From provision buffers to bad debt insights

According to data released last week by Wichart, the total balance of loan loss provisions at listed banks stood at $8.54 billion at the end of Q2, up a modest 3.2 per cent compared to the end of last year.

Le Hoai An, founder of Integrated Financial Solutions JSC, noted that Q2 financial statements revealed the latest developments in loan loss reserve (LLR) levels.

“Following the expiration of debt restructuring circulars in 2024, sector-wide provisioning costs have risen only moderately, avoiding the major shocks many anticipated. However, due to the rapid rise in bad debts in previous years, banks have yet to fully replenish provisions, leading to a continued decline in the industry’s overall LLR,” he said.

Data compiled from the Q2 financial reports of 29 banks, including 27 listed institutions along with Agribank and BaoVietBank, shows that only nine of them recorded an increase in LLR during the first half of 2025.

The group of state-owned banks, widely regarded as the backbone of the system, have continued on a downward trend in LLR since 2023. In Q2, their average coverage ratio fell to 125.92 per cent, a sharp drop compared to the same period last year.

Although the pace of non-performing loans (NPLs) growth has stabilised, provisioning activities have slowed considerably, with provisioning costs falling 32.73 per cent on-year, reflecting the group’s emphasis on cost optimisation.

Similarly, banks specialising in corporate lending have seen a steep decline in LLR, dropping from 73.8 per cent in Q2 2024 to just 68.85 per cent in Q2 2025.

“This is the result of a substantial buildup of bad debts in previous years, combined with limited provisioning, creating significant pressure to improve coverage ratios,” An added.

Currently, five banks are maintaining LLR levels above 100 per cent. Vietcombank continues to lead the industry by a wide margin, with a coverage ratio exceeding 200 per cent, despite a slight decline to 213.8 per cent in Q2.

Agribank reported an increase from 110.1 per cent at the end of last year to 142.1 per cent by Q2, securing second place. VietinBank and Techcombank followed in third and fourth, with coverage ratios of 134.8 per cent, down 36 percentage points, and 106.5 per cent, down 7 percentage points, respectively.

Bac A Bank rounded out the top five at 101.1 per cent, up 3.7 percentage points, reflecting efforts to strengthen buffers and improve asset quality.

Several other banks, including MB Bank, LPBank, SeABank, MSB, HDBank, and OCB, have recorded declines, with MB Bank and HDBank seeing drops of around 12 per cent on-year. Most notably, BIDV posted the steepest decline, with its coverage ratio plunging from 133.7 to 89.1 per cent, as its NPL balance surged 48.6 per cent in the first half of 2025.

“This indicates that while cost pressures are not overwhelming, the system’s overall risk absorption capacity has weakened, raising potential concerns over loan portfolio quality going forward,” An said.

Wichart’s data also shows that the combined NPL balance in Groups 3 to 5 among 27 listed banks soared over 16.2 per cent, reaching a record high of $10.7 billion. Q2 financial statements revealed that most banks saw rising NPLs, with 19 lenders, including large state-owned and private institutions, recording double-digit growth in bad debts.

At the end of Q2, BIDV’s absolute NPL balance had jumped by $564.2 million, or 49 per cent, bringing its total to $1.73 billion. VietinBank’s NPLs rose 16 per cent to $992.5 million, while Vietcombank and Sacombank reported increases of $64.5 million and $61.3 million, respectively, bringing their totals to $623 million and $564.7 million.

TPBank recorded the fastest percentage increase, with NPLs surging 53 per cent from $152.1 million to $233.5 million. PGBank and Nam A Bank also saw notable rises of 42 per cent and 40 per cent, respectively.

According to An, while the pace of NPL growth has slowed significantly since the second half of 2024, increasing by just 10.07 per cent on-year by the end of June, total NPL volumes had already expanded sharply in prior years, up 35.5 per cent on-year in 2022 and 44.23 per cent in 2023.

“Meanwhile, provisioning costs rose at a slower pace in those years. This discrepancy between bad debt growth and provisioning has created a concerning trend. Despite the rapid accumulation of NPLs in prior years, banks have not significantly stepped up provisioning this year, resulting in a further decline in industry-wide coverage ratios. As of Q2, provisioning costs were up just 4.85 per cent on-year, while total loan loss reserves increased a modest 9.28 per cent,” explained An.

“This shows that instead of prioritising buffer strengthening, banks are exercising caution in resource allocation, accepting thinner coverage ratios to optimise operational efficiency amid narrowing net interest margins caused by credit stimulus measures for both retail and corporate lending,” he added.

The financial market has witnessed a wave of mandatory bank acquisitions in the recent past. Early this year, major commercial lenders MB, HDBank, and VPBank took over struggling lenders OceanBank, DongA Bank, and GPBank, respectively.

Banks have reported strong first-half results, fuelled by double-digit credit growth, improved asset quality, and operating efficiency, pointing to a positive outlook for the rest of the year.

The banking sector is seeing signs of relief in non-performing loans (NPLs), with expectations of further improvement by year-end thanks to stronger credit growth and the formal legalisation of Resolution 42 to aid debt recovery.