As of the end of the third quarter of 2024, the NPLs (non-performing loans) of the entire banking system had reached VND252 trillion, up by 20.7 percent over the same period last year and 30.3 percent over the beginning of 2024.

The situation has not improved much because the national economy and the real estate market are still recovering slowly. Loans have been disbursed within a short time, and increased most sharply in the real estate sector where there are always high risks.

Meanwhile, small private banks do not have advantages in choosing clients, so many of their clients are those with weak financial capability and slower recovery than others.

Banks’ third quarter reports showed that second- and fourth-group debts were lower than that of the second quarter, while third- and fifth-group debts increased by VND8 trillion, or 6.4 percent.

Fifth-group debts are the worst debts, mostly irrecoverable.

The bad debts from second to fourth-group all have increased compared with the beginning of the year (0.8, 41.7, 6.9 and 40.4 percent, respectively), especially fifth-group debts.

According to Sai Gon - Hanoi Securities (SHS), the increase in NPLs and the decrease in LLCR (loan life coverage ratio) show the degradation of asset quality of the entire banking system.

The LLCR fell to 83 percent in the third quarter of 2024, far from its peak of 143.2 percent in the third quarter 2022.

SHS predicted that the NPL ratio and LLCR are expected to improve by the year end as banks will focus on using provisioning to clear bad debts.

Meanwhile, a recent report by Vietcombank Securities Company (VCBS) showed that the narrowing of reserve buffers of the entire banking sector in the first half of the year has restricted debt handling capabilities, especially for banks with high-risk customer portfolios and a high debt restructuring to total credit ratio.

The banks with diverse customer bases, strong reserve buffers, moderate real estate lending proportion and corporate bond proportion in total outstanding loans can better manage credit costs.

Analysts noted that high bad debt ratios are mostly at private banks, especially retail banks.

Among state-owned banks, BIDV saw the bad debt ratio increasing sharply compared with the beginning of the year, from 1.26 percent to 1.71 percent.

VPBank, SHBank, MSBank, BVBank, ABBank and PGBank had NPL ratios of over 3 percent in the first nine months of the year.

Regarding the LLCR, Techcombank is the only non-state bank that has a provisioning ratio of over 100 percent, while small and medium banks have lower buffer reserves with LLCR of 40-70 percent.

Meanwhile, Circular 02 on debt restricting will expire on December 31, 2024. There has been no official information about the extension of the circular.

At the end of the second quarter of 2024, the debts restructured in accordance with Circular 02 were valued at VND230 trillion, up 25.6 percent over the beginning of the year. Under current regulations, banks have to make provisions against risks in accordance with the circular based on classified debt groups.

According to SHS, if the State Bank of Vietnam (SBV) doesn’t extend Circular 02, this may lead to an increase in NPLs and decrease of LLCR, but won’t affect banks’ provisioning.

The expiry of Circular 02 will have a different impact on different banks. The banks with healthy assets such as BIDV, Vietcombank, VietinBank, Techcombank and ACB will bear less impact thanks to reserve buffers and good financial health. Others will be more afrected.

However, VCBS believes that the bad debt pressure in the second half of the year will not be too high, if noting that the bad debt has decreased thanks to the recovery of the national economy and that the bad debt created by Yagi typhoon.

SBV has estimated that by September 20, about VND116 trillion worth of loans in cities and provinces had been affected by the typhoon.

Banks’ bad debt status will vary for different banks. The banks with high asset quality will have bad debts and restructured debts at a moderate level. 

By contrast, banks with a high proportion of credit provided to businesses (including corporate bonds) and low bad debt coverage ratio may face increased bad debt risks and heightened provisioning pressures in 2024-2025.

Tuan Nguyen