Non-performing loan issue
In response to questions on non-performing loans (NPLs), the SBV Governor affirmed that NPL problem has always happened in parallel with operations of comercial banks. According to the International Monetary Fund (IMF) and other international financial institutions, he said,Vietnam’s loan classification criteria are in accordance with the regional standards. Governor Nguyen Van Binh said that NPLs has tended to increase in recent years, and by March 3, 2012 the total amount of NPLs is 202,099 billion VND, accounting for 8.6% of the total loan outstanding. The SBV Governor stated that this figure is based on the most scientific and accurate analysis announced by the SBV.
Governor Nguyen Van Binh continued to state that the current NPL figure is alarming but nottoo panic as credit institutions have made adequate risk provisioning and strictly complied withthe regulations on mortgage and asset disposal. According to the latest data, credit institutions have made provisioning worth over VND 70 trillion, and the secured assets are equal to 130% of the loan value; the NPL problem can therefore be resolved with the lowest cost.
According to the SBV Governor, there are five major causes of non-performing loans, namely(i) credit growth increased too fast due to the policy of extensive development of the economy, and the average annual credit growth rate was around 29% over the past 10 years, even over 33% for certain; (ii) the SBV policies and mechanisms have neither been regularly renovated nor catched up with the market developments with failure to work out the best orientation forthe development of credit institutions; (iii) the SBV supervision has not been well and regularly done due to the lack of staff while the sanctions of the SBV have not been efficiently applied for quite a long time; (iv) the loan evaluation of credit institutions has not been good enoughtogether with violation of the regulations on risk management in credit extension due to the fact that years ago they only paid attention to extensive development in order to increase their market share in fierce competition; and (v) corporate borrowers have been weak in utilizing and absorbing their loans to promote production and competitiveness, hence leading to high inventory and overdue debts.
Regarding to the question that the NPL ratio of the state-owned commercial banks is worse than that of the non-state joint-stock commercial banks, the SBV Governor said that according to commercial banks’ reports, by June 30, 2012 the NPL ratio is 3,76% for state-owned commercial banks and 4,73% for joint-stock commercial banks. The ratios are 6.14%, 3.55%, 2.45%, 2.63% and 2.52% for Agribank, Vietcombank, Vietinbank, the Housing Bank of Mekong Delta, and BIDV respectively.
Touching upon SBV responsibility for the bad debt problem, the Governor said that the SBV has strictly solved the problem by citing, among other things, an instance of requiring 9 weakcredit institutions to make adequate risk provisioning together with increase of capital contribution by their shareholders and putting them under special SBV supervision.
The SBV Governor also informed that the SBV has formulated and planned to issue importantlegal documents on credit management. The documents are expected to be issued in the third quarter of 2012 and will be effective from early 2013, so that credit institutions will have time to reorient their credit development. In addition, the SBV has reorganized its Financial Supervision Agency and improved its supervisory operations.
On the other hand, the SBV will take several urgent actions, including (i) to actively coordinate with the authorities of various levels to quickly liquidate the collaterals; (ii) to encourage credit institutions to repurchase debts; (iii) to discuss with businesses in order to find out solutions for removing their difficulties, strengthen their financial capacity and help to reduce bad debts of the banking sector in an effort to bring the NPLs down to the safe ratio of less than 3% in the next few years.
Restructuring of commercial banks:
The SBV Governor said that the Scheme of restructuring of the banking sector will take the first step by allowing commercial banks to develop their own restructuring plans in order to improve their operations. The SBV will interfere only when any bank is not able to do so.
Accordingly, commercial banks can help each other to restore operations on a voluntary basis. He touched upon the issue of M&A by saying that if it takes place in the securities market, it is an ordinary happening governed by the Securities Law and the other relevant legal texts.
The SBV Governor continued to inform that the merger of three commercial banks, namely theSai Gon Joint – Stock Commercial bank, the First Bank and Tin Nghia Bank, is just the first step in the process of restructuring these commercial banks. Following the merger, the liquidity of the merged bank has been improved and stablilized.
Liquidity support to difficult commercial banks :
The SBV Governor said that in the end of the fourth quarter of 2011, liquidity of the banking sector was extremely stressful, so the risk of the banking sector failure was eyeful. 12 credit institutions were on the brink of bankruptcy, of which 6 credit institutions were inliquid. The SBV provided liquidity support to these six commercial banks in accordance with the Law on Credit Institutions.
Just two months later, three of these six credit institutions fully repaid their SBV loans. Only three commercial banks, following their merger, have repaid part of their SBV loans. Therefore, it can be said that the timely refinancing of the SBV is necessary for these commercial banks as well as the banking system to ensure the liquidity and prevent failure. He asserted that the liquidity support funds have been used efficiently and for the right purpose.
Reducing lending rates and supporting enterprises to overcome difficulties:
The Governor said that the lending interest rate reduction to below 15% p.a before July 15, 2012 is only a call to credit institutions, not an administrative order. Previous lending contracts (prior to July 15) were legally economic contracts. Therefore, the SBV could not require credit institutions to reduce lending rates to 15% p.a.
However, credit institutions have actively decreased lending rates in order to share difficulties with enterprises. Before July 15, the VND loan outstanding with interest rates of above 15% p.a accounted for 65% of the total loan outstanding. The ratio is 30% by August 3 and 24% by August 16.
The arrest of Mr. Nguyen Duc Kien:
The Governor said Mr. Nguyen Duc Kien is one of the founders of the Asia Joint-Stock Commercial Bank (ACB). He was no longer involved in the management of the ACB and the arrest would not affect the ACB's operations. Therefore, the arrest had nothing to do with the ACB and other commercial banks. However, the SBV planned to closely monitor this matter and be ready to provide liquidity support to ACB, if need be, in order to ensure a safe and sound banking sector.
Increasing the confidence of the public
In her closing remarks of the Q&A session, NA Vice Chairperson Nguyen Thi Kim Ngan said that SBV Governor Nguyen Van Binh answered frankly and seriously almost all the questions. She stated that the SBV Governor’s answers provided formal information, thereby increasing the public confidence in the banking sector as well as the SBV's measures.
She also required the SBV to continue further considering remaining questions of deputies, quickly directing the implementation of the Scheme of restructuring the system of credit institutions; managing monetary policy in a flexible manner in consistence with macro-economic balances; appropriately lowering interest rates to facilitate businesses and individuals to get easier access to bank loans with low interest rates, with priority given to agricultural and rural development and poverty reduction.