Banks face growing bad debt risks amid rising funding costs
Banks are facing rising bad debt risks as non performing and special mention loans increase while thinner provisioning buffers and higher funding costs threaten to put pressure on asset quality
Vietnamese banks are grappling with increasing bad debt risks due to rising funding costs, according to data from their second-quarter 2026 financial statements. Only a limited number of banks had a non-performing loan (NPL) coverage ratio above 100% as of June, with Vietcombank leading at 279%, followed by Agribank at 150%. However, many banks saw their ratios decline or remain flat, with the average at around 50-60%.
The NPL ratio increased from 1.99% at the end of Q1 to 2.01% in Q2, and the net NPL formation reached nearly $2 billion in Q2, while credit risk provisioning expenses amounted to just over $1.72 billion. The system-wide NPL coverage ratio is expected to decline further in Q2, unless banks increase risk provisioning. A sharp rise in NPLs and special-mention loans in Q2 was attributed to the rapid rise in lending rates, affecting customers' debt payment capacity, particularly in the retail segment.
Banks with low NPL coverage ratios face a challenge in balancing profit targets with the need to strengthen their provisioning buffers. The government has instructed the State Bank of Vietnam to focus on measures to stabilize interest rates, ensure liquidity, lower lending rates, and reduce costs for the economy. The banking sector sees signs of relief in NPLs, with expectations of further improvement if credit rebounds and Resolution 42 takes effect.
Written by urgent.news from Vietnam Investment Review's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
