Risk warnings on NPLs persist

The stress on credit growth could open up banks to further NPLs issues if risk isn’t sufficiently monitored Photo: Le Toan

According to State Bank figures, by the end of 2013 the ratio of non-performing loans (NPLs) in the banking system fell to 3.79 per cent, down 1 per cent on the beginning of last year.

According to director of the State Bank Governor’s Office Le Duc Tho, this was the result of commercial bank efforts to actively review and restructure their loans. The Vietnam Asset Management Company (VAMC) also contributed by buying VND40 trillion ($1.9 billion) from credit institutions last year.

Tho said that VAMC was expected to buy more than VND100-150 trillion ($4.7-7.1 billion) worth of NPLs this year. The State Bank would also attempt to speed up its involvement, and keep a close watch on potential bad debts from growing. “Commercial banks are not allowed to conceal bad loans or falsify credit quality,” he noted.

Tho also encouraged foreign investors to buy NPLs from VAMC, which would provide funds to repay the debts to credit institutions.

Some 35 credit institutions have sold NPLs to VAMC, with Agribank and Saigon Commercial Bank having sold the lion’s share.

According to a BIDV Securities Company report on the macro-economy released last week, banks actively settled a huge amount of NPLs by using loan provisions. The growth of NPLs had slowed to 2.2 per cent per month in 2013, instead of 3.91 per cent in 2012.

The ratio of NPLs among commercial banks in 2013 improved compared to the third quarter of last year. Vietcombank and Sacombank’s NPL ratio reduced from 2.98 and 2.25 per cent last September to 2.62 and 1.44 per cent respectively by the end of 2013. VietinBank’s NPLs reduced significantly to 0.82 per cent at the end of last year, down dramatically from the 2.47 per cent recorded three months previously.

However, the risk of more NPLs still exists as banks try to expand credit quickly without sufficient risk management. In the last month of 2013, total loans in the banking system jumped by 3.5 per cent, to reach 12.51 per cent over the year. Concerns have been expressed that unrealistic credit growth targets may have led to a lack of attention to the quality of loans being offered, providing a context where NPLs could grow again in the future.

According to VPBank general director Nguyen Duc Vinh, banks were under pressure to extend credit, but were still not being sufficiently careful about whom they were lending to.

“Risk is increasing, but the market still requires lower interest rates, and easier access to loans. This could pose a problem to the banking sector, especially in the next two years,” said Vinh.

Moreover, Circular 02 with stricter regulation on loan classification which will be effective this June is expected to see the categorisation of NPLs possibly double.

Based on a recent report by Vietcombank Securities Company, VAMC’s purchase of NPLs would increase in the second half of the year once Circular 02 was implemented.