Vietnam rejects Moody’s report on banks’ problem assets

Thanh Nien News

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According to the State Bank of Vietnam, statistics on bad debt in Vietnam’s banking system reported by Moody’s and any other agencies are unofficial and just for reference.
Problematic assets in Vietnam’s banking system account for nine percent of its total assets instead of 15 percent as reported by credit rating agency Moody’s, the State Bank of Vietnam (SBV) said in a statement.
The system’s total bad debt increased from 4.08 percent in late 2012 to 4.73 in October 2013, it said.
“[After] the macro-economy gradually improved and recovered, together with efforts by the credit system, the situation of bad debt has shown positive signs. The whole system’s bad debt rate has significantly reduced to 3.63 in December 2013,” according to the statement.
The state lenders estimated a total bad debt of nine percent “if calculated carefully,” including rescheduled loans under its 2012 decision.
The decision on reclassifying rescheduled loans took effect in April 2012. It says that its aim is: “to reflect the objective repayment capacity of customers in the current context. On the basis of the assessment by credit institutions and foreign bank branches that their customers are doing good business and can fully repay the rescheduled loans, such loans are kept in their pre-rescheduled classification groups.”
SBV’s bad debt statistics are based on official information and current regulations, according to the decision.
“Because there is not a unique set of criteria for categorizing debts, it is normal for different agencies and organizations to report different statistics on an object,” according to the decision, which stresses that statistics from governmental management agencies are official and trustworthy while others’ are just for reference.
The statement was released on SBV’s website after the credit rating agency Moody’s announced that it “maintains negative outlook on Vietnam’s banking system.”
On February 18, Moody's Investors Service said it maintains its negative outlook on the Vietnamese banking system, although it “recognizes recent signs of stabilization on the macroeconomic front and regulatory measures that could bring benefits in the next two to three years.”
Among other constructive developments, Moody's notes that the Vietnamese government has taken steps to stabilize liquidity in the banking sector, which have made the risk of a systemic crisis more remote.
"However, we do not expect a significant broad-based improvement in the capitalization of Vietnamese banks in the next 12-18 months," Gene Fang, a Moody's Vice President and Senior Analyst, said in a statement.
"Capital remains inadequate to absorb the extent of potential losses stemming from pervasive weaknesses in asset quality," he added..
In Moody's report, titled "Vietnam Banking System Outlook," which details Moody's expectations of how bank creditworthiness will evolve in the system over the next 12-18 months, Moody's estimates problem assets in the system to comprise at least 15 percent of total assets.
Profitability remains stagnant in a challenging operating environment in which an improved external position has yet to revive domestic demand, it said.
Recent policies -- such as the Vietnam Asset Management Company, designed to take over banks' problematic loans -- have not directly addressed undercapitalization in the banking system, it said.
Moody's rated nine banks in Vietnam, including two government-controlled banks and seven joint-stock banks.

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