By the end of the third quarter, bad debt increased by 13,479 billion VND
According to a survey by reporters, data from the consolidated financial statements of the third quarter of 2024 of 27 banks shows that bad debt (groups 3, 4, 5) tends to increase to VND 56,160 billion (equivalent to an increase of 28.5%) compared to the time recorded at the end of 2023.
With VND 253,479 billion of bad debt, bad debt accounts for 2.3% of the total outstanding loans to customers of 27 banks.Accordingly, SHB, PGBank, ABBank, VietBank, PVcomBank, VIB, OCB, BaoVietBank, BVBank, VPBank, NCB are banks with a bad debt/loan ratio of over 3%.
The banks with the largest bad debt scale are BIDV, VPBank, VietinBank, NCB, Vietcombank... For example, bad debt at BIDV - the bank with the largest bad debt scale in the system, by the end of the third quarter, had increased by more than 49%, to 33,386 billion VND. However, with outstanding customer loans also the largest in the system, the bad debt/outstanding loan ratio of this bank is only 1.71%.
As for VPBank, although the credit balance transferred to the bad debt group is the second largest after BIDV, this bank has a very slight increase, much lower than the average increase of the total 27 banks.
By the end of the third quarter, Vietcombank's on-balance sheet bad debt had increased by nearly VND4,700 billion to VND17,133 billion. Although bad debt balance increased sharply by 37.6%, the bank's bad debt ratio is currently only at 1.2% - the lowest in the system.
In terms of growth rate, LPBank is the bank with the fastest growing bad debt in the system, increasing by 70% after 3 quarters, reaching VND 6,272 billion, increasing the ratio of bad debt to total outstanding loans from 1.34% (recorded at the end of 2023) to 1.96%.
In a recently updated report on the banking industry outlook by SSI Research, the unit said that the bad debt ratio at state-owned commercial banks and joint stock commercial banks increased by 4 basis points and 7 basis points to 1.49% and 2.59%, respectively, in the third quarter of 2024.
The increase in bad debt ratio at joint stock commercial banks was mainly due to the increase in bad debt at MB, TPBank, VIB and OCB, while BIDV was the main cause of the increase in bad debt ratio at state-owned commercial banks in the third quarter of 2024.
The bad debt ratio increased slightly to 2% in Q3/2024 compared to 1.94% in Q2/2024. The bright spot is that the bad debt formation rate decreased by 90 basis points compared to the previous quarter to 1.22% in Q3/2024. However, SSI Research said that the fourth quarter is usually the quarter when banks expand credit growth, make provisions and handle bad debts. Therefore, the bad debt ratio at banks is forecast to decrease to 1.89% in Q4 this year.
Bad debt explodes strongly according to the economic cycle
Remember, in the period of 2005-2007, when the real estate market in the US was in crisis, because the US real estate industry is always closely linked to the credit industry, from March 2007, the US mortgage lending industry began to collapse because the rate of real estate foreclosures was higher than expected, causing 25 banks with mortgage lending services to declare bankruptcy, suffer heavy losses or have to put up for sale.
In our country at that time, the real estate market also fluctuated. A series of industries related to this industry such as cement, iron, steel, bricks, tiles, transportation, sanitary equipment... were affected.
Responding to questions at the National Assembly on November 11, State Bank Governor Nguyen Thi Hong admitted that bad debt is on the rise. According to State Bank data, as of the end of September 2024, the on-balance sheet bad debt ratio was at 4.55% - almost equal to the end of 2023, up from 2022.
The Governor stated that the COVID-19 pandemic has seriously impacted all aspects of life, society, businesses and people, reducing revenue, making debt repayment even more difficult.
Assessing the difficulties in debt handling, VPBank representative said that one of the major pressures on the asset quality of the banking system in general is the slow and somewhat out of phase recovery of the real estate market in major cities and provinces, with lower liquidity than expected.
What banks really need to do
From an independent perspective, Dr. Nguyen Minh Phong - former Head of Economic Research Department, Hanoi Institute for Socio-Economic Development Studies - said that the banking industry has a Project "Restructuring the system of credit institutions associated with bad debt settlement in the period 2021-2025", specifying specific tasks and solutions to strive to reduce the number of credit institutions by 2025, fundamentally handle weak banks, prevent the emergence of new weak banks, and ensure a healthy and sustainable development of the credit institution system.
In addition, Circular 02 on debt deferral and postponement has also been extended, helping businesses reduce payment pressure, reduce the pressure of bankruptcy, and give businesses more opportunities and time to find opportunities and cash flow to repay debt.
According to experts, this is proof that the banking industry is being given many tools to handle bad debt.
Sharing the same view, Dr. Chau Dinh Linh - Banking University of Ho Chi Minh City - also emphasized that handling collateral is not a "magic wand" to reduce bad debt ratio.
"Many opinions say that Resolution 42 on handling secured assets needs to be legalized, but in reality, during the implementation period, the banking industry still faces opposition from borrowers through many different measures that Resolution 42 could not have anticipated," said Dr. Linh.
Experts advise that the banking industry should focus on selecting good customers. It is necessary to handle bad debts based on provisioning, increase the potential and financial strength of banks by increasing the bad debt coverage ratio and at the same time, it is necessary to complete Basel II standards.
Actively handle bad debt
Although bad debt is increasing and is putting pressure on credit institutions, on the other hand, banks are actively implementing the handling of bad debt and collecting bad debt interest.
At BIDV, the recorded bad debts resolved as of September 30, 2024 were over VND 254,347 billion, an increase of 10.8% compared to the time recorded at the end of 2023. Of which, the principal debt of resolved bad debts was over VND 125,000 billion and the interest debt of resolved bad debts was over VND 120,000 billion.
At Vietcombank, the recorded bad debt settlement as of September 30, 2024 was more than VND 70,000 billion, an increase of approximately 3.2% compared to the end of 2023.
VPBank's third quarter 2024 financial report also shows that revenue from settled debts reached more than VND 3,200 billion, an increase of 90.4% over the same period in 2023.
Of which, the parent bank's debt settlement revenue recorded an increase of more than 45%, while FE Credit reported that the collection from settled debt reached VND755 billion, up 63% compared to the second quarter. VPBank representative said that the application of a new behavioral scoring model, improved debt collection strategy and enhanced debt collection system using technology such as callbot and chatbot has helped increase the efficiency and productivity of debt collection of consumer finance company FE Credit.
At banks with smaller capitalization such as NCB, outstanding credit falling into the bad debt group increased compared to the end of the year, but the ratio of bad debt handled also increased by more than 61%.
In July 2024, NCB was the first credit institution to complete the procedures for approving the restructuring plan according to the "Project on restructuring the system of credit institutions associated with bad debt settlement for the period 2021-2025" according to Decision 689/QD-TTg of the Prime Minister and instructions of the State Bank.
NCB representative said that after completing the increase in charter capital to more than VND 11,800 billion expected in the fourth quarter of 2024, the bank will continue to implement the next step in the approved restructuring roadmap in accordance with regulations.
Banks face difficulties in handling bad debt
After Resolution 42/2017/QH fulfilled its mission and expired, banks said that the unit fell into a difficult position when handling debt.
Since Resolution 42 was implemented, the results of bad debt settlement have been very positive. According to the State Bank of Vietnam, from August 15, 2017 to the end of December 2023, the entire system has handled about VND 443,800 billion of bad debt determined according to Resolution 42 (excluding bad debt handled by risk provisions). In 2023 alone, the entire system has handled about VND 268,600 billion of bad debt.
Regarding debt settlement at VAMC, cumulatively from its establishment in 2013 to the end of 2023, VAMC has coordinated with credit institutions to settle VND 349,081 billion of outstanding principal. Of which, VND 338,466 billion was purchased with special bonds and VND 10,635 billion was purchased at market value.
At the Government Standing Committee meeting working with joint-stock commercial banks on solutions to contribute to the country's socio-economic development chaired by the Prime Minister in September, commercial bank leaders also expressed that debt collection and handling of collateral are currently facing difficulties because Resolution 42 is no longer in effect.
According to Mr. Do Minh Phu - Chairman of TPBank's Board of Directors, the banking industry currently has no legal documents to support debt collection quickly, thoroughly and in accordance with the law. This makes it possible for debt collectors to violate the law and be subject to criminal prosecution.
