Bad Debt - Increasing Pressure and Consequences

Bad debt not only increases the cost of capital, but also reduces the system's ability to "pump" capital into the economy - thereby creating double pressure on interest rates. This is a challenge for the banking system and needs to be tightly controlled.

Customers transact at HDBank . Photo: Minh Khoi

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The State Bank of Vietnam 's financial report shows that the total bad debt of listed banks increased to VND274,050 billion by the end of the third quarter of 2025, equivalent to an increase of 2.01% compared to the previous quarter and 8.1% compared to the same period in 2024. Although the growth rate has slowed down significantly compared to the years 2022-2024, the bad debt ratio recorded by the end of the third quarter of 2025 is still higher than the annual average (about 1.84%) and the differentiation between banking groups is still clear.

Mr. Le Hoai An, CFA, Founder of IFSS, banking training and consulting expert (Integrated Financial Solutions Joint Stock Company) said that the state-owned banking group continues to maintain the lowest bad debt ratio in the system, at 1.37%, down from 1.49% in the same period in 2024 and 1.41% in the third quarter of 2023.

In addition, the retail banking group also recorded positive developments in asset quality. The group's bad debt scale increased by only 8.5% compared to the same period, much lower than the rate of bad debt growth in the past three years. Thanks to strong credit growth, with accumulated outstanding debt in the third quarter increasing by 19%, the group's bad debt ratio improved as the rate of outstanding debt growth far exceeded the rate of bad debt growth.

The wholesale banking group recorded a bad debt ratio of over 2% from mid-2023. By the third quarter of 2025, this group recorded a bad debt ratio of 2.22%, still at a high level and showing no clear signs of decline like the two banking groups above.

“In particular, larger and more complex loans from corporate customers make credit risks difficult to fully control,” said Mr. Le Hoai An.

Notably, other banking groups recorded a continuous increase in bad debt ratio this year, reaching 2.52% (higher than 2.41% at the end of 2024 and 2.26% in 2023).

Analysts at VIX Securities Joint Stock Company said that bad debt pressure will gradually increase as the bad debt ratio of groups 3-5 in the third quarter of 2025 increases in the private banking group. At the same time, group 2 debt also increases, creating a risk signal because these debts are likely to move to a higher group in the following quarters.

Dual pressure on interest rates

Dr. Nguyen Tu Anh, Director of Policy Research (VinUni University) commented that if we consider the bad debt factor alone, it can be seen that this is also one of the structural reasons why interest rates are difficult to decrease and even tend to increase in recent times.

Notably, on November 25, the average interbank interest rate continued to increase sharply from 0.45-0.7% for all terms under 1 month compared to the previous session. Accordingly, the overnight term traded at a peak of 6.5%/year (the highest level in many months), the 1-week term was 6.5%/year, 2-week term was 6.45%/year and 1-month term was 6%/year.

Also on November 25, on the mortgage channel, the State Bank offered VND5,000 billion for a 7-day term, VND7,000 billion for a 14-day term, VND13,000 billion for a 28-day term and VND22,000 billion for a 91-day term, all at 4%/year. As a result, VND5,000 billion won the bid for a 7-day term, VND5,426.81 billion won the bid for a 14-day term, more than VND10,617 billion won the bid for a 28-day term and more than VND21,774 billion won the bid for a 91-day term. At the same time, more than VND8,745 billion matured on November 25 and the State Bank did not offer treasury bills. Thus, VND34,072.97 billion was "net injected" into the market in this session.

According to experts, when bad debts increase, banks are forced to set up risk provisions at a higher level to ensure system safety. In addition, banks are forced to re-evaluate risks for all new loans. This is clearly shown by the increase in risk provisions in lending rates. When asset quality declines, banks cannot lend as much as before but must tighten credit conditions and only prioritize good customers. As a result, lending rates for segments that still have access to capital will be higher, to compensate for the expected loss rate in the context of bad debts remaining at a high level.

Dr. Tu Anh said: "This is the reason why the cost of borrowing in the economy increases, even when the demand for capital is not too large."

In addition, bad debt significantly reduces the credit supply capacity of the banking system. When a debt becomes bad debt, the corresponding capital flow is "locked up", unable to circulate to supplement liquidity for new credit needs. This creates pressure on local capital shortages in the system, especially at banks with high credit concentration in the real estate sector and corporate bonds. When credit supply is narrowed, while credit demand of enterprises remains, interest rates inevitably increase according to market mechanisms.

“In other words, bad debt not only increases capital costs, but also reduces the system's ability to pump capital - thereby creating double pressure on interest rates,” Dr. Tu Anh emphasized.

Although the growth rate of bad debt is not as strong as the previous two years, the bad debt ratio is still high compared to the long-term average. This shows that the credit quality of this group is still a challenge that needs to be strictly controlled.

Source: https://hanoimoi.vn/no-xau-ap-luc-tang-dan-va-he-luy-725466.html