Banks’ bad debt coverage declines

19-Nov-2020 Intellasia | NDH | 6:02 AM Print This Post

The ratio of bad debt coverage at most banks has decreased compared to the beginning of the year. Asia Commercial Joint Stock Bank (ACB) dropped to the fifth in bad debt coverage ratio, while Vietnam Technological and Commercial Joint Stock Bank (Techcombank) ranked the second position, following Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank).

Banks raised risk provisioning expenses in the first nine months.

After the first three quarters, banks’ bad debts increased compared to the beginning of the year. In particular, Kien Long Commercial Joint Stock Bank (Kienlongbank) recorded bad debt rise of up to 6.5 times to 2.240 trillion dong. the reason is that the bank had to record the bad debts related to a group of customers with secured assets being 176 million shares of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank). Kienlongbank is in the process of auctioning this amount of shares.

ACB followed Kienlongbank with on-balance sheet bad debts increased by 71 percent to more than 2.479 trillion dong. Some other banks reported bad debt increase of more than 60%, such as Commercial Joint Stock Bank for Industry and Trade of Vietnam (60%), Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank, 61%), Tien Phong Commercial Joint Stock Bank (TPBank, 60%), etc. Other banks experienced bad debt increase of popularly 20 percent to 40%.

The bad debt ratio also recorded similar fluctuation. Kienlongbank recorded increase in the proportion of bad debts in group three to five on the total lending to customers from 1.02 percent to 6.63%. Many banks such as Eximbank, VietinBank and VietBank saw a bad debt ratio increase by 72 75 basis points to 1.87 2.46%.

Banks such as Saigon Hanoi Commercial Joint Stock Bank (SHB), TPBank, and Military Commercial Joint Stock Bank (MBBank) reported bad debt ratio rise by over 30 basis points.

In the opposite direction, some banks posted reduction in bad debts and bad debt ratio in the first nine months of 2020. Taking the lead was Techcombank with bad debt decline by 55 percent compared to the beginning of the year, after clearing off about trillion dong of bad debts in the second quarter. The bank’s bad debt ratio also dropped from 1.33 percent to 0.6%, becoming the unit with the lowest bad debt ratio in the system, surpassing ACB, Vietcombank and Bac A Commercial Joint Stock Bank (BacABank). The two remaining banks which reported bad debt decline in the period were National Citizen Commercial Joint Stock Bank (NCB) and Southeast Asia Commercial Joint Stock Bank (SeABank).

In the context of the bad debt fluctuations and potential risks of the loans due to the Covid-19 pandemic, banks have actively been increasing provisions for risks. Nam A Commercial Joint Stock Bank (NamABank) spent over 359 billion dong on provisioning for risks in the first nine months of 2020, nearly sevenfold higher than the same period of last year.

ACB also increased provisioning costs by more than three times, reaching 694 billion dong in the first three quarters of the year. This number at Techcombank was 2.7 times. Numerous other banks also doubled their provisioning costs compared to the same period of 2019, such as Eximbank, Kienlongbank, VietBank, etc. Other banks such as Orient Commercial Joint Stock Bank (OCB), Vietnam International Commercial Joint Stock Bank (VIB) and Vietcombank increase provisioning expenses in the first nine months by 23-30%.

In the opposite direction, ABBank and BIDV cut the costs of provisioning by two percent, while SeABank cut the costs by more than 18%.

The bad debt coverage decreases.

With the developments of bad debts and risk provisioning, the ratio of bad debt coverage of banks differed. For Techcombank, the bad debt reduction and the strong provisions for risks pushed the bad debt coverage up by 53 percentage points, the biggest change among banks, reaching 147 percent (the second highest level in the system.

Vietcombank accelerated provisions for risks while its bad debt coverage ratio was more than 215%, the highest in the system, up by 35 percentage points over the beginning of the year. it also means that if using all the provisions for risks to clear off bad debts, the bank still has more than nine trillion dong left. This number is also twice as much as the bank’s debt group 2 as of September 30th 2020.

BIDV and MB also posted increase of eight to 12 percent in the bad debt coverage ratio in the first nine months of the year, reaching 87 percent and 118%. Some other banks recorded similar developments, including SeABank, Sacombank, VPBank, OCB, etc.

In the opposite direction, 15 banks saw decline in the bad debt coverage ratio, led by Kienlongbank and followed by ACB.

ACB is still known as one of the two banks with the largest bad debt coverage ratio in the system along with Vietcombank. However, in the first three quarters of the year, the bank’s recorded 57 percentage point decline in bad debt coverage ratio from 174 percent to 117%, being in the fifth position.

According to Viet Capital Securities Company (VCSC), ACB only provisioned 0.05 percent of its gross loan balance for specific reserve accounts (the direct provision expenses for customers’ loans), while it was 0.96 percent in Vietcombank, 0.33 percent in VIB, and 0.9 percent in TPBank in the same period.

VCSC said that the difference in provisions among banks partly came from the only 0.01 percent bad debt settlement ratio in the first nine months of 2020 compared to the same period of last year. In addition, VCSC expects banks to continue reversing provisions, which more or less affects the calculation on specific provisioning costs.

In addition to ACB, many other banks also lowered their bad debt coverage ratios, such as VietinBank (down by over 35 percentage points), NamABank (down by 21 percentage points) compared to the beginning of the year.

According to the State Bank of Vietnam (SBV), as of September 28th, credit institutions have restructured the repayment terms for 272,115 customers with an outstanding credit of about 331.013 trillion dong, equivalent to 3.8 percent of the total outstanding loans of the entire system. The ratio of debts turning into bad debts after the pandemic depends on the ability to recover of the economy and of businesses.

VDSC mentioned that not all the restructured loans are will become bad debts. Nevertheless, it is likely that bad debts will continue to go up in the near future due to the pandemic’s effects, and surpass the three percent limit set by the SBV for year 2021.

Meanwhile, banking and finance expert Dr Can Van Luc predicted that the on-balance sheet bad debt ratio may reach three percent by the end of 2020 and four percent in 2021, while the bad debt handling is getting more and more difficult.

 

Category: Finance, Vietnam

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