Authorities get to grips with new bad debt mountain

A spike in the amount of bad loans sitting in banks’ books has triggered Vietnamese authorities to seek new paths to recovery,

with the upcoming bad debt exchange platform envisaged to allow investors to buy and sell distressed assets, which can boost market liquidity. 

1497p21 authorities get to grips with new bad debt mountain

Banks are among the entities hardest-hit by the outbreak. As in the past, they may again sell their bad debt to Vietnam Asset Management Company (VAMC), which allows them to amortise provisioning costs over five years, further limiting the near-term impact on earnings.

According to global rating firm Fitch Ratings, non-performing loans (NPLs) of Vietnamese banks largely comprise of mortgages and personal business loans and are usually secured by property, which may help recovery prospects in the event of default. However, the debt resolution process can be protracted and hindered by the country’s evolving legal framework. Meanwhile, banks’ underwriting standards also remain largely untested.

Deputy chief inspector of the State Bank of Vietnam (SBV) Tran Dang Phi noted the amount of soured loans has rallied since March, but said the situation is under control.

As cited from SBV statistics, by June the bad debt ratio of credit institutions was below 2 per cent, thus the ratio of the whole year may reach the target of below 3 per cent set in the prime minister’s Decision No.1058/QD-TTg dated July 19, 2017 on approving the scheme to restructure credit institutions in combination with NPL resolution in the 2016-2020 period. From 2012 to the end of March, the entire sector handled more than VND1 quadrillion ($43.5 billion) of soured loans.

Nguyen Duc Thach Diem, general director of Sacombank, noted that in the first five months of 2020, the bank successfully auctioned VND9.7 trillion ($42.17 million).

However, despite the rapidly-growing segment, many are facing hindrances accessing the distressed assets.

For instance, Nguyen Mien Tuan, vice chairman of Sacombank’s Board of Directors, admitted the process for auctioning the bank’s Phong Phu Industrial Park might be difficult, so Ho Chi Minh City People’s Committee asked the bank to suspend the sale for further review.

Last month, state-owned lender BIDV announced the latest round of sales at The Era Town project in Ho Chi Minh City’s District 7, with 55 apartments being offered at a 5 per cent discount compared to its initial offer.

Accordingly, the real estate products are on trade at VND2.08-5.26 billion ($90,400-228,700) each. On the other hand, some analysts cautioned the higher asset value is, the fewer buyers would be interested. Projects with total value above VND30 billion ($1.3 million) pale in comparison with lower-value ones.

Meanwhile, foreign bank branches, such as Mizuho Bank, Citibank, Bangkok Bank, and MUFG Bank have recorded a low NPL ratio – the total bad loans of these branches reached VND126 billion ($5.6 million), making up for 0.04 per cent of the whole system.

 

This is probably because these foreign lenders are focusing on their mainly deep-pocketed customers.

“Our customer base has been so far so good, and we haven’t recognised much of a spike in the NPL ratio. But I don’t think selling distressed assets is a sign of a stagnant economy. In fact, commercial banks should explore new solutions to get rid of NPLs in different mechanisms,” said Nirukt Sapru, CEO for Vietnam and ASEAN and South Asia Cluster Markets at Standard Chartered Bank.

VAMC, as reported by VIR, is preparing the foundation to set up a so-called bad debt exchange platform for 2020-2021, where investors can buy and sell distressed assets easily. This year, the company aims to settle NPLs worth VND50 trillion ($1.25 billion).

However, VAMC’s current charter capital of VND2 trillion ($87 million), which is relatively modest, will itself hinder the firm’s potential to cover more loans from commercial banks.

“In recent years, much has been done to improve the procedural requirements for registering a mortgage of land use rights in favour of a domestic lender, and this has freed up large amounts of capital for the development of residential and commercial properties across the country,” said Frederick Burke, principal at Baker McKenzie Vietnam.

However, foreign lenders cannot take a direct security interest or mortgage of land use rights in Vietnam. Therefore, they have to co-operate with local banks who may not have a balance sheet strong enough to meet the mandatory prudential requirements applicable to both domestic and foreign lenders.

“There are plenty of foreign investors who can deploy various forms of debt and equity capital to take stakes in struggling Vietnamese property companies at the shareholders’ level, as has happened in the financially hard times Vietnam has experienced in years past,” Burke told VIR.

For example, China is now embracing foreign funds as the country grapples with a tide of bad debts. Some US firms, including Oaktree Capital Group and Bain Capital Credit, have already been pushing into one of the world’s largest distressed debt markets. VIR

Huong Thanh

Restructuring, bad debts prevent VN banks from paying dividends

Restructuring, bad debts prevent VN banks from paying dividends

At Sacombank’s annual general meeting held on June 5 its permanent vice chairman Pham Van Phong said that in 2019 the bank’s pre-tax profit increased by 43.2 per cent to VND3.2 trillion (US$137.5 million), which was 21.4 per cent above the target.

VN Asset Management Company targets to settle $2.15bil. bad debts this year

VN Asset Management Company targets to settle $2.15bil. bad debts this year

The Vietnam Asset Management Company (VAMC) targeted to settle bad debts worth totally VND50 trillion (US$2.15 billion) this year.

 
 

Other News

.
Banks forecast lower profit and credit growth rates
Banks forecast lower profit and credit growth rates
BUSINESSicon  30/07/2020 

Domestic activities have returned to normal, but Vietnam’s major partner economies are still affected by the Covid-19 pandemic.

Pepper export turnover hits $385 million by mid-July
Pepper export turnover hits $385 million by mid-July
BUSINESSicon  29/07/2020 

Vietnam exported over 182,000 tonnes of pepper worth 385 million USD as of mid-July, according to the General Department of Customs.

ASEAN membership fuels Vietnam’s trade with regional markets
ASEAN membership fuels Vietnam’s trade with regional markets
BUSINESSicon  29/07/2020 

Vietnam’s participation in ASEAN 25 years ago has helped the country enjoy strong growth in trade with other member nations.

Despite Covid-19, Vietnam exporters still find new markets
Despite Covid-19, Vietnam exporters still find new markets
BUSINESSicon  29/07/2020 

Vietnam’s fruit exporters has been striving to sell to new markets because they understand that reliance on the Chinese market will bring high risks.

Garment, footwear and woodwork companies look forward to receiving orders in H2
Garment, footwear and woodwork companies look forward to receiving orders in H2
BUSINESSicon  29/07/2020 

After half a year of struggling to survive difficulties caused by Covid-19, Vietnamese enterprises are hoping that more orders will come over the next six months.

Banks face exchange-rate risks when issuing international bonds
Banks face exchange-rate risks when issuing international bonds
BUSINESSicon  29/07/2020 

Many commercial banks have presented plans at shareholder meetings to issue bonds in the international market.

Face mask prices on the rise
Face mask prices on the rise
BUSINESSicon  29/07/2020 

The price of medical masks is on the rise after two new COVID-19 cases were confirmed on Sunday evening, bringing the total number of community infections linked to Da Nang and Quang Ngai to four in the past three days.

Group set up to inspect VN pork market
Group set up to inspect VN pork market
BUSINESSicon  29/07/2020 

The Ministry of Industry and Trade has founded a group to inspect the pork market which saw prices at high levels since the end of 2019 despite the Government’s effort to increase supply to make up for the drops caused by African swine fever.

Decree takes effect in September to raise standards for corporate bond market
Decree takes effect in September to raise standards for corporate bond market
BUSINESSicon  29/07/2020 

The Government’s Decree 81, which comes into effect on September 1, will help raise the corporate bond market standards and remove low-quality issuers to better protect investors.

First protocol amending ASEAN Trade in Goods Agreement approved
First protocol amending ASEAN Trade in Goods Agreement approved
BUSINESSicon  28/07/2020 

The Government has issued a resolution approving the first protocol that amends the ASEAN Trade in Goods Agreement (ATIGA).

VN securities firms enjoy strong Q2 gains
VN securities firms enjoy strong Q2 gains
BUSINESSicon  28/07/2020 

After touching bottom in the first quarter of 2020 because of COVID-19, Vietnam’s stock market staged a strong comeback in the following quarter, allowing securities firms to enjoy sharp increases in both revenue and profit.

Local airlines open new domestic air routes to increase revenue
Local airlines open new domestic air routes to increase revenue
BUSINESSicon  28/07/2020 

To offset the decline in revenue from international flights, airlines have been trying to exploit more domestic air routes.

Vietnam's trade surplus continued to grow in H1 despite Covid-19
Vietnam's trade surplus continued to grow in H1 despite Covid-19
BUSINESSicon  28/07/2020 

The trade surplus soared in the first six months, though the GDP rate grew by only 0.36 percent in Q2 as Covid-19 escalated in many countries.

VN banks still make high profits, though businesses hit hard by Covid-19
VN banks still make high profits, though businesses hit hard by Covid-19
BUSINESSicon  28/07/2020 

Applying drastic measures to cut costs and ease reliance on capital sources, commercial banks continued to make profits in the first half if the year, However, they have been warned of bad debts ahead.

Vietnam's catfish industry experiencing tough days, no improvement expected this year
Vietnam's catfish industry experiencing tough days, no improvement expected this year
BUSINESSicon  28/07/2020 

Catfish products saw the strongest decline among seafood exports in the first six months of the year. With weak demand, a gloomy year is anticipated for the industry.

Gold prices hit all-time high
Gold prices hit all-time high
BUSINESSicon  27/07/2020 

Gold prices soared near VND57 million (US$2,486) per tael (1.2 ounces) on the local market on first day of the week while the yellow metal also made its history in prices, hitting an all-time high.

Hanoi removes barriers to investment in high-tech agriculture
Hanoi removes barriers to investment in high-tech agriculture
BUSINESSicon  28/07/2020 

Hanoi’s farming sector has proposed that the city adjust the mechanisms and policies to promote marketing and branding of high-tech agricultural products.

Resurgence of Covid-19 further thwarts Danang's economic recovery
Resurgence of Covid-19 further thwarts Danang's economic recovery
BUSINESSicon  27/07/2020 

The complicated progression of Covid-19 in Danang has dealt a blow to the city’s efforts to grow its economy this year and may drag Vietnam's economic recovery.

Asia-Pacific investment volumes in real estate fall due to COVID-19
Asia-Pacific investment volumes in real estate fall due to COVID-19
BUSINESSicon  28/07/2020 

Asia Pacific’s commercial real estate market has felt the brunt of COVID-19 so far this year, with a sharp decline in investment volumes and rental prices across most major commercial asset classes, according to real estate services firm JLL.

Organisations rush to sell Sacombank shares to retrieve debts
Organisations rush to sell Sacombank shares to retrieve debts
BUSINESSicon  27/07/2020 

Some organisations have rushed to sell shares of Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) to retrieve bad debts, but it was not easy to find buyers agreeing with the offered price.

 
 
 
Leave your comment on an article

OR QUICK LOGIN