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The call, which requests the SBV submit its plan before June 30, was made in a written decision on the need to strengthen bank financial muscle.
According to an SBV banking expert, most overdue and difficult-to-collect debts are at State-owned commercial banks. State-assigned loans in development investment programmes, such as those for sugarcane and sugar processing, offshore fishing and infrastructure projects, make up the bulk of their bad debts, said the expert.
General director of the Bank for Agriculture and Rural Development (Agribank), Le Van So, said the bank accumulated VND8 trillion (US$500 million) in bad debts from sponsoring Government programmes prior to the year 2000. That includes VND3.2 trillion in dues from the sugarcane and sugar project. Agribank has almost finished cleansing the debts, he said.
Aside from Government programmes, Agribank also accumulated VND3.67 trillion in bad debts from commercial lending. That accounts for 2.3 per cent of all outstanding loans, a ratio lower than the international acceptable level of 5-7 per cent.
Some State-owned commercial banks have been working hard to eliminate bad debts, as cleansing the debts means increasing the safety ratio, value and credibility of the banks.
Tran Bac Ha, director general of the Bank for Investment and Development of Viet Nam (BIDV) said that it is determined to reduce the figure this year.
"Only through debt cleansing can we increase the bank credit rating and obtain a transparent financial statement for the goal of the bank equitisation at the end of 2007," said Ha.
Pham Huy Hung, director general of the Industrial Commercial Bank (Incombank), said that the bank plans to get rid of all its bad debt by 2007. Incombank devotes around VND1.5-2.0 trillion every year to its risk provision fund, which will help tackle the bad debts.
According to the SBV, the Bank for Foreign Trade of Vietnam (Vietcombank) owns the lowest bad debt ratio among the Big Four its non-performing loans account for only 3 per cent of all outstanding loans. Agribank and Incombank ranked second at 5-6 per cent, and BIDV came last with a bad debt ratio of 9 per cent.
Most joint-stock commercial banks try to keep their bad debt ratio at around 1-3 per cent. That is largely thanks to a short time in the market, modest market share and their priority in lending to small and medium sized enterprises.
The healthy finances at joint-stock commercial banks may lure more international investors: so far foreign banks have stakes in four joint-stock commercial banks.
Bankers complain that the complexities of handling collateral assets have held up debt restructuring at banks. Agribank Le Van So said asset disposal often involves four or five ministries. Even when the borrower defaults, the bank does not have a legal right to dispose the security asset. The biggest head-ache lies in land and house transfer procedures.
These factors result in low debt collection. In 2005 Agribank could only collect more than VND400 billion, almost 10 per cent of their total bad debts.
Source: Vietnam News, June 26
