Non-performing loans (NPLs) as of the end of May accounted for 2.78 percent of the entire banking system’s total outstanding loans.

This was still under the 3 percent threshold targeted by the Government, Deputy Governor of the State Bank of Vietnam Nguyen Thi Hong said during a government press conference on August 2.

The move was made after concern was expressed about an upward trend in NPLs, as reported recently in H1 financial reports of several commercial banks.

Hong said the central bank would still consider the handling of bad debts a top priority during the last few months of the year.

She said the central bank had instructed commercial banks, whose NPLs were more than three percent, to report measures to resolve the bad debts issue to the central bank.

“Besides a strict control on credit growth to ensure credit quality and to avoid raising new bad debts, the governor has also asked credit institutions to make provisions for their risky loans,” Hong said.

She said the Governor had also asked the Vietnam Asset Management Company (VAMC) to deal with bad debts in a move to control the total bad debts under three percent.

In July, financial statements released by some large commercial banks showed that bad debts increased in the first half of the year.

Notably, bad debts skyrocketed at Eximbank, surging sharply from 1.86 percent at the end of last year to 5.3 percent by the end of June.

Of Eximbank’s total bad debts worth 4.285 trillion VND (191.29 million USD), subprime debt surged 13 times to reach 2.415 trillion VND, while the increasing rate of doubtful debt and potentially irrecoverable debt was 34.8 percent each to touch 797 billion VND and 1.073 trillion VND, respectively.

Due to the high NPL rate, Eximbank had to double its provisions to touch 324 billion VND in H1, causing pre-tax profits to fall sharply to end at 79 billion VND, down 88 percent year-on-year.

The Bank for Investment and Development of Vietnam (BIDV) -- the country’s largest commercial bank in terms of assets -- also reported that its bad debts increased from roughly 1.6 percent at the end of last year to two percent by the end of June. The increasing bad debts in H1 were worth more than 3 trillion VND, bringing the bank’s total bad debts to reach 13.183 trillion VND. Of these debts, potentially irrecoverable debts and doubtful debts rose from 5.190 trillion VND and 887.76 billion VND to touch 6.343 trillion VND and 2.326 trillion VND, respectively.

Sacombank’s bad debts, as of the end of June, also increased to 2.83 percent from 1.85 percent at the end of last year.

Due to the large number of bad debts, Sacombank’s provisions surged 86 percent in H1, causing the bank’s pre-tax profit to drop 76 percent year-on-year to touch 363 billion VND.

Experts attributed the increase in bad debts in banks in H1 to the fact that the VAMC bought only a small amount of bad debts in the first half of this year, after meeting the target for controlling bad debts of the entire banking system under three percent at the end of September last year.

According to a government report on the country’s socio-economic results in H1 2016, VAMC has so far bought 241 trillion VND of bad debts. The number of bad debts was nearly the same as compared with those released late last year. It meant that the new bad debts that arose in commercial banks in H1 remained with the banks, instead of being transferred to the VAMC, as was done in previous years.

The central bank reported in April that the bad debt ratio of the entire banking system as of the end of March was 2.62 percent.

VNA