No dividends without debt provision: Vietnam central bank to banks

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The State Bank of Vietnam has again banned dividend payments by financial institutions that do not make enough provisions for bad debts, after a similar ban last year.

According to a statement on its website, banks are not allowed to hike salaries and bonuses either before provisioning.

Governor Nguyen Van Binh ordered banks to strictly follow the central bank's guidelines in dealing with bad debts. 

SBV began tightening its policy, which Binh said would help speed up structural reforms, in 2011 when profits plunged for the first time.

Banks did not improve last year, with their profits falling by half. Analysts  then forecast a tough period for the system weighed down by bad debts.

The central bank had estimated bad debts at 8.82 percent in September last year.

Quoting reports by banks, SBV deputy governor Nguyen Minh Hung said December 3 that the ratio stood at 4.62 percent as of September, or equivalent to VND142.3 trillion (US$6.74 billion).

He said state-owned asset management firm VAMC, which began operating in July, had bought VND18.4 trillion worth of bad debts as of November 21.

He expected it to buy at least VND30 trillion worth this year.

In another report on its website, the SBV said credit has risen by 7.54 percent so far this year compared to the year's target of 12 percent.

This represented "great" efforts by banks given the low demand and  firms' reluctance to borrow in times of difficulty, it said.

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