Illustrative image (Photo: VNA) Under the draft, the SBV mentioned many regulations on internal credit rating,credit granting and debt group management. At the same time, there are higherrequirements in the application of digital technology to control risks.
Dr Le Ha Diem Chi, lecturer at the Banking University of Ho Chi Minh City, saidthe new regulations will help the group of cooperative credit institutionsavoid the risk of bad debt arising.
According to Chi, the PCF group, which includes nearly 1,200 units and is apart of microfinance, has made an important contribution to poverty reductionand income improvement in rural areas. However, the risk management activitiesin many PCFs have not been paid due attention.
Statistics in the 2018-21 period showed the number of PCFs, which were putunder special control due to poor governance, increased yearly from 2.0% to 2.5%.The rise proved there was a need for additional legislation to enhance riskmanagement at PCFs.
According to the SBV’s Banking Supervision and Inspection Agency, as for creditinstitutions that are not cooperatives, the SBV last year promulgated CircularNo. 11/2021/TT-NHNN on the classification of assets, risk provisioning, and useof provisions to handle risks in the operations of credit institutions andforeign bank branches. However, the PCF group currently still applies the oldlegal documents, such as Circular No. 21/2019/TT-NHNN dated November 14, 2019.
Therefore, in order to be consistent in the implementation process, theconcepts of debt, bad debt, overdue debt, provisioning level and the use ofrisk provisions, the draft circular references in Circular No. 11/2021/TT-NHNNto adjust accordingly.
Besides, in order to ensure better management of credit quality, the draftcircular stipulates PCFs, whose total assets are above 500 billion VND, mustdevelop an internal credit rating system to rank customers.
At the same time, PCFs also need to issue internal regulations on creditgranting and debt management, especially those on credit criteria and caps aswell as credit granting applications, procedures, appraisal and approval.
The SBV’s Banking Inspection and Supervision Agency believe the above strictregulations will improve the risk governance of cooperative banks and people'scredit funds in line with the Government’s orientation on safely andeffectively developing the PCF group.
Nguyen Quoc Cuong, chairman of the board of directors of the VietnamCooperative Bank and chairman of the Vietnam Association of People's CreditFunds, said the internal control and audit have been developed and implementedstrictly according to the SBV’s instructions by most PCFs. However, some PCFsonly focused on making profits without paying due attention to internal auditstandards.
Therefore, if the SBV issues a new circular on credit risk management, creditrating standards and provisioning, as well as requiring PCFs to increase theapplication of digital technology in risk management, the operation of the PCFgroup will be closer to commercial banks and other types of credit institutionsin terms of capital management, credit quality management, and digitaltransformation.
Cuong believes when the SBV completes the legal framework for the operation ofPCFs, management of risks related to internal control and credit quality willbecome increasingly strict and consistent, which will help improve theoperational efficiency of the PCF group to make it become a microcredit sourcefor localities, especially in agricultural and rural areas./.
VNA
