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Analyses give warnings about increasing NPL
Experts have warned that the non-performing loan (NPL) percentage in the banking system tends to increase, since many enterprises cannot pay debts due to unprofitable business.
According to the State Bank of Vietnam, by the end of July, the NPL percentage had reached 3.04 percent of the total outstanding loans, which was higher than the 2.16 percent level by the end of 2010. The State Bank of Vietnam has decided that in the worst scenario, the NPL ratio must not be higher than five percent. The five percent target itself shows the concern about the possible NPL ratio increase in 2011, when the national economy faces too many difficulties.
The report released by the Party Committee of the Central Businesses on September 8 also showed that the NPL of state owned banks has increased, even though the banks are considered the biggest and the best banks on the market. Vietcombank, for example, has the NPL ratio accounting for 3.47 percent of total outstanding loans of the bank, while the figure is 6.67 percent for Agribank.
Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, said at a recent meeting in HCM City that the total NPL of the banking system had reached 75 trillion dong by June 2011, an increase of 50 percent over the same period of the last year. Of this, the fifth group debts (The debts which banks may not recover) had accounted for 47 percent of the total NPL. Most of the bad debts were injected in the real estate sector.
Also according to Nghia, by the end of March 2011, the total outstanding loans of credit institutions had reached 2.39 million of billions of dong, of which the loans to the real estate sector account for 10.8 percent. The NPL ratio on the real estate outstanding loans is four percent, higher than the average level of the banking system.
Most recently, the information that five banks, including four commercial banks ABBank, SeaBank, Vietinbank, Eximbank, and the Vietnam Development Bank, which provided 300 billion dong in a syndicated loan to An Khang Company in Can Tho City, now find it difficult to recover debts, has once again, raised the worries about the irrecoverable debts.
Of the five banks, only ABBank has collected its debts. Meanwhile, only SeaBank has made public the necessary documents relating to the assets mortgaged for the loan (Storehouses, real estate), which means that it can collect the big parts of the provided credit. Meanwhile, other banks, including Eximbank, VietinBank and the Vietnam Development Bank would find it hard to collect the debts worth hundreds of billions of dong.
The problem is that the banks disbursed money just based on the import-export vouchers, which are believed irregular.
VnExpress has quoted a member of the National Advisory Council for Monetary Policies as saying “that the insolvency of An Khang Company is just the first thing people can see, and that the picture of the bad debts would become clearer by the end of the third quarter or early the fourth quarter, when the efforts to pay bank debts squeeze enterprises. It will be the time when the bad debt ratio increases.”
Huynh Buu Son, a well-known economist, believes that the bad debt comes mostly from the loans to the real estate sector. He said that previously, banks focused on lending to real estate projects, believing that this was a “fertile soil” for banks. However, as the real estate bubble has burst, real estate developers have fallen into distress. However, it is understandable why the developers cannot sell products to get money to pay bank debts.
How to clear bad debts proves to be the question which cannot find the answer for now. An analyst said that if banks apply drastic measures to settle bad debts, they will have to tighten credit further, which will result in a worse situation, because businesses cannot borrow money to maintain their production.
vietnamnet, VnExpress
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