Credit quality comes first

(Baonghean) -Bad debt is a real concern for credit institutions, bad debt, high risk or risk of insolvency is increasing when many businesses are having difficulty holding on due to high inflation, expensive capital costs... In Nghe An, some banking units have high bad debt (over 5% of total outstanding debt), affecting business results.

Bad debt under control

That is the affirmation of Mr. Nguyen Huu Phang - Director of the State Bank of Vietnam, Nghe An Branch. He said: Bad debt is over 5% only in a few small branches. On average, in the area as of October 31, 2011, bad debt balance at credit institutions is estimated at about 890 billion VND, accounting for 1.5% of total outstanding debt - an acceptable rate. Also according to the analysis of the State Bank of Vietnam, Nghe An Branch: If we exclude from the total outstanding debt the outstanding debt for policy loans (through the Social Policy Bank and the Development Bank), the capital mobilized in the area can meet 78% of the outstanding debt for commercial loans, the remaining amount is mainly regulated by credit institutions from the headquarters (using capital mobilized from other areas). Considering each branch of the Joint Stock Commercial Bank, 10/18 units have outstanding loans larger than mobilized capital, 8/18 units have outstanding loans smaller than mobilized capital. The highest unit's debt/mobilization ratio is 224% (Lien Viet Post), the lowest unit is 22% (Vietnam Thuong Tin), these are all newly opened branches of commercial banks.

Regarding a number of debt defaults that have emerged in many major cities recently, including Vinh City, Mr. Phang said: It could be the stock market fever a few years ago, the gold fever of the past 3 months and the "freezing" of the real estate market for the past year. Particularly, lending to the real estate and consumer sectors in Nghe An is at a low level, not exceeding 7% of outstanding debt.

However, it is also necessary to acknowledge the subjectivity and laxity of some banks that have created loopholes for some subjects to take advantage of. Although to prepare a loan application, the individual or company borrowing must prove the investment project, must have a process of appraisal and verification locally..., but the reality of the fraud case at Eximbank shows that all fake documents were carried out successfully.

Credit institution branches need to pay more attention to staff management and education. (Photo for illustration purposes only)



The frozen real estate market is one of the reasons.
causing bad debt to increase.

Credit quality comes first

Mr. Nguyen Xuan Thong - Director of VIB International Bank Vinh Branch commented: Currently, bad debt in the whole industry is over 3%. The target set by the State Bank for this year is that in the worst case, bad debt can reach 5%. This target itself also shows that the problem of bad debt tends to continue to increase. Currently, bad debt is a difficult problem for many banks and the situation will get worse towards the end of the year.

Several defaults have been exposed and the risk of bad debt will become more apparent in the fourth quarter, when efforts to pay interest on loans exhaust businesses. At the same time, the bad debt ratio also weighs on banks under the double impact of the not-so-bright picture of the economy from now until the end of the year. The main reason admitted by banks is that in the past, during the land fever, buying a piece of land in a few weeks, or even a day, could earn hundreds of millions of dong, so land traders, land traders, and banks focused too much on real estate lending because they thought this was "a very lucrative piece of land". In addition, with the pressure to increase capital, many banks have sought every way to grow quickly, especially loosening lending standards to ensure efficiency on capital. As a result, bad debts have increased rapidly.

The State Bank leader admitted: “In the face of the general difficulties of the economy, bad debts of credit institutions and credit institution branches are currently under control but there are signs of increasing. When the economy is stable, this does not manifest itself, but when the economy is difficult, this consequence is even more evident. Many businesses that are already having difficulties in production and business borrow at high interest rates of up to 20-25%. When production is difficult, even stagnant, bankrupt... they are forced to postpone loans and the inevitable thing that happens is that bad debts increase.”

In order to promptly prevent the activities of criminals, the Investigation Police Department of the Provincial Police Department requested that "The State Bank of Vietnam, Nghe An Branch, have a plan to inspect credit activities, detect and strictly handle violations, and direct commercial banks to strictly implement the regulations of the State and the banking sector on credit...". And recently, the State Bank of Vietnam, Nghe An Branch, has issued a document directing credit institutions to actively recover bad debts and be cautious in granting new loans in the context of tight credit. On the one hand, credit institutions must inspect and review to improve credit quality. For units with bad debts of over 5% of outstanding loans, there must be debt collection measures for each customer, analyze the causes of bad debts and assign specific responsibilities to offending officers (if any). On the other hand, credit quality must be prioritized, maintaining a sustainable credit growth rate to avoid risks.

Many embezzlement cases in the banking sector in recent times have originated from the ethics of bank staff and loopholes in business processes. Therefore, credit institutions and branches of credit institutions must pay more attention to the management and education of staff, review their internal regulations, and make appropriate amendments to ensure risk control and safe operations. In addition, to prevent bad debts and other risks from increasing, when lending, commercial banks need to control the purpose of using loans of enterprises; have clear loan documents; as well as maintain communication channels between banks and enterprises for timely information exchange. Conversely, enterprises must also make provisions when there are bad debts.

Thu Huyen