Bad debt on the rise at banks(베트남 상업은행Vietin Bank)

[Kim byoungil]

Bad debt ratios at Vietnam’s commercial banks rose dramatically in the first quarter of the year as the property and finance sectors continued to struggle.

The country’s biggest lender Vietcombank saw its bad debt ratio rise from 0.68% at the end of last year to 0.84% by the end of March.

Two other major state-owned lenders have found themselves in the same boat.

BIDV saw its second-group debt (overdue by up to 90 days) rise 47% in the first three months of 2023, while third-group debt (overdue by up to 180 days) doubled during the period.

The bank’s fourth-group debt (overdue by up to 360 days) rose 60%.

VietinBank also saw an increase in the above debt groups.

To deal with the problem, Vietcombank has increased its write-offs 30% since the beginning of the year.

For every dong of bad debt, the bank has written off VND3 to ensure financial safety.

VietinBank has spent over VND7 trillion reducing fifth-group debt (overdue for more than 360 days) by over 30%.

At the same time, bad debt problems at private banks seem to be getting even worse than at state-owned lenders.

VPBank saw its second- and third-group debt double in the first three months of the year.

Its bad debt ratio (comprised of third-, fourth- and fifth-group debt) has risen by 0.6 percentage points to 3.4% year-on-year.

Over the same period, Techcombank posted double-digit bad debt ratio growth.

For Military Bank, second-group and third-group debt tripled in the first quarter, while fourth- and fifth-group debt also surged.

The lender’s bad debt amount has risen 70% in the period.

Other private lenders such as BaoVietBank, ABB and OCB have recorded bad debt ratios of over 3%.

Vietnamese banks recorded a total bad debt ratio of 2.91% in Q1, compared to 2% by the end of last year, according to the State Bank of Vietnam.

"Most banks have recorded rising bad debt ratios and declining bad debt coverage ratios," said a recent report by analysts at VNDirect.

Difficulties in the property sector, which accounts for 21% of total debt, pose challenges for the banking system, according to the report.

VPBank CEO Nguyen Duc Vinh said earlier that bad debt is rising because companies have not been able to pay back debts due to a decline in orders, and some property developers are also in crisis.

"We expect bad debt to continue to rise [at VPBank] in the second quarter, but the ratio will be kept under 3% as the bank will work to support its customers and restructure some debts."

Analysts at Rong Viet Securities have noted that predicting how quickly businesses will be able to pay off debts is like predicting how quickly the economy will recover from the current slump: extremely difficult.