How big are the subprime loans in Vietnam?

By the end of November 2010, the subprime loans of the whole banking system had reached 51.085 billion dong, accounting for 2.42 percent of the total outstanding loans.

 

According to the State Bank of Vietnam the subprime loans accounted for just 2.42 percent of the total outstanding loans of the whole banking system, which is not a high level. However, the noteworthy thing is that the 5^th-group debts (the unrecoverable debts) accounted for 50 percent of the subprime debts.

By November 30, 2010, the total outstanding loans of the whole banking system had reached 2.108 millions of billion dong, an increase of 3.15 percent over the previous month. The outstanding loans increased by 2.15 percent monthly in the first 11 months of 2010.

If classifying the banking system into five sectors and comparing the figures of November with the figures of October 2010, one would see that the outstanding loans of joint stock banks increased most sharply by 4.35 percent, or 47,998 billion dong (+ 4.71 percent in Vietnam dong loans, and + 2.91 percent in foreign currency loans).

Meanwhile, the outstanding loans of joint venture banks increased by 2.42 percent, or 776 billion dong (+ 3.66 percent and +1.02 percent). The figures for state owned banks were 2.1 percent and 13,958.66 billion dong, respectively (+ 2.1 percent and + 2.06 percent). The figures for foreign banks were 0.76 percent and 1254 billion dong (- 2.78 percent and + 2.05 percent), and for non-bank credit institutions were 0.44 percent and 334 billion dong (+ 0.17 percent and + 1.3 percent).

Four sectors of the banking system all saw the bad debts ratio decreasing. Only joint stock banks saw the bad debt ratio increasing to 5.71 percent, or 1130 billion dong.

The figures showed that in November, the outstanding loans in foreign currencies increased more slowly than the outstanding loans in Vietnam dong. However, foreign banks and non-bank credit institutions still had high growth rates in the foreign currency outstanding loans.

Under the Decision No. 493 issued by the State Bank of Vietnam, debts can be classified into five groups. Of these groups, the 3^rd-group debts are “subprime debts”, the 4^th-group debts are considered “doubtful debts” and the 5^th group debts means the debts which may be unrecoverable because borrowers cannot pay back.

following this classification method, the subprime debts by the end of November had amounted to 2.42 percent of the total outstanding loans, an increase of 0.16 percent in comparison with October.

When analyzing the subprime loans of the whole banking system, one would see that the 5^th-group loans accounted for nearly 50 percent of the total outstanding loans, up by 8.7 percent over the previous month, while the 3^rd and 4^th group loans decreased.

Especially, the 5^th group loans have become the headache to many commercial banks.

A financial expert, when analyzing the figures, said that though the subprime loans of the whole banking system is not high, some problems still remain.

First, regarding the debt classification, besides BIDV (the Bank for Investment and Development of Vietnam) and some other banks which classify debts in accordance with the Article 7, most banks follow the Article 6. The main difference of the two articles is that the Article 7 sets higher standards which may lead to the higher bad debt ratio.

Therefore, Vietnamese credit institutions need to keep a close watch over their bad debt ratios, especially when they classify debts only in accordance with Vietnamese standards, and they should get prepared for the international practice and the requirements of Basel accord.

Second, state owned banks and joint stock banks now have very high outstanding loans proportions, and if the subprime loans of the two sectors decrease, the bad debt ratio of the whole banking system will decrease sharply. By the end of November 2010, the 5^th group of the whole banking system had accounted for 1.19 percent of total oustanding loans and nearly 50 percent of subprime debts, while state owned bank’s debts had accounted for 60.12 percent of the total 5^th group debts.

Meanwhile, joint stock banks’ debts had accounted for 33.43 percent of 5^th group debts by November, and 38/39 these banks had 5^th group debts. Bao Viet was the only bank which did not have 5^th group debts.

Source: Thoi bao Kinh te Vietnam