Vietnam's central bank said it will not allow lenders to share year-end profits with shareholders until they make enough provisions for bad debts.
It said non-performing loans have not been sufficiently reduced while profits within the banking sector have remained high.
Nguyen Van Binh, governor of the State Bank of Vietnam said on Tuesday that each lender must set aside a larger amount of assets in order to reduce bad debts by the end of the year.
According to the central bank, domestic banks should reconsider their capacity to deal with bad debt and adjust annual profit targets.
The Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) racked in nearly VND9.1 trillion (US$435.7 million) in profits during the first three quarters of 2012.
The bank's bad debt during the period was reported to be around VND6.1 trillion ($292.6 million). However, its provisions accounted for less than 50 percent of the total.
Profits in the first nine months of the Vietnam Export Import Bank (Eximbank) were VND2.6 trillion ($124.7 million). The bank reported a VND200 billion worth of bad debt provisions, but its bad debt is more than five times that figure.
Former governor of the central lender Cao Si Kiem said each lender should honestly assess their bad debt provisions in accordance with their profit margins so that they will not have to face with double liabilities later.
Bad debt in the country's banking system as the end of March were reported to be VND202 trillion (US$10.5 million), or 8.6 percent of loans. That figure was reduced by 18 percent to VND166 trillion by June, yet it still accounted for 8-10 percent of the loans, according statistics from the central bank.
As the end of September, the ratio of bad debt was 8.82 percent but some analysts have said the figure could be higher, accusing some banks of understating their non-performing loans.
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