SBV Determined to Resolve Bad Debt

More specifically, credit agencies have to implement comprehensive measures to attract capital, balance the available and distributed capital to ascertain liquidity and meet the credit demand and transaction, especially on New Year’s Eve and 2013 Lunar New Year; strictly comply with the SBV’s guidelines regarding interest rates, foreign currency and gold exchange etc. Most importantly, credit agencies need to implement measures to ensure the safety of the banking system and handle the bad debt problem.

 

Regarding the handling of bad debt, the Instruction made it clear that credit agencies must strictly comply to the SBV’s regulation of monetary, credit and banking activities, safety ratios in the banking system, debt categorisation, sufficient reserve in order to improve the efficiency of the internal monitoring, auditing processes to timely prevent the occurrence of fraud; actively roll out measures to curb bad debt through setting aside sufficient reserve, selling debt and the mortgaged assets together with other measures to curb bad debt; not take advantage of the debt restructuring process or utilise specialist knowledge to hide bad debt and distort the true credit quality.

 

 “Credit agencies not having sufficient reserves as stipulated by the law, will not have the right to distribute dividends and profits in 2012, or increase salaries, wages and bonuses to their employees. At least 15 business days before they actually distribute the 2012 dividends and profits to shareholders, commercial banks must report their plans to the local branch of SBV where the headquarter of the banks are located,” the Instruction emphasised.

 

Mr Pham Hong Hai, Deputy Director of HSBC Vietnam applauded the timely ratification of Instruction no. 6, especially when the banking system has been entering a liquidity trap during the last few months of 2012.

According to Hai, the best solution to bad debt is to create more transparency and tackle head-on any issues. With the Instruction being effective, banks will need to be more serious in complying with the reserve requirement. This is not an easy task, but nevertheless necessary during a challenging economic environment. Resolving bad debt through a debt management company and other measures will need to be executed in a timely manner to reduce bad debt in the banking system. “However, we must accept the fact that bad debt cannot be resolved without some damages in the banking system,” Mr Hai believes.

 

A board member of a commercial bank commented that Instruction no. 6 does not introduce many new terms and for the most part only re-emphasised what has previously been discussed. Nevertheless, given the difficult economic environment and an urgent need for a quick solution to the bad debt issue, the ratification of Instruction no. 6 is appropriate. “A new term in the Instruction is to prohibit credit agencies which do not have sufficient reserve to increase salaries, wages and bonuses to their employees. Accordingly, it will help to change the banking executives’ mind set and actions when it comes to reserve requirement,” opined this board member.

 

A chairman of the board of a commercial bank, however, remarked that in reality, salary increases at commercial banks is not spontaneous. This is because if the earnings report missing the target, banks cannot issue a salary increases for their employees. On the other hand, the centralised structure at commercial banks makes it very difficult for subordinate departments and offices to hide bad debt.

 

 “This year, since the earnings report will most likely miss the set targets, it will be hard to think of an increase in year-end salaries and bonus increases. My bank is not an exception. The SBV might have wished to target small and medium commercial banks because most of the big and state-owned commercial banks still enjoy a healthy profit,” he added.