Sharing with Securities Investment, the general director of a joint-stock commercial bank admitted that in order to increase capital under Basel II, the most satisfactory solution of most banks was to sell capital to foreign investors. And for foreign investors to keep an eye on, restructuring and handling bad debts were key tasks of banks.
Regarding bad debt settlement results, the State Bank of Vietnam (SBV) estimated that at the end of 2018, the whole system of credit institutions had handled 149.22 trillion dong of bad debt. From 2012 until now, the amount of bad debts handled by the credit institution system was about 900 trillion dong. Non-performing loan (NPL) ratio was maintained at less than two per cent until the end of 2018.
However, according to Securities Investment, bad debt is rising sharply in some banks. For example, internal bad debt in a commercial bank increased by 19 trillion dong and 33 trillion dong in 2017 and 2018 respectively. At Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), the internal bad debt was 16,697 billion dong at the end of 2018, up by 18.7 percent compared to the beginning of the year.
The research of Rong Viet Securities Company showed that: “Considering the internal debt, we realise that asset quality is changing in different directions. Due to the rapid growth in retail and consumer loans, bad debts in some banks are on the rise. We believe that this trend will continue in 2019, making provision expenses increase in some banks. ”
Sharing the same view, the study of HCM City Securities Company on BIDV said that in 2018, the bank made provisions at a record high of 18,893 billion dong, an increase of 27.3 percent compared to 2017. The total reserve expense of BIDV from 2013 to the end of 2018 was 62.08 trillion dong, which was equivalent to 18.3 percent of total outstanding loans in 2012 and 9.98 percent of the average loan balance in the period from 2012 to 2018.
Meanwhile, according to reports of credit institutions, the risk provision for credit at the end of 2018 climbed by 30.1 percent compared to the end of 2017.
In this context, the SBV deputy Governor Nguyen Kim Anh said that SBV determined the goal of continuing to restructure finance, operations and management of credit institutions in accordance with the appropriate forms, measures and roadmap based on the specific characteristics of each organisation and the market mechanism. The principle of prudence, ensuring the interests of depositors and maintaining the stability and safety of the system would be accordingly followed. Moreover, the implementation and monitoring of restructuring credit institutions would be associated with handling bad debts.
At the same time, controlling and improving credit quality is linked with strengthening bad debt settlement according to market principles; completing legal framework is necessary to support bad debt handling and restructuring credit institutions.
“The handling of bad debts must be associated with the implementation of measures to prevent and minimise the newly arising bad debts and to improve the credit quality of credit institutions; promoting the role of Vietnam Asset Management Company (VAMC) in dealing with bad debts to ensure the maintenance of NPL at a safe and sustainable level,” said Kim Anh.
In order to achieve the above objectives, SBV set out some key tasks. In particular, focus on directing credit institutions to effectively carry out the project “Restructuring the credit institution system associated with dealing with bad debts in the period of 20162020″; closely monitor and supervise the progress and results of the restructuring plan during this period.
Specifically, the implementation of measures to improve financial capacity and credit quality; to convert the business, governance and operation models; to improve the competitiveness and solutions of bad debt settlement, especially solutions under Resolution No. 42 of the National Assembly.
“SBV continues to review to amend, supplement, improve the legal framework, and promote the implementation of legal regulations on strengthening risk management capacity, internal control systems of credit institutions groups.
Besides, closely monitoring and supervising the progress of bad debts and potential bad debts, potential defaulted corporate bond investments, other receivables and accrued interest to make judgments on the real situation of bad debts and potential bad debts; strengthening the inspection and supervision of credit quality, bad debt development; keep an eye on customers with large outstanding loans, restructured debts and handle bad debts according to construction plans, “the deputy Governor emphasized.
In addition, SBV will direct credit institutions and their branches to strengthen and improve the quality of the internal control department; enhance the inspection and audit of the implementation o restructuring projects associated with handling bad debts which have been approved by competent authorities; perform debt classification and set up risk provisions in accordance with regulations; actively carry out bad debt handling plans.
“SBV instructs credit institutions to develop the restructuring plan in association with bad debt handling by 2020, in which credit institutions violating stock ownership will review, assess and develop specific solutions, plans and roadmap to deal with the violation; strictly carry out the divestment of financial investments, capital contribution and share purchase without permission of the law; execute divestments in ineffective areas with significant potential risks”, Kim Anh said.
