State Bank urged to slow down bad debt settlement

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The SBV held a meeting on May 8 to discuss how to implement Circular 2 on bad debt classification and risk management in the banking system.

Nguyen Huu Nghia, the SBV’s chief inspector, said the regulation was closer to international norms and suitable to Vietnamese economic circumstances. It is set to take effect from June 1 this year.

“Circular 2 is to prevent banks and financial institutions from intentional misconduct, otherwise they would end up setting aside a large amount of capital for their contingency funds,” Nghia commented.

Dr. Vu Dinh Anh said the implementation of the circular would tighten conditions for enterprises to get bank loans and drive up bad debts in the system and force banks to contribute more to risk funds.

Anh proposed a delay to the implementation amid current economic difficulties and rising number of enterprises filing for bankruptcy.

Cao Sy Kiem, former SBV Governor, proposed delaying the implementation of the circular until the end of this year.

“Debt classification and ensuring safety in the banking system heavily depend on the business situation. I’m afraid that the enforcement of such a regulation would create more difficulties for enterprises to access to capital and increase bad debts,” Kiem noted.

Several bank leaders supported the delay to the circular for fear of unexpected consequences as a result of careless preparation.

“The enforcement of the circular would put dozens of fish and animal breeders in bankruptcy as they have big debts at banks as a result of accumulated losses over recent years. The new regulation would prevent them from getting new loans but would force them to settle their debts,” Nguyen Duc Huong, Vice Chairman of Lien Viet Post Commercial Joint Stock Bank said.

According to Huong, implementation would drive up service fees at banks and slow down interest rate cuts, which would do nothing for enterprises.

Officials from BIDV and Tien Phong Bank agreed, saying that the implementation of the circular would add difficulties for enterprises.

Dr. Nguyen Tri Hieu however said that the SBV should not delay the implementation of the regulation as it’s necessary to set up risk funds and precisely classify bad debts.

Vietnam still has vague figures related to bad debts.