Banking bad debt situation takes curious turn

TN News

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Most major banks who have declared first-half results have bad debts of below the 3 percent threshold set by the central bank, meaning the new asset management company set up to bring down the highest bad debt level in Asia will not have much business for now.

Fifteen lenders, a fourth of the total number in Vietnam but accounting for 75 percent of bank loans, had reported first-half results by August 20.

Five of them reported declines in non-performing loans to below 3 percent, the threshold for selling off bad debts to the Vietnam Asset Management Company.

Most of the rest including Vietcombank whose bad debts rose from 2.26 percent to 2.81 percent at the end of last year, Vietinbank (from 1.46 percent to 2.1 percent), and Eximbank (1.32 percent to 1.49 percent) reported increases.

But SHB and BaoVietBank reported troubling figures.

At SHB, a bank formed by the forced merger of the troubled Habubank with Saigon-Hanoi Commercial Joint Stock Bank last year, they rose to 9.04 percent from 8.51 percent.

Debts categorized as the most risky increased by more than half to VND3.19 trillion (US$151.36 million).

BaoVietBank saw bad debts more than double to 14.37 percent, with the worst category surging fivefold to VND912.75 billion ($43.3 million).

Economist Nguyen Tri Hieu said the increases are not a surprise at a time of sluggish economic growth, which hit a 13-year low last year.

He said struggling businesses are unable to repay bank debts, and many banks are careless while lending under pressure to achieve credit growth targets. Credit growth is estimated at 5.15 percent so far this year against a full- year target of 12 percent.

The central bank estimated overall bad debts at 4.65 percent in May, down from 8.82 percent last September.

Banks have to sell off bad debts above the 3 percent threshold to the VAMC, a state-owned firm set up last month with a capital of VND500 billion.

After announcing a plan to issue special bonds in October to banks in exchange for VND10-trillion worth of bad debts, it has yet to make a start.

But Hieu wants the government to spur the debt cleanup by loosening a stipulation that the VAMC can only buy debts in which at least 65 percent of the collateral is in the form of property.

But banks complain they have found it difficult to sell off mortgaged properties.

Loans against properties are said to account for a large portion of total loans, though no official data is available.

The deputy director of a Ho Chi Minh City-based bank told Saigon Times that banks typically have to engage in elaborate negotiations with borrowers on how to liquidate properties before filing suit, an even longer process.    

To illustrate the low liquidity in the housing market, he said one debtor tried for two years but was unable to sell a house for VND5.5 billion ($262,000), 25 percent lower than his purchase price.

The director of a property trading floor said a bank had asked her at the start of the year to sell 70 mortgaged properties worth VND3.5 billion to hundreds of billions, but her company has only managed to sell a third of them.

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