Bad bank debt jumps group

The total scale of bad debt in banks has slowed down but its quality has deteriorated, with more "substandard" debt moving to the "doubtful" and "capital loss" groups.

Bad debt is a hot spot in the banking industry. In the first two quarters of the year, this indicator continuously increased, creating pressure on operations, eroding business results, while credit granting also became more cautious. This pressure continued to increase in the third quarter, but not only in the scale of total bad debt but also in the quality of debt.

Bad debt is classified based on the criteria of the debt payment period. Group 3 debt (substandard debt) is debt overdue from 91 to 180 days. If the debt is overdue from 181 to 360 days, it is classified into group 4 (doubtful debt) and over 361 days is group 5 debt (debt with the possibility of losing capital). The longer the debt is overdue, the lower the possibility of recovery. This is also the reason why the provisioning increases gradually from 20% for group 3 debt to 50% for group 4 debt and 100% for group 5 debt.

In the financial reports of banks, the change in the third quarter compared to the first half of this year is mainly in the proportion of group 3 and group 4-5. In which, the scale of group 3 debt tends to decrease, but group 4 and 5 debt both increase sharply. Positively, the speed of bad debt formation is tending to slow down, but the problem is that the level of overdue debt is tending to increase with old bad debts.

Compared to the second quarter, Vietcombank's group 3 debt decreased by nearly 8%, but group 4 debt more than doubled, and group 5 debt increased by more than 30%. Similar developments occurred with VietinBank and BIDV . VietinBank's group 3 debt at the end of the third quarter was only half of that of the previous three months, but group 4 debt more than doubled, and group 5 debt increased by more than 25%.

For the private banking group, the situation is somewhat less positive. Group 3 debt has not decreased, but only increased at a lower rate than in the first half of the year. Meanwhile, group 4 and 5 debt tends to increase more strongly.

At Techcombank , the size of group 3-5 debt increased by the end of the third quarter compared to the end of the first and second quarters. The bank's total bad debt as of September 30 was nearly VND6,500 billion, up nearly 30% compared to the previous three months. For VPBank, the positive point is that group 3 and 5 debt did not fluctuate much, but group 4 debt increased by nearly 38%.

According to VPBank Securities, the total debt size of group 4 of listed banks by the end of the third quarter was VND73,604 billion, an increase of more than 31% compared to the end of the second quarter.

"The average bad debt ratio of listed banks is still below the ceiling of 3% but is also alarming at a time of difficult economic situation," wrote VPBank Securities' banking industry outlook report.

Compared to the beginning of the year, the system's bad debt scale also remained high. The bad debt ratio of the top 25 largest listed banks increased to 2.24% at the end of the third quarter - the highest level since 2017.

A positive sign is that the total percentage of group 2 debt has decreased to 2.3% at the end of the third quarter compared to 2.5% at the end of the second quarter. "The formation of bad debt is slowing down," VNDirect's latest report on the banking industry assessed. However, the analysis team believes that in the context of economic activities still being difficult, provisioning costs will continue to erode banks' profits in the coming quarters.

Minh Son

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