Reducing interest rates will partially alleviate the burden of bad debt on banks.

DNHN - The pressure of new bad debts will be alleviated in part by the State Bank of Vietnam's (SBV) flexible management measures, including the reduction of interest rates and temporary adjustments to the regulations governing the recognition of bad debts.

Analysts have predicted since the beginning of the year that asset quality in general and bad debt, in particular, will be one of the greatest challenges in 2023. In the final six months of the year, will bad debt remain a significant obstacle? Big challenge?

Recently, the State Bank of Vietnam (SBV) issued Circular 02/2023/TT-NHNN permitting commercial banks to restructure outstanding loans (consumption and production) arising from April 24, 2023, to April 30, 2024, without changing the debt group; restructuring the repayment term up to 12 months and permitting commercial banks to make amortization payments in 2023 and 2024.

Consequently, commercial banks will have more time to manage bad debts, particularly in light of the global economic downturn.

In the first quarter of 2023, the ratios of nonperforming loans (NPL) and bad debt expansion (including group 2 debt) for the majority of publicly traded banks rose dramatically. At the end of the first quarter of 2023, the ratio of bad debt on the balance sheet increased to 1.9% from 1.6% at the end of 2022, and the ratio of group 2 debt increased to 2.1%. The off-balance sheet debt ratio of the VAMC is 1.1%. However, credit costs also decreased when banks made proactive provisions for potential bad debts in prior quarters.

According to Vietcombank Securities (VCBS), the on-balance-sheet bad debt ratio and provisioning level are not anticipated to increase significantly in 2023 as a result of Decree 08 supporting the extension of corporate bonds and Circular 02 permitting loan restructuring. As a result of the frozen real estate market and the fact that real estate is the primary collateral for the majority of loans, bad debt settlement continued to face challenges.

According to analysts at Mirae Asset Securities, the macro economy will recover gradually but insufficiently.

The flexible management measures implemented by the SBV to reduce interest rates, as well as the temporary modifications to the regulations governing the recognition of bad debts, will reduce the pressure to generate new bad debts. Experts anticipate that bad debt will reach its peak in late 2023 or early 2024.

Nevertheless, many experts believe that the outlook for the banking industry is not entirely bleak. Reduced interest rates and stable exchange rates are anticipated to generate profits in foreign exchange trading and bonds in general for banks.

PV (Synthesis)