Bad debts at Vietnamese commercial banks remain a concern

While the most challenging period for bad debts in Vietnam appears to have passed, potentially irrecoverable debts have reached a record high, accounting for 1.25% of total outstanding customer loans, or more than VND176 trillion ($6.74 billion), according to a new report by research firm Vietnam Report JSC.

VND176 trillion ($6.74 billion) in potentially irrecoverable debts

According to Vietnam Report, bad debt at Vietnamese commercial banks peaked in Q3/2023, but was partially curbed following the issuance of the central bank's Circular 02/2023/TT-NHNN.

In 2024, the bad debt situation began to stabilize as restructured debts, stably lower interest rates, and a recovering business environment helped reduce the bad debt ratio to around 1.93-2.22%.

The combined ratio of debt groups 2 through 5 dropped significantly, from a peak of 4.72% in Q2/2023 to 3.57% in Q4/2024 and 3.75% in Q1/2025. This indicates that pressure to downgrade debts into higher-risk categories has eased.

Group 2 debts are those needing special attention, Group 3 includes subprime debts, Group 4 doubtful debts, and Group 5 potentially irrecoverable debts.

Subprime debts (Group 3) and doubtful debts (Group 4) have shown some fluctuations but have remained below their 2023 peak.

Notably, several banks still reported bad debt ratios exceeding 4%. One bank reported a bad debt ratio of over 14% in Q1/2025, though this was a substantial improvement from 35.3% in Q1/2024.

As of end-Q1/2025, total non-performing loans (NPLs) at Vietnamese commercial banks exceeded VND300 trillion ($11.5 billion), up 16.8% year-over-year and 13.4% from the start of the year.

Regulatory adjustments and future risks

Circular 02 allowed banks to restructure loan repayment terms and maintain debt classifications through June 30, 2024. Subsequently, the State Bank of Vietnam (SBV), the country's central bank, issued Circular 06/2024/TT-NHNN, extending this policy by six months, through December 31, 2024.

However, starting January 1, 2025, some restructured loans might no longer qualify for these regulatory exceptions and might be reclassified as non-performing loans.

Although the bad debt ratio in Q1/2025 rose slightly compared to the previous quarter, the structure of NPLs has changed significantly.

Group 5 debts (potentially irrecoverable debts) hit a record high of 1.25% of total outstanding customer loans, or over VND176 trillion ($6.74 billion), marking a 10.7% increase since the beginning of the year and surpassing the total bad debt recorded at the end of 2022.

Three of the "Big 4" banks lead in bad debt coverage ratios in Q1

According to the May 2025 members information summary released by the Vietnam Banking Association (VNBA), the Top 10 banks with the highest bad debt coverage ratios in Q1/2025 include Vietcombank, VietABank, VietinBank, Techcombank, Bac A Bank, BIDV, SeABank, MB, Sacombank, and LPBank. Among the "Big 4" banks, only Agribank was not on the list.

Despite a 7.2 percentage point drop from the end of 2024, Vietcombank continued to lead the market with a bad debt coverage ratio of 216.1% as of end-Q1/2025.

VietABank saw a sharp rise to second place, with its coverage ratio increasing from 72.5% at the end of 2024 to 150.2% in Q1/2025, largely due to cutting its bad debt balance by half.

VietinBank and Techcombank followed in third and fourth places, with coverage ratios of 136.8% (down 33.93 percentage points) and 111.6% (down 2.36 percentage points), respectively.

Rounding out the Top 10 were Bac A Bank with 98.1% (up 0.7%); BIDV with 96.8% (down 36.8%); SeABank with 81.8% (down 1.1%); MB with 75.3% (down 17%); Sacombank with 74.7% (up 6.2%); and LPBank with 74.3% (down 9%)

Provisioning: ‘Shield’ to protect banks

However, experts predict that the increase in bad debt will be moderate and under control, thanks to banks proactively and cautiously setting aside additional provisions for potentially risky debts.

The total credit risk provision of Vietnamese commercial banks in Q1/2025 was VND253 trillion ($9.7 billion), covering 84.4% of bad debt. Provisioning costs reached VND163.2 trillion ($6.25 billion) in 2024, an increase of 13.1% over the previous year.

The bad debt coverage ratio (LLR) of Vietnamese commercial banks has been relatively stable, but the figure has dropped below 100% since Q3/2023 and has not yet fully recovered to ensure the planned profit target.

The Vietnam Banking Association's report also shows that the Top 10 banks with the highest risk provisioning in Q1/2025 were BIDV, VietinBank, Vietcombank, VPBank, MB, Sacombank, SHB, Techcombank, ACB, and HDBank.

Although ranked sixth in the Top 10 banks with the highest bad debt coverage ratio in Q1/2025, BIDV was the top bank in the Top 10 banks with the highest risk provisioning in Q1/2025, with a provision of VND38,651 billion ($1.48 billion), down 0.4% compared to the end of 2024.

Meanwhile, Vietcombank was at the top of the Top 10 banks with the highest bad debt coverage ratio in Q1/2025 but ranked third in the Top 10 banks with the highest risk provisioning in Q1/2025, with a provision of VND32,494 billion ($1.24 billion), up 4.2% compared to last year.

According to statistics, the total risk provisioning of these 10 banks reached VND177,794 billion ($6.81 billion), accounting for more than 83% of the total provisions of the banks having their statistics analyzed.

According to experts, when hundreds of thousands of billions of VND of bad debt (VND100,000 billion = $3.84 billion) are handled, it will be a cash flow returning to the market for the purpose of economic growth. To do this, it is not only waiting for businesses to handle the crisis themselves but also requires the participation of related parties.

In the period of 2017-2023, the parliament's Resolution 42/2017/QH14 on piloting bad debt handling of credit institutions opened a special mechanism, helping credit institutions handle assets more quickly and effectively.

But when the resolution expired, credit institutions no longer had a mechanism to proactively seize collateral to handle debt. Meanwhile, the Law on Credit Institutions 2024 has not inherited this important content.

Currently, the State Bank of Vietnam has consulted with parties to draft a law amending and supplementing a number of articles of the Law on Credit Institutions 2024.

The special mechanisms to help credit institutions handle bad debt are expected to be issued soon in the near future, which will further improve the legal framework, reduce the pressure of provisioning, and circulating capital back to the market.