The figure is derived from numbers provided by Dao Quoc Tinh, Deputy Chief Inspector, Banking Supervision and Inspection Agency of the State Bank of Vietnam (SBV).
By the end of the June 2014, non-performing loans (NPLs) the whole system were at VND160.94 trillion, rising of 21.5% compared to May 2014 and 38.2% compared to December 2013. Bad debts and the NPL ratio increased significantly in June 2014, especially after the Circular 02 regulations on debt classification and took effect from June 1, 2014.
Besides the effects of Circular 02 and Circular 09 with stricter requirements for debt classification and debt restructuring, Tinh also attributed the rising NPLs to difficulties of the economy.
Answering the question regarding the surge of irrecoverable debts (Group 5 debts) showing in the financial reports for the first 6 months of many banks recently, he said the reasons were the same besides difficulties in handling collaterals.
However, the banking system is actively processing non-performing loans (NPLs) with drastic measures to curb and handle Group 5 debts by putting aside risk provisions. Bad debts handled by risk provisions have increased recently and will reach the highest level at the end of the year when banks promote NPL handling.
Therefore, he thought that, after rising, NPLs would drop at the end of the year and risk provisions would limit the impact of increasing Group 5 debts to banking operations.
To support this point, Tinh provided that fact that, by the end of June 2014, the remaining provisions of the system reached VND77.3 trillion, up 10.9% compared to the end of 2013. If all of those provisions were used to handle bad debts, NPL ratio of the system would be reduced to about 2.2%. Therefore, the current bad debt problem is not concerning as provisions of banks are pretty adequate and in upward trend.
However, ignoring that assumption, a simple calculation shows that NPLs at the end of June 2014 were at 4.23%.
Source StoxPlus