Banking industry focuses on handling bad debt, improving credit quality

Non-performing loans are under control.

In 2023, Agribank 's Nghe An branch faced a mix of advantages and disadvantages, with some challenges being unforeseen and different from previous years: following the Covid-19 pandemic, the economy reopened, the government directed the acceleration of public investment disbursement; the real estate and stock markets were sluggish, making capital mobilization easier. However, the impact of the Russia-Ukraine conflict, the lingering consequences of the Covid-19 pandemic, and the negative effects of the global and domestic economies led to a reduction in investment, business, and consumption by individuals and businesses, resulting in a sharp decline in credit demand and significant difficulties in credit growth…

According to aggregated data from the State Bank of Vietnam's Nghe An branch, as of December 31, 2023, total mobilized capital reached VND 232,344 billion, an increase of 16.3% compared to the beginning of the year. Meanwhile, lending was lower, with total outstanding loans at VND 286,222 billion, an increase of 10% compared to the beginning of the year.

The difficult economic situation has led to a general increase in non-performing loans (NPLs) across the banking sector. Following the nationwide trend of sharply rising NPLs, NPLs in Nghe An province accounted for 1.9% of total outstanding loans, a 2.8-fold increase compared to 2022 (in 2022, NPLs accounted for 0.55% of total outstanding loans). However, thanks to various solutions implemented, the NPLs of credit institutions in the province are lower than the national average NPLs of 4.95%.

Banks are stepping up efforts to handle and recover bad debts; improving credit quality. Photo: Thu Huyen.

Non-performing loans are mainly concentrated in wholesale and retail loans, repairs of automobiles, motorcycles and other motor vehicles (73%); other service activities (11.5%); arts, entertainment and recreation (4.5%); domestic work, production of physical goods and services for self-consumption by households (4.3%)...

Representatives from the State Bank of Vietnam shared that, in the context of the general difficulties, the policy of debt deferral and maintaining the same debt classification for customers has been applied by the State Bank of Vietnam since the beginning of 2020. The regulations issued mainly aim to provide banks with a mechanism to delay the recognition and provisioning of loans, as well as to create conditions for extending the time for real estate developers to settle their upcoming debt obligations.

In Nghe An province, following the directives of the Government and the State Bank of Vietnam, many banks have implemented loan packages with interest rate support, and many have effectively controlled bad debts. For example, at Agribank Nam Nghe An, by the end of 2023, the total bad debt was VND 30.6 billion, a decrease of VND 10.7 billion compared to the beginning of the year; the bad debt ratio was 0.24%, below the planned target of 0.8% of total outstanding loans. Of this, loans in group 5 accounted for 92.2% of the total bad debt. As a result, the total outstanding loans of the entire system increased by 7.4%, but Agribank Nam Nghe An branch increased by 11.2%...

Transactions at Agribank's Nam Nghe An branch. Photo: Thu Huyen

According to Mr. Truong Quoc Bao, Director of Agribank Nam Nghe An, "To control credit quality and keep bad debts within acceptable limits, and to recover debts exceeding the targets set by the head office, we have implemented a comprehensive set of solutions: Controlling bad debts and potentially risky debts for units/departments through assigning targets for the bad debt ratio, the ratio of group 2 debts, and the ratio of group 5 debts. Proactively reviewing and inventorying bad debts and potentially risky debts, developing specific debt recovery plans for each loan, and assigning responsibility to the head of the unit and relevant staff in the handling and recovery of bad debts. Actively implementing many effective measures to recover debts and handle risks such as seizing collateral for processing, waiving or reducing interest, initiating legal action, etc., thus successfully completing the assigned targets. Strictly implementing regulations on managing problematic credit facilities." Develop plans and roadmaps, and flexibly apply measures to address the issue immediately upon reclassification of debts into group 2…

Improve credit quality

According to assessments, the acceleration of credit in the last month of 2023 helped dilute bad debts, bringing the non-performing loan ratio of banks to a lower level. However, this ratio may increase again in the first half of 2024 as credit growth slows down and macroeconomic factors do not show clear signs of improvement…

In Directive No. 01 on organizing the implementation of key tasks of the banking sector in 2024, the Governor of the State Bank of Vietnam requested credit institutions to decisively and effectively implement the "Restructuring the system of credit institutions associated with handling bad debts in the period 2021-2025" project, contributing to the development of a healthy, high-quality, and efficient system of credit institutions.

Improving credit quality and preventing or limiting the 발생 of new bad debts is always a priority for BIDV Nghe An Bank. Photo: Thu Huyen

Ms. Nguyen Thi Thu Thu, Director of the State Bank of Vietnam's Nghe An branch, stated: To ensure the goals set by the Government and the National Assembly for the banking sector in 2024, the Governor of the State Bank of Vietnam has issued Directive No. 01/CT-NHNN on organizing the implementation of key tasks of the banking sector in 2024. One of the key areas to focus on is directing credit institutions to strengthen the handling and recovery of bad debts; improve credit quality; and prevent and limit the emergence of new bad debts through solutions that will be applied and implemented in the province in the coming period.

Following directives, in 2024 the banking sector will strengthen micro-level safety supervision; closely monitor credit quality and lending activities in potentially risky sectors, lending within the same banking ecosystem, large-value lending to customers outside the locality, provision of services related to corporate bonds, insurance agency activities, etc., in order to detect potential risks and violations of the law; proactively implement appropriate solutions to ensure banking safety when detecting unusual fluctuations. It will also closely monitor and supervise the implementation of restructuring plans for credit institutions in the area and strictly handle violations.

Directing credit institutions in the area to seriously implement the conclusions, recommendations, and warnings of the State Bank of Vietnam through inspection, examination, and supervision; rectifying and handling, and proposing timely solutions to existing shortcomings and violations; and at the same time, monitoring, urging, and checking the implementation results of credit institutions...

Real estate is one of the sectors with high levels of bad debt and requires increased control. Photo: Thu Huyen

During inspections, audits, and supervision, proactively direct credit institutions to strengthen and effectively implement the handling and recovery of bad debts, and enhance discipline in debt handling and recovery. Implement decisive measures to improve credit quality, prevent and minimize the 발생 of bad debts; classify debts, and establish and utilize risk provisions in accordance with the law. Actively coordinate with local authorities and competent State agencies, especially the Police, People's Courts, and Enforcement agencies at all levels, in the process of handling collateral assets to recover debts, ensuring maximum recovery of debt value, minimizing losses for credit institutions, and protecting the legitimate interests of the State and shareholders. Closely coordinate with the Vietnam Asset Management Company (VAMC) in the purchase, sale, and handling of bad debts.

“In addition, we are also coordinating with agencies such as the Provincial Party Committee's Internal Affairs Department, the Provincial Police, the Provincial People's Procuratorate, and the Provincial Civil Enforcement Agency to expedite the process of handling bad debts. At the same time, we are directing people's credit funds to advise the district-level People's Committees to establish Steering Committees for handling bad debts and working groups to assist in handling bad debts in districts and communes, in order to coordinate with people's credit funds to effectively handle bad debts,” shared the Director of the State Bank of Vietnam's Nghe An branch.

Source: https://baonghean.vn/nganh-ngan-hang-chu-trong-xu-ly-no-xau-nang-cao-chat-luong-tin-dung-post285076.html