The process of restructuring and handling bad debts among credit institutions has so far achieved positive results while the overall credit quality has improved. 

Financial statements released by 15 large and medium domestic banks for the first quarter of 2019 show a distinct differentiation of bad debts among these entities.

By March 31, the total number of non-performing loans (NPLs) of the 15 banks had amounted to more than VND76 trillion (US$3.24 billion), a rise of 5.8 per cent since the beginning of the year.

Eleven of the 15 banks saw increased levels of bad debt during the year’s first three months. Only nine of them posted an increased ratio of NPLs to total lending, due to boosting credit.

VPBank reportedly had the highest NPL ratio, accounting for 3.62 per cent of total lending, a little more than the ratio of 3.5 per cent seen at the beginning of the year.

This was followed by the National Citizen Bank (NCB) with a bad debt ratio of 2.72 per cent, a sharp hike compared to the rate of 1.67 per cent seen in previous months.

The Bank for Investment and Development of Vietnam (BIDV) recorded the largest amount of bad debt with nearly VND18 trillion (US$768 million), slightly dropping by 4.9 per cent since the beginning of the year.

BIDV’s bad debt ratio also decreased to 1.74 per cent from 1.9 per cent.

Other commercial banks such as ACB, Sacombank, LienVietPostBank, and HDBank have reportedly reduced their bad debt ratio in comparison to the beginning of the year.

Indeed, these credit entities have intensified their bad debt settlement by restricting the transfer of bad debts to the Vietnam Asset Management Company (VAMC) and handling bad debts through debt sale, collateral assurance, and risk provisions.

Vietcombank recorded the second lowest level of bad debts among commercial banks. Pham Manh Thang, deputy general director of Vietcombank, revealed that by the end of 2018, the bank had managed to settle VND22.6 trillion (US$965 million) in bad debt.

The figure is equal to 134 per cent of the planned figure for the 2016-18 period and 75 per cent of the target for the 2016-20 scheme in line with its restructuring scheme approved by the State Bank of Vietnam (SBV) by 2020.

As for the first quarter of 2019, Vietcombank handled an additional VND200 billion (US$8.54 million) of bad debt.

By the end of March 2019, Vietcombank had been able to recover VND8.863 trillion (US$375 million) of off-balance-sheet debt, representing 71 per cent of the total projected for the 2016-20 period.

Thang unveiled that Vietcombank has utilized its resources to recover bad debts. This bank required its branches with a bad debt ratio of 3 per cent or more, or those with the total amount of VND50 billion (US$2.13 million) in bad debts or more, to establish a bad debt settlement board.

As a result, Vietcombank's total bad debt stood at over VND6 trillion (US$258 million) by the end of March, with the bad debt ratio plunging to 1.03 per cent. The bank has also set the target of slashing the rate to below 1 per cent.

In order to deal with bad debts effectively, Thang said that Vietcombank and others need to put their focus on mobilizing resources into controlling credit quality and handling bad debts swiftly, thus helping to unfreeze capital flows and giving a boost to economic development.

Bui Van Hai, deputy head of the SBV Banking Supervision Department, affirmed that the process of restructuring and handling bad debts among credit institutions has so far achieved positive results while the overall credit quality has improved. The official bad debt ratio has dropped below 2 per cent, he noted.

The low-level ratio indicates that credit institutions have exerted tight controls on newly arising bad debts and efficiently handled previous bad debt settlement as well.

Most notably, the relevant legal framework has improved, with some fundamental amendments made to mechanisms and policies aimed to assist credit institutions in restructuring and handling of bad debts.

The SBV has recently drafted a circular to replace the SBV’s Circular No. 19/2013/TT-NHNN prescribing the purchase, sale, and settlement of the VAMC’s bad debts.

Accordingly, those still reporting outstanding special bonds of the VAMC, will be not allowed to pay dividends in cash.

In fact, domestic banks have acknowledged that they are currently in the process of restructuring and settling bad debts.

Therefore, profits are mainly used for their provisions while some still refused to make dividend payments for shareholders and continued their accumulation for the future.

VOV