Vietnam central bank delays rules on bad-loan classification

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Vietnam's central bank said it will give banks an extra year - until June 2014 - to apply stricter rules on classifying and making provisions for bad debts, a delay that could prolong the time needed to fix the country's banking problems.

In January, the central bank had told lenders to apply new rules as of June 1 for bad debt classification. Economists said the rules could triple the level of non-performing loans (NPLs) from the publicized ratio of 6 percent.

The central bank's instruction, named Circular 2, also required lenders to make more risk provisions for credit grants, including credit card debts, investment in unlisted corporate bonds and deposits in domestic and foreign banks, in addition to normal loans, to raise funds to clear the NPLs.

On Monday, the State Bank of Vietnam said in a statement that lenders will now have to comply with the regulations of Circular 02 from June 1, 2014, instead of this June 1.

The delay aims to enable businesses to access loans, help to boost credit growth, cut loan rates and give banks a chance to prepare for the regulations, the statement said.

Alan Pham, chief economist at fund management firm VinaCapital, said: "This is a regrettable decision, though I understand the reason for the central bank's move."

Banks and business associations had called for the central bank to delay the NPL classification rules, citing the country's economic slowdown, enterprises' difficulties getting loans and a large number of bankruptcies.

Vietnam has been enduring its biggest slowdown in growth since 1999. In 2012, gross domestic product increased only 5.03 percent due to falling domestic consumption. There were about 100,000 bankruptcies in 2011-2012.


Businesses could not access loans due to their existing debts, while lenders tightened lending rules for fear their bad debts would increase. Vietnam's lending growth slowed to 8.91 percent last year from an average 29.5 percent annual rise from 2006 through 2011.

The government aims to accelerate economic expansion to 5.5 percent this year, but economists have said the projection is still optimistic.

The central bank's decision may also affect its efforts to clear the banking system's bad debt burden, said Pham.

On May 18, the government gave the green light to the establishment of the Vietnam Asset Management Corp (VAMC), the tool expected to speed up NPLs settlement.

"The VAMC will have to hang around for one more year to really get started on its job," said Pham.

In a separate move, the government has required the central bank to go ahead with running the VAMC and adjust its operation in the meantime, state media have reported.

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