HÀ NỘI — The banking sector plays the key role in maintaining the macro-economic stability and other major balances of the economy, stated Prime Minister Phạm Minh Chính at a New Year meeting with leaders and staff of the State Bank of Vietnam (SBV) on February 8.
Leaders of the SBV reported to the PM that last year, despite COVID-19 impacts, thanks to flexible management of credit growth, credit balance of the whole system rose compared to that in 2020, while the exchange rate was kept stable and interest rate was on a downward trend.
This year, the SBV will focus on removing difficulties for business and production activities, supporting pandemic-hit businesses and people, and restructuring credit institutions in association with settling bad debts, they said.
The Government leader recognised the sector’s contributions to the country’s success in pandemic control and socio-economic recovery.
The SBV showed flexible and active management in close coordination with fiscal policies, thus reducing interest rate, expanding credit and supporting people and businesses, and keeping the exchange rate and the foreign currency market stable, he noted.
Along with designing scenarios and plans to effectively settle bad debts, the SBV has drastically dealt with weak credit institutions, he said, while lauding the sector’s efforts in international integration, helping improve the prestige of the country's investment environment.
The Government leader stressed that the domestic and world economy will continue to face many challenges due to COVID-19 in 2022, and asked the SBV to strengthen analysing and forecasting activities, while continuing to use monetary policy tools in a proactive, flexible and synchronous manner, as well as coordinating fiscal policies and other macro-economic policies to reign in inflation and create optimal conditions for people and businesses to access capital for production recovery and development.
Banks aim to rein in bad debt in 2022
While commercial banks made progress in limiting financial risk last year, it will be a challenging task to improve credit quality and rein in rising bad debts in 2022, according to banking experts and officials.
The State Bank of Vietnam (SBV) said that banks had managed to accomplish many of the important objectives set by the SBV in its restructuring scheme to handle bad debt during 2016-20. However, many objectives were not met because of the adverse effects of the pandemic.
By the end of 2021, bad debt was 1.9 per cent, a slight uptick from 1.69 per cent reported in 2020. However, the figure rose to 3.79 per cent once counting the debts sold to Vietnam Asset Management Company.
As part of the country's effort to support economic recovery, banks have implemented measures to extend credit grants, as well as reduce the interest rates and fees for affected businesses.
Dr Châu Đình Linh from the Banking University of HCM City said bad debt was likely to continue rising if the pandemic wasn't controlled, resulting in greater pressure on the banking system. He advised that support policies must remain in place for the foreseeable future to prevent widespread damage.
In regards to SBV's directive to force banks to reduce their use of short-term capital for medium and long-term loans, Linh said the central bank should consider making some adjustments to its timeline, in light of recent development since the start of the pandemic.
The timeline, which was established in 2019 before the pandemic hit, requires banks to bring down short-term capital use for medium and long-term loans to 40 per cent by January 1, 2020, 37 per cent by October 1, 2021, 34 per cent by September 30, 2022 and finally to 30 per cent by October 1, 2023.
Commercial banks have reported reduced bad debt in their 2021 financial reports. Bad debt at the Bản Việt Joint Stock Commercial Bank went down to 2.5 per cent from 3 per cent in 2020, TP Bank 0.9 per cent from 1.14 per cent, BIDV 0.81 per cent from 1.76 per cent.
In addition, banks made strides in making provisions for bad debt last year. Vietcombank reported the highest coverage at 424 per cent, BIDV at 235 per cent, VietinBank at 171 per cent, all well ahead of the schedule set by the SBV.
Contrary to recent reports, several banking executives have said bad debt would likely be pushed back during the first quarter of 2022 as the banking sector has accumulated valuable experience in dealing with risks, as well as the pandemic.
Bad debt for 2021 was to increase from 2020 but a system-wide shock remained unlikely. As most banks reported an increased profit in 2021, they will be able to set aside additional funds to mitigate risks.
"Credit risks, however, are still a looming threat for poorly-managed banks who failed to make provisions. We are positive about financial prospects this year for well-prepared banks," said an expert from the SSI Securities Corporation (SSI). — VNS