Bad debts at many banks, small and large, began spiraling toward unrecoverable levels, worrying executives.
Financial reports issued during the first half of 2014 showed a surge in bad debts at many banks starting late last year.
Bad debts at Vietinbank, Vietnam’s biggest partly-private bank by assets, increased from 1 percent to 2.53 percent of outstanding loans.
The Hanoi-based lender topped the list of bad debt holders with VND9.58 trillion (US$452.13 million) in bad debts.
Vietinbank's debts include VND3.17 trillion (a 250 percent increase from late 2013) that's unlikely to be recovered.
Le Duc Tho, general director of the bank called the rise in bad debt understandable and acceptable.
“The whole economy is going down and businesses are still struggling, we can’t stand out of the situation,” Tho said.
He said bad debt rose at the bank, in part, because they re-categorized their debts based on stricter government guidelines that went into effect in June of this year.
But he guaranteed that the bank set aside adequate risk provisions of nearly VND1.72 trillion for the first half, which dragged its profits down 3 percent year-on-year.
Bad debts at Asia Commercial Bank, meanwhile, have risen a further 23 percent since late last year to more than VND4 trillion or 3.6 percent of ACB's outstanding loans.
An unidentified ACB executive said bad debt has become a real concern for the bank as well as the whole banking system.
The leader said the bank has been rearranging and selling debts as well as setting risk provisions in an effort to keep things under control.
In July of 2013, the central bank established the Vietnam Asset Management Company to rescue debt-laden lenders by exchanging bad debts for “special bonds” redeemable for loans from the central bank.
But the buying of bad debt has proceeded slowly.
In June, the central bank said bad debts rose steadily this year, after dropping from 4.55 percent last November to 3.61 percent in December, when the asset company made a number of major purchases.
Vietnam's total bad debts rose to 3.74 percent of outstanding loans in January, to 3,86 percent in February, 3.93 percent in March and 4.03 percent last April.