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Banks face bad debt risks amid pandemic

After two years of strong recovery and high growth, the banking sector is facing major challenges because of Covid-19.

Moody’s earlier this month released a report on the prospects of Vietnam’s banking sector and the impact of the epidemic. The credit rating firm believes that SBV will allow the banks that meet Basel lI standards to increase credit limits this year.

 

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At the end of 2019, Moody's lowered Vietnam's credit rating to "negative", and lowered the credit outlook for 18 Vietnamese banks in accordance with the sovereign ranking. The move has affected Vietnamese banks’ ability to borrow foreign capital.

In the latest report, Moody’s said state-owned banks and small banks will need to increase capital to increase asset growth while maintaining capital adequacy ratio (CAR).

Moody’s earlier this month released a report on the prospects of Vietnam’s banking sector and the impact of the epidemic. The credit rating firm believes that SBV will allow the banks that meet Basel lI standards to increase credit limits this year.

Meanwhile, the SBV’s Credit Department has warned of the bad debt increase as Covid-19 has had adverse impacts on all business fields, affecting business solvency.


By early March, 23 credit institutions had reported that their VND926 trillion worth of outstanding loans may be affected by COVID-19. This accounts for 14.27 percent of their total outstanding loans and 11.3 percent of total outstanding loans of the whole banking system.

The business fields which have most suffered from the epidemic are agriculture, forestry and aquaculture, import/export, accommodation service, food and drink, transport, textile and garment, footwear, electronics, refrigeration engineering, oil and gas, tourism and education.

Commercial banks will not only see lower income from credit, but also lower revenue from service fees as all transactions in the economy will slow down.

Thirty two commercial banks have announced they will join witj NAPAS, the unit that connects banks and provides diverse payment portal to card users, to run a program on money transfer fee exemption and reduction.

As the economy is predicted to become stagnant, supply chains have been interrupted and increase in bad debt is expected.

The General Statistics Office (GSO) reported that the industrial production index in the first two months of the year increased by 6.2 percent in comparison with 2019, a sharp decrease from the 9.2 percent growth rate of the same period last year.

The Purchasing Managers’ Index (PMI) also showed negative signs as it dropped to below 50.

Regarding demand, the total goods and service retail revenue in the first two months only increased by 8.3 percent, lower than the 12.2 percent growth rate of the first two months 2019.

The credit growth rate by February 20, 2020 decreased by 0.18 percent compared with the beginning of the year. 

Kim Chi

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