In particular, rising bad debts in industries directly affected (production and trade) is among such risks.
In a report on banks issued on March 2, Moody’s said that the quality of assets in banks in Vietnam will be at risk because of supply disruption. If the epidemic persists, bad debts in the manufacturing, trade and other fields will increase because Vietnam is a country heavily dependent on global supply chains.
Standard Chartered Bank recently released its assessments on the initial impact of the Covid-19 epidemic on Asian economies. In particular, the most directly and severely affected economies are those fighting against the epidemic.
Disruptions in the supply chain of intermediate materials and a decrease in tourism demand from China were also mentioned in the report. According to this bank, China accounts for more than 20% of the total amount of intermediate goods imported used in manufacturing by most of the region's economies.
For Vietnam and South Korea, the proportion of imported intermediate goods from China amounts to more than 30%. As a result, the epidemic will have the greatest impact on production - the strongest growth driver of Vietnam in recent years.
The impact is likely to be of the significance in the first quarter (growth slows to 4.5% compared to the previous year), and the economy can only recover in the second half of the year. Production growth is expected to fall from 11.3% in 2019 to about 8% this year, which could take 0.4-0.6 percentage points from GDP growth. By the time the production, business, tourism, aviation, and retail sectors are all affected by the disease, maturing loans from the previous period will face difficulties.
Non-performing loans of commercial banks have been actively handled in recent years. However, unpredictable movements of the Covid-19 disease are making it difficult for many businesses to operate, therefore, the effort to reduce bad debts in the banking system will be even more challenging.
Data from the State Bank indicated that by the end of 2019, the NPL ratio of the banking system was at 1.89%. Since 2012, the whole credit institution system has handled VND 1,064 trillion of bad debt.
Financial statements of 22 banks in 2019 showed that, as of December 31, 2019, 6 out of 22 banks had bad debt reduction compared to the beginning of the year. Typical of which are VietinBank, ACB and MSB with a decrease of 21%, 13% and 11% respectively. Some banks had a strong increase in bad debt such as SeABank (increased by 80%), TPBank (increased by 43%), and ABBank (increased by 33.34%). At the end of 2019, the total amount of non-performing loans of 22 banks stood at VND 78,522 billion, up 41% compared to the end of 2018.
Regarding the ratio of bad debt to credit balance, topping this list was VPBank with 3.42%, followed by PGBank with 2.8%, SeABank and ABBank at 2.31%. Notably, 3 banks with less than 1% of bad debt to credit balance were Vietcombank with 0.78%, Bac A Bank with 0.68% and ACB with 0.54%.
Another positive point is that there have been 11 commercial banks that have announced their debt clearance at Vietnam Asset Management Company (VAMC), including: Kienlongbank, Vietcombank, VIB, Techcombank, TPBank, NamABank, OCB, Agribank, SeABank, MB and VPBank. Commenting on the evolution of non-performing loans of commercial banks, PhD. Nguyen Tri Hieu, a finance and banking expert, said that the NPL ratio at the end of 2019 at less than 2% is a sign that there has been a positive change as the bad debt ratio has decreased significantly compared to the previous period.
However, it is worrisome that some banks still had a sharp increase in the NPL ratio in the past year and the NPL ratio was still high compared to the total outstanding loans. This is even more worrisome this year as the bad debt may increase because many businesses are facing difficulties due to Covid-19 epidemic, especially enterprises in the fields of agriculture, tourism, transport, etc. “The bad debt situation will be more clearly showed in the financial statements of banks in the next quarters.
In the immediate future, it can be clearly seen that reducing the bad debt ratio will face significant challenges this year” Mr. Hieu emphasized. In order to support businesses to overcome difficulties, the State Bank is drafting a Circular on credit institutions and foreign bank branches' restructuring of loan repayment, exemption and reduction periods to support customers affected by the Covid-2019. Giving opinion on this move of the monetary policy regulator, Mr. Hieu said that the policy would benefit both businesses and banks. When facing difficulties in business activities, making it difficult for enterprises to pay debts to banks, enterprises can propose debt rescheduling, debt restructuring and interest rates reduction.
On the bank side, this can help banks not have to increase the provision due to the increase in bad debts. However, according to this expert, it is necessary to strictly control the situation to avoid taking advantage to debt restructuring or interest rates for loans that are not eligible for preferential treatment. Therefore, Mr. Hieu proposed, the State Bank should require commercial banks to have monthly reports on debt structure and debt rescheduling, and carefully review implementation conditions to strictly deal with violations of regulations.
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