Bank asset quality remains a major “concern”

DNVN - The World Bank believes that Vietnam's economy is recovering, credit growth has improved, however, the quality of banking assets is still a major "concern".

The WB Vietnam Economic Update Report for August 2024 stated that Vietnam's economy is recovering and credit growth has improved. However, the quality of banking assets remains a major "concern".

Specifically, credit growth has improved after a period of very slow growth in early 2024. By the end of June 2024, credit growth reached 13.5% over the same period last year, mainly thanks to improved export activities, manufacturing and processing industry production, real estate, trade, transportation and telecommunications.

However, the latest consumer lending data shows that consumer confidence remains weak, with home and auto loans falling in Q1 2024 compared to the end of 2023. Total consumer credit grew by just 6.8% year-on-year in Q1 2024, compared to a slight increase in 2023 and lower than the average growth rate of 16.1% over the previous five years.

WB believes that bad debt in the entire banking system has increased sharply.

“Bank asset quality remains a concern from 2023. System-wide bad debt increased sharply, from 1.9% in 2022 to 4.6% of total outstanding loans in 2023, according to the latest available data, mainly due to bad debt recognition of Saigon Commercial Joint Stock Bank (SCB).

However, total bad debt could reach 7.9% if restructured loans and debts of the Vietnam Asset Management Company (VAMC) are included, the World Bank report said.

According to the World Bank, the latest data for the first quarter of 2024 shows that the bad debt ratio of 27 listed commercial banks accounts for 83% of total outstanding credit in the banking sector, increasing from 1.9% in the fourth quarter of 2023 to 2.2% in the first quarter of 2024, under the condition of increasing bad debt combined with slowing credit growth.

In addition, debt restructuring measures to cope with the COVID-19 pandemic (expected to end in December 2024) may cause the NPL ratio to increase even more. The expected need for increased provisions and additional loan loss provisions is putting further pressure on banks’ profits, which are already being squeezed by slowing net interest, fee and commission income.

Meanwhile, the corporate bond market is showing signs of recovery. Corporate bond issuance increased 2.5 times in the first half of 2024 compared to the same period in 2023, as banks took advantage of the low interest rate environment to roll over bond debt.

However, the amount of bonds maturing in the second half of 2024 is estimated at 5.6 billion USD, of which real estate bonds account for 42%. This is creating pressure on the real estate sector in difficult cash flow conditions.

Hoai Anh

Source: https://doanhnghiepvn.vn/kinh-te/tai-chinh-ngan-hang/chat-luong-tai-san-ngan-hang-van-la-quan-ngai-lon/20240826031523939