Commercial banks still ailing from bad debts curse

Commercial banks are likely to carry $2.64 billion worth of bad debts unresolved from 2017 onto 2018

According to statistics provided by the National Financial Supervision Commission (NFSC), the total rate of bad debts among financial institutions (FIs) hit 9.5 per cent at the end of 2017, which was only a 2.4 per cent drop from the same category in 2016.

On December 31, 2017, collective bad debts at 13 randomly-surveyed commercial banks, including Vietinbank, Saigon Hanoi Commercial Bank (SHB), VPBank, Techcombank, and TPBank, mounted up to VND60.533 trillion ($2.66 billion), which was a 0.7 per cent rise against early 2017.

Several market analysts asserted that, "Despite the favourable conditions provided by Resolution No.42/2017/QH14 on handling bad debts in credit institutions, commercial banks will likely carry a huge volume of unresolved bad debts from 2017 into 2018."

Until the end of 2017, Asia Commercial Bank (HNX: ACB) was reported to have the lowest proportion of bad debts (0.7 per cent) among the randomly surveyed commercial banks. However, ACB was still required to set aside risk provisions worth VND2.565 trillion ($113.11 million) in 2018, which was double than in 2017 and made up 49.1 per cent of the bank's net profits in 2017.

Additionally, BIDV's proportion of bad debts hit VND 14.915 trillion ($657.75 million), which was 62.1 per cent up against the same figure in 2017 and accounted for 62.9 per cent of the bank's net profit in 2017.

Among the 13 randomly-surveyed commercial banks, BIDV was reported to set aside the largest volume of risk provisions in 2017 as well as holding the largest rate of bad debts in the system, recorded at VND 13.950 trillion ($615.19 million), which was equivalent to 1.61 per cent of the total outstanding debts of the bank.

Likewise, Vietinbank also raised its volume of risk provisions to roughly 65 per cent or VND8.344 trillion, which accounted for 47.5 per cent of the bank's net profit in 2017.

At the end of 2017, the ratio of bad debts over the total outstanding debts at Sacombank dropped from 6.91 to 4.16 per cent over the stretch of 12 months, however this still exceeded the required 3 per cent.