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Tuesday, June 18, 2024

Spike in non-performing loans puts banks at risk

The Saigon Times

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HCMC – Concerns are mounting as debts transition into doubtful debts and potentially bad debts at commercial banks.

As of the end of the third quarter of 2023, the average bad debt ratio for 27 listed banks had reached 2.2%, which is below the 3% limit but is indicative of potential risk in the current economic climate, according to a recent analysis by VPBank Securities.

The total bad debt for these banks increased by a modest 0.25 point over the previous quarter, amounting to VND424.6 trillion.

VPBank Securities reported a significant shift in bad debt categories, with subprime loans transitioning to doubtful debts and potentially irrecoverable debts by the end of September. The loan loss rate (LLR) for the sector dropped from 143% to 93.8% within a year, while the ratio of net loan losses to average total loans has remained relatively stable.

During this period, doubtful debts spiked by 31.4% compared to the second quarter to VND73.6 trillion.

Bac A Commercial Joint Stock Bank was the only lender that managed to keep its bad debt ratio below 1%.

National Citizen Commercial Joint Stock Bank emerged as the bank with the highest non-performing loan ratio, at 26.33%, while its bad debt coverage ratio was the lowest, at merely 8%. Meanwhile, State-run Vietcombank led in bad debt coverage with a ratio of 270%, although it substantially decreased from the previous quarter’s 387%.

Vietcombank’s subprime debt dropped by 8% compared to the second quarter, yet a more concerning trend emerged, with doubtful debts surging twofold and potentially irrecoverable debts escalating by over 30%.

VietinBank and BIDV also experienced a similar trajectory. VietinBank’s subprime debts at the end of Q3 fell by half compared to three months prior. However, its doubtful debt surged twofold, and potentially irrecoverable debt increased by over 25%.

Private banks faced an even less optimistic trend, with Techcombank reporting a 30% surge in doubtful and potentially irrecoverable debts to nearly VND6.5 trillion by the end of Q3. VPBank also faced an increase of almost 38% in doubtful debts.

Analysts attribute the declining loan quality to slow credit growth, pressure on net interest margin (NIM), and persistent market instability.

Subprime loans are loans overdue for 91 to 180 days. Moving beyond this threshold, debts overdue for 181 to 360 days fall into the doubtful debt category. The most precarious category, potentially irrecoverable debt, comprises debts overdue for more than 361 days, signaling a heightened risk of capital loss.

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