Bad Debts Not At Serious Level

During the question and answer session to the lawmakers, SBV Governor Binh reported on many contents of deep concerns. He delved into bad debts at credit institutions tended to rise since 2008.

 

Given marked variations in bad debt growths reported by different organisations, Chairman Phung Quoc Hien of the NA Committee for Finance and Budget started the interpellation session with the question “Credit institutions reported bad debts at 3 percent but the State Bank reported at 8.6 percent while foreign institutions forecast at over 13 percent. They are they variable? Is the different reporting on bad debt ratios deemed an act of violating credit law and accounting law? How is the responsibility of the State Bank when it lets this existence for a long time? How will it handle?”

 

Credit institutions reported bad debt value at VND117,723 billion (US$5.88 billion), accounting for 4.47 percent of the outstanding debt balance as of May 31, 2012. However, State-owned lenders saw VND54,600 billion of non-performing loans, accounting for 3.96 percent of total loans outstanding. 41 private-held commercial joint stock banks levied VND41,000 billion, accounting for 4.54 percent of the total loans.

 

The ratio was much higher in the SBV’s report. As of March 31, 2012, bad debts of credit institutions valued at VND202,099 billion, or 8.6 percent of total outstanding credits.

 

In particular, bad debts of state banks is 125.8 trillion, accounting for 10.37 percent of outstanding credit of the group; loans of the commercial banks is 60.9 trillion, accounting for 5.8 percent of the outstanding their own credit. State-owned lenders incurred VND125.8 trillion, or 10.37 percent of their loans outstanding. Commercial joint stock banks carried VND60.9 trillion, accounting 5.8 percent of their outstanding debts.

 

Governor Binh said there were both subjective and objective causes for those different numbers. One reason was credit institutions deliberately hid their bad debts to avoid statutorily setting aside provisions and to ease profitability pressures.

 

He added that the SBV regrouped debts in accordance with the law while some banks recorded lower bad debts than reality to reduce risk provisioning.

 

He said since the end of 2008 negative impacts of global financial crisis and economic downturn worsened business environment in Vietnam. Business hardships reduced the quality of credits and nonperforming loans increased after than credit growth. Particularly, from 2011 till now, declining aggregate economic demand, slowing consumption of goods, rising inventories, freezing real estate market and weakening financial capacity of enterprises slowed down credit growth. In the first seven months of 2012, credit growth was 1.02 percent but nonperforming loans surged 45.5 percent.

 

He admitted that subjective reasons rested in inappropriate administration at some credit institutions. Some banks applied quick-growing credit strategy while risk management was limited and out-of-dated. Meanwhile, the pressure of increasing registered capital resulted in credit growth pressures. Many had very annual credit growth rate (above 50 percent) while risk management and loan supervision failed to keep pace with growth.

 

Governor Binh told lawmakers that many banks made profits and controlled bad debts effectively while some falsified profits although they suffer losses.

 

Not long ago, nine credit institutions were penalised by the SBV for wrongdoings. They all boasted profits and contained bad debts at 2.5 percent. However, after an investigation, the SBV found out that nonperforming loan at some banks stood at 30 percent, and even 60 percent. They made no profits and bad debts bit into equity capital

 

Binh noted that, in 2000, international organisations said Vietnam's bad debts exceeded 30 percent, forcing the central bank to reassess the matter. And, when Vietnam integrated into the world, international institutions also assessed Vietnam’s credit situations. However, he said that data from the central bank were the most accurate and reliable.

 

Some lawmakers raised questions about the detention of Nguyen Duc Kien, a founder of Asia Commercial Bank (ACB) and an influential shareholder at many banks, for business wrongdoings. A deputy asked whether the SBV knew manipulative acts and deliberate wrongdoing on credit market and how it dealt with those acts. Governor Binh said the arrest of Kien did not impact ACB because he was not involved in running the HCM City-based lender. But, to ensure system safety, the central bank pledged to support ACB to keep liquidity if mass withdrawal took place.

 

However, Governor Binh did not have a clear-cut explanation for the State Bank’s supervisory responsibility for Kien’s manipulative case. Vice Chair of National Assembly Nguyen Thi Kim Ngan asked “Why the Governor and the SBV know this system at ACB but there are no action taken to stop this system?”

 

A public-concerned issue is whether State-owned commercial banks are as bad as other State-run business entities. Deputy Phung Van Hung, a member of National Assembly's Commission on Economic Affairs, cited some sources, saying that bad debt ratio at State-owned commercial banks doubled that at joint stock commercial banks. Governor Binh frankly replied that as of June 30, 2012, bad debt ratio of state-owned commercial banks was 3.76 percent while it was 4.73 percent for joint stock commercial banks. He stated rates of nonperforming loans at five largest State-run commercial banks: Vietnam Industrial Commercial Bank (Vietinbank), Bank for Agriculture and Rural Development (Agribank), Bank for Foreign Trade of Vietnam (Vietcombank), Bank for Investment and Development of Vietnam (BIDV) and Mekong Housing Development Bank (MHB). Among them, Agribank had the highest bad debt rate of 6.14 percent while Vietinbank has the lowest rate of 2.45 percent.

The Governor affirmed that Vietnam's bad debt situation is yet to be “too critical” if it is compared to other countries in the region when they started handling bad debts. Credit institutions provisioned VND70 trillion for credit risks. 84 percent of loans have security assets,” he said.