The financial capacity of Vietnam’s credit institutions has solidified in recent years, with their charter capital reaching 578.9 trillion VND (24.85 billion USD) by the end of the first quarter 2019.

Vietcombank recovered 8.86 trillion VND of bad debts by the end of March 2019
(Photo: Vietcombank)

In a report sent to the National Assembly recently, the State Bank of Vietnam (SBV) said the value rose by 0.45 percent against the end of 2018 and 13 percent against the end of 2017.

The institutions’ equity capital also increased by 4.2 percent and 20.1 percent against 2018 and 2017 to 792.6 trillion VND while their total assets hit more than 11,000 trillion VND, up 0.8 percent compared with end-2018.

The SBV’s report also showed the institutions cleaned up 907.3 trillion VND of non-performing loans (NPLs) from 2012 to the end of the first quarter 2019, of which 163.14 trillion VND worth was settled in 2018 alone.

The SBV noted the institutions settled 227.86 trillion VND of NPLs from August 15, 2017 to March 2019.

With the results, the total NPL ratio of the institutions, including NPLs sold to the Vietnam Asset Management Company (VAMC), dropped significantly to 5.88 percent from 7.36 percent in late 2017 and 10.08 percent in late 2016.

However, the NPL ratio, exclusive NPLs sold to the VAMC, was 2.02 percent by the end of March, compared with 1.89 percent in late 2018, 1.99 percent in late 2017 and 2.46 percent in late 2016.

By the end of the first quarter this year, many banks, such as Vietcombank, BIDV, Sacombank, LienVietPostBank and HDBank, also posted a decline in bad debt ratios compared to the beginning of the year.

Indeed, the institutions have intensified their bad debt settlement by restricting the transfer of bad debts to the VAMC and handling bad debts through debt sale, collateral assurance and risk provisions.

Vietcombank, for example, recovered 8.86 trillion VND of bad debts by the end of March 2019, representing 71 percent of the total projected for 2016-2020.

Pham Manh Thang, deputy general director of Vietcombank, said Vietcombank had utilised its resources to recover bad debts. It required its branches with a bad debt ratio of 3 percent or more, or those with the total amount of 50 billion VND in bad debts or more, to establish a bad debt settlement board.

As a result, Vietcombank’s total bad debt stood at more than 6 trillion VND by the end of March, helping its bad debt ratio of total outstanding loans plunge to 1.03 percent. The bank aims to cut the rate to below 1 percent.

To deal with bad debts effectively, Thang said Vietcombank and other credit institutions needed to focus on mobilising resources into controlling credit quality and handling bad debts swiftly, helping unfreeze capital flows and giving a boost to economic development.

Bui Van Hai, deputy head of the SBV’s Banking Supervision Department, said restructuring and handling bad debts among credit institutions had so far achieved positive results while overall credit quality had improved.

The low-level ratio indicated that credit institutions had exerted tight controls on newly arising bad debts and efficiently handled previous bad debts.

Notably, the legal framework had improved, with some fundamental amendments made to mechanisms and policies to assist credit institutions in restructuring and handling of bad debts.

The SBV recently drafted a circular to replace the SBV’s Circular No. 19/2013/TT-NHNN prescribing the purchase, sale and settlement of the VAMC’s bad debts. Accordingly, those still reporting outstanding special bonds of the VAMC would not be allowed to pay dividends in cash.

Domestic banks have acknowledged that they are currently in the process of restructuring and settling bad debts. Therefore, profits are mainly used for their provisions while some decline to make dividend payments to shareholders.