Vietnam - High bad debt ratio in foreign currency loans warned

September 28, 2011


High bad debt ratio in foreign currency loans warned



The report by the State Bank of Vietnam shows the high growth rate of foreign currency loans in the first months of the year, which was much higher than the Vietnam dong lending growth rate.


The “credit de-phasing”


Among the credit institutions, the foreign currency outstanding loans growth rate of joint stock banks is just the second highest after the outstanding loans of non-bank credit institutions (+ 4.64 percent). However, since the foreign currency outstanding loans of the banks account for nearly 52 percent of the total banking system, the ups and downs of the bank always catch the special attention from the public.


In the first seven months of the year, the Vietnam dong outstanding loans of joint stock banks reached 1000 trillion dong, accounting for 58 percent of the total outstanding loans of the whole banking system.


If comparing the outstanding loans of July with that of June, the Vietnam dong outstanding loans decreased by 0.34 percent. 23 joint stock banks saw the Vietnam dong outstanding loans decreasing, of which Nam A Bank saw the sharpest fall of 10.9 percent.


The dong outstanding loans decreases of joint stock banks slowed down in July in comparison with June 2011 (0.59 percent in June vs 0.34 percent in July). 15 banks have been found as having the dong outstanding loans decreased continuously in June and July.


While the dong outstanding loans increases have been slowing down, the foreign currency outstanding loans grow rate has been increasing.


The foreign currency outstanding loans of joint stock banks increased by 1.77 percent (265 million dollars) in July in comparison with June 2011. 23 banks have been found as having high growth rate in foreign currency outstanding loans, especially Nam A Bank. 16 banks have been found as having the foreign currency outstanding loans increasing continuously in June and July.


As such, the foreign currency outstanding loans growth rate of joint stock banks in the first seven months of the year was 6.3 times higher than the dong outstanding loans growth rate.


No one can say for sure how sharply the foreign currency loans will increase, though it seems that the growth has been slowing down from 2.57 percent in June to 1.77 percent in July.


State owned banks have also found as having impressively high growth rate in foreign currency outstanding loans. State owned banks mean BIDV, Agribank, The Bank for Social Policies, and Mekong Delta Housing Bank.


By the end of July 2011, the outstanding loans of state owned banks had accounted for 30.22 percent of the total outstanding loans of the whole banking system, down by 0.46 percent in comparison with June 2011 and up by 2.44 percent in comparison with December 31, 2010.


The same thing occurred with state owned banks: while the dong outstanding loans growth has slowed down, the foreign currency outstanding loans have increased sharply by 1.44 percent per month in the last seven months, and 10.5 percent in comparison with December 31, 2010.


Bad debt – the biggest worry


In principle, the outstanding loans increases are always directly proportional to bad debt ratio increases.


By the end of July 2011, the bad debt ratios belonging to third, fourth and fifth groups (the high-risk groups) had increased to nearly one percent of the total outstanding loans.


The noteworthy thing is that while the dong bad debt ratio increased only by 0.94 percent, the foreign currency bad debt ratio increased by 1.24 percent.


Statistics all show that the liquidity of the banking system remains good with the surplus of three billion dollars by early September 2011, while the figure is expected to increase to five billion dollars by the end of the year.


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