Bad debts tend to rise despite slow credit expansion

22:04 | 11/08/2020 Trade

Non-performing loans are still increasing despite slow credit expansion as the COVID-19 pandemic stretches many businesses to their limits.

bad debts tend to rise despite slow credit expansion
Customers at a Vietcombank branch.Total NPLs of Vietcombank increased 11 per cent in the last six months, pushing the bad debt ratio up to 0.83 per cent from 0.79 per cent. — VNS Photo Mai Hương

The first-half financial statements of big banks like Vietcombank, the Bank for Investment and Development of Việt Nam (BIDV) and Vietinbank all indicated an increase in non-performing loans (NPLs).

Total NPLs of Vietcombank increased 11 per cent in the last six months, pushing the bad debt ratio up to 0.83 per cent from 0.79 per cent, of which subprime loans jumped 58 per cent and doubtful debts climbed 56 per cent.

Ending June, NPLs at BIDV grew 17 per cent over the beginning of the year, of which subprime and doubtful loans increased by 11 per cent and 21 per cent, respectively. The lender’s bad debt ratio increased from 1.75 per cent to 2 per cent.

The ratio of bad debt to outstanding loans at Vietinbank rose from 1.16 per cent to 1.7 per cent after NPLs jumped 48 per cent in the first half. Subprime and doubtful debts climbed 250 per cent and 84 per cent, respectively.

This trend could also be seen in smaller banks.

Sacombank’s bad debt ratio increased from 1.94 per cent to 2.15 per cent by the end of June. This ratio was 1.93 per cent in Orient Commercial Joint Stock Bank (OCB), up from 1.84 per cent at the beginning of this year.

Asia Commercial Bank’s bad debt ratio was up from 0.54 per cent to 0.68 per cent after NPLs climbed 32 per cent to VNĐ1.9 trillion (US$82.3 million), excluding debts worth VNĐ2.08 trillion at ACB Securities.

Bad debts at Eximbank increased 12 per cent to VNĐ2.16 trillion by the end of June, lifting the bad debt ratio to 2.08 per cent from 1.71 per cent.

The COVID-19 pandemic had negatively affected business activities, leading to an increase in NPLs at many banks, even though banks have rescheduled debts for customers affected by the pandemic until the end of September 2020 under the direction of the State Bank of Việt Nam (SBV).

According to Trần Du Lịch, a member of the National Advisory Council on Financial and Monetary Policies, rising bad debts at banks is inevitable but are still under control.

In fact, the central bank has warned bad debt of the whole industry will likely increase to 3-4 per cent this year, which is still kept in check, with banks quickly setting up risk provisions.

In the first six months, Sacombank’s provision for credit losses increased by 50 per cent to nearly VNĐ1.57 trillion. Eximbank also set aside more than VNĐ220 billion for a loan loss reserve fund which lowered its pre-tax profit by 28 per cent to VNĐ552 billion.

Increases in subprime and doubtful debts also compelled OCB and Vietcombank to increase its loan loss provisions by 49 per cent and 21 per cent, respectively.

Credit to rise slowly in H2

A recent report of SBV showed demand for credit was very weak in the recent past, especially in April and May when the country was affected by the lockdown due to the pandemic.

Credit increased by just 0.12 per cent in April and 0.53 per cent in May and improved by 1.28 per cent in June. By mid-July, credit expansion reached a seven-year low at around 4 per cent.

In its July report, Bảo Việt Securities (BVSC) said liquidity of the banking system is still abundant, reflected in very low interbank interest rates (0.15-0.3 per cent per annum for overnight, 1-week and 2-week terms).

BVSC expects credit to improve in the second half albeit slowly amid the complex developments of the pandemic in the country, making enterprises more vigilant on business prospects and production expansion plans.

Credit growth for the whole year is forecasted at around 10 per cent.

Meanwhile, a survey on business trends in the third quarter of 2020 of credit institutions, conducted by SBV’s Monetary Forecasting and Statistics Department, showed credit institutions have lowered their forecasts on outstanding loan growth in two consecutive survey periods.

The outstanding credit of the banking system is predicted to grow by 3.5 per cent in the third quarter and 10.5 per cent in 2020, considerably lower than the expectation of 13.1-14.1 per cent, respectively recorded in the two previous surveys.

The pressure to set money for loan losses reserve fund is expected to greatly affect the income and pre-tax profit of banks in 2020.

Finance-banking expert Cấn Văn Lực also predicted although credit demand will recover in the last half, credit growth for the whole year will not be too high at around 9-10 per cent.

Theo VNS