Mirae Asset Securities has forecast that bad debt ratios at banks may increase in the closing months of 2022. A recent increase in the bad debt ratio is due to grace periods in debt restructuring coming to an end.
According to State Bank of Vietnam (SBV) Governor Nguyen Thi Hong, as of the end of April, bad debts in the real estate sector totaled VND37 trillion ($1.59 billion), or 1.62 per cent of all outstanding loans in the economy. The central bank is strengthening the inspection of credit applications in the real estate sector to control bad debts and term liquidity risks.
Loans for consumption, real estate, and build-operate-transfer (BOT) and build-transfer (BT) projects in transport have bad debt ratios higher than overall ratios, according to the Economic Committee of the National Assembly (NA). As bad debt pressure is predicted to increase, the Economic Committee has asked the government and the State Bank of Vietnam to offer guidance on credit flows.
It has been forecast that the bad debt ratio in the banking system may increase in the near future as Covid-19 is still to be brought under control. While waiting for the Law on Handling Bad Debts of Credit Institutions to be developed, the State Bank of Vietnam (SBV) has proposed extending the application period in Resolution No. 42, on handling the bad debts of credit institutions, by three years, to August 15, 2025. Resolution No. 42 from the National Assembly is valid for five years from August 15, 2017.
The State Bank of Vietnam has issued Circular No. 11/2021/TT-NHNN on the classification of assets and provision for risks, the use of provisions to deal with risks in the operations of credit institutions, and spending by foreign bank branches. Under the Circular, after five years, debts that have been settled by all measures but cannot be recovered will be removed from the off-balance sheet (OBS).
Banking activities during the first half of the year have been acknowledged by the National Assembly Economic Committee, in particular the management of exchange rates, interest rates, and inflation. Appropriate solutions will be needed in the second half to handle bad debts, simplify procedures, support business recovery, and seize opportunities to develop the digital economy, e-commerce, and non-cash payment services.
