Banks are to set up funds for bad debts
Banks are to set up funds for bad debts
Domestic banks will have to establish provisional funds for bad debts this year with a total value of about VND37.6 trillion (US$1.79 billion).
The funds will help reduce the overall non-performing loan (NPL) ratio to less than 3 per cent.
These funds' combined value equals nearly half of the pre-provision profits that banks are set to earn in 2015.
The Tien phong (Vanguard) online newspaper reported estimates by Saigon Securities Inc. researchers, who said these figures are based on the bad loan handling situation and current regulations.
National debt dealer Viet Nam Asset Management Company (VAMC) plans to buy NPLs worth VND100 trillion ($4.76 billion), or 2.5 per cent of banks' total outstanding loans, this year.
Last year, the company bought NPLs worth about VND96 trillion ($4.57 billion), raising the total bad debts it had purchased from 38 credit institutions to VND135 trillion ($6.43 billion), or 3.4 per cent of the total outstanding loans.
By September 30, 2014, the average NPL ratio that banks listed on domestic stock exchanges as resolved was 0.2 per cent of their total outstanding loans. The Military Bank, with a resolved rate of 1.25 per cent, and the Bank for Investment and Development of Viet Nam with 0.82 per cent, were the exceptions.
State Bank of Viet Nam (SBV) Deputy Governor Nguyen Thi Hong confirmed on January 30 that resolving bad debts will be among the key tasks this year, and a revised decree on NPL resolution had been submitted to the Government for consideration.
On January 27, the SBV urged credit institutions to step up resolution of bad debts, aiming to lower NPLs to less than 3 per cent of outstanding loans in 2015, from the 4.7 per cent recorded at the end of the third quarter of last year.
The central bank asked the institutions to submit monthly plans and reports about the progress of the debt-handling process, including specific schemes to use risk provisional funds and sell debts to the VAMC.
The lenders have to resolve by June 30, at least 60 per cent of the total number of bad loans that they are supposed to handle in 2015. They have to transfer at least 75 per cent of the total debts that they register for sale to VAMC this year, within that deadline.
The SBV said Prime Minister Nguyen Tan Dung is expected to adopt a plan that will enable VAMC to trade debts through market mechanisms this year.
It has also asked the company to enhance its financial capacity and tighten links with credit institutions for recovering and restructuring debts, and create advantageous conditions for investors in debt and mortgage transactions.
These measures should be closely associated with efforts to accelerate credit institution reorganisation, it noted.
The Standard Chartered Bank said in its recently published global research report that the success of structural reforms is delivering tangible economic benefits for Viet Nam, and further progress on reforms is expected in 2015.
