Vietnam’s bad debt skyrockets: central bank

The bad debt ratio in Vietnam soared from 2% at the beginning of the year to 3.56% in late July, equivalent to more than VND440 trillion ($18 billion), according to the State Bank of Vietnam (SBV).

The figure included bad debts at five banks under special control, namely SCB, DongA Bank, CB Bank, OceanBank, and GPBank. If these five banks were excluded, the banks' non-performing loan (NPL) ratio was 1.92%.

Including bad debts sold to the Vietnam Asset Management Company (VAMC) that have not been settled and contingent liabilities, the banking sector’s NPL ratio reached 6.16%, equivalent to VND768 trillion ($31.4 billion), the central bank said in its latest report.

Previously, on October 8, SBV governor Nguyen Thi Hong said that in the year to September 21, Vietnam’s credit reached over VND12,620 trillion ($516 billion), an increase of 5.91% compared to the end of 2022.

Notably, the bad debt ratio in the real estate sector was on the rise, hitting 2.58% in July compared to 1.8% a year earlier.

The credit quality of many banks also showed signs of declining. Some listed banks had recorded NPL ratios exceeding 3% by the end of June, including NCB, ABBank, Viet Capital Bank (BVBank), VPBank, VietBank, OCB, and PG Bank.

According to the regulator, credit quality in the banking system may continue to face pressure. Some bank leaders believed that bad debt was likely to peak in the third quarter of this year and then gradually decrease from the beginning of next year.

Currently, banks are facing many difficulties in settling bad debts as overdue debts increase and a gloomy real estate market makes the handling of real estate collateral more challenging, the SBV noted.

According to the central bank, the debt trading market still has many limitations. The legal framework related to credit institution restructuring and bad debt handling has not been completed, in addition to a lack of preferential policies to encourage domestic and foreign investors to participate in handling collateral and trading bad debts.

While a specific mechanism to thoroughly restructure weak banks is still absent, some state-owned groups and corporations lack resources to handle losses and restructure non-bank credit institutions of which they are owners or major shareholders.