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Sunday, July 14, 2024

Bad debt seen from loan portfolios

By Le Hoai An & Nguyen Thi Ngoc An

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Bad debt is currently the biggest concern in the banking system. The financial reports by many banks in the first quarter of this year show a significant increase in bad debt against the previous quarter. The fact that the State Bank of Vietnam’s Circular 02 will be extended indicates the potential risk of bad debt. Taking a close look at the loan portfolios of different banks, one can comprehend bad debt risks at these banks. Bad debt reflects the quality of a bank’s loan portfolio. Given the spike in bad debt at banks, induced by economic woes at home and abroad, provisioning policy will depend on each bank’s risk appetite. Consequently, the characteristics of each bank’s loan portfolio can provide useful information. Each bank has a unique loan portfolio based on its strategy, reflecting its credit growth strategy through information about borrowers (businesses or individuals) and industries with a high loan proportion (industrial production, real estate or commerce). Therefore, understanding a loan portfolio is the foundation for evaluating a bank’s growth potential as well as evaluating possible bad debt risks in each period. Loan portfolios of banks Essentially, a bank is a financial institution that relies on capital mobilized. Banks […]
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