Waiting for breakthroughs in handling non-performing loans

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Non-performing loans have been handled very actively. Photo: collected

Concerns

According to the State Bank of Vietnam (SBV), by the end of the first quarter of 2019, the non-performing loans (NPL) ratio of balance sheet was 2.02%, continuing to remain below 3% as planned.

Thus, from 2012 to the end of March 2019, the whole system of credit institutions handled 907.3 trillion dong of non-performing loans. In 2018, the whole system handled 163.14 trillion dong of bad debt.

The State Bank also stated that the NPL ratio of balance sheet and debt sold to the Vietnam Asset Management Company (VAMC) has not been handled and potential debts for non-performing loans of the credit institution system were at 5.88% by March 2019, down sharply from 10.08% at the end of 2016 and 7.36% at the end of 2017.

These results are thanks to direction of the SBV to banks on improving asset quality, controlling credit quality and limiting new debts; handling non-performing loans by urging customers to pay debts; selling and liquidating security assets of the debt; selling debt under the market mechanism; using risk loss provisions; actively applying handling measures for non-performing loans according to the Resolution 42/2017/QH14 of the National Assembly on piloting the handling of NPLs of credit institutions.

Although there has been a brighter picture of non-performing loans, the facts show that solutions are needed to reduce the number of non-performing loans. The NPL ratio on the balance sheet of the whole system has decreased, but many banks have non-performing loans. Statistics from the financial statements of the first quarter of 2019 of 22 commercial banks showed that the total number of NPLs increased by 5.9% compared to the end of 2018.

Among commercial banks, VPBank has a high NPL ratio, accounting for 3.62% of total loans, up 3.5% compared to the beginning of the year. Non-performing loans are mainly concentrated in group 3 (sub-standard debt), accounting for 53.3% of total bad debts; while debt of group 5 (bad debt) accounts for 25.4%. Another bank with a high NPL ratio of 2.72% is NCB, up sharply from 1.67% at the end of 2018. In addition, some mid-sized banks also had an increase in NPL ratio in the first quarter, such as MBBank, SHB, Techcombank, OCB, and TPBank.

Waiting for a breakthrough

Although many banks increased the amount of non-performing loans, there are still many banks that have got more positive NPL handling process, and their debt ratio has reduced compared to the end of 2018. The measures adopted by these banks is to limit the transfer of debt to VAMC, to handle non-performing loans through such methods as selling debts, securing assets and using risk provisions.

If looking at the financial capacity of the current credit institutions, it is possible to be more optimistic about the positive signs of bad debt handling. According to the SBV, by the end of March 2019, the charter capital of the whole system reached 578.9 trillion VND, up 0.45% compared to the end of 2018 and up 13% compared to the end of 2017.

The equity of the whole system reached 792.6 trillion VND, an increase of 4.2% compared to the end of 2018 and 20.1% compared to the end of 2017. The scale of the credit institution system continued to increase, total assets of the system reached over 11 million VND, up 0.8% compared to the end of 2018. Mobilizing capital from the market reached 8.5 million billion VND, up 2.5% compared to 2018.

Therefore, in recent years, many banks have increased provisioning. Typically, VietinBank spent more than 3.2 trillion VND for provisioning, up 38% over the same period. VPBank also increased the provision of 20.8% to 3,204 billion VND, accounting for 64.3% of net profit.

Talking about the results of handling non-performing debts, Mr. Bui Van Hai, Deputy Director, Banking Supervision Department, SBV's Inspection and Supervision Agency said that the management capacity of credit institutions had been gradually improved, access to international practice; internal inspection and audit and risk management activities were enhanced; business strategy began to be suitable to risk culture and risk appetite.

However, to make this result better, Mr. Hai said that ministries, branches and related units should continue to coordinate and provide solutions, especially the implementation of policies in Resolution 42 on issues such as land, land use rights, construction debt, implementation from local authorities.

In addition, experts believe that the system of credit institutions should thoroughly grasp the method of managing and handling non-performing debts; not compete for loans by lowering credit standards; be cautious in credit scoring and ranking for customers, especially potential ones.

Banks hold auctions to cut bad debts Some banks are putting assets secured with non-performing loans worth hundreds of billions of Vietnamese dong up ...

Therefore, credit quality management and debt recovery must be a key task in the operation of the banking industry but they should find more breakthrough directions, to handle non-performing loans and support capital flows to promote the development of the economy.