Bank bad debts rise beyond 3%

The figure had risen to VND440 trillion (US$18.3 billion), the State Bank of Vietnam said, blaming it on the SCB incident, difficult businesses situation and property market slump.

After SCB faced a run in October 2022, the central bank put the private lender under special control to limit negative impacts on it and credit institutions in general.

However, five banks are under special control, SCB, Dong A Bank, CBBank, OceanBank, and GPBank, and the bad debts ratio if they were excluded was only 1.92%, it said.

In early 2019, the Government set a goal of bringing the banking system’s bad debt ratio to below 2%. It fell to 1.69% by the end of 2020, the year Covid began.

The pandemic and a series of other global and domestic economic events caused bad debts to rise steadily in the last four years.

The business sector has been beset by difficulties, the real estate and bond markets have slumped, and SCB was placed under special control by the central bank in October last year after a run.

Some listed banks like NCB, ABBank, BVBank, VPBank, VietBank, OCB, and PGBank had bad debt ratios of more than 3% at the end of June.

The central bank fears the credit quality would continue to be under strain in the coming time.

Some bankers had said bad debts would peak in the third quarter of this year and gradually decrease from the beginning of next year.

According to the central bank, the debt buying and selling market remains limited.

The legal framework related to restructuring credit institutions and handling bad debts is patchy, and there is a lack of incentives for investors to buy bad debts and handle collateral put up by debtors.

Restructuring weak banks is hard due to a shortage of resources and mechanisms.