A view of the State Bank of Vietnam. (Photo: Internet)
Asset-quality risks for Vietnam banks are likely to remain high despite new rules that help align loan-classification standards across banks, said Fitch
Ratings in its latest Asia-Pacific Banks Chart of the Month report on Vietnam.
The gradual enforcement of asset classification based on data by the State Bank of Vietnam’s Credit Information Center (CIC) should reduce discrepancy in loan classification standards across banks in Vietnam, the U.S. rating agency said.
From April 2015, Vietnamese banks are required to classify loan quality according to the lowest rating assigned to each borrower by creditors as collated by the CIC.
“This is a positive step, but long-standing asset-quality issues in the system remain unresolved, underlined by significant outstanding problem loans, which are understated by reported non-performing (NPL) ratios,” said Fitch.
Recovery rates for bad debt sold to Vietnam Asset Management Company (VAMC
) have been low, suggesting banks will continue to bear any potential recovery shortfall for these NPLs.
However, improved macroeconomic stability will likely help slow new NPL formation. A sustained improvement in the domestic property sector and measures to increase foreign property ownership may also be positive for collateral recovery, the agency added.
According to government data, the NPL ratio in the Vietnamese banking system was pulled down to 2.93% at the end of September, below the 3% target set for by the end of 2015.
VAMC has bought as much as 225 trillion dong ($10 billion) worth of bad loans at book value from 39 credit institutions since its operation in October 2013. It has recouped some 7% of the NPLs it has purchased.