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Cameron Evans, the International Finance Corporation (IFC) global principal financial officer, puts VIR’s Trinh Trang in the picture on the sidelines of last week’s IFC debt resolution workshop.
Prime Minister Nguyen Tan Dung said handling NPLs totally depended on the banking system. Is this right?
Primarily the banks should be responsible for managing NPLs as it is their business to manage their debts and loan portfolios. They are also responsible for ensuring that they have a proper risk management process that ensures that good loan decisions are made.
Also, for them to have strong oversight so that portfolios are monitored and that they maintain sufficient levels of capital and liquidity to support their balance sheet in good times and in unexpected stressful conditions.
However, given the potential for large levels of NPLs to have a negative impact on the financial system and economic development, it can become necessary for the government to consider actions to try to minimise this. For example, the government can take steps to provide the system support from legal and regulatory changes to enable the banks to deal with this immediate problem, such as loan restructuring and problem asset transfer or sale. The banks need a supportive environment, efficient and transparent mechanisms to be able to restructure or transfer problem loans and to try to preserve the asset values and generate liquidity.
What are the potential solutions IFC suggested to address Vietnam NPLs?
IFC, a member of the World Bank Group, is working on several different levels. The first is the regulatory and legal framework to provide support to consider potential reforms to address the issues with effective debt resolution. IFC is working very actively with individual banks to try to improve their corporate governance, risk management, loan portfolio monitoring and NPL management. We are working to help banks increase their ability in these areas by providing advisory services and also as an investor.
IFC is one of the largest investors in emerging markets and has international specialists who can help provide solutions that provide funding to banks and improve the recovery of problem loans.
The NPLs grew very fast last year, however the rate has cooled down. What will be the NPL trend in 2013?
What we have seen around the world is once the economic activities slow down quickly, NPLs can rise quite fast, particularly if there has been rapid credit growth, aggressive lending practices and poor credit standards in banks. This seems to be a similar case in Vietnam. We have recently seen the State Bank reviewing banks’ loan classifications and it seems the message coming through from this is that the level of NPLs is higher than the recently reported level of around 9 per cent, but the key question in the market is - what is the true level?
It will be very helpful to get an accurate estimate of the level of NPLs to reduce uncertainty and start to restore confidence. This is an important step as the quicker that you recognise the true problem, the sooner you start dealing with it and start generating effective solutions.
Vietnam targets credit growth of 12 per cent this year. Do you think NPLs can stop Vietnam from achieving this rate?
High levels of NPLs can have a big impact on credit growth. It takes away the capital that could be used to support productive lending and causes a lot of uncertainty amongst businesses and investors. The ability to manage a system NPL issue in a transparent, efficient and effective fashion will have a big impact on improving the chances of economic growth recovery – this has been the experience in other countries who have had these issues.
The national asset management company (AMC) may start its debt settlement process right in 2013’s first quarter. What do you think about the operational effectiveness of this company?
Experience from the Asian crisis in the late 1990s has shown that use of AMCs can be a good solution amongst a number of other potential approaches. Some of the lessons from the AMCs of other countries in Asia could be considered and tailored to best suit the Vietnamese situation.
An effective AMC has transparency in its operations and pricing, clarity of objectives without outside influences, speed of transfers, use of banking expertise and having realistic expectations of what it is expected to achieve. Also clear roles should be defined for the proposed AMC in relation to other entities that are already in the market. Changes in the legal and regulatory framework for debt resolution and asset transfer are often required to support its operation.