Vietnam banks’ bad debt exceeds $8.3 bln in 9 months

The total bad debt of 28 Vietnamese commercial banks in the year to September 30 reached more than VND201.8 trillion ($8.3 billion), an increase of 49.5% from the start of 2023.

The list does not include wholly state-owned lender Agribank and five banks under mandatory acquisition or special control of the central bank, namely Saigon Commercial Bank (SCB), DongA Bank, OceanBank, Construction Bank (CB), and GPBank.

Notably, bad debt at all banks increased. Among them, nine reported non-performing loan (NPL) ratios exceeding 3%.

Total outstanding loans at the 28 banks as of June 30 hit more than VND9,300 trillion ($382 billion), up 9.72% compared to the start of the year.

The exception was ABBank, with outstanding loans decreasing by nearly 0.5%. All remaining banks recorded positive credit growth, such as VPBank (+19% ), Maritime Bank (+17.08%), MBBank (+16.4%), BaoVietBank (+16.41%), Techcombank (+13.1%), VietBank (+13.7%), LPBank (+ 11.94%), and TPBank (+11.77%).

According to leading broker VNDirect Securities, the third quarter of 2023 recorded mixed growth trends between state-owned banks and joint stock commercial banks. In particular, state-owned lenders Vietcombank and BIDV posted modest credit growth of 1% and 1.4% respectively compared to the previous quarter, much lower than the average of 2.4% in Q2.

Low credit growth was attributed to weak demand as the economy has not yet truly recovered and these banks' risk appetite remains low. Meanwhile, some joint stock commercial banks witnessed strong credit growth compared to the previous quarter with a focus on lending to corporate customers. Among those were VPBank with 6.4%, Vietnam International Bank (VIB) 4.6%, and LPBank 4%.

In a recent report to the National Assembly, the State Bank of Vietnam (SBV) said that the system's bad debts on the balance sheet increased rapidly from 2022 to the first months of 2023. By the end of July 2023, the on-balance sheet bad debt ratio reached about 3.56%, a sharp rise from 2% at the end of 2022 and 1.69% at the end of 2020. The ratio of bad debts of all kinds, including debts with categories unchanged, corporate bonds potentially becoming bad debts, and bad receivables surged to 6.16%.

If excluding the five banks under mandatory acquisition or SBV special control, the respective ratios were 1.92% and 4.5%.

According to VNDirect, the NPL ratio of the top 25 banks reached 2.2% by the end of Q3/2023, the highest since 2017. However, the loan loss reserve (LLR) ratio in Q3 decreased slightly to 94% compared to 98% in Q2 - equal to the level at the end of 2020.

In terms of bad debt structure, debt in all groups increased, of which doubtful debt (Group 4) saw the highest growth at more than 110%, followed by subprime debt (Group 3) nearly 66%, and potentially irrecoverable debts (Group 5) nearly 18.4%.

Group 4 debt of many banks skyrocketed such as Vietcombank (+574.2%), Sacombank (+337.62%), BacABank (+289.11%), Nam A Bank (+255.25%), BIDV (+250.54%), SeABank (+243.28%), and VietinBank (+233.71%). VPBank was the only name with group 4 debt decreasing by 31.84%.

For Group 5 debt, NCB saw an expansion of 156.64%, LPBank 116.86%, and Techcombank 79.12%. On the contrary, VIB was the bank with the strongest decline (-46.26%), followed by ABBank (-40.03%), KienLongBank (-36.33%), PGBank (-22.52%), MBBank (-17.88%), and Vietcombank (-13.71%).

A positive sign is that the ratio of debt in Group 2 (debt needing attention) in Q3 decreased to 2.3% compared to 2.5% in Q2. This shows that bad debt formation is slowing down. Amid economic difficulties, VNDirect believed that provision costs will continue to erode banks' profits in the coming quarters.

However, some experts held that in the context of businesses facing many difficulties and low credit demand, suboptimal capital balance will lead to reduced business efficiency - an early indicator of an increase in bad debt. They forecast a high bad debt ratio in 2023, advising banks to be cautious and focus on risk management.