“Clotted blood” of national economy likely to come back hinh anh 1Many banks fear that non-performing loans will increase due to the COVID-19 pandemic (Photo: Contributor/VietnamPlus)

Hanoi (VNA) – A report released by the State Bank of Vietnam (SBV) showed that domestic banks have to date felt the pinch of the COVID-19 pandemic.

Many banks have reported declines in profits as their credit growth remained low while they had to put aside larger sums for reserve funds for bad debts and loans with potential risks borrowed by customers who are facing a range of difficulties due to COVID-19.

Domino effects

Phan Thi Thanh Xuan, Vice Chairwoman of Secretary General of the Vietnam Leather, Footwear and Handbag Association (LEFASO, said due to impacts from the pandemic, leather and footwear businesses have been facing a lot of difficulties and has to cut workforce amid disruptions in supply chains from China and demand chains to the US and EU markets.

Not only the leather footwear industry, many other fields such as paper, fishery and processing enterprises have also showed their “loopholes” such as risk and crisis management capacity and adaptiveness. These are considered as one of the main causes making thousands of companies go bankrupt and leave the market.

A leader of Hai Binh Cashew Nuts Company in the Central Highlands province of Gia Lai said before the outbreak of COVID-19, the business sold about 100 million VND worth of products each day via supermarkets and tourist destinations, but the figure dropped to 10-15 million VND these days and even to zero dong during the period of social distancing.

Experts said the inventories of businesses have been on the rise on the back of falling demand due to the COVID-19 pandemic, resulting in the slower circulation of currency in the economy.

Businesses that have failed to sell products for a long period will face capital shortages and be unable to repay bank loans, leading to a higher rate of bad debts in the banking industry.

Nguyen Tien Dong, Chairman of the Members Council of the Vietnam Asset Management Company (VAMC), said the prolonged pandemic has badly affected production and business activities, thereby weakening the solvency of borrowers in the coming time, increasing bad debts and influencing the control and settlement of bad debts of credit institutions.

Bade debts tends to rise in the time to come despite efforts of the government and banking industry to support domestic businesses, Dong said.

The worry named “bad debts”

Though the banking sector has taken a range of measures to assist enterprises by restructuring loans, extending and delaying the repayment of loans or cutting interest rates, the persistent pandemic has made it difficult for companies to repay bank loans. As a result, banks will face increasing bad and irrecoverable debts.

Kienlongbank is an example. By the end of June, the bank’s bad debt had increased by 5.5-fold, equivalent to more than 500 percent with a sum of 2.25 trillion VND (97.3 million USD). Its bad debt ratio rose from 1.02 percent to 6.59 percent.

Besides Kienlongbank, bad debts of Nam A Bank, Eximbank, VietBank and Agribank also saw a two-digit growth rate, standing at 180 percent, 98 percent, 50.6 percent and 39.4 percent, respectively.

Sacombank’s non-performing loans (NPL) also jumped to 6.68 trillion VND, including 850 billion VND worth of substandard loans and over 5.28 trillion VND worth of irrecoverable loans.

Non-performing loans at other commercial banks such as MB, VIB, SHB, BacABank and VPBank also increased remarkably.

State-owned commercial banks like VietinBank, Vietcombank, BIDV and Agribank are in the same plight. Of them, Agribank has the highest amount of irrecoverable loans, at 17.28 trillion VND, up 39.4 percent from the end of 2019.

Agribank Deputy General Director Pham Toan Vuong said bad debts will not only cause bad impacts in the short term but also in the long run when the COVID-19 pandemic is pushed back, especially in 2021. This is a thorny matter for the banking industry, he added./.