The State Bank of Vietnam (SBV) directed the Vietnam Asset Management Company (VAMC) to bring the bad debt ratio to below 3 percent by the end of September 2015, but rising debt is challenging the SBV’s objective.
Rebounding bad debt
Currently, non-performing loan (NPL) data updated are lagged in time and inconsistent. Two different bad debt data are announced by two agencies, one by credit agencies and one by Bank Supervision Inspection Agency under the SBV. The value announced by the SBV Bank Supervision Inspection Agency is often higher than data reported by credit institutions, because the former looks into the nature of bad debts structured under Decision 780.
As of mid-May 2015, the latest bad debt data were calculated from January 2015 by the SBV, not as of now.
According to data reported by commercial banks, bad debt ratio rebounded sharply from 3.25 percent in December 2014 to 3.49 percent in January 2015. Amid the SBV’s efforts to tackle bad debts, rebounding NPL turned very noticeable.
Bad debt had continuously declined since June 2014, from 4.17 percent to 3.25 percent. As bad debt data were just counted as of January 2015, the trend for the following months was unclear. The SBV’s direction on bad debt settlement will have major impacts in this period. The SBV has imposed fixed bad debt ratio for credit institutions selling debts to VAMC. According to general direction, member credit institutions must sell at least 75 percent of bad debts as of June 30, 2015 and 100 percent as of September 30, 2015.
The expiry of Decision 780 on April 1 on debt grouping also affects bad debt reporting. Given sufficient counting, debt groups will certainly continue to rise.
Unsatisfactory explanations
Some banks now have very high NPL ratios. Southern Bank’s bad debt amounted to VND2,553 billion as of the end of 2014, an increase of VND948 billion, accounting for 5.89 percent of total loans. With its excessive bad debt ratio, the lender admitted the impossibility of bringing the ratio to the target set by the SBV and endeavoured to take it to below 5 percent this year. Currently, the bank is completing its merger procedures with Sacombank. If the SBV approves the case, the bank expects to finalise it in June.
According to its financial statement of the third quarter of 2014, DongA Bank also reported its overdue loan at nearly VND7 trillion, equal to 13.5 percent of its total loans.
Nguyen Hoang Minh, Deputy Director of SBV HCM City Branch, said that bad debts of the banking system in the city exceeded VND60,800 billion as of March 31, 2015, representing 5.53 percent of total outstanding loans.
The statistical data raised concerns over alarming rising bad debt. Worse still, there are no radical solutions to digest bad debts of the banking system. In fact, bad debts are just moving from one place to another in a given period, rather than being rooted out. Banks have sold debts to VAMC to temporarily clean up their balance sheets.
The SBV has certified in writing that VAMC is allowed to issue VND80 trillion of special bonds to get hold of bad debts in 2015. After over one year of operation to the end of 2014, VAMC purchased nearly VND121 trillion of principal debts from 39 credit institutions and recovered over VND4.1 trillion.
If bad debt is not wiped out but just temporarily forwarded to VAMC, the economy will have no capital for recovery and development. Eventually, fundamental solutions to bad debts have to be sought out.
Vietnamese
