State Bank audit programme poised to tackle bad debt

An inspection team of more than 300 State Bank officials will be sent to local bank headquarters and branches to analyse the exact level and nature of all outstanding debts.
The inspectors will pick up questionnaires sent to the banks earlier, with the whole process to last at least two months, according to a State Bank official.
The director of the central bank’s bank development policy department, Le Xuan Nghia, said the visits by central bank inspectors were routine.
“The work of a central bank is to oversee the performance of the whole banking system,” he said.
He said the audit would be more thorough than usual because of Vietnam’s plans to have banking regulations in line with international standards by the end of 2004.
“The survey’s results will help us to better assess the real overdue debts in the banking system and help us outline measures to control them, including adopting international standards to qualify debts.”
At the end of 2003, the central bank reported the nation’s total non-performing loans and bad debts at VND24 billion ($1.5 billion), accounting for 6.4 per cent of outstanding loans, an increase of about VND360 billion ($22.5 million) against 2002.
Foreign investors and international financial institutions questioned the accuracy of the figures released compared to the World Bank’s estimates last year, which put non-performing loans at 20 per cent.
Nghia put this down to differences between Vietnamese accounting standards and international practice in debt assessment.
Vietnam considers bad debts as overdue debts while international practice takes into account ‘special-noteworthy debt’, meaning if the debtor has not performed well after borrowing, the debt will be considered bad even if it is not due.
“By following international accounting standards, the total of non-performing loans could be three times higher than what we currently estimate,” he said.
During the last two years the State Bank has instructed commercial banks to organise their loan portfolios to international standards, a task which is proving challenging for many institutions due to a lack of funds and staff expertise.