VietNamNet Bridge – Of the VND6.5 trillion worth of debts the Vietnam Asset Management Company (VAMC) has bought so far, 67 percent is in the real estate sector.

According to Nguyen Hoang Minh, Deputy Director of the HCM City Branch of the State Bank of Vietnam, the bad debts of the banks in the city had accounted for 5.99 percent of the outstanding loans by the end of September.

The worrying thing is that the fifth-group debts, or irrecoverable debts, amount to 70 percent of the total bad debts, mostly seen in real estate and consumer credit. Finance companies have been found as having the highest bad debt ratio, 44.4 percent.

Minh said banks have been trying every possible way to deal with the bad debts – making provisions against risks, urging debtors to pay debts and sell collaterals.

The second solution proves to be the best one, but many businesses cannot pay debts now in the context of the economic downturn. Meanwhile, it takes time and money to take legal proceedings against the debtors. It is also very difficult to sell the assets mortgaged for the loans in the context of the frozen real estate market.

The situation is more tragic at small banks. PG Bank’s report showed that its credit growth rate was minus in the first nine months of the year, while the bad debt ratio accounted for 9.5 percent of its outstanding loans, or VND1.24 trillion.

The noteworthy thing is that the bank’s fifth-group debt had triple by the end of September in comparison with the second quarter, which means the sharp increase of 188.7 percent, from VND237.3 billion to VND685 billion.

This has forced the bank to make higher provisions against risks, at VND9.6 billion in the third quarter, thus leading to the pretax profit decreasing to VND72.3 billion.

PG Bank is one of the banks which have to sell bad debts to VAMC. In early October 2013, PG Bank sold the debts for VND170 billion worth of five-year bonds.

Navibank, one of the nine weak banks subject to the compulsory restructuring bank, reportedly has the bad debt ratio of over 6 percent.

A report showed that by the end of June 2013, the bank’s bad debt had reached 854 billion, an increase of 17.6 percent in comparison with the end of 2012.

While the third-group and fourth-group bad debts of Navibank by the end of the second quarter had decreased by 30 percent and 40 percent, respectively, in comparison with the same period of 2012, the fifth-group debts had increased by 33 percent.

The big bad debts have eaten into banks’ profits. VietinBank, which was among the banks with the highest pretax profits in 2012, reported the sharp profit decrease in the first two quarters of the year due to the high provisioning.

VietinBank is the bank which had had the highest bad debts by June 30, 2013, about VND7 trillion.

However, SHB, with VND5.288 trillion worth of bad debts, is the bank with the highest bad debt ratio, 9.04 percent.

By June 30, 2013, the fifth-group debts had accounted for 50 percent of the banks’ bad debts.

US$1 = VND21,000

Chi Mai