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Bad debt ratio of banks creeping up   2009-07-22 - VietNamNet/DTTC

The State Bank of Vietnam has announced the bad debt ratio of the banking system at 2.52 percent of total outstanding loans, an increase of 0.35 percent over the end of 2008. Should this be worrying?


Bad debt ratio not worrying


According to Le Xuan Nghia, Deputy Chairman of the National Committee for Finance Supervision, the announced bad debt ratio, though being higher than that of the same period of last year, is not worrying.


Nghia said that even the bad debt ratio of 5 percent would still be acceptable and controllable in the current conditions of the national economy.


Though joint-stock banks have high credit growth rates, dozens of joint-stock banks have bad debt ratios lower than 1 percent. Meanwhile, state-owned banks have higher bad debt ratios.


Joint-stock banks well understand that high credit growth will certainly create pressure on credit quality. However, anticipating that non-performing loans will increase in the context of the economic difficulties, they have been using a lot of measures to control credit quality. At many banks, non-performing loans are transferred to headquarters for easier management, while inspection delegations have been set up to check operations at branches to discover problems early.


That explains why many joint-stock banks still have low bad debt ratios. Sacombank, for example, had the bad debt ratio of 266 billion dong as of June 30, or less than 1 percent of total outstanding loans. Eximbank, thanks to its efforts, has successfully reduced its bad debt ratio from 4.1 percent to 3.3 percent.


The Fitch credit rating company recently announced the credit ratings for six Vietnamese banks. Vietcombank, Asia Commercial bank and Sacombank got the highest ratings for Vietnam, at D, while Agribank, BIDV and Vietinbank got D/E.


Banks urged to control credit quality


Experts said that the bad debt ratios are big in some banks because banks, when providing long-term loans (more than five years), do not require borrowers to pay some of the principal at the end of every year. Loans in which borrowers pay interest on schedule are not listed as bad debt. Vietnam is now applying a method in classifying bad debt which is different from the method employed in the world. Vietnam has been classifying debts based on the debt payment time, which does not truly reflect the nature of debts.


Duong Thu Huong, Secretary General of the Vietnam Banking Association, has advised banks to pay attention to controlling credit quality, saying that banks should not focus on long-term investments by making capital contrinbutions to other entities or converting debts into capital contributions to entities in fields which are not among the fields of their strengths.


Nghia said that the thing commercial banks need to pay attention to now is risk management. It may happen that consumer and long-term loans will be used for real estate and stock investments, and could become bad debts for banks in the future.


Outstanding loans for securities and real estate investments reportedly increased in the first half of the year. The State Bank of Vietnam has reported that securities loans increased by 28.31 percent by June 30 compared to late 2008. Meanwhile, the figure was just 4 percent at the end of April.


The outstanding loans to the real estate sector increased by 10.48 percent over late 2008, while the figure was 12 percent at the end of April.

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