Vietnam Bad Debt Ratio Drops to 5-Year Low at End-2015; Obstacles ahead

Tuan Minh

16:15 18/03/2016

BizLIVE - The bad debt ratio in the Vietnamese banking system fell to 2.55% at the end of 2015 from 3.25% a year earlier.

Vietnam Bad Debt Ratio Drops to 5-Year Low at End-2015; Obstacles ahead

Vietnam brought the bad debt ratio to 2.55% at the end of 2015. (Photo:

Non-performing loans (NPLs) at banks in Vietnam accounted for 2.55% of total outstanding loans in December 2015, compared to 3.25% at the end of 2014 and the lowest since 2010, according to data of the State Bank of Vietnam (SBV) and Reuters.
The government-run National Financial Supervisory Commission (NFSC), meanwhile, earlier this week announced that NPLs were estimated at 120 trillion dong ($5.58 billion) at the end of last year, or 2.9% of total credit, down from 3.7% in late 2014.
According to the commission, local banks have unloaded some 243 trillion dong ($10.85 billion) to SBV-run Vietnam Asset Management Company (VAMC) to date, doubling the amount recorded in banks’ balance sheets.
NFSC Chairman Vu Viet Ngoan said the local banking system has still been impaired by bad loans.
“Bad debt remains a heavy burden and will continue to be a major bottleneck in the banking system in 2016 if no more fresh measures are taken,” Mr. Ngoan said, noting that banks still have to set aside provisions for NPLs sold to VAMC.
Le Duc Thuy, a former SBV governor, said that bringing down the bad debt ratio to below 3% was a success. However, a large number of credit institutions have yet to classify their debts in line with international practices.
Sharing the same view, banking expert Nguyen Tri Hieu told local media that toxic assets were being cleaned up on papers, referring to the sales of bad loans to VAMC. In fact, NPLs are not radically solved and the cleanup process is sluggish.
The foreclosure of collateral is a thorny problem for banks to clear bad debt. This process is time-consuming as it needs clients’ approval, Mr. Hieu added.
The solution of bad is will be challenged since lending for the real estate sector will be gradually tapped as the central bank is looking to amend Circular 36, he noted.