Be careful with bad debt risks and ensure capital adequacy

VCN - The World Bank (WB) expert recommended that the authorities should carefully monitor the increase of bad debt and promote the application of capital adequacy regulations for all banks to ensure the health of the banks in the financial sector.
Growth of credit and deposits at banks. Source: WB
Growth of credit and deposits at banks. Source: WB

The impact has not been fully reflected in the books

In a report recently published by the World Bank in Vietnam, this agency assessed that the State Bank of Vietnam (SBV) would still maintain a loose monetary policy in the first half of 2021. The State Bank of Vietnam kept the refinancing interest rate at 4% and encouraged commercial banks to lend new loans at lower interest rates or restructure loans, waive and reduce interest and fees, and maintain the same debt group to support customers affected by the Covid-19 pandemic.

However, according to experts, the banking industry needs to be cautious because the impact of Covid-19 has not been fully reflected on the books due to the policy of restructuring the repayment term. Besides, the average number can mask the problems that each bank is facing.

The World Bank's report also said that the ratio of outstanding loans to GDP reached 136% in 2019, increased sharply to 146% by the end of 2020, increasing risks for banks, due to their relationship with other industries such as tourism, aviation, and possibly real estate.

This is evidenced by the deterioration of loan quality in some banks. In the report to the Government, the State Bank forecasts that by the end of December 2021, the bad debt ratio of the whole system will be at 2-3%; the ratio of bad debt on the balance sheet, unresolved debt sold to VAMC and potential debt becoming bad debt of the whole system is at 4-4.5%.

If the debts that are not transferred to bad debts due to the repayment term structure according to Circular 01/2020/TT-NHNN by the end of December 2021 have not yet been calculated, the ratio of bad debts on the balance sheet and debts sold to VAMC has not been resolved and the potential debt to become bad debt of the credit institution system will be at nearly 5%.

According to many experts, this bad debt ratio is still much lower than reality because the State Bank has issued temporary measures to allow the rescheduling of debt repayment terms for customers in difficulty in accordance with Circular 03 amending Circular No. April 1, 2020/TT-NHNN.

According to the Vietnam Banks Association (VNBA), from June 10, 2021 to the beginning of August 2021, more than VND600 trillion of outstanding loans were affected out of the total actual outstanding loans of more than VND1.19 quadrillion.

However, Circular 03 only allows debt restructuring with outstanding loans arising before June 30, 2020 and can only extend the debt restructuring period to December 31, 2021. But in the context of the current pandemic, in more than three months, banks are worried that businesses still cannot repay their debts, so the risk of bad debt transfer is very high

Recognizing these difficulties, the State Bank is seeking opinions on amending Circular 03, in which the remarkable point is to extend the time for debt restructuring, interest and fee exemption and reduction by six months compared to the current one.

Bad debt ratio and capital adequacy ratio of credit institutions. Source: WB
Bad debt ratio and capital adequacy ratio of credit institutions. Source: WB

Be careful when the capital adequacy ratio is not guaranteed

In addition to the concerns of bad debt, the WB's report said that the overall capital adequacy ratio (CAR) of banks decreased from 11.95% at the end of 2019 to 11.13% in December 2020 and 11.1% at the end of June 2021. These general figures may mask the vulnerability of some commercial banks, including those with low CAR, as demonstrated by their inability to meet the requirements of the banking sector of Basel II standards.

According to WB experts, the increased risk of default could increase stress in the financial sector over time.

According to Ms. Dorsati Madani, senior economist at WB in Vietnam, the SBV has issued many guidelines for banks to be able to delay debt for businesses and people affected by the pandemic. The abundant liquidity in the market is a positive sign. However, the agency in charge of monetary policy should be careful with the growing risks of bad debt, especially in banks that have not yet ensured capital adequacy.

In addition, WB experts said that the competent authorities need to develop a strategy to end the measures that allow the restructuring of the repayment terms clearly, as well as issuing a plan to deal with bad debts. In addition, there should also be a clear mechanism to handle weak and struggling banks and continue to recapitalize banks to meet the requirements of Basel II.

By Hương Dịu/Bui Diep

Related News

Remove gold monopoly to bounce back its normal state

Remove gold monopoly to bounce back its normal state

VCN - According to Dr. Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council, gold should be allowed to return to its normal state because the fear of "goldization" only occurs when gold is deposited in commercial banks as a form of deposit. The most radical solution to eliminate the unreasonably huge gap in domestic and international gold prices is still to allow gold imports.
The bad debt ratio has increased, putting pressure on banks

The bad debt ratio has increased, putting pressure on banks

VCN - According to the summary of 2023 business results of 28 listed banks, the total volume of bad debt by the end of 2023 increased by more than 40% compared to 2022, to nearly 195,000 billion VND.
Behind the impressive net profit growth in the fourth quarter of 2023

Behind the impressive net profit growth in the fourth quarter of 2023

VCN - In the context of business results for the fourth quarter of 2023, besides the impressive increase in net profit, there are still many points that need to be considered more carefully such as revenue that has not increased correspondingly, gross profit margin sharply decreased, and abnormal profit increases sharply.
It is necessary to improve the financial capacity of four state-owned commercial banks

It is necessary to improve the financial capacity of four state-owned commercial banks

VCN - Facing with the current situation of the economy's capital needs and ensuring the safety of the banking industry, improving the financial capacity of state-owned commercial banks always needs to be done.

Latest News

Developing State budget estimates for 2025: carefully taking factors increasing, decreasing and shifting revenues into account

Developing State budget estimates for 2025: carefully taking factors increasing, decreasing and shifting revenues into account

VCN - The Ministry of Finance is developing a circular guiding the development of state budget estimates for 2025 and the 3-year state budget and financial plan for the 2025-2027 period; 5-year financial plan for the 2026-2030 period.
Ministry of Finance proposes seven solutions for combating tax evation for e-commerce

Ministry of Finance proposes seven solutions for combating tax evation for e-commerce

VCN - Vietnam e-commerce will reach US$30.5 billion in 2035 hence according to Minister of Finance Ho Duc Phoc, it will pose challenges to the management of tax, quality of goods, and anti-fraud.
Banks are ready to deploy biometric authentication

Banks are ready to deploy biometric authentication

VCN - According to Decision No. 2345/QD-NHNN dated December 18, 2023 of the State Bank, which will take effect from July 1, money transfer transactions over 10 million VND/time or over 20 million VND/day will require facial authentication. Accordingly, banks are urgently preparing to be ready to implement new regulations within the set deadline.
Review the tax payment of sales livestream individuals

Review the tax payment of sales livestream individuals

VCN - The General Department of Taxation has just issued an official letter directing local tax departments to drastically manage e-commerce taxes and electronic invoices generated from cash registers.

More News

13 cases subject to direct tax registration with Tax authority

13 cases subject to direct tax registration with Tax authority

VCN – The Ministry of Finance collects comments on a draft Circular guiding tax registration to replace Circular 105/2020/TT-BTC. According to the draft, if the National Population Database
Ministry of Finance: Focusing on improving independent audits

Ministry of Finance: Focusing on improving independent audits

VCN - According to Minister of Finance Ho Duc Phoc, in recent times, the Ministry of Finance has focused on improving the quality of independent audits through training, inspection, and examination.
Digitizing the process, banks actively lend online

Digitizing the process, banks actively lend online

VCN - Many banks promote online lending to save time and costs for both parties and creating conditions to promote credit growth.
The finance sector

The finance sector's firm stance on combating tax evasion in e-commerce

VCN - Addressing and clarifying some opinions raised by National Assembly deputies during the questioning session on issues related to the commerce and industry sectors on the afternoon of June 4, Minister of Finance Ho Duc Phoc stated that in the coming period, the finance sector would rigorously enforce tax collection on e-commerce to ensure fairness in the fulfillment of taxpayers' obligations.
Total State revenue managed by Tax sector is estimated at VND767,415 billion

Total State revenue managed by Tax sector is estimated at VND767,415 billion

VCN – The total state revenue in the first five months of 2024 managed by the Tax authority is estimated at VND 767,415 billion, meeting 51.6% of the target and 114.9% year-on-year.
Tax sector cooperate with Police agency to prevent fraud of tax invoice

Tax sector cooperate with Police agency to prevent fraud of tax invoice

VCN - Over the years, the acts of law violation on electronic tax invoices took place complicatedly with many different tricks. To prevent fraud, the tax sector has applied several drastic measures, including strengthening cooperation with the Police agency.
Over 4.49 billion USD raised through G-bond auctions in five months

Over 4.49 billion USD raised through G-bond auctions in five months

The State Treasury mobilised more than 127 trillion VND (4.49 billion USD) from G-bond auctions on the Hanoi Stock Exchange (HNX), or 31.76% of the annual plan.
Five-month budget revenue reached half of the whole year 2024 revenue estimate

Five-month budget revenue reached half of the whole year 2024 revenue estimate

VCN - According to the Ministry of Finance, in May 2024, total state budget revenue is estimated to reach VND150.9 trillion. In the first five months of 2024, total budget revenue is estimated to reach VND898.4 trillion, equal to 52.8 percent of the estimate.
Bank savings of individual customers recover while institutional savings decline

Bank savings of individual customers recover while institutional savings decline

Deposits of individual customers at banks have increased again since February this year, after declining in January, the latest statistics from the State Bank of Vietnam (SBV) showed.
Read More

Your care

Latest Most read
Developing State budget estimates for 2025: carefully taking factors increasing, decreasing and shifting revenues into account

Developing State budget estimates for 2025: carefully taking factors increasing, decreasing and shifting revenues into account

VCN - The Ministry of Finance is developing a circular guiding the development of state budget estimates for 2025 and the 3-year state budget and financial plan for the 2025-2027 period; 5-year financial plan for the 2026-2030 period.
Ministry of Finance proposes seven solutions for combating tax evation for e-commerce

Ministry of Finance proposes seven solutions for combating tax evation for e-commerce

Vietnam e-commerce will reach US$30.5 billion in 2035 hence according to Minister of Finance Ho Duc Phoc, it will pose challenges to the management of tax, quality of goods, and anti-fraud.
Banks are ready to deploy biometric authentication

Banks are ready to deploy biometric authentication

VCN - VPBank recommends that, to avoid transaction interruptions, customers proactively update their account information according to their chip-embedded citizen identification card before July 1.
Review the tax payment of sales livestream individuals

Review the tax payment of sales livestream individuals

The General Department of Taxation has just issued an official letter directing local tax departments to drastically manage e-commerce taxes and electronic invoices generated from cash registers.
13 cases subject to direct tax registration with Tax authority

13 cases subject to direct tax registration with Tax authority

VCN - Notably, Article 4 of the draft Circular stipulates that taxpayers subject to direct tax registration with tax authorities include: taxpayers subject to tax registration through the interconnected single-window mechanism; Taxpayers subject to direct
Mobile Version