Fluctuating bad debt of banks

	Waiting for breakthroughs in handling non-performing loans
	VMAC builds strategy for debt trading
	Credit institutions recover US$251 million of bad debts each month

The chart compares bad debt ratio of the first six months of 2019 with the end of 2018 at some banks. Chart: H.Dịu

Bad debt proportionate with profit

Up to now, most banks have announced their second quarter financial statements. All of these banks have made profit. The billion-dollar "club" still includes big banks like Vietcombank, ACB, MB, HDBank, VIB, TPBank and Sacombank. Vietcombank has recorded a record high profit of over 11,300 billion dong. Many banks recorded high profit growth over the same period of up to 20%, even over 40%. In addition, in the context the State Bank (VSB) tightening credit, the financial statements showed a high credit growth in some banks, such as TP Bank increased by 13%, Vietcombank increased by 9.9% and MB increased 11.6%.

However, bad debt, especially sub-standard debt, tends to increase compared to the end of 2018. Typically, the bank with the highest profit in the last 6 months is Vietcombank. This bank's sub-standard debt has increased by 5.7 times compared to the beginning of the year to VND 1,670 billion. Debts of Group 5 - the bad debt is still above VND 4,700 billion but accounts for 67% of the bank's bad debt. Thus, by the end of June, Vietcombank's total bad debt increased by 14.6% compared to the beginning of the year, higher than the growth of outstanding loans. The ratio of bad debt on total outstanding loans of this bank from less than 1% has increased to 1.03%.

In SHB, bad debts continued to increase. The bank's bad debt increased from nearly VND 5,198 billion at the end of 2018 to over VND 6,910 billion in the first 6 months. Of which, the debt of capital loss has increased sharply by over VND 1,000 billion, accounting for nearly 72% of the total bad debt. Therefore, the ratio of bad debt to total outstanding loans of this bank also increased from 2.4% at the beginning of the year to 2.88%. Similarly, in TPBank, group 3 debt increased to 64% with 485 billion, debt group 4 - doubtful debt - nearly doubled to 468 billion, but debt group 5 only increased 19% to 383 billion. Currently, the ratio of bad debt on total outstanding loans at TPBank increased from 1.12% to 1.5%.

In addition, some other banks also tended to reverse the ratio of bad debt on total outstanding loans in the first six months. LienVietPostBank increased from 1.41% to 1.48%; Kienlongbank from less than 1% also increased to 1.15%; VPBank from 2.72% to 2.89%; BIDV from 1.9% at the beginning of the year climbed to 1.98%; PGBank increased from 2.96% to 3.06%.

Still going on?

It can be seen that commercial banks tend to increase bad debts but most of them still remain at below 3% of total of outstanding loans. But the trend of group 3 debt and group 4 debt increased sharply, raising questions about the possibility of forming new bad debts of banks. According to the analysis of VNDirect Securities Joint Stock Company, new bad debts are increasing, but it is different from the past, new bad debts come from private investment and retail lending. Therefore, the ratio of bad debt will be highest in banks with strong expansion in retail lending activities, especially consumer finance – a form of lending with high profitability but high hidden risk.

According to Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance, Academy of Finance, profits of banks increased sharply because the size of banks was also expanding. Therefore, banks will have to increase credit, the higher benefit the loan is, the riskier it is. In addition, many experts also said that bad debts increased because the amount of bad debts has not been solved thoroughly. Moreover, the first six months of 2019 it is also a five-year term of bonds are matured by Vietnam Asset Management Company (VAMC), so many banks started buying back this debt and putting them back onto their balance sheet.

Banks speed up resolving bad debts Commercial banks have been proactive in handling bad debts with many posting an increasing ratio.

Therefore, the experts said that the settlement and handling of bad debts have made significant progress since Resolution 42 on the handling of bad debts of the National Assembly took effect. Customers' sense of paying debt has improved when the credit institution, VAMC, has the right to seize collateral under Resolution No. 42. Therefore, the State Bank announced that from 2012 to the end of June 2019, for the whole system of credit institutions, 937,500 billion VND of bad debt has been handled, of which, in 2018, 163.140 trillion dong of bad debt was dealt with. As a result, the internal ratio on total of outstanding loans at the end of June 2019 was 1.91%. Therefore, besides many banks with increasing bad debts, many banks have reduced the bad debt ratio to below 1%.