Non-performing loans surge due to pandemic

By Nguyen Nam   November 7, 2020 | 08:00 pm PT
Non-performing loans surge due to pandemic
An employee counts Vietnamese banknotes at a bank in Hanoi. Photo by VnExpress/Giang Huy.
Most banks have seen non-performing loans rise by at least 30 percent in the first nine months as the Covid-19 pandemic hit businesses and individuals.

Of 15 commercial banks that have published their third quarter results, 14 reported a surge in non-performing loans by 30 percent or more.

State-owned VietinBank posted the highest rise of 66 percent to VND17.95 trillion ($779.36 million), followed by TPBank at 60 percent and MB Bank, 39 percent.

BIDV, the largest bank in Vietnam by asset, saw non-performing loans rising 16 percent to VND22.5 trillion, highest among all lenders.

Bank leaders say that the rising number of low quality debt is unavoidable amid the Covid-19 pandemic when many businesses went into financial difficulties due to social distancing measures and dwindling demand for goods and services.

Nguyen Dinh Tung, CEO of Orient Commercial Bank (OCB), said although the value of non-performing loans has surged, the ratio of it over total debt is still under control.

But economists say that these figures will continue to be worsen next year.

Economist Nguyen Tri Hieu said that a circular issued by the State Bank of Vietnam in March has allowed banks to lower or cut interest rates on loans to support borrowers amid the pandemic and allow them to delay their payback time.

Although this circular has given businesses more time to recover from Covid-19 impacts, the loans they had acquired will eventually have to be paid and those unpayable will be turned into bad debts for banks, he said.

"Banks cannot escape from losing some of their loans in the future."

As the global situation of Covid-19 is still intense globally, Vietnamese businesses will still have financial difficulties in this and next year, and therefore the central bank should prolong its low-interest credit program to support local companies, Hieu said.

Banks, meanwhile, should increase their provisions for doubtful and bad debt to protect themselves from unavoidable risks in the future, he added.

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