Credit institutions to shoulder burden of debt restructuring

Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh made public a plan addressing directives from the Prime Minister to manage bad debts and create an asset management company.

Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh made public a plan addressing directives from the Prime Minister to manage bad debts and create an asset management company.

The PM's approval of the projects "Dealing with bad debts in the credit institutions' system" and "Establishing the Viet Nam Asset Management Company" was outlined in Decision 843/QD-TTg, dated May 31, 2013.

Based on this, the SBV governor issued a plan to implement the necessary provisions (Document 8421/NHNN-TTGSNH), calling on credit institutions (CIs) to develop and implement plans to settle bad debts and improve credit quality within the 2013-15 period, as part of the overall plan to restructure credit institutions, according to the Vietnam Business Forum.

These changes remain in line with the spirit of the Government's plan to restructure the credit system.
The governor's objective is to clear away the current bad debts, effectively control and enhance credit quality, and successfully meet the objectives of the restructuring plan.

The governor has called on banks to assess bad debts and credit quality from 2011, 2012 and the first six months of 2013, including bad debts by credit level or those created by buying corporate bonds, fiduciary bonds, and credit.

Bad debts must also be divided according to collateral value and provisions for risk. Bad debts with and without collateral must be recorded. Bad debts classified by State-owned enterprises and other businesses, individuals or households; bad debts classified by industry; and bad debts incurred by affiliates, transaction offices, branches and units of CIs will also have to be recorded.

In addition, Vietnamese banks are also required to perform analyses and evaluation of bad debts' data and structure as of June 30, 2013, based on the following classifications: bad debts defined under Decision 493/2005/QD-NHNN, dated April 22, 2005, and Decision 18/2007/QD-NHNN, dated April 25th 2007.

This does not include those bad debts defined by the SBV governor under Decision 780/QD-NHNN, dated April 23, 2012, or bad debts defined under Circular 02/2013/TT-NHNN, dated January 21, 2013, on asset classification, provisions and the provisioning method, as well as using reserves to handle the risks associated with the banking activities of CIs and foreign bank branches.

CIs also need to review, produce statistics, assess the status of loans including those with interest due but unpaid and added to the total amount of the loan.

Total debts must also be clearly reported according to classification. CIs must accurately evaluate the level of risk for loans and the financial situation and business activities related to them.
In particular, CIs should propose solutions to deal with the estimated bad debts and provide an estimate of the number of bad debts that can be resolved with each solution and for each year up to 2015, including loans sold to the Vietnam Asset Management Company.

They should also create solutions to deal with the bad debts of affiliates, branches, and other units of credit institutions.

In terms of improving credit quality, CIs need to develop measures to enhance the quality of appraisal and lending decisions, including monitoring changes in credit conditions, record-keeping, processing, procedures, the process of credit appraisal and approval, and the responsibilities of individuals and units involved in the process.

Measures must be adopted to improve monitoring to ensure loans are used for the purposes stated in their credit agreements.

Finally, the governor requires CIs to introduce measures to strengthen internal inspections and control as well as conduct internal audits on credit quality.-VNA

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