Bad debt threat continues to loom

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According to Tran Du Lich, member of the National Financial and Monetary Advisory Council, the banking sector’s bad debts accounted for 4.17 per cent of total outstanding loans.

By the end of August, the banking sector had resolved VND210 trillion ($10 billion) non-performing loans (NPLs) with the remaining balance still at a staggering VND161 trillion ($7.6 billion), and rising.

Statistics from the State Bank of Vietnam (SBV)’s Ho Chi Minh City branch showed that by the end of July, bad debts made up 4.65 per cent of the city’s total outstanding loans.

Potentially unrecoverable debts account for 70 per cent of the total.

At state giant Vietcombank, which is regarded highly for its resolution of bad debts, total NPLs were reported at VND9.031 trillion ($430 million), coming to 3.09 per cent of total outstanding loans. Potentially unrecoverable debts (classified as Group 5 debts) rose 70.7 per cent in the first six months of this year to VND4.765 trillion ($227 million).

These figures were gleaned from the bank’s second quarter financial statement.

At Eximbank, potentially unrecoverable debts currently account for 61.7 per cent of total debts, reaching VND1.458 trillion ($69.4 million), up nearly 36 per cent against early this year.

Meanwhile, the bank’s credit contracted 3.69 per cent in the first half of this year.

Similarly, Group 5 debts at Sacombank rose by more than 31 per cent in the first half, accounting for 1.51 per cent of the bank’s total outstanding loans.

Also, Sacombank’s provisional funds more than tripled on-year in this year’s second half to VND216 billion ($10.2 million).

Deputy director of the SBV’s Ho Chi Minh City branch Nguyen Hoang Minh attributed rising bad debts to banks’ restructuring of debts and provisioning in light of new regulations on debt classification under the state bank’s Circular 09, dated March 2014.

Minh also said that so far this year banks based in Ho Chi Minh City settled more than VND8 trillion ($380 million) in bad debts, mostly through provisioning and selling bad debts to state-owned Vietnam Asset Management Company (VAMC).

Accordingly, in the January-August period this year, city banks sold more than VND1 trillion ($47.6 million) in bad debts to the Vietnam Asset Management Company and are considering selling even more.

The rising volume of potentially unrecoverable debts has dampened bank profits as they have had to commit more capital to their provisional funds. Experts therefore predict that banks may not reach even their modest profit targets this year if the situation continues.