According to statistics from published financial statements of banks, by the end of the first 6 months, the total bad debt balance of 27 banks was VND 150,232 billion, up 22% compared to the beginning of the year. Most banks tended to have bad debts increase after the first 6 months of the year.
National Citizen Commercial Bank saw a sudden increase in bad debt from VND 1,249 billion to VND 4,900 billion, equivalent to more than 3 times increase. The bad debt ratio of the bank skyrocketed from 3% at the end of last year to 11.05% at the end of the first half of this year. This is also the highest bad debt ratio in the system so far.
Bad debt balances at MB, SHB, and OCB all doubled in the same period, however, the bad debt ratio of these banks remained below 2%.
In terms of outstanding balance, Agribank currently has the highest bad debt balance with nearly VND 30,000 billion, an increase of more than 22% compared to the beginning of the year. In particular, debt group 5 (potentially losing capital debts) accounted for 64.6% of bad debt with VND 19,375 billion. The bank's bad debt ratio also increased from 1.87% at the end of last year to 2.16% at the end of the first half of the year.
According to SSI Securities Company, the bad debt ratio at most banks deteriorated in the first quarter of the year partly due to the reclassification of restructuring debts into group 4 or 5 debt after the expiration of the restructuring term. These restructuring debts are likely to continue to increase when Circular 14 expired (June 30, 2022).
Besides, the high credit growth rate in recent years is also one of the reasons for the increase in bad debt balance. As of June 30, 2022, credit of the whole economy increased by 9.35%, reaching over VND 11.4 million billion, while the same period in 2021, it only increased by 6.47%. Along with that, more than VND 709,000 billion of outstanding loans have been restructured by credit institutions, keeping the debt group unchanged.
At the end of 2021, the gross bad debt ratio was at the highest level in the past 4 years, breaking the results of restructuring credit institutions in the 2016-2020 period and is forecasted to become the focus of the Vietnamese financial market in 2022.
Speaking at a recent seminar on bad debt, Dr. Can Van Luc forecasts that bad debt on the balance sheet in 2022 will grow up to 2% and gross bad debt will be about 6%.
“Although currently the bad debt on the balance sheet is only about 1.4%, Circular 14 has expired in June. If this circular is not extended, bad debt will increase”, Dr. Can Van Luc commented.
Experts all believe that the impact of bad debt will be differentiated at banks. The group of banks with good asset quality and thick backup buffers will bear less risk than the other group.
The increase in bad debt caused banks to make more provisions, affecting profits in the period. According to experts at Yuanta Securities Vietnam, the profit of the banking industry in 2022 will largely depend on the ability to recover restructuring loans. If these loans become bad debts, banks, especially those with low LLR ratios, will have to increase their provisions. This will reduce profit.
Compiled by VietnamCredit