SBV determined to enact bad debt decree

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Industry experts say the circular would unveil the true level of banks’ bad debts and as such the central bank should be prepared for the worst.

Senior economist Nguyen Minh Phong said the SBV’s determination to enforce the circular is positive as it reflects Vietnam’s intention to manage debts following international standards.

“Banks are concealing their bad debts like camels with their heads in the sand. Circular 02 will uncover the truth behind Vietnam’s true levels of bad debts and this is sure to cause difficulties, but radical measures are needed,” said Phong, adding that to effectively enforce the circular, the SBV would need to divine diverse rectification plans for all potential scenarios.

“These plans will help avert shocks and any possible collapse of the banking system,” Phong proposed.

Agreeing with Phong, many experts are arguing that banks must be completely transparent regarding bad debts. The central bank has welcomed banks to divulge all information on their financial health prior to the circular taking effect and this is assumed to be towards its plans to avoid risks and tackle problems.

In regard to how banks feel about the upcoming circular, state giant VietinBank chairman Pham Huy Hung agreed that the circular was crucial to improving banks’ risk management to an international level.

“The impact of Circular 02 on us will be small as we have continuously bolstered our operational efficiency and risk management. We hold bad debts of a mere 0.9 per cent,” Hung said.

A source from Mekong Bank also said Circular 02 won’t be a problem for banks that are on a sustainable development path.

The SBV is expected to enact guiding documents on the implementation of Circular 02 within this month.

According to the central bank’s Chief Inspector Dang Van Thao, the circular will give the SBV the tools to curb what signs show to be fast rising bad debts.

One measure would be the division of bad debts into three groups.

The first would consist of customers who have reached bankruptcy or dissolution and for which there is no collateral. Banks would have to use their own resources to deal with these.

The second group is customers facing difficulties and the SBV will facilitate debt rescheduling and/or a lower interest rate.

The third group consists of dissolved firms with collateral, and banks will be allowed to form auctioneering councils to sell distressed assets.