Vietnamese banks still heavily burdened by delinquent loans

The VAMC has only managed to recoup 20% of the total outstanding bad debt.

According to BMI Research, looking at asset quality, Vietnamese banks reported a slight decline in non-performing loans (NPLs) ratio to 2.46% in Q416 from 2.53% in the previous quarter, but this belies the fact that the banking system is still burdened by a high level of delinquent loans.

Here's more from BMI Research:

Back in 2013, the Vietnamese government set up the Vietnam Asset Management Company (VAMC) to purchase NPLs from banks as an indirect way of injecting liquidity into the banking system after the property market crashed in 2012.

Although the VAMC has successfully taken over enough bad debt such that the official NPL ratio has fallen below 3%, the restructuring and resolution of these NPLs has been extremely slow due to an inefficient legal framework for resolving insolvency, and underdeveloped secondary capital market.

Indeed, Vietnam ranks a dismal 125 out of 190 countries in the 'resolving insolvency' component of the Ease of Doing Business index, taking an average of five years (versus a regional average of 2.6 years) to fully resolve a case, and a recovery rate of just 21.6 cents on the dollar (compared to 33.9 cents regionally).

In actual fact, all credit risks still stay with the individual banks as they are required to redeem these bad debts back at a future date if the VAMC fails to restructure these assets by then.

This is a concern because since its establishment, the VAMC has only managed to recoup around VND50.2trn (USD2.2bn), which is less than 20% of the total outstanding bad debt (according to media reports), mainly by selling collateral which were originally put up for the unrecovered loans in the real estate sector.