Banks’ NPLs are stepping over State Bank limits

Giant state-owned commercial bank Agribank told the State Bank its non-performing loan (NPL) ratio was a nation-topping 6.14 per cent by the end of June, much higher than the 3 per cent safety limit.

Based on other banks’ un-audited consolidated financial statements for the first half of this year, Hanoi Stock Exchange-listed private bank Navibank ranked second with an NPL ratio of 3.87 per cent, equal to VND511.57 billion ($24.56 million).

Other giant state-owned commercial banks Vietcombank and BIDV have NPL ratios of 3.5 and 3.3 per cent, or VND7,542 billion ($362 million)  and VND9,981 billion (479.2 million), respectively.

Vietinbank and Saigon-Hanoi Bank have a 2.5 per cent NPL ratio. Techcombank’s NPL ratio to the end of the second quarter is nearly equal to the maximum level, at 2.94 per cent.

Especially, Vietinbank’s NPL increased sharply compared to its peers, growing three-fold on-year in 2012’s first half. Vietcombank and BIDV’s NPL increased 1.37 and 1.23 times on-year, respectively.

Among banks that announced financial statements, Sacombank (STB) has the lowest ratio of 1.29 per cent.

Tran Bac Ha, chairman of BIDV, said commercial banks had already suggested the State Bank loosen this maximum level.

“When many enterprises are on the edge of bankruptcy, banks should accept a higher NPL ratio of not less than 5 per cent in two to three years,” said Ha.

Given the gloomy macroeconomy, the number of NPLs is expected to increase in the coming time. In fact, the State Bank already announced the NPLs ratio of banking system was around 8.6-10 per cent. In the first seven months of this year, this ratio increased sharply by 45.5 per cent against the end of 2011.

Meanwhile, JP Morgan estimates NPLs in the system range from 10-14 per cent and Fitch Ratings’ estimation is 13 per cent.

Thus, to avoid reaching the cap which will make banks spend more on provisions and bear stricter supervision from the State Bank, banks have found ways to hide their NPLs by coordinating with other banks and customers. The NPLs ratio reported by commercial banks to the end of May, 2012 was 4.47 per cent.

State Bank Governor Nguyen Van Binh said one reason for the banking system’s high NPLs ratio was the limited State Bank supervision for many years.

HSBC said the State Bank was becoming more transparent when stating that the NPL ratio was closer to 8.6-10 per cent and its recent action put pressure on banks to trim balance sheets.

The State Bank last week issued Document No. 5652/NHNN-TTGSNH to address banking system inspection and supervision to improve banks’ supervision.