Credit institutions must speed up restructuring to meet deadline

Hanoi (VNS/VNA) - Some credit institutions (CIs) that have not yet completed their restructuring roadmap will have to speed up the process to meet the State Bank of Vietnam (SBV)’s deadline this year.

The SBV issued Decision 1058/QĐ-TTg in 2017 to implement a scheme to restructure the CI system in the 2016-20 period, which includes settling bad debts, meeting Basel II international banking standards and dealing with cross ownership.

Some CIs with large amounts of bad debts almost completed the settlement of bad debts by the end of last year, but now they are facing a risk of bad debt returning due to the impacts of the COVID-19 pandemic on some of their borrowers.

Experts said the bad debt rise due to the outbreak of the COVID-19 pandemic is threatening the implementation of the targets set in Decision 1058.

According to banking expert Can Van Luc, chief economist of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the increase of bad debts has been slowing down CIs’ restructuring process.

Tran Dang Phi, deputy chief inspector of the SBV, said that bad debts have been on the rise since March, but in general it is still under control.

“The SBV is focusing on reviewing CIs, which are likely to see bad debt increase due to COVID-19, to direct them to comprehensively assess the results of the implementation of Decision 1058, and at the same time building a new scheme on restructuring CIs,” said Phi.

According to Phi, although bad debts are at risk of increasing, until now, almost all important criteria of Decision 1058 have been implemented by CIs.

The SBV’s statistics showed that by June 2020, the bad debt ratio of the CI system was below 2 percent so the ratio of the whole year may reach the target of below 3 percent set in Decision 1058. From 2012 to the end of March 2020, the entire CI system handled more than 1,000 trillion VND (43.48 billion USD) of bad debts.

As for the implementation of Basel II international banking standards, 20 domestic joint stock banks have so far applied Basel II standards, more than the 12-15 bank target set in Decision 1058.

In addition, the cross-ownership among CIs is also handled thoroughly. The direct cross-ownership between pairs of CIs was removed from the end of 2019 while there is only one pair of a CI and a firm directly owning shares of each other compared with 56 pairs in 2012.

However, experts said the bad debt ratio under Decision 1058 may reach the target this year thanks to the SBV’s issuance of Circular 01/202/TT/NHNN which allowed CIs to restructure debts for firms affected by the COVID-19 pandemic.

However, they warned that without the policy, the bad debt ratio would have exceeded 3 percent. This means that the risks of bad debts accumulated in the coming years is fairly large, they said./.