Bad debts at Vietnam’s banks rise 26% to nearly $5 billion

Khanh Minh Friday | 01/07/2022 13:04

Many banks have made provisions to handle bad debts. (Photo: SGGP)

As of third quarter 2021, bad debt of 27 commercial banks reached VND111 trillion ($4.9 billion), up 26% compared to the beginning of the year, according to the State Bank of Vietnam.

The increase of bad debt was the results of businesses being unable to pay back during the harsh time of COVID-19 pandemic. State-owned commercial banks are facing the same situation because they account for the majority of the industry’s total credit.

Deputy Governor of Vietnam State Bank Dao Minh Tu reported in the meeting to introduce new missions for banks in 2022 that due to the unexpected and grave COVID-19 outbreak, bad debts of banks in Vietnam went up significantly in 2021 to even more than 8 percent, compared to the set goal of under 3 percent.

The bad debt rates of Vietcombank and Vietinbank doubled to reach 1.1 percent and 1.66 percent, respective. In particular, group 4 (doubtful debt) of these banks experienced increases by 14 times and 10 times correspondingly, while Vietcombank’s group 5 (uncollectable debt) saw a dramatic rise of 45 percent.

The private commercial banks with the highest bad debt rates are LienVietPostBank (rising by 10 percent to be at VND2,700 billion or $118.7 million in comparison with the start of 2021), Techcombank (41-percent increase to VND1,820 billion or $80 million), and NamABank (148-percent increase to VND1,849 billion or $81.3 million).

The good news is most banks have already made record-high bad debt provision, along with the stable real estate market having positive liquidity. Therefore, they can comfortably handle these debts as well as unexpected situations that might happen in the upcoming time.

However, this provision itself has eaten away banks’ profits, especially in the third quarter of 2021 in spite of the positive accumulated profit for the first three quarters.

Vietcombank’s leaders shared that since it is the first to make a 100 percent provision for the restructured loan in accordance with the State Bank’s regulation, its overall profit in 2021 is obviously affected.

In fact, its profit before tax in the third quarter last year was only a 15.2-percent increase, much lower than those of private commercial banks. Yet in the long term, it will benefit from this action, especially as the pandemic is still unpredictable.

At present, commercial banks are adopting the State Bank’s Circular on reducing, postponing, and restructuring supports for enterprises to maintain the economic flow. As the real status of debts is not fully revealed, they are classified as sub-standard ones and have a high chance of becoming bad debts.

Deputy Governor Dao Minh Tu stressed that the Vietnam State Bank is going to implement solutions to control and handle existing bad debts while minimizing new ones. Simultaneously, it will closely supervise operations of credit organizations, particularly in high-risk aspects, in order to maintain the bad debt rate of under 3 percent.

Despite the negative impacts of the COVID-19 pandemic, the credit of the country economy in 2021 witnessed an increase of 13 percent compared to last year. The bad news is an unavoidable rise of bad debts in many banks. 

Source: SGGP

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