Typhoon debt relief to squeeze Vietnamese banks profitability

It will delay the formation of bad loans.

Vietnamese banks’ profitability will be squeezed after recent debt relief measures to typhoon-hit borrowers, said S&P Global Ratings.

The ratings agency estimates that state-owned commercial banks (SOCBs) are offering VND360t worth of loan relief to borrowers.

This loan relief will keep non-performing loan (NPL) ratios stable, S&P said.

However, this is just a delay, and overall NPLs will likely climb when measures end– especially as Vietnamese banks are dealing with a still-recovering real estate sector.

“The loan relief packages may temporarily ease borrowers' repayment burden and keep headline nonperforming loan (NPL) ratios stable. However, this comes at a time when the country's domestic real estate sector is still recovering, and we expect overall NPLs to climb when these measures end,” S&P said in its report.

Amongst the lenders, Vietcombank is expected to manage these risks due to its strong profitability. Vietcombank is the most profitable state-owned commercial bank in Vietnam, according to S&P.

“Privately owned commercial banks are offering similar debt relief, though we expect the scale to be smaller than that of SOCBs,” S&P said.