Techcombank's NPLs also surged 24 per cent in Q1 to VND2.321 trillion, representing 2.03 per cent of the bank's total outstanding loans. — Photo kinhdoanhnet.vn

HA NOI (Biz Hub)— Though non-performing loans (NPLs) at commercial banks are being kept under control at below 3 per cent, their potentially irrecoverable debts remain high, Dau tu chung khoan (Securities Investment) newspaper has reported.

In Viet Nam, debts are classified into five groups based on the degree of risk. These are standard debts, debts needing special attention, subprime debts and doubtful debts, in addition to potentially irrecoverable debts. The last three are NPLs.

Though the NPL ratio at Vietinbank by the end of March was only 0.96 per cent of its total outstanding loans or VND5.3 trillion (US$235.5 million), more than half of the bank's NPLs were potentially irrecoverable debts.

BIDV's NPLs by the end of Q1 inched up from 1.67 per cent at the end of last year to 1.8 per cent, or VND10.8 trillion, of which potentially irrecoverable debts increased by VND460 billion to VND5.199 trillion.

The rise in potentially irrecoverable debts caused BIDV's provision to increase in Q1 to nearly VND2 trillion. The bank reported a net pre-provision profit of more than VND4 trillion in Q1, up more than 25 per cent against the same period last year. However, due to a double provision, the bank's pre-tax profits declined 10 per cent year-on-year to a little more than VND2 trillion.

The potentially irrecoverable debts at Vietcombank also remained high by the end of Q1. Though the bank successfully managed to control its NPLs at 1.84 per cent of total outstanding loans or VND7.6 trillion, VND5.88 trillion were potentially irrecoverable debts.

Sacombank's potentially irrecoverable debts also accounted for up to 70 per cent of its total NPLs. The bank's potentially irrecoverable debts surged by VND200 billion by the end of last year to VND1.315 trillion.

Techcombank's NPLs also surged 24 per cent in Q1 to VND2.321 trillion, representing 2.03 per cent of the bank's total outstanding loans. The bank, therefore, had to spend VND1.5 trillion for provision, up 15.2 per cent.

It is estimated that commercial banks had to set aside nearly VND8 trillion for provision, equal to nearly half their net profits in Q1 this year.

Explaining the recent sharp increase in irrecoverable debts, Nguyen Van Thuan, the head of the Banking and Finance Faculty at HCM City Open University said that although the bad debt ratio is controlled to below 3 per cent, which is considered an achievement of banks from the sale of bad debts to the Viet Nam Asset Management Company (VAMC), the bad debt settlement process remains very slow.

According to current regulations, though they have sold the bad debts to VAMC, banks are still required to establish yearly provisional funds amounting to 20 per cent of the value of the sold debts.

The recent recovery of the real estate market is seen as a positive factor influencing the bad debt settlement of banks. However, the increase of irrecoverable debts is unavoidable because the volume of bad debts that VAMC purchased from commercial banks is huge at roughly VND250 trillion.

National Financial and Monetary Policy Advisory Council member Tran Du Lich said that the settlement of bad debts this year entirely depends on how the VAMC handles the purchased NPLs. — VNS