Debt classification under internal credit rating system
Even though the deadline already passed for two months, the number of banks classifying debts under the new internal credit rating system is countable. This has pushed banks into an unfair game.
Differences
Bidv has completely classified loans in line with the new credit rating system for more than two-years, followed by Agribank.
It will be normal if Decision No 493 dated April 22, 2005 released by the State Bank of Vietnam on classifying debts and set up risky reserves does not rule clearly that within the maximum period of three-years, credit institutions have to set up an internal credit rating to assist the debt classification and the management of credit quality.
This system will be the base for credit institutions in classifying debts by qualitative methods with wholly assessments on financial abilities and debt payment ability of customers.
The differences between qualitative methods ruled in Clause 7, Decision No 493 and quantitative method in Clause 6, Decision No 493 are very significant.
Le Ngoc Quynh, the director of Bidv’s Credit Management Board, qualitatively classifying loans are calculated based on overdue time and debt structure, so that the classification results have not fully reflected the risky of loans.
With a set of standards including 14 key financial and 40 non-financial standards, Bidv’s internal credit rating system after being launched for over two months have shown its credit quality exactly under the international norms. The bank’s bad debt ratio was reduced from 31% in 2005 down to 9.6% in 2006 when the debt classification was started according to Clause 7 and then 3.9% by the end of 2007.
Disclosure of bad debts
But some specialists said, the debt classification under the qualitative method could make a bank’s bad debt ratio was higher 2-3 times as compared with that of the quantitative method that only bases on the overtime period of loans.
Especially when the economy’s disadvantageous changes in 2008 affect directly and immediately to results of rating customers under the credit rating system through that enterprise’s financial targets.
According to the general director of Bidv, Hoang Huy Ha, the difference between the debt classifications of both quantities and qualitative methods is shown particularly that its bad debt ratio of 2005 could be increased from 12.47% to 31% if complying with Clause 7.
Bidv’s bad debt ratio by the end of 2007, which was recorded at 3.9%, would be reduced to about 1.57% if classifying debts under regulations of Clause 6, he added.
Therefore, pursuant to Decision 493 of SBV, commercial banks’ credit items could be classified in line with two methods of quantitative and qualitative. However, along with technical factors, so bad debt ratio will likely rise sharply if classifying debts qualitatively that is regarded as the main reason making commercial banks do not concern on internal credit rating system even though the application deadline passed for over two months.
Category: Finance
