HÀ NỘI — The Government has directed the State Bank of Việt Nam (SBV) to focus on the settlement of non-performing loans (NPLs) in 2019 with the aim of bringing the NPL ratio of credit institutions – excluding those sold to the Việt Nam Asset Management Company (VAMC) – to below 2 per cent from the current 2.16 per cent.

SBV must also urge the VAMC to recover bad debts it bought from credit institutions so that the total NPLs of the entire banking systems can be reduced from the current 6.6 per cent of total outstanding loans to below 5 per cent, the Government noted in a resolution released early this week.

To meet the target, the Government requires the SBV to implement legal regulations issued in the past two years to settle bad debts, including the National Assembly’s Resolution 42/2017/QH on settling bad debts of credit institutions, the revised Law on Credit Institutions and the Government’s project on restructuring the system of credit institutions associated with bad debt handling until 2020.

According to SBV governor Lê Minh Hưng, the SBV has so far actively implemented policies to restructure the banking system and deal with bad debts.

In November last year, Governor Hưng issued two documents, instructing credit institutions to better implement Directive No 05/CT-NHNN, which was issued in September to regulate the structure of credit institutions associated with dealing with bad debts. Under the directive, credit institutions must review and provide detailed roadmaps and solutions for settling their bad debts every year until 2022.

Credit institutions were also required to actively look for buyers for the debts they sold to the VAMC while the VAMC was asked to speed up the handling of bad debts and collateral that the company purchased following market-based mechanisms.

In addition, SBV also issued many regulations and policies in line with international practices to improve safety standards in banking operation, which has contributed to enhancing governance and risk management capability under Basel II standards.

From 2012 to July 2018, the banking system settled VNĐ794.2 trillion (US$34 billion) of bad debts. Particularly, since the National Assembly’s Resolution 42/2017/QH took effect in late 2017, the entire system has handled VNĐ141.3 trillion of bad debts thanks to the resolution’s enhanced legal frameworks. Resolution 42 allows credit institutions and the VAMC to rapidly repossess collateral of default borrowers.

According to the development strategy of the banking sector to 2025 approved in August last year, SBV targets to reduce the ratio of bad debts to below 3 per cent of total outstanding loans by 2020. — VNS