Banks prepare plans to cope with rising bad debts

	Banks "sacrifice" profits for risk provisions
	Banking “rush” to finish the plan soon but burden on bad debts
	Bad debts tend to rise despite slow credit expansion

This year, the handling of collateral securityand collecting bad debt are quite difficult. Photo: ST

Corresponding from finance

The financial statements of the third quarter of 2020 of the banking industry show that two-thirds of banks have good profit growth, but also the proportion of banks with bad debts is rising.

Some banks with strong bad debt growth such as Vietcombank increased 36%, TPBank increased 59%, Sacombank increased 19%, MBBank increased 39%.

According to representatives of the State Bank of Vietnam (SBV), the cause was that the Covid-19 pandemic has affected all aspects of economic life, making it difficult for bank borrowers, reducing revenue, and affecting the ability to repay debts.

If the pandemic continues, it is likely that the bad debt of the banking system will continue to increase.

According to financial expert Dr. Can Van Luc, the increase in bad debthas a great impact on the business operations of banks, from profits to the ability to increase charter capital. Therefore, banks were forced to sacrifice profits to have resources to handle bad debts.

The survey showed that banks also had to increase their coverage rate of bad debts (reserve balances of bad debts) to over 100%. For example, Vietcombank's bad debt coverage rate reached 215.2%, compared with 179.5% at the beginning of the year; MB increased from 110% to 119%; Techcombank increased to 148% from 95%; BacABank is 124%, ACB is 117%.

In addition, some banks have bad debt ratios lower than 100% such as: TPBank 92%, BIDV 87%, VietinBank 84%, VIB 48%, and VPBank 47.9%.

The above figures show that there is a significant difference among banks. According to experts, the reason is due to the choice of banks' business strategies and risk response. As a rule, when there are bad debts, banks will set up risk provisions to control the quality of assets, covering loans that seem difficult to recover. When bad debts are processed and recovered, this amount will be included in extraordinary income, helping to increase profit after tax.

Debt trading market outlook

Forecasting the general outlook of the banking industry in 2020, the research team at SSI said that the pre-tax profit of the group of 13 studied banks was estimated to increase 9.2% in 2020, equivalent to VND110.7 trillion. However, the provisioning would have the biggest impact on earnings estimates. Other risks affecting banks included that newly formed new debt ratio was higher than the estimated one, recovery of the economy was a slowerthanestimated, and the Covid-19 pandemic broke out again.

Therefore, according to banks, the possibility of setting up risk provisions and corresponding sources for bad debts will increase in the remainder of 2020 and continue to the beginning of 2021.

Besides, when Circular 01/2020/TT-NHNN of the State Bank of Vietnam which regulates credit institutions and foreign bank branches to restructure the repayment terms, exemption, reduction of interest and fees, keeping the debt group in order to support customers affected by the Covid-19 pandemic expire, bad debts will increase rapidly with the commercial banking system.

About the handling of bad debts at banks, Mr. Nguyen The Huan, a member of the Board of Directors of VietinBank, said that the unit was using the most measures to sell debts to the market to handle bad debts.

The bank had also applied a lot of these measures and many debts had been processed,saving a lot of the bank's resources, time and effort, thereby allowing the bank to increase its resources to continue borrowing.

However, in reality, the handling of collateral and collecting bad debt was quite difficult, because economic difficulties limited the money source of investors.

Banks are having to sell a series of collateral assets from real estate, means of transport, machinery and equipment, and even coconut and mango trees, to handle and recover debts. Therefore, all banks want to complete the legal corridor to handle bad debts, with the appearance of the debt trading floor in order to increase concentration, openness, transparency and liquidity of the market.

Recently, responding to the press, Mr. Dao Minh Tu, Deputy Governor of the State Bank, said that, according to functions and duties, the Asset Management Company for credit institutions (VAMC) was allowed to buy and sell bad debts.

According to the proposal of VAMC, the State Bank considers approving on the basis of all conditions, including technology conditions, the bad debt trading floor could be implemented. The management responsibility of this floor would belong to VAMC.