In the context of rising bad debt, from the end of April, 2012, the State Bank of Vietnam (SBV) has instructed commercial banks to restructure debts in order to escape from difficulties.
However, so far, this measure has not appeared effective while the capital is still stagnant.
The most striking evidence for this stagnancy is that the capital flows to the market remain unchanged, according to Nguyen Ngoc Thang, deputy director of the central bank’s HCM branch. By June, 30, total outstanding loans in HCM City fell 0.04 percent against the end of 2011, reaching only 763 trillion dong, the lowest amount in recent years.
Difficult to solve the bad debts
Thang also said that bad debts of HCM City-based credit institutions increased rapidly, at 6,3 percent as of the end of June, 2012 as many enterprises are in trouble and unable to pay back both principal amount and the interest. A survey conducted by the central bank’s HCM City branch over commercial joint stock banks in HCM City showed that the benefit of many banks was equal to only one third versus the end of 2011. “High bad debts also lead to the banks’ high costs because banks have to spend much on their risk provision funds, therefore a large amount of raised capital cannot be for loan”, analysed Thang.
Bad debts also prevent the process of reducing interest rates. As before, enterprises had to pay 18%/ year for the interest rate, but now it is very difficult for an enterprise even to borrow with the interest rate of 15- 16%/year.
At the meeting with the HCM Peoples Committee’s leading authorities, Do Duy Hung, general director of Viet Capital Bank proposed that central bank should give clearer direction for resolving the debt before April, 23 (the period of restructuring the debt given by SBV) for the fact that many enterprises have been in trouble for many years, but not just in recent time while the central bank’s document on debt restructure came into effect after April, 23, which is causing difficulties for banks and enterprises. Hung added that although many banks are in trouble with overdue debts, the central bank still fixed the debt rate at less than 3 percent in both positive and negative market context without adjustments. “If the bad debt ratio reaches over 3%, the central bank will publish document forcing these lender to stop opening branches and credit growth, leading to difficulties for small banks”, said Hung.
It is necessary to issue a detailed guideline.
General director of a northern commercial bank admitted that debt restructure mainly applies for enterprises in Hanoi and HCM City because there are a lot of leading enterprises and many firms are falling into temporary troubles. On the other hand, because of unclear instruction from the central bank, banks are only restructuring debt and paying little attention to reduce interest rates, even remaining the interest rates unchanged. The director recommended that the central bank’s direction should be carefully observed after promulgation. At present time, debt restructure is followed soli by large banks.
At the conference of HCM People’s Committee and 16 joint stock banks last week, Nguyen Thi Hong, vice president of HCM People’s Committee, showed that the documents of the central bank are too general and are causing confusion for the banks in implementation progress. She recommended the central bank should publish detailed instruction documents for the synchronous implementation from banks.