$9.7 bln in NPLs – alarming, but not frightening: SBV governor

$9.7 bln in NPLs – alarming, but not frightening: SBV governor

Non-performing loans, which now account for some VND202.1 trillion, or 8.6 percent of total outstanding loans, are at an alarming rate, but not a frightening one, said State Bank of Vietnam governor Nguyen Van Binh.

The figure was given by the SBV governor at a recent meeting with the National Assembly’s (NA) Standing Committee and other NA delegates. The session was broadcast live on the national television channels on Tuesday afternoon.

“NPLs of Thailand and Indonesia surged to 47 percent and 52 percent in the 1997 financial crisis, but they made it through when the economies recovered,” he said.

This was in answer to the questions of several NA delegates who queried Binh on which was the most accurate figure on bad debts, 13 percent or 11 percent, as shown by data fromFitch rating agency and the National Financial Supervision Commission (NFSC).

The figure from SBV is the most precise one, though data submitted by local credit institutions is at only VND117.72 trillion ($5.63 billion), or 4.47 percent of total outstanding loans, Binh said.

“My 30-year experience working in the banking industry teaches me that there are three parallel systems of financial statements and banking data.”

“The first one is conducted by the local credit institutions themselves, the other released by the central bank via their inspection agencies, and the third one is from foreign credit rating agencies.”

“The SBV cannot trust the data from the banking system, so we often launch inspections into them. The latest check has found that NPLs at some local bank jumped to 30 percent or even 60 percent of their total outstanding loans, thus eating into their registered capitals.”

“For that reason, bad debt data from SBV is the most trustworthy. The data is compiled by deploying many up-to-date scientific methods,” Binh added.

Local banks have set aside a VND70 trillion ($3.36 billion) cushion of provisioning, or loan loss provisions, as a non-cash expense for banks to account for future losses on loan defaults, and this affects their profits as well as their balance sheets and capital positions.

Provisioning is one of the main reasons for banks to report lower bad debt so that they can set aside less for it.

As a rule banks, which often assume that a certain percentage of loans will default or become slow-paying, have to enter a percentage as an expense when calculating their pre-tax incomes. This guarantees a bank's solvency and capitalization if and when the defaults occur.

“We succeeded in handling NPLs in credit institutions for the first time in 1998 when the bad debt ratio was 10.11 percent. However, we failed to form a market for buying and selling assets with the lack legal framework for handling mortgaged properties.”

“As a result, we can tackle the current situation with the VND70 trillion provisioning and 84 percent of the bad debt secured by assets worth up to 130 percent of the value of the debts," the governor said.

There are four main reasons for the high NPL rate, including rapid credit expansion hovering around 29 percent in the decade-long Doi Moi period and 33 percent annually from 2003-2008, the SBV’s slow and ineffective supervisory activities, the opening of too many banks in recent years, and the weak financial capacity of local firms.

"The synthesis of all these factors has led to higher bad debt, and this bad debt has accumulated for many years," the governor said.

Bad debt surged 47 percent year-on-year in H1/2012.

It rose 64 percent, 41 percent and 27 percent over the previous year in 2011, 2010 and 2009 respectively, Binh said.

Regarding NPLs at state-run commercial banks, the Bank for Agriculture and Rural Development of Vietnam (Agribank) takes the lead with 6.45 percent, followed by the Bank for Foreign Trade of Vietnam - Vietcombank (3.55 percent), Mekong Housing Bank - MHB (2.63 percent), the Bank for Investment and Development of Vietnam – BIDV (2.52 percent), and the Bank for Industry and Trade of Vietnam – VietinBank (2.45 percent), Binh said.

On average, NPLs at state-run credit institutions stand at 3.76 percent, while those in non-state commercial banks are at 4.74 percent.

However, the data is one-sided since it provided by the banks, not the SBV, Binh added.

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