Vietnam intensifies crackdown against bad debt

Bad loan ratio fell from 2.46% in December 2016 to 2.09% in June.

The Vietnamese government is stepping up efforts to improve the asset quality of banks and bring down the banking sector’s nonperforming loans in line with its target to bring the bad debt ratio below 3% by 2020, reports Vietnam Net.

Credit institutions (CIs) handled $5.96b (VND138.29t) of bad debt in June, bringing the stressed debt ratio to 2.09% over the same period. This represents an improvement from the 2016 bad debt ratio of 2.46%.

The NPL ratio at credit institutions must be brought down to a safe level in compliance with international norms, Deputy Prime Minister Vuong Dinh Hue told local media at the conference to review a number of documents related to the structure of CIs.

The enhanced legal frameworks under Resolution 42, which allows CIs and the Vietnam Asset Management Company (VAMC) to repossess collateral in case of borrower default, has also helped in bad debt management.

Moreover, the VAMC has shown a strong track record to halt the further growth of the banking sector’s bad debt after resolving nearly a third (27.9%) of the stressed assets it purchased in 2017, according to an earlier report by Maybank Kim Eng. Since its inception in 2013, VAMC has acquired almost $9.4b in NPLs.

Also read: Can the VAMC single-handedly halt Vietnam's bad loan woes?

“We estimate total NPLs would have declined to 7.9% by the end of 2017 from 8.6% in Sep’17, which we expect will decrease further to 6.1% by end-2018,” Maybank Kim Eng noted, adding that that will be a positive reform for the banking sector and the equities market.