Potentially irrecoverable debts continue to rise

In Viet Nam, debts are classified into five groups based on the degree of risk. These are standard debts, debts needing special attention, subprime debts, and doubtful debts, in addition to potentially irrecoverable debts. The last three are NPLs.-Photo thoibaonganhang.vn

According to Q3 financial reports released by 12 banks to date, their potentially irrecoverable debts by the end of September increased 28.17 per cent as against December last year to VND23.522 trillion (US$1.05 billion), accounting for 65 per cent of their total NPLs.

In Viet Nam, debts are classified into five groups based on the degree of risk. These are standard debts, debts needing special attention, subprime debts, and doubtful debts, in addition to potentially irrecoverable debts. The last three are NPLs.

Though the NPL ratio of the Bank for Investment and Development of Viet Nam (BIDV) by the end of September only inched up against early this year to 2.16 per cent, the bank's potentially irrecoverable debts surged 72 per cent to VND5.631 trillion ($251.38 million), making up nearly half of the bank's NPLs.

The BIDV, which attributed the sharp surge of the potentially irrecoverable debts to its merger with ailing Mekong Housing Bank (MHB) in May, reported a pre-tax profit of VND2.417 trillion ($107.9 million) in Q3, bringing the bank's pre-tax profits in the first nine months to VND5.535 trillion ($247.1 million), up 24.5 per cent year-on-year.

The potentially irrecoverable debts at the Bank for Foreign Trade of Viet Nam (Vietcombank) and the Viet Nam Bank for Industry and Trade (Vietinbank) also rose 38.28 per cent and 28.78 per cent to VND4.938 trillion ($220.44 million) and VND2.685 trillion ($118.6 million), respectively.

The Sacombank's potentially irrecoverable debts also surged 78.43 per cent to VND1.795 trillion ($80.13 million) while the rising rate at Viet Nam International Bank (VIB) was also up 51.44 per cent to VND789 billion ($35.22 million).

However, some banks reported a reduction in the potentially irrecoverable debts. Military Bank's debts dropped 22 per cent while the decreasing rates at ACB and Eximbank were 36 per cent and 43.6 per cent, respectively.

The director of a bank, who declined to be named, said that the potentially irrecoverable debts were mainly a result of previous debts that have not yet been retrieved.

For new loans, he said, banks would be very cautious in the appraisal and supervision to ensure there would be almost no potentially irrecoverable debts.

Banking expert Nguyen Tri Hieu also said that it would be difficult to avoid a rise in potentially irrecoverable debts as the progress in handling NPLs remained slow while it takes only a short time for subprime debts and doubtful debts to turn into potentially irrecoverable debts.

However, experts still suggested that the banks should apply stricter credit regulations to reduce the potentially irrecoverable debts.