Hanoi (VNS/VNA) - The bad debt ratio of the bankingsystem skyrocketed from 2% at the beginning of this year to 3.56%, or more than440 trillion VND, at the end of July 2023, according to the latest data fromthe State Bank of Vietnam (SBV).

Including bad debts that commercial banks sold to the Vietnam Asset ManagementCompany (VAMC) and have not yet been recovered, the bad debt ratio rose to 6.16%.

This bad debt ratio includes the debts of five banks: SCB, Dong A Bank, CBBank,OceanBank, and GPBank, which are under the SBV’s special control. Excludingthese five banks, the bad debt ratio stood at 1.92%.

SBV Governor Nguyen Thi Hong stated that as of September 21, 2023, theoutstanding loans of the banking system totalled more than 12.62 quadrillionVND, an increase of 5.91% compared to the end of 2022. Notably, the bad debtratio in the real estate sector rose from 1.8% in July 2022 to 2.58% in July2023.

The credit quality of many banks has shown signs of deterioration. Some bankslisted on the stock exchange, such as NCB, ABBank, BVBank, VPBank, VietBank,OCB, and PGBank, had bad debt ratios exceeding 3% by the end of June 2023.

Experts predict that the credit quality of the banking system may continue toface pressure. Some bank leaders believe the bad debt ratio will peak in thethird quarter of this year and start to gradually decrease from the beginningof the next year.

The SBV has highlighted that the domestic and international economic situationsare highly volatile due to the escalating Russia-Ukraine conflict, whichdisrupts the global supply chain. This leads to a rising risk of inflation andimpacts the consumer spending of many economies. Vietnam’s major tradingpartners also face potential recession risks, especially following incidentsinvolving several US banks.

At present, banks' management of bad debts encounters numerous challenges,especially with the rise in overdue debts and a sluggish real estate market,making the handling of real estate collateral even more challenging.

Furthermore, the SBV has noted that the debt trading market still presents manylimitations. The legal framework related to restructuring credit institutionsand managing bad debts remains incomplete, and there is a lack of favourablepolicies to encourage both domestic and foreign investors to participate inhandling collateral and trading bad debt.

Specifically, the infrastructure of underperforming banks still lacks theresources and specific mechanisms for thorough management. Some State-ownedgroups and corporations do not have the resources required to manage losses andrestructure non-bank credit institutions where they hold ownership orsignificant shares./.