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Thanks to positive measures, the on-balance sheet bad debt ratio continued to be maintained at less than 2% (by the end of March 2022, it was 1.53%). Photo: ST

Potential bad debt warning

Considering the financial statements of the first quarter of 2022 of banks, VPBank continued to lead to the number of bad debts on the balance sheet. Only 9/27 surveyed banks recorded a decrease in bad debt ratio. The total bad debt on the balance sheet of the 27 surveyed banks has reached nearly VND 109.7 trillion, up 10.6% compared to the beginning of the year.

But according to the assessment of SSI Securities Company, the bad debt ratio at most banks deteriorated in the first quarter of 2022, partly due to the reclassification of restructuring debts into group 4 or group 5 debt after the expiration of the restructuring period. Therefore, experts at Mirae Asset Securities noted that the bank's bad debts are likely to increase in 2022 due to the end of the circulars on debt restructuring for affected entities by the Covid-19 pandemic. Even experts at Mirae Asset said that about 50% of total restructuring debts will have a high probability of becoming bad debts.

Assessing the bad debt situation, according to the additional assessment report on the results of the implementation of the Socio-Economic Development Plan in 2021; implementation of the 2022 socio-economic development plan to the 15th National Assembly, the 3rd session, the Government said that the bad debt ratio on the balance sheet will continue to be maintained at less than 2% (by the end of this month). However, in the spirit of careful consideration; if including the customer's outstanding debt, the repayment term will be restructured, interest and fee exemption and reduction will be exempted, and the debt group will remain unchanged according to Circular 01/2021/TT - the State Bank is in danger of turning bad debt, the ratio of bad debt on the balance sheet, unresolved debt at VAMC and potential debt into bad debt is high at 5.76%. Total bad debt on the balance sheet, debt sold to VAMC and potential bad debt as of March 31, 2022 is about VND 377.9 trillion. In which, the accrued interest that must be withdrawn from the system of credit institutions is VND 16.5 trillion.

The above data shows that the credit quality of the credit institution system and at some credit institutions should continue to be paid attention in the future. Because according to current regulations, potential bad debts are not bad debts but rather debts that are proactively identified by state management agencies with solutions for management, control and provision in case of bad debts that debt may turn into bad debt in the future.

Actively selling debt, increasing provision buffer

Economist Le Xuan Nghia said that banks have been under great pressure on bad debts in the last months of the year. Therefore, in the market, many banks are selling terrible debts to gradually recover, avoiding bad debts from expanding.

For example, the Joint Stock Commercial Bank for Investment and Development (BIDV) has just announced the auction of the debt of Bach Giang Housing Construction and Trading Co., Ltd. and Cao Nguyen Commercial Construction Co., Ltd. with a starting price of nearly VND 253 billion. The 8th time BIDV has auctioned this debt. Previously, BIDV also auctioned for the 10th time the debt of Viet Nga Steel Company Limited with a starting price of nearly VND 269 billion, down more than VND 200 billion compared to the first offering in July (VND 475 billion). At VietinBank, in May, dozens of notices were issued about the auction and selected an auction organization of assets and debts to recover and handle bad debts. For example, VietinBank has issued a notice to transfer all debts (principal, interest, fees) arising with Dai Loc Petroleum Trading and Transport Company Limited at Thu Duc Branch to handle debt recovery and get a loan. The total outstanding balance of this loan as of May 13 is more than VND 119 billion, including VND 80.4 billion of principal and VND 38.6 billion of interest debt.

Along with strengthening debt collection, banks must also increase the "buffer" to control bad debt risks. According to SSI experts, the pressure of banks to set aside provisions in the first quarter of 2022 remained high, increasing by 18% over the same period last year. For example, Vietcombank's off-balance sheet bad debt coverage ratio (LLR) was at a record high, reaching 424% at the end of 2021 and remaining above 400% until the end of Q1 2022. This means that each VND of bad debt on the balance sheet of Vietcombank is secured by 4 VND of provision.

Similarly, at Techcombank, all outstanding restructuring loans to support customers affected by the Covid-19 pandemic were provisioned by Techcombank two years earlier than the time limit allowed by the State Bank. Techcombank's representative said that the bank ensures that the LLR ratio remains at 163% by the end of 2021, even though 92% of the loans are secured.

With the above issues, experts and banks expect the State Bank to extend Circular 14 to help banks deal with restructuring debts, thereby supporting the economy. In addition, the Government has issued Decree 31/2022/ND-CP on interest rate support from the state budget for loans of enterprises, cooperatives and business households. This is expected to help businesses with cheap capital sources; banks increase credit, but businesses will have conditions to repay loans on time without worrying about arising bad debts.