Bank Governor Asks for Credit Quality Enhancement

Bank Governor Asks for Credit Quality Enhancement

The State Bank of Vietnam has issued the Decision No. 457/QD-NHNN on safety guarantees for operations of credit organisations, with the aim of improving credit quality and lessening bad debts.

Accordingly, credit organisations, except for foreign banks’ branches, are required to put aside at least 8 per cent of their own capitals to deal with potential risks. State-owned commercial banks with current rates of less than 8 per cent will have to reach the prescribed rate in three years. However, commercial banks will encounter numerous hardships as they have a small amount of their own capitals.

State Bank Governor Le Duc Thuy urged credit organisations to enhance credit quality to control and evaluate credit risks with international practices and norms, adding that tighter management over their loans for real estate and large projects are needed.

He said credit organisations have to impose supervision over housing, urban infrastructure and industrial zone projects to secure suitable balances and over deposited real estate projects, urging them to join hands with local authorities and clients to recall their debts for new infrastructure projects and to put an end to outstanding construction debts by late 2006.

Credit organs are allowed to cooperate with relevant bodies to apply strong measures to bad debts by State-owned enterprises, even taking them to court.

Besides, the State Bank also requires credit institutions to carry out other criteria such as defining credit boundary for individual clients, limiting loans to a single client under 15 per cent of their own capital and keeping at least 25 per cent for handy transactions.

In the meantime, credit organisations are required to have available capitals for transaction needs and risk killing during operation.