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Banking & Finance

NFSC: Bad debts down to 9.5%

Released at: 16:37, 26/12/2017

NFSC: Bad debts down to 9.5%

Photo: Quang Huy

2017 Financial Market Overview Report notes bad debts down from 11.5% in August.

by Quang Huy

The 2017 Financial Market Overview Report released on December 26 by the National Financial Supervision Commission (NFSC) noted that bad debts have been cut from 11.5 per cent of total credit as at August to 9.5 per cent now, primarily due to the recent implementation of the National Assembly’s resolution on bad debt settlement.

Local banks, thanks to quicker debt resolution, have managed to clear VND70 trillion ($3 billion) in bad debts over the past year, while the rising property market has boosted credit growth, the report said.

Return on assets (ROA) and return on equity (ROE) in the banking sector have both reached their highest levels in five years, the report noted. The NFSC estimated credit growth of 19 per cent this year amid an increase of 17.3 per cent in the sector’s total assets.

State Bank of Vietnam (SBV) Governor Le Minh Hung told a plenary session last month that non-performing loans (NPLs) in the banking system, if fully calculated, were estimated at VND566 trillion ($24.93 billion) as at the end of September, accounting for 8.61 per cent of total credit.

NPLs registered on Vietnamese banks’ balance sheets, mostly incurred due to a slowdown in the country’s real estate market in the early 2010s, had been cut to 2.34 per cent of the total by the end of September, down from 2.46 per cent at the end of last year, according to SBV Governor Hung. The central bank set up an institution to deal with toxic loans, the Vietnam Asset Management Company (VAMC), in late 2013.

Credit ratings agency Moody’s in October upgraded its outlook for Vietnam’s banking system from stable to positive for the next 12-18 months, reflecting the country’s strong economic prospects and the positive outlook for most rated banks.

Together with cutting bad debts, quicker debt resolution could also reduce the burden on banks, which would better position them for the scheduled implementation of the Basel II standards in January 2020. As it stands, banks’ reported capital adequacy ratios (CARs) meet minimum requirements, but these are based on official NPL ratios that understate problem loans in the banking sector.

“Capital adequacy in the banking system is poor because rapid credit growth is already outpacing internal capital generation and sources of external capital are limited,” Moody’s lead analyst Ms. Daphne Cheng told VET, adding that the government intends to rely on banks’ earnings to close their capital shortfalls, given its lack of fiscal resources to inject fresh capital.

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