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How bad is the Vietnamese bad debt?
The hot credit growth, plus the bad credit management are the two reasons behind the increases of the bad debts.
The Vietnam Alternative Holdings (VAH), an investment fund with the estimated investment capital of 100 million dollars, managed by VietinBank Capital and Saigon Asset Management Corporation (SAM), is calling for capital. The investment fund plans to join the debt and asset trading market by the end of the year, when it would trade the debts of credit institutions.
“We plan to purchase bad debts of banks, then “renew” them for reselling,” said Nguyen Anh Tuan, General Director of VietinBank Capital.
“We plan to buy second-group and subsequent debts. However, we will also consider buying first-group debts, or the “good loans” whose owners want to sell to gather strength for other business deals,” he added.
According to the current standards, non-performing loans are classified into five groups, of which fifth-group debts are the worst.
With the bad debts on the rise, intermediary institutions like VAH would have many affairs to make.
According to the World Bank and the State Bank of Vietnam, the bad debt ratio of the whole banking system by August 2011 had reached 3.1 percent, higher than 2.16 percent by the end of 2010, while the figure may reach five percent by the end of 2011.
The bad debt ratio of state owned banks has increased by 66.18 percent in comparison with the end of 2010. Meanwhile, the figures were 44.29 percent for joint stock banks, 59.23 percent for joint stock banks and 100 percent foreign invested banks.
The noteworthy thing is that the credit growth rate is much higher than the capital mobilization and GDP growth rates, which leads to the higher liquidity risks. The outstanding loans increased by 32 percent in 2000-2010, while the mobilized capital increased by 29 percent, while GDP grew only by 7.15 percent during that period.
Experts say that with the GDP growth rate of 7 percent, the reasonable credit growth rate should be 14-20 percent which is low enough to not create “credit bubble” and high enough to avoid bad effects to the national economy.
Fitch Rating, S&P and Moody’s all have lowered Vietnam’s credit ratings for 2010, warning about the overly hot credit growth. The high lending growth rate is always associated with the high bad debt ratio and high risks for banking operation.
According to the State Bank of Vietnam, of the 2.5 percent bad debt ratio in 2010, 60 percent came from state owned banks.
Meanwhile, Vietcombank Securities Company has pointed out that there is a big difference in the debt classification method applied by Vietnam and the international practice. Therefore, the above said figures still cannot show an overall picture about the health of credit institutions.
According to the State Bank of Vietnam, the bad debt ratio of 3.1 percent in accordance with Vietnamese standards, is still within the safety line and remains controllable. However, experts say that if referring to international standards, the figure would be 13 percent which is really a worrying figure.
Analysts say a lot of banks have “played tricks” to hide their actual bad debts. Though the State Bank’s circular on debt classification shows the ways for banks to classify bad debts in accordance with both quantitative (article 6) and qualitative analyses (article 7), most of the banks ignore the article 7. To date, only BIDV, Agribank and Vietcombank have classified debts, referring to the article 7. It is because the classification in accordance with qualitative analysis would produce the bad debt figures which are 2-3 times higher than the other method.
The representative of the State Bank of Vietnam, in a recent meeting with commercial banks, revealed that the bank is compiling a new circular on debt classification which will replace the Decision 493 which has become out of date.
vietnamnet, TBKTSG
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