The banking sector will continue to face great challenges in 2024, especially those from bad debts when Circular 02/2023/TT-NHNN of the State Bank of Vietnam on credit institutions and foreign bank branches' debt rescheduling and maintaining loan categories to help clients in difficulties expires on June 30, 2024.
Economist Dinh Trong Thinh said that although the banking system has worked to strengthen provision buffer for defaulted loans while reducing lending for risky areas, when circular 02 expires, the rescheduled debts will return to their original categories, that means bad debts will surge, requiring banks to use their reserves to cover potential losses, eating into their profit.
Sharing the same viewpoint, experts from MB Securities Joint Stock Company (MBS) said that the bad debt ratio was said to peak in the third quarter of this year, and the banking system’s provision is on a positive trend; however, pressure for provision will continue into 2024.
Updated statistics from the central bank showed that as of the end of September, total outstanding debt under circular No.02 reached some VND140 trillion (US$5.75 billion), accounting for 1.09 percent of the banking system’s credit value.
However, most banks recorded higher bad debt ratio in Quarter 3 than previous quarters. Total soured loans at the end of Quarter 3 surged 61 percent from Q2 to more than VND196.75 trillion.
MBS said that average bad debt ratio at state-owned commercial joint stock banks rose 0.4 percent from the beginning of the year, while other commercial joint stock banks witnessed an increase of 0.7 percent.
Banks that had enhanced bad debt provisions in 2023 and reduced the risk-weighted assets may have ample room to handle soured loans, and have an advantage to expand their profits, it highlighted.
Experts from the MBS forecast that credit growth in 2024 would be 13-14 percent, and the net interest margin (NIM) would be improved on the back of low interest rate, which is expected to push commercial banks’ after-tax profit up, at an estimated 25.1 percent.
Vietcombank Securities Limited Company expected banks’ profit will grow some 10 percent; however, several small-scale banks will experience a fall and even suffer negative growth.
It said the banking system’s credit growth will maintain at 12 percent, and continue feeling the pressure from the economy as well as the sluggish recovery of the realty market.
Meanwhile, Vietnam Investors Service and Credit Rating Agency Joint Stock Company (VIS Rating) felt upbeat about the bad debt situation next year.
The formation of bad debts will slow down thanks to improvement in the country’s business climate that helps better customers’ ability to repay loans, it said, adding banks’ profitability will make a gradual recovery on the back of improved NIM and increasing credit demand spurred by a brighter economic situation.
The above-mentioned factors will contribute to consolidating the banking system’s capital scale, while liquidity will become more stable when deposit growth rate keeps pace with credit growth rate, it added.
