Local banks have not been prudent in their chase for profits, and their failure to maintain sufficient bad debt reserves calls for stricter action from the central bank, experts say.
A financial expert who asked not to be named said if banks abide by international norms, they will be able to tak care of their bad debt problems on their own even in the worst case scenario.
But in Vietnam, lenders tend to maximize the use of their money for profits, refusing to reserve enough to cover potential losses, he said.
When the real estate market hit a downturn, many property loans turned into bad debts and the value of the collateral fell sharply. Banks should have increased their bad debt provisions then, but they did not, he said. "If they did it, their profits would fall. So they avoided it."
Vietnam's central bank has announced a plan to establish a debt-trading company to help banks deal with non-performing loans, estimated at 8.6 percent of total loans at the end of March.
But a former official of the central bank told Thanh Nien that banks should solve their problems themselves.
"Banks have to accept lower profits to increase bad debt provisions. They can't let bad debts grow without making efforts to deal with them while they continue to post high profits."
According to local media, the State Bank of Vietnam plans to tighten regulations on loan assessment. All defaulted loans will be considered sub-standard loans, which will require provisions of at least 20 percent of the loan value from banks.
The new rules may also require banks to categorize all the loans of a client as bad loans if that client has a non-performing loan with another bank.
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