Bank bad debts increase at slower pace in Q2

Credit quality has deteriorated since the end of 2022 as the property market, which accounted for the highest share of loans outstanding, slumped.

Both debts in need of attention (group 2 – 90 days overdue) and bad debts (groups 3 to 5 – subprime, doubtful and most likely to become bad) have all risen this year.

Bad debts increased for a third straight quarter to 2.1% in Q2 from 1.6% at the end of 2022. But the rate of increase slowed thanks to lesser pressure on liquidity, solutions found for issues facing the real estate market and lower lending interest rates.

Vietcombank’s group 5 debts, most likely to become bad, fell by VND2 trillion ($81.85 million). The sizes of groups 3 and 4 increased, with the latter doubled in the three months. Cumulatively, the three groups remained changed.

At VietinBank, while overall bad debts stayed the same, group 4 shrank by 25% while group 5 debts rose by around the same rate.

At BIDV, group 5 debts saw a slight dip while 3 and 4 increased, and cumulatively the three groups increased by 6%.

At private banks, the growth in non-performing loans was not as steep as in Q1 though their value remained high.

At Techcombank, groups 3-5 grew at the fastest rate, at a compounded 27% in each of the first two quarters, to VND5 trillion.

There were also changes in customer profile (retail and corporate). At the end of last year retail customers had accounted for more than 52% of outstanding loans, but the figure fell to 43.28% by mid-year.

The loans owed by the property sector increased by more than VND 44 trillion.

VPBank's bad debts also increased by over 20% in Q2. Group 4 debts doubled while group 3 loans increased by 14%. But the group 5 amount by more than 11% to VND4.6 trillion.

At MB, groups 3-5 shrank by more than 10% in Q2, thanks to a decline in group 5 debts.

Analysts at VietDragon Securities Company (VDSC) estimated that for the 27 listed banks the average bad debt ratio increased in Q1 2023 to about 1.9% compared to Q2’s 1.6%. There was a 68% surge in group 3 debts.

The pressure from bad debts is expected to ease by year end partly due to policy effects.