According to the State Bank of Vietnam, including potential bad debts and restructured debts, the NPL figure stood at around 6.9 per cent. How do you evaluate this?

Le Hoai An, a banking consultant and trainer at Integrated Financial Solutions

The industry’s 5 per cent NPL ratio to May is an average number. While listed banks, representing about 80 per cent of total loans, have NPLs below 3 per cent, the burden of bad debts disproportionately falls on unlisted banks and those undergoing restructuring.

These institutions often lend to weaker enterprises, which are more susceptible to financial difficulties, especially during economic downturns. These issues have already been addressed by the central bank. Therefore, it would be more insightful to concentrate our analysis on the NPL performance of listed banks.

The NPL trend of commercial banks has witnessed many fluctuations over the past year. Based on the financial statements of 27 commercial banks, the NPL ratio was at 2.24 per cent in the third quarter of 2023 and decreased to 1.96 per cent in the fourth quarter of the same year. However, this ratio has rebounded to 2.18 per cent and continued to increase slightly to 2.22 per cent in the first half of 2024.

Current NPLs are a result of both negative impacts from the financial difficulties of some businesses due to the slow economic recovery and positive impacts from the improved financial situation of some businesses since banks have promoted credit disbursement.

Bad debt has been fluctuating in the last four quarters, especially with different commercial banks. How do you explain this?

The current NPL issue is not solely about the size of bad debts but also about their unpredictable trends, especially in the context of continued high credit growth and the six-month extension of Circular No.02/2023/TT-NHNN dated April 23, 2023 on debt rescheduling. Some banks have experienced a sharp increase in NPLs, while others have seen a decline.

These fluctuations reflect not only the overall economic situation but also the internal factors of each bank. NPLs are significantly influenced by each bank’s provisioning policy, leading to a certain degree of subjectivity and impacting the quality of reported profits.

Moreover, the changing NPL is more related to the business strategies and risk appetites of individual banks. A classification of 27 listed banks into four groups reveals that state-owned banks have an average NPL ratio of around 1.5 per cent, while large private banks have ratios between 2-3 per cent. Small- and medium-sized private banks, however, have significantly higher NPL ratios, ranging from 4-6 per cent, with a notable uptick in recent quarters.

What is the NPL status of some leading banks and what considerations should be taken into account now?

During this period, state-owned banks have demonstrated greater caution in provisioning for NPLs to ensure financial stability. Taking advantage of the extension of Circular 02, banks such as Vietcombank, BIDV, and VietinBank have raised their provisions. However, their NPL ratios remain among the lowest compared to other banks, as their loan portfolios exhibit greater stability.

In contrast, private banks have tended to reduce provisions to optimise profits while diversifying loan portfolios to sustain growth. Techcombank has expanded lending to small and medium-sized enterprises (SMEs) compared to its previous focus, while ACB has concentrated on mid-sized and large corporate lending after experiencing slower growth in its retail customer segment.

This highlights the differences in business strategies and risk management approaches. Techcombank, with its strategy of expanding its SME clientele, maintains a lower ratio due to better risk diversification.

Conversely, ACB with its focus on large corporates, faces higher risks due to its reliance on a few major clients, necessitating stronger risk management capabilities. Well-performing banks in this group strive to control NPLs within an acceptable range while balancing profit growth.

Smaller private commercial banks have experienced significant increases in their NPL ratios. Along with NPLs from unlisted banks, this segment presents a major concern. Due to limited customer selection capabilities, the borrowers of these banks often have weaker financial capacities and are more vulnerable to prolonged economic downturns. Therefore, this segment requires closer supervision of trends.

State-owned banks like Vietcombank, BIDV, and VietinBank have focused on increasing provisions to maintain financial stability. The extension of Circular 02 has given these banks the opportunity to bolster their NPL provisions. Techcombank has shifted its focus to expanding lending to SMEs, whereas ACB has turned its attention to mid-sized and large corporate lending after slower growth in its retail segment.