Bad debt pressure in banks shows signs of gradually decreasing

Photo caption — Customers complete loan procedures at Bao Viet Commercial Joint Stock Bank. Photo: Tran Viet/VNA

However, potential risks still exist, especially in banks with large exposure to real estate and corporate bonds. Based on 9-month financial data and reports from analysis organizations, the outlook for bad debt settlement in the fourth quarter of 2025 and 2026 shows that the pressure will gradually decrease, but the differentiation between banking groups will become increasingly clear.

Strengthening the “buffer”, improving asset quality

New bad debt has decreased significantly in the third quarter of 2025, showing that the rate of credit risk formation is being better controlled. Some sectors that were under pressure such as real estate have also begun to stabilize, thereby slowing the increase in bad debt throughout the system.

According to Rong Viet Securities Company (VDSC), bad debt on the balance sheet in the third quarter increased slightly by about VND7,000 billion compared to the previous quarter to VND274,000 billion, but the bad debt ratio decreased from 2.04% to 2.01%. This development was mainly due to a sharp decrease in net bad debt formation to VND28,000 billion, while banks reduced the scale of risk handling to about VND21,000 billion.

The State Bank's business trend survey results show that credit institutions are more optimistic, forecasting that the bad debt ratio will continue to decrease in the fourth quarter of 2025, contrary to the increasing trend in the same period last year. About half of the banks recorded a decrease in bad debt in the third quarter, of which the Vietnam Joint Stock Commercial Bank for Industry and Trade (BVBank), Vietnam Prosperity Joint Stock Commercial Bank (VPBank) and Vietnam Joint Stock Commercial Bank for Industry and Trade ( VietinBank ) are the banks with the strongest improvement.

FiinGroup data further reinforces this positive trend with the NPL ratio of 27 banks falling to 2%, while the rate of new NPL creation remains at a very low level. The NPL coverage ratio (LLR) in the third quarter increased to 84.3%, recovering slightly from 79.8% in the previous quarter. Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) leads the system with an LLR of over 200%, followed by VietinBank and Vietnam Technological and Commercial Joint Stock Bank ( Techcombank ).

Mirae Asset also recorded bad debt in groups 3-5 decreasing to 2%, down 23 basis points compared to mid-2024. New bad debt arising in the third quarter was about VND24,000 billion, the lowest level in many quarters, down 60.7% compared to the first quarter.

Despite significant improvement in indicators, the total scale of bad debt remains high, largely due to slow recovery of old debts and stricter debt classification standards. This is the reason why banks have increased provisions to increase resilience.

According to statistics from the financial reports of 27 banks, the total loan risk provisions reached about VND 230,000 billion, an increase of 11% compared to the end of 2024. In particular, large banks such as the Bank for Investment and Rural Development ( BIDV ), VietinBank and Vietcombank led in the scale of provisions. In the private group, VPBank, Military Commercial Joint Stock Bank (MB) and Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) recorded a sharp increase, with Sacombank increasing by 75% to completely handle outstanding debts.

Increasing provisions helps increase the bad debt coverage ratio, strengthening the safety of the system, but also puts short-term pressure on profits. Therefore, banks need to maintain a reasonable LLR level to both ensure capital safety and business efficiency.

Pressure decreases, differentiation increases

Despite the growing signs of improvement, the banking system still faces many challenges from persistent risk factors. The corporate bond market, especially real estate bonds, remains weak; the bond sector with overdue payments in the third quarter reached 1,668 trillion VND, according to Mirae Asset. This makes debt collection difficult.

Real estate credit is also approaching the risk threshold when outstanding debt related to this sector accounts for nearly 10% of total system credit; if including home loans, the proportion is nearly 23% by the end of August 2025. This is a sector that is highly sensitive to economic fluctuations, causing increased concentration risks.

In addition, the Special Mentioned Debt (SML) ratio increased from 1.2% to 1.4%, reflecting the possibility of debt group transfer in the coming time. This is a signal that potential pressure still exists even though new bad debt has decreased.

However, the short-term outlook suggests that the overall pressure will gradually decrease. Synthesizing data from VDSC, FiinGroup and Mirae Asset, bad debt in the fourth quarter of 2025 is forecast to decrease slightly or stabilize, thanks to a strong credit recovery (credit balance as of October 30 increased by 15%, expected to reach 19-20% by the end of the year) and sustained profit growth (up 24.9% in the third quarter).

Looking ahead to 2026, the differentiation between banks will be more evident. Banks with strong capital bases, high LLRs and prudent loan portfolios will continue to improve asset quality. Meanwhile, banks with large real estate and bond lending ratios will face higher debt handling pressure and the need to increase provisions.

Signs of asset quality recovery in the third quarter and a forecast of stability in the fourth quarter of 2025 indicate that the banking system is entering a more pronounced “healing” phase. However, risks from real estate, bonds and debt groups that need attention have not yet been completely eliminated. Maintaining reasonable provisions, enhancing asset handling and controlling concentrated risks will be the key for banks to ensure resilience and support sustainable growth in 2026.