Banks’ NPLs still an elephant in the room

Currently, many enterprises are facing difficulties seeking bank loans even though many commercial banks have reported high profits. How do you explain this situation?

Until the end of June 2012, the banking system saw a variance between collection and spending of VND18.77 trillion ($902 million) and the number till the end of August was VND24.8 trillion ($1.19 billion). The number seems quite big, but in terms of efficiency, the return on equity (ROE) was small, just  4.14 per cent in June and 5.13 per cent in August. In some previous years with stable economic conditions, the ROE was often 11-12 per cent on average and till the fiscal year end, the number often stayed at 18-20 per cent. Many enterprises now have higher ROEs than banks. Besides, in fact, the variance between the lending and mobilisation interest rates is not as high as it appears.  If a provision for bad debts is included, the variance will stay at 2-2.5 per cent, while the number of 3-3.5 per cent just made a break-even for banks.

However, in the banking system, there are still many credit institutions or banks with higher profit margins thanks to better risk management. But in general the profit margin in the whole system is at a low level.

Recently, the State Bank and commercial banks provided some credit packages to support enterprises. However, many enterprises said they could not approach these loans. What do you think?

Actually, this matter has two aspects. On the one hand, banks must have financial resources. On the other hand, enterprises with a capital borrowing demand have to meet the conditions of banks under the law. Many businesses complained about not having access to bank loans, but these companies were, in fact, unqualified for the lending. Certainly there are some mistaken cases in which many enterprises do not qualify, but borrowed money anyway. In these cases, enterprises will have to be responsible for violations. And the State Bank always asked for credit institutions to implement all requirements to ensure the financial safety for themselves, as well as for the stable development of the whole banking system. Recently, we can see that bad debt has become a pressing matter. Therefore, the State Bank must display tight management. If qualified firms were rejected to borrow from banks, they should report to the central bank to take drastic measures against the credit institutions.

Many say the main reason for the current bad debt situation derived from the fact that banks priced mortgage assets higher than actual values. What is your perspective?

It is true that the main reason for a sharp increase of bad debt recently is due to banks’ unreasonable valuations. That said, there is some land that have been valued in line with the market price, but due to the current situation of the real estate market, these mortgage assets by land do not hold their value prices lower than the moment the assessment was made. Thus, the banks now also have to increase provisions to cover this mistake.

Specifically, among the bad debt of VND200 trillion ($9.6 billion) in the banking system in recent times, only VND70 trillion ($3.36 billion) was made for provision of risks. The remaining VND130 trillion ($6.24 billion) were mortgage assets which do not keep the initial value, requiring banks to increase provisions.

The matter of transparency in the inspection results on credit institutions has raised many concerns among the public. In the upcoming time, will these inspection results be made public?

It [the disclosure of inspection results] is a very sensitive issue and should be done with consideration and care. The State Bank will announce the inspection results publicly for the public to understand the real condition of the banking sector.

The central bank has been constructing a draft plan on information transparency and disclosure. The draft has already been submitted to the State Bank Governor to report to the Prime Minister. It is expected that the draft will be approved in late 2012 or early 2013 at the latest.