Is bad debt a cause for concern in the fourth quarter?

DNHN - Many people are concerned that bad debts may skyrocket in the late 2022 period, significantly impacting banks' chances in the future. Experts, however, have the opposite view when it comes to the debt restructuring procedure at banks in recent years.

Circular 14/2021/TT-NHNN, which allowed consumers impacted by the COVID-19 outbreak to reschedule debt payments and maintain their debt group the same, has expired since the end of the second quarter. The top worries are the forthcoming third quarter corporate performance reporting deadlines, earnings, and bad debts.

There are now many fears that bad debts may skyrocket in the late 2022 era, significantly impacting banks' chances in the future.

However, many specialists believe that this is not a serious issue. Because banks' asset quality has improved significantly, bad debts can rise but are less likely to soar; banks manage this risk. The bad debt position will also be distributed among banks based on the customer base and macroeconomic considerations such as economic recovery and inflation management.

In reality, the restructuring debt balance has improved since the economy rebounded at the start of the year. Individuals and enterprises' production and commercial operations have rebounded rapidly, providing them with cash flow to settle debts. In the first six months of 2022, several banks reported a significant decline in restructuring debt.

For example, Techcombank's restructuring debt amount fell from VND 1,900 billion at the end of 2021 to VND 500 billion at the end of the second quarter of 2022. As a result, Techcombank's restructuring debt on total loans fell dramatically from 0.5% to 0.1%.

VIB's restructuring debt amount is also very low, falling from 1,889 billion dongs in the third quarter of 2021 to 1,054 billion dongs in the fourth quarter of 2021 and 666 billion dongs by the end of the second quarter of 2022. The bank's restructuring debt was only 0.3% of total outstanding loans, a significant decrease from 1% in the third quarter of 2021. This is also a VIB difference since most banks with a high share of retail loans will still have a significant number of outstanding restructuring loans by the end of the second quarter of 2022.

VIB's bad debt ratio was 1.7% as of June 30, 2022. According to Mirae Asset, VIB's bad debt ratio will improve in the second half of the year, and the bank will be able to overcome the negative impact of Covid-19 and the policy of tightening corporate bonds due to its large retail lending ratio, small loan amount per customer, and a low number of corporate bonds.

Banks raised provisioning throughout the debt restructuring phase, in addition to lowering bad debts, and the majority of them made 100% provision for restructuring loans. Many banks' bad debt coverage ratios have reached extremely high levels.

Vietcombank typically achieved a new milestone in bad debt coverage ratio when it grew from 424% at the start of the year to 506% by the end of June 2022 - the highest level in the banking sector ever. Furthermore, numerous banks have a bad debt coverage ratio of more than 100%, including BIDV (279%), MB (271%), VietinBank (189%), ACB (185%), and others.

The bad debt coverage ratio may have peaked, according to Mirae Asset, since the ratio of restructuring debt to bad debt is moving better than projected, allowing banks to reverse their projections or reduce the bad debt coverage ratio shortly.

Analysts believe that the Vietnamese financial system's risk management operations have significantly improved in recent years. With a consistently growing capital adequacy ratio (CAR), a healthy provision buffer, continuously improving asset quality, and expedited debt settlement, banks will not have to be concerned about bad debt risk.

PV