Soaring bank provision anticipated for bad debt control

To facilitate the sector’s objective, the central bank has required local commercial banks to scale up efforts in dealing with bad debts, engaging in mergers and acquisitions to bolster business efficiency and selling bad debts to the state-owned Vietnam Asset Management Company (VAMC) to ensure healthy operations. Their provisions would, thereby, increase remarkably. 

According to Do Minh Toan, general director of Asia Commercial Bank, this year the bank aims to achieve a credit growth of 13-15 per cent and sell about VND1 trillion ($46.7 million) bad debts to VAMC. 

The bank has also made plans to tackle VND1.6 trillion ($76 million) in bad debts and set aside VND2 trillion ($93 million) to make provisions, striving to bring bad debt below 3 per cent before the end of this year. 

Standard Chartered Bank (SCB), an influential banking entity based in Ho Chi Minh City, has sold about VND11.4 trillion ($532 million) of bad debts to VAMC, in the course of the past three years, bringing its ratio to just 0.5 per cent by the end of last year. 

This year, SCB is set to continue curbing bad debts to ensure healthy finance. 

Along with using drastic measures, the bank’s provision will also increase. 

At Vietnam International Bank (VIB), one of the leading joint stock commercial banks, though by the end of last year bad debt was kept at 2.51 per cent, well below the regulated level of 3 per cent, its cumulative provisions have surpassed VND2 trillion ($93 million). 

According to the bank executives, this year VIB is set to tackle VND3.83 trillion ($179 million) in bad debts, ensuring to maintain its bad debt around 2.5 per cent. 

The bank’s bad debt is forecast to swell by around VND300 billion ($14 million) this year, leading to its rising debt provision. 

At Eximbank, one of largest banks in total asset value, last year approximately VND3 trillion ($140 million) was put in provision, leading to a sharp drop in profits to just VND68 billion ($3.1 million). 

This year, the bank plans to sell around VND1 trillion ($46.7 million) bad debts to VAMC and put into provision 20 per cent of the sum to receive special bonds from VAMC in return. 

Bank provisions are forecast to shoot up this year as each bank must fulfil the goals of selling the bad debt amount assigned by the central bank (SBV) to the VAMC. 

Banks have, therefore, proposed the central bank to scale down the required provision amount for their bad debts when selling to VAMC from the current 20% to 10% only. 

The bank proposal was advocated by Tran Du Lich, member of the National Financial and Advisory Monetary Council, who said that lower provision rates would help alleviate bank pressures in a time of difficulties.