Bad debt balance at many banks skyrocketed

Bad debt due to high consumer lending

An updated financial report of Tien Phong Commercial Joint Stock Bank (TPBank) shows that the total bad debt balance by the end of the second quarter of 2023 of this bank increased sharply by nearly 3 times compared to the beginning of the year, to 3,912 billion VND. Of which, substandard debt increased 5.6 times to 2,146 billion VND; doubtful debt also increased nearly 2.5 times, to nearly 1,130 billion VND. The ratio of bad debt/total outstanding debt of the bank therefore increased sharply from 0.84% ​​at the beginning of the year to 2.21%.

At Bao Viet Commercial Joint Stock Bank (BaoVietBank), total bad debt as of June 30, 2023 was recorded at VND 1,756 billion, a sharp increase of 58% compared to the beginning of the year. Notably, BaoVietBank's debt with the possibility of losing capital doubled to VND 1,523 billion, doubtful debt also increased by 41% to VND 154 billion. The bad debt ratio increased from 3.34% to 4.69%.

Similarly, bad debt at An Binh Commercial Joint Stock Bank (ABBank) also increased by 61% compared to the beginning of the year, to VND 3,820 billion as of June 30, 2023. The bad debt ratio increased sharply to 4.55% instead of 2.89% at the beginning of this year.

Not out of the trend, Bac A Commercial Joint Stock Bank (Bac A Bank) recorded a 32% increase in bad debt compared to the beginning of the year, to about VND679 billion, mainly due to a sharp increase of 316% in substandard debt to VND175 billion. The ratio of bad debt to total outstanding loans, although still low at 0.7%, has increased significantly compared to the rate of 0.55% at the beginning of the year.

As one of the first banks to publish its financial report, Lien Viet Post Joint Stock Commercial Bank (LPBank) recorded an 80% increase in bad debt after the first half of the year, reaching VND2,438 billion. The total bad debt balance also increased sharply by 65% ​​to VND5,656 billion.

At Petrolimex Commercial Joint Stock Bank (PGBank), bad debt after the past 6 months also increased by nearly 12.7%, bringing the bad debt ratio to 2.77% by the end of June 2023.

Having just announced its financial report with many bright spots such as profit completing more than half of the yearly plan and the recovery of non-term deposit flow (CASA), Vietnam Technological and Commercial Joint Stock Bank (Techcombank) also recorded an increase in bad debt after the first half of the year.

The bad debt ratio at this bank increased slightly from 0.9% at the end of 2022 to 1.07% at the end of the second quarter of 2023; meanwhile, the bad debt coverage ratio decreased from 125% at the end of last year to 115.8%.

According to Techcombank, bad debt increased slightly mainly from the retail customer group due to the growth of unsecured loans of the bank and the slowing economic growth along with difficulties in the real estate industry. At the same time, the impact of debt reclassification according to the National Credit Information Center (CIC), mainly related to outstanding home loans at other banks, also caused bad debt at this bank to increase slightly. If the impact of CIC is eliminated, Techcombank's bad debt ratio is controlled at 0.9%.

For the four state-owned commercial banks, although their financial reports have not been officially announced, the business picture for the first half of the year has been somewhat revealed.

At Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), Deputy General Director in charge of the Executive Board Nguyen Hoang Dung said the bad debt ratio was controlled at 1.1%, in compliance with the planned limit. The bad debt coverage ratio continued to remain high at 170%.

At the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), General Director Nguyen Thanh Tung revealed that as of the end of June 2023, credit quality was controlled with a bad debt ratio of 0.85%. Although this is the lowest figure in the system, it has increased compared to Vietcombank's rate of 0.68% at the end of 2022. The bad debt provision ratio is above 350%.

As for the Bank for Agriculture and Rural Development (Agribank), the bad debt ratio has been reduced from 8.1% to 1.86% after restructuring in the 2016-2020 period. However, the domestic and international macroeconomic context has faced many disadvantages and difficulties, businesses are operating at a standstill, production scale is shrinking, inventories are increasing, revenue sources are exhausted, leading to difficulties in repaying bank loans, and bad debt is increasing.

"Agribank's bad debt ratio as of June 30, 2023 has increased to the same level as the end of the 2016-2020 restructuring period and the pressure to increase in the coming time is very large," said Mr. Pham Duc An, Chairman of the Board of Members of Agribank.

Faced with the reality of increasingly large bad debts, banks have recently been actively liquidating, auctioning off collateral, and auctioning off debts to recover debts, but handling bad debts is not easy.

Nearly 400 assets including many villas, homestays, 3 to 5 star hotels in Quang Nam, Da Nang, Kien Giang, Ho Chi Minh City... have just been auctioned by VietinBank with the total value of collateral assets that need to be handled reaching more than 8,000 billion VND.

At Vietcombank, the assets including land use rights, machinery systems, factories... of Evergreen Engineering Company Limited, although put up for auction many times over the past year, have not yet found a buyer, even though the price has decreased by more than 300 billion VND compared to the original price.

Regarding debt settlement, Mr. Nguyen Quoc Hung, General Secretary of the Vietnam Banking Association, said that debt collection has encountered many difficulties in recent times. In particular, many valuable collateral assets are related to real estate, but the market is almost "frozen", making it difficult to handle assets. In addition, some customers with bad debts are uncooperative and difficult to negotiate. In particular, there is a phenomenon of debt default groups spreading on social networks, calling for non-payment of debts, especially for consumer loan customers.

According to experts, this is not the peak of bad debt because many debts are still being restructured according to Circular 02/2023/TT-NHNN on debt restructuring. When the circular expires, these debts will be transferred to other groups, causing the actual bad debt figure to increase even more sharply in 2024.

Dr. Can Van Luc, Chief Economist of BIDV, said that the increase in bad debt is a common trend in the world in the current difficult context. He clearly stated that the number of bad debts has increased compared to 2022 but is still under control. To reduce the burden of bad debt in the future, credit institutions are still proactively setting aside risk provisions to increase resources to handle bad debt.

"Circular 02 requires credit institutions, even if they have not yet transferred the debt group, to still set aside risk provisions to ensure that in the worst case scenario, they still have resources to handle it. Although the bad debt coverage ratio is about 135% of the total outstanding debt of the economy, not as high as before, it is still an important resource for banks to have more capacity to handle bad debt," Dr. Can Van Luc assessed.

According to VNA