Bad debt is expected to increase sharply in 2024
Rising bad debt, decreasing bad debt coverage ratio, Circular 02/2023/TT-NHNN about to expire... are threatening the banking financial picture this year, as well as putting a lot of pressure on bank leaders.
For example, in the case of ACB Bank, according to the published Financial Report, as of December 31, 2023, bad debt at ACB amounted to VND 5,887 billion, an increase of VND 2,843 billion, equivalent to 93.4% compared to the end of 2022.
The bad debt ratio increased from 0.74% to 1.22%, an increase of 0.65%. Of which, the debt with the possibility of losing capital increased from VND 2,165 billion to VND 3,898 billion, an increase of VND 1,733 billion.
It can be seen that both bad debt and debt with the possibility of losing capital at ACB have increased sharply, nearly doubling in 2023. Therefore, ACB must sharply increase its budget for provisions. ACB's credit risk provisioning expenses in 2023 increased to VND 1,804 billion, an increase of VND 1,733 billion compared to 2022.
At the end of the fourth quarter of 2023, TPBank's bad debt ratio was 2.05%, down 0.93 percentage points from the previous quarter, but still high compared to 0.84% at the end of 2022.
The provisioning boost in the last quarter of 2023 will bring the bank's bad debt coverage ratio (LLR) to 63.7% by end-2023, but still much lower than the 135% at end-2022, suggesting that asset quality may deteriorate further in the coming period.
Bad debt is forecast by experts to increase sharply in 2024 if Circular 02 expires in June 2024. At that time, it is likely that the bad debt ratio of the whole system will increase dramatically because debts will start to jump groups.
Difficulty in handling bad debt
FiinRatings also believes that in 2024, the difficult economic situation is putting significant pressure on the debt repayment ability of businesses. As a result, bad debt is on the rise across the banking industry.
Therefore, banks are still waiting for the State Bank's answer on how long to extend Circular 02/2023/TT-NHNN on debt repayment restructuring by 6 months to 1 year, so that customers have time to repay their debts and banks reduce reserve pressure.
However, the risk of bad debt increasing and bad debt handling is still a concern. Experts from SSI Securities Company predict that the bad debt ratio at the end of 2024 will not change much compared to 2023, because the end of the year is the period when banks accelerate bad debt clearing and the economy recovers more strongly.
However, SSI experts noted that problem debts including group 2 debts, restructured loans, overdue corporate bonds and old loans still need to be closely monitored.
In addition, if the draft amendment to Circular No. 16/2021/TT-NHNN with regulations easing restrictions on banks' investment in corporate bonds is passed, it is possible that part of the credit risk will return to banks actively buying back corporate bonds.
Dr. Nguyen Duy Phuong, CFO of DGCapital, expressed the view that the difficulty for banks is to completely handle bad debt. The request to extend Circular 02 for another 6 months or 1 year is essentially a way to cover up the actual figures. After the extension period, the bank's bad debt will return if customers cannot repay their debts.
Because everyone can clearly see how difficult it is for banks to handle bad debts, especially in the context of Resolution 42/2017/QH14 expiring, and most of the contents of Resolution 42 are not codified in the Law on Credit Institutions 2024 that has just been issued.
"Debt collection is currently very difficult. Meanwhile, the market's purchasing power has not improved much, causing businesses' ability and progress to repay debts to decline, leading to an increase in bad debt," Dr. Phuong stated his opinion.
Source
Comment (0)