The volume of bad debts of HCM City-headquartered credit institutions has increased dramatically over last year, according to a recent report by the State Bank of Vietnam’s HCM City branch.
But the SBV branch did not reveal all details about it.
In particular, a number of credit institutions had the ratio of bad debt, or non performing loans (NPLs), of over 5 percent.
Among them, bad debts in category 5, or irrecoverable debts, also rose, said the report, without citing the details.
Agribank has the highest percentage of bad debts, over 15 percent, among the group of 4 major state-owned commercial banks, including the Bank for Investment and Development of Vietnam (BIDV), the Bank for Foreign Trade of Vietnam (Vietcombank), the Vietnam Bank for Industry and Trade (Vietinbank), and Agribank.
Regarding the joint-stock commercial banks in HCM City, consisting of 16 headquarters, 9 municipal branches and 158 representative offices, the average NPLs ratio was 2.59 percent.
Commercial banks with headquarters outside the city had an average NPLs ratio of 26 percent.
As of November 2011, NPLs ratios of financial companies, financial leasing firms, and People’s Credit Fund in HCM City were 16.97 percent, 23.31 percent and 5.46 percent, respectively.
As of August 2011, the total bad debts in the primary, residential and organisational, market of credit institutions were 3.85 percent.
The statistics of SBV branch also showed that, as of October 31, 2011, many banks had operated with less profit or even suffered losses, probably due to unrecoverable debt in the real estate sector.
In 2012, the central bank instructed banks in the city to minimise bad debts incurred to keep the proportion of bad debts in the total outstanding credit below 5 percent.
In December 2011, Tran Minh Tuan, deputy governor of the SBV said at a conference that the publicised bad debt figure did not reflect the true credit risk of the local banking system as credit institutions did not classify debts in accordance with regulations, according to Thanh Nien newspaper.
In 2008, the central bank requested all commercial banks to classify and set aside loan loss provisions according to new standards, which included more than 50 criteria to determine the timing and capability of debt repayments.
However, only three banks, BIDV, Vietcombank and Techcombank, had then followed the central bank’s regulations.
“If new [debt classification] standards are applied, bad debts and loan loss provisions will double or even triple, an unnamed bank CEO gave the reason, saying that high provisions for loan losses will ultimately reduce the banks’ profits,” Tuan said.