VietNamNet Bridge - A report of the State Bank showed that the bad debt of the entire banking system had dropped from 10.08 percent in 2016 to 6.7 percent by the end of June 2018.

Banks' bad debt as of June 30, 2018

However, the bad debt has returned to many banks recently. Vietcombank, for example, has 3rd -, 4th - and fifth-group debts (fifth group debt is the worst debt, considered irrecoverable) at VND7.424 trillion, a sharp increase of VND1.215 trillion compared with the end of 2017. Notably, irrecoverable debt has increased by 2.35 times to VND4.578 trillion.

The non-performing loans of BIDV, also a state-owned large bank, increased by VND2.978 trillion to VND17.042 trillion in the first nine months of the year. Of this, irrecoverable debt has increased from VND2.477 trillion to VND7.704 trilion.

The bad debt has returned to many banks recently. Vietcombank, for example, has 3rd -, 4th - and fifth-group debts (fifth group debt is the worst debt, considered irrecoverable) at VND7.424 trillion, a sharp increase of VND1.215 trillion compared with the end of 2017.

VietinBank is also facing the same problem, reporting an increase from VND3.116 trillion to VND12.127 trillion.

The bad debt of joint stock banks is also on the rise. The ratio of bad debt to total outstanding loans of VP Bank surged from 3.39 percent to 4.7 percent in the first nine months of the year.

Meanwhile, Techcombank’s bad debt has surged from VND844 billion to VND3.428 trillion. VIB Bank to VND2.272 trillion. OCB has also reported the bad debt ratio rising from 1.79 percent in late 2017 to 2.66 percent.

The high risks have forced commercial banks to make higher provisions against risks. Vietcombank, for example, made up a provision of VND4.998 trillion, up by VND492, or VND491 billion higher than the same period last year. Meanwhile, BIDV’s provision is even higher, at VND14.365 trillion.

Analysts said the bad debt tends to increase again partially because banks have bought back parts of bad debts they sold to VAMC (Vietnam Asset and Management Company) previous. The banks plan to sell properties mortgaged for the loans to collect debts or make provisions against risks.

A State Bank official said the fifth-group debts increased rapidly recently partially because of the new debt classification method, under which debts are classified by clients, not debt items. 

This means that if one client has a fifth-group debt, all of his debts will be classified as fifth-group debts.

However, the official said banks have to make provisions for 100 percent of fifth-group debts, so the problem is not worrying.

Meanwhile, financial experts are not so optimistic, warning that it is necessary to pay special attention to the bad debt’s upward trend, which could be the result of the bank’s subprime loans.

Nguyen Tri Hieu, a banking expert, said the increased bad debt will force banks to make higher provisions against risks, which will eat into banks’ profit.

US$1=VND22,000

RELATED NEWS

Bad debts tend to escalate

Banks struggle to collect bad debts from 12 unprofitable super-projects

Mai Lan