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VietNamNews

Banks face threats despite improved balance sheets

Update: December, 26/2012 - 10:00

HA NOI (VNS)— The nation's banking system currently maintains a capital adequacy ratio of 14 per cent, well above the industry standard level of 9 per cent, but this doesn't mean that troubled banks are out of the woods yet, according to researchers from the Banking Academy at a conference here yesterday.

The capital adequacy ratio (CAR) measures the ratio of a bank's capital to its risks and is a figure that regulators track to ensure a bank can absorb a reasonable amount of loss.

With mortgage lending frozen in a declining economy, however, the ratio no longer reflected the exact situation for many banks, the researchers said. They suggested that the State Bank of Viet Nam ask commercial banks to begin publishing a more exact ratio, that of ownership capital to total assets.

The deputy head of the academy's Institute of Banking Research, Nguyen Duc Trung, said that the State Bank had this year succeeded in helping curb inflation at a reasonable level of about 6.8 per cent, while maintaining stable foreign exchange rates, increasing foreign reserves and slashing lending interest rates.

The central bank had also been successful in preventing dollarisation of the economy, he added.

While credit had grown at 11-37 per cent per year in recent few years, this year's slower economic growth of only about 5 per cent reflected low credit growth and slower flows of capital into production, researchers said.

They noted that inappropriate monetary policies over the last few years caused bad debts to accumulate to a total of about VND257-437 trillion (US$12-21 billion). They suggested that bad debts be classified into recoverable and irrecoverable debts, noting that recoverable amounts could be restructured and resolved.

The research group outlined some scenarios for economic development next year, with the worst case predicting growth of just under 5 per cent, inflation of 7.24 per cent and credit expanding at a rate of 9.7 per cent. The best-case scenario would see GDP increasing by 6 per cent, inflation hitting 9.29 per cent and credit growing by 15.31 per cent.

In an online discussion between the Government and local authorities yesterday, Deputy Prime Minister Vu Van Ninh said that nine fragile lending institutions nationwide had been placed under control and the restructuring plan of only one bank was awaiting Government approval. Bank restructuring was being carried out alongside the restructuring of State-owned enterprises, Ninh said. — VNS

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