Vietnam bans risky banks from issuing dividends, raising salaries

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The State Bank of Vietnam on Friday warned commercial lenders against hiding their non-performing loans and said those without enough bad debt provisions will be banned from raising salaries and paying out dividends.

Banks have to take measures to improve their safety and they are prohibited from falsifying reports on credit quality, according to a new regulation posted on the central bank's website, aiming to tackle an alarmingly high level of bad debt within Vietnam's banking system.

Commerical banks have to submit their plans for dividend payouts to the central bank at least 15 days in advance. Central bank officials will review their operations before approving those plans, the new regulation stipulated.

Banks are also ordered to keep lending interest rates at "reasonable" levels and cut advertising and operating costs.

The central bank is taking a tougher stance with banks after the ratio of non-performing loans in the banking system was reported to be between 8 and 10 percent as of late last month.

Central bank governor Nguyen Van Binh said the monetary authority will crack down violations, aiming to lower the bad debt ratio to below 3 percent by 2015.

The new regulation comes amid concerns that some banks in the country still understate their non-performing loans in order to keep posting high profits and remain appealing to investors. Many banks, however, have recently announced larger provisions for bad debts and sinking profits.

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