Vietnam Banks’ Bad Debts, Why So Many Numbers?

Bad debts in the Vietnam’s banking system have been so confusing as different reports have different numbers, and the following are explaination from experts for what is behind.

Vietnam has many sources of bad debt information, and the official one is from the State Bank of Vietnam, the country’s central bank, (SBV) said Nguyen Xuan Thanh, a fellow of Fullbright programme, in an online meeting on “from the bad debts to bankrupcy and recovery” held by state-run online newspaper VnEconomy on July 9.

Thanh cited that Vietnam bad bedts by end-April was 4.14 percent of total outstanding debts or VND108.6 trillion. The figure is in line with non-performing loans (group 3-5) in the notes of credit institutions’ financials.

Later by end-June, the governover of the SBV said to the Congress that the bad debts ratio was 10 percent, this figure was revised or after inspections, but it is offical by the SBV.

The other source of bad debt information is released by Fitch which used financial data reported by Vietnam’s credit institutions but they classify them under international standards instead of Vietnamese one. Fitch number is often 3 times higher the official one, Thanh noted.

Thanh also highlighted that loans to property is also confusing as banks often report loans to property firms and not include individuals’ lending. In fact, many loans are used to invest in property but they are classified into different categories, that are not include property-backed loans, Thanh analysed. He estimated that property loans would be 50 percent of the total outstanding loans if property-backed loans are included.

Le Dang Doanh said bad debts stemmed from market volatility but they also came from mistakes in investments and they must be classified to have options to tackle with.

Doanh said certain loans to both state owned businesses or private ones which lack of basic conditions cannot be solved and these businesses must accept bankruptcy and he called it “innovation destruction”.

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Category: Finance