Vietnam central bank relaxes bank bad-debt rules

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Vietnam central bank relaxes bank bad-debt rules

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The central bank has relented on bad debt regulations, easing several, including giving banks more time to classify loans by themselves before having to do so under its oversight.

The State Bank of Vietnam's Circular 09, which took effect March 20, gives banks until January 1, 2015, to submit to stricter assessment by the central bank’s Credit Information Center on loan classification.
Bank loans are classified into five groups – current, special mention, substandard, doubtful, and bad.

The circular also requires risk provisions to be made for the special bonds that banks get from the state-run bad-debt bank VAMC in exchange for their non-performing loans.

Banks welcome

News website Saigon Times quoted an unnamed general director of a joint-stock bank as hailing the relaxation of norms, which banks had said would badly affect lending, while at the same time getting tougher on debt classifications.

Circular 09 “opens the door” for banks, he said, expecting them to get their act together soon.

At the minimum, banks' figures would not look as bad as they had feared earlier, he added.

Lending dropped by 1.05 percent as of March 13 from the end of last year, with analysts blaming it on bad debts and weak demand from businesses.

Nguyen Huu Nghia, deputy chief inspector of the central bank, has said that the forthcoming regulations without these relaxations would send the banking system’s non-performing loan ratio, already one of the highest in Southeast Asia, skyrocketing.

But the SBV planned to inspect banks this year to get a “more honest picture” of bad debts.

Last November bad debts were estimated at VND152.18 trillion (US$7.22 billion), or 4.55 percent of outstanding loans.

That represented an increase of VND19.76 trillion ($937.5 million) from January 2013 when the ratio was 4.3 percent.

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