Commercial banks sharply increase provisions to cover bad debts | Bank and finance



Although the bad debts of many commercial banks are still below the 3% threshold allowed by the State Bank of Vietnam (SBV), anticipating the potential risks of loans affected by the Covid-19 pandemic, many commercial banks have sharply increased provisions to cover bad debts. debts. Statistics from securities companies show that there are 11 commercial banks with a bad debt coverage ratio of over 100 percent in the first six months of this year. Some commercial banks even have a bad debt coverage rate of up to 200-300 percent. More specifically, in the group of state-owned commercial banks, Vietcombank has a bad debt coverage ratio of up to 352%. VietinBank, Agribank and BIDV also have bad debt coverage ratios of around 130%. For private commercial banks, Techcombank’s bad debt coverage ratio is 259 percent, MBBank 236 percent, and ACB 208 percent. The drastic decision of commercial banks is not only to face the risk of bad debts arising in the future, but also to avoid the pressure of increasing provision costs, affecting the profits of banks.

Mr. Nguyen Quoc Hung, secretary general of the Vietnamese Bankers Association (VNBA), said the volume of bad debts in the first six months of the year did not fully reflect the current situation. Bad debts in the banking system will be very significant after the expiration at the end of this year of the deadline to keep the debt groups unchanged for customers affected by the Covid-19 pandemic according to Circular No.03 / 2021. In the context of a protracted pandemic, many localities had to implement social distancing in accordance with Directive 16, so that companies’ cash flow was interrupted, making it difficult for them to repay loans to clients. banks.

In the recent update of Vietnam’s economic situation in the first six months of the year, the World Bank (WB) said that although financial stability has been maintained by Vietnam, the quality of loans has started. to deteriorate in some banks. Therefore, the authorities should carefully monitor the increase in bad loans to ensure the health of the financial sector and promote the application of the capital adequacy rules in accordance with Basel II for all active banks.

Separate resolution is required

In application of circulars n ° 01/2020 and n ° 03/2021 of the SBV relating to the postponement, extension and restructuring of loans to reduce the pressure of financial charges on companies, by June 14, credit institutions have restructured the repayment term with an outstanding balance of nearly VND 326.3 billion. In order to continue to support people and companies affected by the Covid-19 pandemic, the SBV is currently collecting opinions to modify and complete certain articles of circular n ° 01/2020 in the sense of an enlargement of the scope of application and an extension of the period of application of the debt restructuring and keep the same group of debts for the debts affected by the Covid-19 pandemic.

Commercial banks said the amendment not only helps people and businesses restore production and keep capital running, but also reduces the pressure of temporary bad debts on commercial banks. However, experts have said that with the unpredictable consequences of the Covid-19 pandemic, there is a risk that banks’ bad loans will continue to rise sharply in the near future. According to VNBA, the provinces and cities affected by the Covid-19 pandemic currently account for around 70 to 80% of the outstanding loans of the entire banking system. The number of bad debts and bad debts occurring in the period from May 18 to the date of entry into force of the new circular is huge, leaving serious consequences for the economy in general and the banking sector in particular.

The SBV’s vision is to be prudent, to secure the system, not to let credit institutions hide bad debts, to classify debts and to set up provisions for risks according to the nature of the debts and in accordance with the law. . “However, the SBV should report to the government the situation of businesses and credit institutions that are severely affected, thus suggesting that the government issue a separate resolution on lifting the difficulties for businesses and credit institutions affected by the pandemic of Covid-19 “, the VNBA Meanwhile, Mr. Rahul Kitchlu, acting World Bank country director for Vietnam, recommended that managing agencies should also promptly publish a plan for handling bad debts and a strategy to end measures to restructure a clear repayment period, should not allow the bad debt burden to last long in the banking system, as this may limit the role of the banking system in supporting inclusive growth.

According to the SBV, as of May 31, the entire banking system had approximately VND 425.4 trillion in bad debts determined in accordance with National Assembly resolution No. 42/2017 / QH14 on the treatment of bad debts. With nearly 430 trillion VND in bad debts that have not been settled, plus potential debts due to the Covid-19 pandemic, the SBV has offered to submit to the National Assembly to draft a law on the treatment of bad debts to manage the debts of credit institutions, particularly in the context that resolution n ° 42/2017 will expire in August 2022. According to the State Bank of Vietnam (SBV), the enactment of a law on the treatment of bad debts will help maintain the bad debt settlement policy in resolution n ° 42/2017, help credit institutions speed up the processing of bad debts, quickly recover capital and open sources of capital for credit institutions to operate, to speed up the process of restructuring credit institutions and to avoid potential risks to the economy.


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