VINACHEM

VCB Securities believes that the bad-debt ratio of the national economy may be as high as 11.02 percent.

The State Bank (SBV) reported that by the end of November 2015, the NPL ratio of the banking system had fallen to 2.72 percent from 3.25 percent reported earlier last year.

The NPL reduction came as commercial banks accelerated the provisioning against risks and pushed up the sale of bad debt to the Vietnam Asset Management Company (VAMC).

The total NPL in commercial banks’ balance sheets was reportedly at VND135.872 trillion by the end of September 2015.

However, VCBS has estimated that the bad-debt ratio might have reached 11.02 percent ,which includes reported non-performing loans (NPL), bad debt kept at VAMC, and debt which is likely to turn into bad debt after Decision No 780 on debt classification expired on April 1, 2015.

Under Circular 02 which was applied after the decision was no longer valid, commercial banks will have to use information from the Credit Information Center (CIC) when classifying debts. The application of the circular with stricter international standards is believed to lead to higher bad debts.

Meanwhile, VAMC, the biggest instrument in SBV’s hands used to restructure bad debts, has been given more power as its chartered capital has been raised to VND2 trillion, and SBV’s Governor has allowed it to buy debt at the market price since October 1, 2015.

A report showed that VAMC’s collection of bad debts went very smoothly in the first nine months of the year. The work went very well in the third quarter thanks to the State Bank’s warning that banks must successfully reduce their bad debt ratio to below 3 percent prior to September 30, 2015.

However, VCBS believes that the debt settlement has been going very slowly with only 9.6 percent of debts having recovered.

VAMC explained that it was difficult to sell the debts it had bought because of some legal problems which did not give the institution enough power.

First, Decree 56 does not give sufficient power to VAMC in dealing with the assets mortgaged for the loans. Second, there is still no debt market in Vietnam. Debt trading is a type of conditional business in Vietnam.

In related news, sources said Vietnam may witness more banks taken over by SBV this year. These would include banks with bad debts and liquidity problems.

The State Bank would have to intervene in the banks by two major measures – either asking the banks to merge with other banks or taking over them at the price of zero dong.