Bad debt has re-emerged as an issue for the banking system as it might be three times higher than reported, says a Vneconomy report.

Non-performing loans have been reevaluated once again as shown by a document recently published by the State Bank of Vietnam (SBV) as part of a project for drafting a law on support for the restructuring of banks and the settlement of bad debt.

In the banking system restructuring process, banks have improved the quality of their assets, credit and bad debt management, according to the SBV.

By end-2015, VND493.09 trillion of bad debt had been settled and in late 2016, the ratio of bad debt in the banking system was put at 2.46%.

However, the regulator of Vietnam’s banking sector has now taken a more cautious stance on non-performing loans, with the proportion of bad debt being not as low as 2.46% reported by credit institutions.

Though the ratio has been kept at less than 3%, bad debt has expanded in size, says the SBV. By the end of 2016, the ratio of bad loans on the balance sheet, those bought by Vietnam Asset Management Company (VAMC) from banks and loans that might turn sour had reached 8.86% of total outstanding loans given difficulties in dealing with assets used as collateral for bank loans and settling bad debt.

Prior to the introduction of the banking sector restructuring policy and the bad debt settlement plan, in 2011 and before, non-performing loans in the entire banking system were reported at 3% and briefly 3.4%.

However, the SBV did a re-evaluation by looking into banks’ reports and monitoring, and found out bad debt had reached a two-digit level. 

On September 30, 2012, bad debt in the system was determined at 17.21%.

SGT