Non-performing loans rise with restructuring

ACB experienced the largest growth in NPLs in the first quarter, Photo: Le Toan

According to first-quarter financial statements released by 26 banks, non-performing loans (NPLs) on the balance sheets of these banks increased by 5.3 per cent to more than $4 billion.

BIDV, VPBank, and VietinBank posted the largest NPL holdings in the banking system with $944.5 million, $452 million, and $387 million, respectively. In the first quarter, 20 of the 26 banks recorded an increase in bad debts, with some like ACB and Vietcombank reporting drastic rises. ACB saw the sharpest increase in the quarter with 61 per cent to reach $128.26 million of bad debts.

The latest report by SSI Research shows that the surge in NPLs has come from a more conservative loan classification to stabilise credit quality. According to ACB’s Board of Management, the bank has reclassified the debt of a large corporate client that may face difficulties in the future. It also forecast that it would need more than two years to deal with NPL collateral and is setting adequate provisions for this.

Vietcombank also recorded a 47 per cent increase in NPLs to reach $334.35 million in the first three months. Meanwhile, NPLs at MB rose 29 per cent to $180.87 million.

Only six banks posted reducing NPLs – VietinBank, Sacombank, SeABank, Techcombank, BAC A BANK, and Kienlongbank – with the latter seeing the most substantial decrease from $81.74 million to $24.35 million. The main reason was that the bank sold its STB shares in Sacombank which were used to secure a potentially sour loan in 2019.

The five other banks have seen a slight decrease in NPLs, with Techcombank down 12 per cent, VietinBank 6 per cent, Sacombank 8 per cent, SeABank 1 per cent, and BAC A BANK 4 per cent.

In addition, around 11 of the 26 banks recorded the lower NPL rates against the end of 2020. Some banks have reduced bad debts on the back of the slow growth of total outstanding loans, attributable to seasonal activities and the low credit demand.

In the first quarter of 2021, NPLs fared better than at the end of last year, despite previous warnings about a potential rise in 2021. However, restructured debts turning sour could have a negative impact.

Earlier last month, the State Bank of Vietnam (SBV) promulgated Circular No.03/2021/TT-NHNN announcing additional conditions for and extending the roadmap for debt restructuring until 2023. It authorised credit institutions to reschedule debt repayment terms for debts due to be paid between January 23 and the end of this year.

Nguyen Thi Phuong Thanh, analyst at VNDIRECT told VIR, “We believe that Circular 03 will support companies in recovering business lines as well as reducing provisioning pressure on commercial banks. Meanwhile, additional conditions regarding debt restructuring will allow companies to take up loans for production with extended repayment terms, reducing financial cost pressure during the post-pandemic recovery period.”

Thanh emphasised that banks’ debt restructuring portfolios would slightly increase in 2021 as restructuring conditions are expanded. However, impact on asset yields is expected to be minimal. In fact, since the end of 2020, several commercial banks have ceased debt restructuring portfolio expansion to avoid conditions on repayment time set by Circular No.01/2020/TT-NHNN which made similar allowances as Circular 03.

As of April 5, credit institutions have restructured repayment terms for 262,000 customers with outstanding loans of about $15.5 billion. At the same time, banks have exempted, reduced and lowered interest rates for more than 663,000 customers with outstanding loans of $55.2 billion.

New loans issued with preferential interest rates have reached more than $137.4 billion for 456,600 customers since January 2020. Once taking effect, it is expected that Circular 03 would create more favourable conditions for cash-strapped corporate and individual clients alike.

Pham Thi Trung Ha, deputy general director of MB said, “After the bank reduced interest rates, businesses were better prepared for debt payments. Up to 80 per cent of customers have been able to repay loans on time, with only 20 per cent falling behind in payments. Some of the most vulnerable sectors include accommodation, tourism, and services.”

SBV Deputy Governor Doan Thai Son also promised that the central bank would ramp up assistance for the hardest-hit companies even after the termination of Circular 03.

Nguyen Quoc Hung, general secretary of the Vietnam Banks Association said, “The government must support the banking industry by allowing debt freezing with a maximum term of two years. This will provide credit institutions with a solid foundation while ensuring the legal aspects when granting any new loans.”