NPLs at Vietnam banks surge amid tough economic outlook

Non-performing loans (NPLs) at Vietnamese banks expanded in the first quarter of this year, while the slowing economy continued to face challenges amid prolonged global headwinds.

The ailing Vietnamese property market saw a bumpy road last year while market woes dragged on during Q1 though the Vietnamese government has been working out a series of measures to tackle these issues, including legal procedures and the current credit crunch.

According to data from FiinGroup, a leading Vietnamese provider of financial data and information, real estate-related NPLs by the end of 2022 accounted for around 20% of all bad debts on the balance sheets of credit institutions across the country.

In a report to the National Assembly’s Economic Committee, the State Bank of Vietnam said the banking system’s NPL ratio was 2.91% as of the end of February, higher than the 2.46% recorded at the end of 2016, 1.49% at the end of 2021, and 2% at the end of 2022.

NPLs of groups 3, 4, and 5 at Vietnamese banks by the end of March increased compared to the beginning of Q1. Official statistics show that 26 banks had more than VND167.92 trillion (over $7.16 billion) in NPLs by end-Q1, up 24.18% compared to the beginning of the quarter. Among the banks, only VietABank and PGBank recorded decreases of 0.37% and 3.48%, respectively.

The ones on top in terms of NPL increase in Q1 include TPBank (+83.96%), MBBank (+68.02%), OCB (+51.4%), VIB (+46.69%), BIDV (+40.32%), ABBank (+35.25%), MSB (+33.76%), ACB (+31.47%), and Techcombank (+30.13%).

As NPLs of groups 3, 4, and 5 increased sharply while loans to customers increased slightly by 6.61%, the average NPL ratio at the end of March rose almost 19% compared to the beginning of the quarter.

The period recorded the banks with the highest NPL increases: TPBank (71.44%), MBBank (60.75%), OCB (48.8%), VIB (48.46%), BIDV (33.74%), ABBank (39.61%), MSB (33.76%), ACB (32.24%), and Eximbank (30.3%).

Ranked first in NPL now is National Commercial Joint Stock Bank (NCB), with its NPL ratio at nearly 23%. NCB explained that it has been classifying its NPLs and overdue debts based on State Bank of Vietnam regulations, in the context that rules on debt restructuring and interest rate cuts for customers affected by the COVID-19 pandemic expired in late June 2022.

After NCB are VPBank (with a 6.24% NPL ratio), VietBank (4.31%), ABBank (4.03%), VIB (3.64%), VietCapital Bank (2.93%), SHB (2.83 %), and VIB (2.62%).

With these ratios, experts forecast that the cost of credit risks in 2023 will increase and directly affect banks’ profit outlook. For banks having lots of loans in the real estate sector, the loans may become NPL if capital inflow into the sector continues to be tightened. The banks will face greater provisioning pressure than lenders with a focus on retail banking.