|A cash transaction takes place at a VP Bank branch in Ha Noi. — VNS Photo Truong Vi
HA NOI (VNS)— The State Bank of Viet Nam (SBV) will issue new regulations with some revisions of Circular 02 on bad-debt classifications and risk provisions this April, for execution beginning in June.
This was reported by the online news portal VnExpress, which quoted a source from the central bank.
Circular 02, which regulates asset classifications, the levels and methods of risk provisioning and the use of provisions to handle risks by credit institutions and branches of foreign banks, was initially expected to come into effect on June 1, 2013, in a bid for stricter regulations of bad debts.
After discussions, the implementation of the circular was postponed by one year to June 1, 2014. The delay was aimed at enabling businesses to access loans and boost credit growth in the context of the continuing economic hardships and providing credit institutions more time to prepare a roadmap and the necessary conditions to fully apply the provisions of this circular.
However, concerns still persist among banks about the implication of the debt classifications under the regulations. Many banks say that the new regulations will lead to a surge in bad debts and a collapse of big businesses, which could have a potential domino effect on the financial system.
According to industry insiders, the amended regulations of Circular 02, which will not allow a bad debt to affect the classification of other loans given to the same borrower by other banks, will provide some relief.
The circular initially stipulated that a "substandard" to "bad" loan with one bank would classify all other loans of that borrower into the same group.
In Viet Nam, the assessment of bank loans classifies them into five groups: current, special mention, substandard, doubtful and bad.
The revision would also postpone an initial requirement, wherein if central bank inspectors send banks a warning note for any loan they find is violating regulations, it will be classified as substandard. The violation can be a relatively minor one, such as the lack of appropriate documents or a customers' vague purpose for borrowing.
According to the central bank, the bad debt ratio of the banking system was 3.63 per cent last December. The government aims to keep the bad debt ratio at 3-4 per cent of total lending by the end of 2015.
Viet Nam has one of Asia's highest ratios of non-performing loans, which has troubled the economy and led to a tightening of the credit policy required to boost consumer spending and keep businesses afloat. — VNS