HSBC: Vietnam’s bank CAR is weaker than other ASEAN countries

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HSBC Global Research has just released a report on Vietnam At A Glance – What do banks’ balance sheets tell us? (What do banks’ balance sheets say?)

HSBC believes that because of its importance to the economy, it is time to reassess the health of the Vietnamese banking industry. HSBC analyzed the balance sheets of state-owned banks (SOEs) under the “Big 4”, as these banks account for half of the total outstanding loans of the entire industry.

The HSBC report stated that the sharp increase in consumer lending, along with household debt, is still a major concern. The proportion of household loans in the “Big 4” has increased from 28% in 2013 to 46% in 2020. Accordingly, household debt increased rapidly from 25% of GDP to 61%. In terms of labor force, consumer debt has even increased from 41% of income to more than 100% (respectively from 2013 to 2020).

According to HSBC, while moderate household debt growth in 2020, high consumer leverage remains a major concern, especially as the labor market weakness persists. Although the overall unemployment rate has fallen, the majority of the workforce is working informal, with the social safety net still low.

On the surface, the unemployment index looks quite good, decreasing from 2.7% in the second quarter of 2020 to 2.4% in the first quarter of 2021. However, jobs are still lower than before the pandemic and wages have fallen for the first time in many years.

Regarding the structure of outstanding loans by term, short-term debt (less than 1 year) accounts for a large proportion with nearly 60% in the group “Big 4”. Outstanding quality is quite good with only 1% classified as a “loss”. This is consistent with the on-board NPL ratio, which only increased from 1.6% at the end of 2019 to 2.1% at the end of the third quarter of 2020.

HSBC said that while the bad debt shown in its balance balance table will only increase slightly by 2020, it should be noted that the risk of system bad debts is increasing. Including “value-impaired loans”, bad debts are estimated to increase from less than 5% in 2019 to 7% in 2020. HSBC also explained that discounted loans are a broader definition of bad debt, including additional debts sold to VAMC and loans restructured under Decision 780.

Regarding the credit structure by sector, although each bank has different allocation, the manufacturing, wholesaling / retailing sector is still a priority and this is well appreciated for the bright prospect of Vietnam in the Industrial production. In fact, the authorities have repeatedly called on banks to direct credit flows into production areas over the past time.

However, credit in more risky areas such as real estate has also increased since December 2020, prompting the State Bank of Vietnam (SBV) to raise a warning about potential risks.

In addition, HSBC also noted the compliance of the Basel II Treaty of Vietnamese banks. This unit stated that Vietnam needs further reforms in the banking sector, which has been partially disrupted by the pandemic.

The capital adequacy ratio (CAR) of Vietnamese banks is weaker than that of other ASEAN countries when they have not fully met the standards of the Basel II Treaty. In particular, the CAR is still low at some state-owned banks. Therefore, Vietnam needs to accelerate the plan to increase capital, speed up the application of Basel II standards – which have delayed the deadline from 2020 to 2023.

“Although not seeing immediate risks, but accelerating reform will help Vietnamese banks build a capital buffer and prevent negative shocks in the future”, recommended HSBC.

Source: – Translated by