First of all, a disclaimer: This is just a very rough estimate of the Non-Performing Loans (NPLs) in the various banks in Vietnam. Due to the difficulties of NPLs classification, most of the figures here are the self-reported figures by the banks themselves. Some of these NPLs have already been resolved or there is a concrete plan of resolution (e.g., Saigon Hanoi Bank) while for others may be an underestimate, caused by “head-in-the-sand” accounting.
Circular No. 02/2013/TT-NHNN Delayed
In particular, we learn recently that implementation of Circular No. 02/2013/TT-NHNN will be delayed. To recap, this Circular aims to:
- Define more clearly what constitutes “Debt” in financial institutions. Specifically, (i) bond purchases purchased in the OTC market; (ii) credit trust; (iii) interbank deposits (excluding payment account deposits); and credit card issuance were all officially considered liabilities which require provisioning if impaired.
- Define more clearly what constitutes “Bad Debt” in financial institutions. 5 categories of loans depending on their level of impairment was specified in detail, with both qualitative and quantitative criteria applied to classify these loans. Specifically, the Credit Information Centre (CIC) will be the agency to review debt classification and assign the final credit rating of the debt and the institutions what own these debt.
- Improve risk management and transparency at banks. Lending to related parties will be limited and loans valued above 50 billion VND to related parties will need independent evaluation.
- Notwithstanding this, interbank and government bond repo transactions will be excluded from this process unless instructed by the State Bank of Vietnam.
- Resolution of Bad Debt. Specific procedural steps to resolve the bad debt were also described.
Should this circular come into effect according to plan on 1 Jun 13, bad debt ratios may rise but since it is being delayed, this would ease pressure on bank’s NPL provisioning. In addition, bad debt ratios is expected to remain stable or lower.
In particular, we learn from the government announcement recently that NPL is 4.5% (in March 2013) rather than 7.8% which was announced in Dec 2012. Nevertheless, in this chart, we shall use the higher Dec 2012 figure.
Taking the 3% NPL cutoff, since the State Bank of Vietnam considers this as a “safe” ratio, more than 10 banks will be required to sell part of their NPLs to the Vietnam Asset Management Company (VAMC).
Among them, the bank that requires the most help will be that of the Agriculture Bank of Vietnam (Agribank) with an NPL ratio of nearly 6%. In absolute terms, it has more NPLs than that of the other 3 major State Owned Commercial Banks (SOCBs) combined together (i.e. Vietcombank, Vietinbank and BIDV Bank).
Some of the outliers will be Saigon Hanoi Bank which has 8.53% of NPLs which mainly arose out of its merger with Habubank. These bad debts are mainly related to Vinashin. As the bank already has a concrete plan of action to tackle these bad loans, the NPL should drop from here.
Saigon Commercial Bank is in this situation as well, with 7.2% of its loan book made up of NPLs. These NPLs arose out of its merger with Ficombank and TinNghiaBank.
Others, e.g. Western Bank and Navibank, are awaiting restructuring.
There are some surprises though… Oceanbank and Techcombank, both of which have reputations of being well managed, spotted rather high NPLs of about 3.5%.