanks to the National Assembly’s new resolution on NPL effective last year, the company recouped VND30.85 trillion of NPLs in 2017, equal to nearly two thirds of the total NPLs recouped in 2013-2016, Dong said.

Besides the purchase of NPLs from credit institutions by using its special bonds, VAMC has so far also bought more than VND3.1 trillion according to the market mechanism.

According to Dong, VAMC will gradually reduce the use of special bonds to buy NPLs and increase the purchase according to the market mechanism.

However, Dong suggested SBV increase the VAMC’s charter capital to VND5 trillion by the end of this year and VND10 trillion by the end of 2020 as approved by the Prime Minister in a move to provide it with more capital to buy NPLs according to the market mechanism. Currently, the company’s charter capital is only VND2 trillion.

VAMC plans to recover VND24.89 trillion of NPLs in 2018. It also sets to buy some VND30.5-35.5 trillion of NPLs from credit institutions this year.

The company is also stepping up its auctions of bad debts in 2018. So far this year, it has sold some VND380 billion in mortgages. These include auctioning the properties of the Tân Quốc Duy Steel Company’s property in southern Bình Dương Province, Puzolan Gia Lai Cement Company’s mortgage for a loan at Saigon-Hanoi Bank and bad debts belonging to Kim Sơn Building Material Production Company at the Commercial Bank for Investment and Development of Vietnam. The auctioned Kim Sơn’s assets, with a starting price of VND8.727 billion, was handed over to the new owner for VND9.427 billion.

Many credit institutions this year also expect to increase their repurchasing of NPLs that they sold to VAMC thanks to the country’s macroeconomic stability and a new National Assembly resolution on NPLs which helps institutions to resolve bad debts through real estate assets. Previously, banks had to sell their debts to the VAMC to keep their NPL ratios below 3 per cent as regulated by the central bank, but they still had to make provision for the debts. In fact, banks have identified the VAMC as a bad debt “landing” as the recovery of the debts at the VAMC is slow. The banks therefore have taken the initiative to handle the debts by themselves.

According to banking expert Bui Quang Tin, credit institutions should be capable of dealing with NPLs, fuelled by the warming of the real estate market as most of these debts have collateral in the form of real estate assets.

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