Banks avoid new bad debt risks | Bank and finance

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There are now varying opinions on how to deal with bad debts, although banks have already created a buffer against other bad debts to avoid increasing risk.

Bad Debt Risks

The second quarter financial statements of commercial banks show that the total amount of bad debts on VPBank’s balance sheet stood at VND 20.625 billion, up 27% from the start of the year, bringing the ratio bad debts and bank loans. consolidated report to rise sharply from 4.57 percent to 5.25 percent. VietBank was also part of the group with a bad debt ratio exceeding the prescribed threshold at 3.99%. Although the remaining banks kept the bad debt rate at 3%, it was clear that bad debt was now showing signs of increasing.

At Vietnam International Commercial Joint Stock Bank (VIB), total bad debts at the end of June stood at around VND 5.428 billion, a 16.2% increase from the beginning of the year. year. In this case, the debt of group 4 increased by 32% to reach 2,125 billion VND, and the debt of group 5 increased by 67% to reach 2,210 billion VND. In the first six months of the year, Group 4’s debt with TPBank increased by 23.4% to VND430.5 billion and Group 5’s debt increased by more than 50% to VND448. .6 billion VND. TPBank’s total bad debts increased by 11.1% to VND 1,285.3 billion and the bad debt ratio fell from 0.81% to 0.85% Group 5 debt at LienVietPostBank increased by 37.8% to VND1,837.7 billion and Group 3 debt increased by 67.5% to VND771 billion. In SaigonBank, Group 3 debt increased by 149% to VND 42.5 billion, and Group 4 debt increased by 558% to VND 121.7 billion.

This increase in bad debts was not unexpected. According to Dr. Can Van Luc, member of the National Monetary Policy Advisory Council, at the end of 2016, bad debts on the balance sheet were 2.5% and gross bad debts were 10.1%, including bad debts balance sheet reported by lending institutions and unresolved debts sold to Vietnam Asset Management Company (VAMC) and contingent liabilities. In September 2017, bad debts on the balance sheet were 2.34% and gross bad debts 8.61%. In 2021, bad debts on the balance sheet were 1.5% and gross bad debts around 6.3%.

The data shows that bad debts have fallen quite sharply. At the end of the first quarter of 2022, bad debts of 29 commercial banks decreased by 12.8%, bad debts in the table were 1.4%, and gross bad debts decreased by 6%. Gross doubtful loans decreased mainly due to the recovery of the economy and the use of risk provisions by credit institutions. It is expected that by the end of the year, bad debts on the balance sheet of credit institutions could be increased to 2%.

The financial statements for the last quarter show that there were still a few banks which announced a decrease in bad debts compared to the beginning of the year. However, total bad debts on the balance sheet of 27 banks stood at nearly VND 146.2 trillion, an increase of 17.5% from the start of the year. But the end of the second quarter is also when circular 14/2021 has just expired.

According to SSI Research, the rate of bad debt formation is expected to increase in the second half due to the expiration of restructuring loans. At the same time, credit risks related to the real estate sector and the corporate bond market should continue to be closely monitored. In such a context, bad debts reserve many surprises during the last six months of the year.

Risk provisions

Currently, a number of commercial banks are reacting to bad debts by increasing risk provisions by pushing the bad debts coverage ratio to a higher level. The commercial bank group with a profit of more than VND 10 trillion has a bad debt coverage ratio of 150% to 500%, i.e. a bad debt VND of a bank has up to 1.5 VND to 5 VND for provision. The second most profitable group also has a bad debt coverage ratio of around 100%.

For this reason, there have been many comments recently that bad debts caused by the Covid-19 pandemic will gradually reappear, but the proactive provision of Diversified Payment Rights (DPR) by banks will gradually lessen the worries. However, the thick pad is only available in major commercial banks, while other remaining groups still have a bad debt coverage rate of 50%, such as VietBank, PGBank, ABBank, Saigonbank and even BaoVietBank which has a bad debt coverage rate of 28%. .

Speaking to Saigon Investment, Mr. Nguyen Tri Hieu, a banking and financial expert, said the problem is that a high coverage rate of non-performing loans (NPLs) is considered a good sign, but only in books or journal entries. In other words, the risk provisions announced do not necessarily correspond to the actual cash flow put into the fund, so when processing bad debt, the bank withdraws it to compensate for the loss on credit.

The high-risk provision will be a way for the bank to assure shareholders, investors, banks lending to them as well as the State Bank of Vietnam, that accounting profit will not be affected by bad debts. But the amount put on the books by this accounting method will potentially be a loss of loan cash if the debt is not collected. This is the cause leading to loss of liquidity in banks, especially small banks.

To compensate for the loss of liquidity, banks will have to mobilize real money to compensate for the loss of liquidity due to loans in recent years. Deposit rates are rising and will continue to rise. This also explains why many banks have no longer set limits on loans but are still raising interest rates on deposits to continue raising capital from the people. Mr. Nguyen Tri Hieu noted that banks have high profits, but behind the profits there are many hidden risks that the management agency should monitor closely.

The fact that banks deal with bad debts is also correlated with interest rates at the end of the year. Because when banks are forced to make provisions for bad debts, whether in the books or in reality, it also drives up operating costs. In addition, banks may not have made much provision for real estate and corporate bond risks yet, while risks related to this sector are gradually appearing.

Meanwhile, the credit growth target for the full year of 2022 is 14% and the first six months of the year it increased by 9.35%, which is a very strong increase. . By the end of July, banks had exhausted their credit limit and could not lend much, causing a huge bottleneck in operations. At the same time, banks mainly lend medium and long-term loans while depositing with customers, so the liquidity risk remains very high.

Yen Lam

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