Banks boost provisions as bad debt eases towards year-end

Banks boost provisions as bad debt eases towards year-end

The banking system is reinforcing risk buffers as bad debt trends downwards and credit accelerates, signalling a more stable phase marked by stronger asset quality and improving profitability.

Statistics show that by the end of the third quarter (Q3) of 2025, the banking sector's loan loss coverage ratio (LLR) had reached 83.93 per cent, up from 79.32 per cent in Q2.

By the end of Q3, total non-performing loans (NPLs) at listed banks had risen 8.1 per cent on-year, a notably slower pace compared to 2022-2024.

In contrary, provisioning reached roughly $9.2 billion, up 9.9 per cent on-year and 11.3 per cent from the outset of the year, surpassing the average annual increase of 8 per cent since 2023.

Banks boost provisions as bad debt eases towards year-end

This trend indicates that banks are maintaining a strategy of reinforcing defensive buffers ahead of Q4, typically the peak lending period in the banking business cycle.

In Q3 alone, the sector set aside more than $1.42 billion in provisions. General provisions rose sharply, increasing 14.85 per cent from the end of 2024 and 20.7 on-year.

State lenders led in LLR ratios, reaching 139.1 per cent in Q3. Among private banks, retail-focused lenders raised their LLR from 61.84 per cent to 64.4 per cent thanks to NPL growth of just 8.5 per cent, the lowest since early 2022.

According to FiinGroup, a major financial information, analytics and data services provider, banking asset quality is gradually stabilising, with sector profits in Q3 rising 24.9 per cent on-year- the highest in seven quarters, supported by stronger non-interest income and lower provisioning costs.

Another contributing factor is that many banks have accelerated the disposal of collateral assets, debt liquidation, and the tightening of loan portfolios with latent risks.

With provisioning costs rising only moderately, many banks are prioritising resources for other growth objectives rather than expanding provisions. This reflects expectations that the economy is returning to a more stable footing.

According to central bank (SBV) data, as of October 30, total system-wide credit had grown about 15 per cent from the end of 2024 and could reach 19-20 per cent by the end of 2025.

Improved capital flows, stronger risk management, and more efficient debt resolution are brightening the financial outlook for many banks. Through credit restructuring and increased provisioning, asset quality is showing clear improvement.

At ACB, the LLR reached 84 per cent in Q3, up from 76 per cent in Q2 and 72 per cent in Q1, with 96 per cent of its loan portfolio backed by collateral.

FiinGroup data shows that on-balance-sheet NPLs at 27 banks under its observation declined from 2.1 per cent in Q1 to 2 per cent at the end of Q3, a sign of stabilisation as new NPL formation remains very low.

LLR levels continue to diverge significantly. Four bankscurrently maintain ratios above 100 per cent, including Vietcombank, VietinBank, Techcombank, and Bac A Bank.

State lender BIDV's LLR ratio fell from 133.7 per cent at the end of 2024 to just 94.5 per cent at the end of Q3, removing the bank from the list of those with an LLR above 100 per cent.

Of the four LLR outperformers, Vietcombank still leads at 201.9 per cent, despite a 21 basis points (bpts) drop from last year. Techcombank reached 119.2 per cent, up 5bpts from late 2024. Bac A Bank remains in the group above 100 per cent.

The next tier includes BIDV, Sacombank, ACB, MB, Kienlongbank, and LPBank. Sacombank and ACB posted LLR increases of 25bpts and 6bpts, respectively. A high LLR signals strong risk preparedness but also lowers profit, so each bank calibrates its provisioning to an optimal level.

The divergence among banks is becoming clearer: state-owned banks are prioritising buffer expansion after the recent rise in bad debt, while retail-oriented and smaller banks are improving coverage ratios through better control of new NPL formation and moderate provisioning.

These developments suggest the banking system is entering a more stable phase, with stronger buffers and greater room for further asset quality improvements in the near future.

VIR