State gets tough on auditing standards

Getting the picture: banks are being forced to conform with international auditing standards

The recent State Bank decision pushes all five commercial state-owned banks to submit international auditing standard (IAS) financial reports to the central bank this week for reporting to the government.
Meanwhile, the central bank has encouraged other commercial joint stock, joint venture banks and foreign bank branches in Vietnam to audit their operations following IAS. Banks that audited their operations in 2005 must also submit results to the central bank this week.
The move forms part of the government’s strategy to strengthen the state-owned commercial banking system before going through the equitisation process. The difference between the Vietnamese and international auditing standards is that the ratio of non-performing loans, which are clarified clearly under the Vietnamese auditing standard (VAS) while the international standard report will only recommend risk preventative reserve.
The State Bank’s Banking and Non-Banking Credit Institutions Department director Kieu Huu Dung, said the IAS report might unveil a worse figure but it would make banking information more transparent.
The Bank for Investment and Development of Vietnam, BIDV, has reportedly shown of non performing loan ratio of nearly 12 per cent to its total lending under the VAS, the highest ratio among state-owned commercial banks. However, under the IAS, the estimated figure might be over 20 per cent.
Dung explained that there is no clear definition of the non-performing loan except recommendations to each bank to provide a risk preventive reserve for loans with a maturity of over 90 days due to IAS. BIDV, for instance, must allocate around VND6.7 trillion ($418.7 million) for its loans in 2005 according to the IAS.
Vietcombank has a capital adequacy rate of 8.3 per cent, according to IAS calculations while it is 10 per cent under the VAS.
“The report is good for the state-owned banks of Vietnam. The government will then lean on the IAS report to give decisions to support these banks,” said Dung.
“Vietnam is prepared to enter the WTO and must follow international practices. Vietnam plans to amend the VAS in accordance with the IAS to give more popular understanding to figures and foundations,” he added.
Nguyen Thu Ha, deputy general director of Vietcombank, said the requirement is not difficult for the bank as local banks have conducted auditing using both Vietnam and international standards for three to four years but they only released the VAS reports.
“The reports are not very different ,” said Ha.
State-owned commercial banks also have to make their financial reports from the second quarter public following the recent governmental decision.



No. 785/October 30-November 5, 2006