Central bank to relax new rules for bad debts

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Central bank to relax new rules for bad debts
Local banks said the central bank’s announcement that it will soon issue a revision to loosen new regulations on bad-debt classification and risk provisions will provide some relief.

The regulations, known as Circular 02, is to take effect on June 1.

Nguyen Van Binh, governor of the State Bank of Vietnam, last Tuesday confirmed the decision to the Tuoi Tre (Youth) newspaper without revealing the date of issuance.

Banks have said the one-year deferment of the circular, said to be a set of stringent rules originally scheduled to take effect last June, is not sufficient. They said credit growth provisions in the circular could make it more difficult for enterprises to access loans.

An unnamed general director of a commercial bank in Ho Chi Minh City said the amendment, which would allow a bad debt not to affect the classification of other loans given to the same borrower by other banks, would surely provide some relief.

The circular initially stipulated that a “substandard” to “bad” loan with one bank would force all other loans of that borrower into the same group. 

In Vietnam, assessment of bank loans classifies them into five groups – current, special mention, substandard, doubtful and bad.

The revision would also postpone an initial requirement that if central bank inspectors send banks a warning note of any loan they find to contain violations, it would be classified as substandard. The violation can be a relatively minor one like the lack of appropriate documents or a customers’ vague purpose for borrowing.

Nguyen Huu Nghia, deputy chief inspector of the central bank, told news website the Saigon Times that the implementation of Circular 02 without the revision would dramatically push up the ratio of bad debts in the system from the 5.66 percent estimated for the end of 2013.

He said the bank would apply the strict rules next year, but it would carry out investigations into banks this year to have a “more honest picture” of non-performing loans.

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