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State Bank agrees to give leeway to resolve bad debt

Update: January, 02/2014 - 09:35

HA NOI (VNS)  — The State Bank of Viet Nam (SBV) will not delay the deadline for implementing regulations regarding non-performing loans (NPL), but certain requirements will be amended to help banks cope with the problem.

The central bank governor, Nguyen Van Binh, reaffirmed the implementation of Circular 02/2013/TT-NHNN on June 1, 2014. Details about possible amendments, however, were not disclosed.

The statement was made amid growing enquiries from commercial banks, who are worried 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.

Circular 02, which will regulate 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 force on June 1, 2013.

After deliberations, 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, while giving an opportunity for banks to prepare themselves for the introduction of the regulations.

However, worries persist among banks about the implication of the debt classification under the regulations.

Vietinbank's Chairman, Pham Huy Hung, who has suggested pushing the deadline to 2015, told the Lao Dong (Labour) newspaper that if all the bad debts of the system are exposed, commercial banks, in their current capacities, will be unable to handle them.

The circular might even lead to more difficulties for banks and corporate borrowers, said Le Cong, the general director of Military Bank, according to the Lao Dong newspaper.

In an attempt to help banks prepare for the implementation of the new regulations, SBV has asked banks to calculate the increase in their NPLs if the new classifications come into force.

According to SBV deputy chief inspector Dang Van Thao, SBV's Inspection and Supervision Agency proposes classifying NPLs into three groups.

The first group will consist of businesses that have gone bankrupt or have been liquidated and have no capacity to recover their debts. In this case, banks will use their provisions to clear the debts.

The second group will consist of businesses that are facing difficult times. This group will require a restructuring of debt and possibly more funding, debt rescheduling and reduced interest payments.

The third group will consist of businesses that are already bankrupt or have been liquidated, but still have some collateral. In these cases, the banks will sell their collateral to recover some of their debts.

SBV is determined to apply international standards to the regulation of the banking system as soon as possible, rather than prescribing temporary solutions.

Apart from lobbying the central bank, commercial banks have also attempted to clean their balance sheets by selling their debts to the Viet Nam Asset Management Company (VAMC), a 100 per cent State-owned company managed by SBV.

This tactic is seen as potentially risky because banks would rather sell their debts or set aside funds as provision for bad debts than admit that their debts have turned bad, experts said.

As of November 11, 25 credit institutions had submitted applications to VAMC to sell their NPLs. It is estimated that VAMC will buy a minimum of VND30-35 trillion (US$1.4-1.6 billion) by the end of 2013.

Some 20 credit institutions have offered to sell their bad debts, valued at a total of VND40 trillion ($1.9 billion), to VAMC. — VNS


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