"As Governor, I take full responsibility…"

“We have conducted a very thorough review, I have brought the review here, to clearly affirm the responsibilities of the individuals and groups involved…”.

Governor of the State Bank of Vietnam Nguyen Van Binh at the question and answer session on the afternoon of September 29 (Photo by ND)

Governor of the State Bank of Vietnam Nguyen Van Binh shared when National Assembly deputies questioned him on the afternoon of September 29 about the issue of responsibility for violations at banks.

Questioning the Governor, Deputy Nguyen Thi Kim Thuy, member of the National Assembly's Committee on Social Affairs, asked a straightforward question: What is the Governor's responsibility for allowing violations to occur at banks, most recently at the Construction Bank? What is the solution to minimize similar violations in the future?

Regarding this, Mr. Nguyen Van Binh said: “No matter where or when those violations occurred, whether I was the Governor at that time or not, now that I am the Governor, the responsibility will still belong to the Governor of the State Bank. As the Governor, I will take full responsibility for those issues.”

Specifically, in recent times, we have vigorously implemented inspection and supervision activities, closely coordinating with law enforcement agencies, including the police.

However, the State Bank's motto is not to criminalize civil relations. The State Bank only wants to detect and create conditions for the offending parties to correct the situation. When the situation cannot be corrected, causing the loss of the country's money, it must be handled according to the provisions of the law.

According to the Governor, through inspection and supervision, many violations have been discovered in the past such as Huyen Nhu, Bau Kien, or Financial Leasing Company 2... Most of these cases happened before 2011.

“We have made a very profound review in the review, criticism and self-criticism report according to Resolution TW4. I have brought that review here to clearly affirm the collective and individual responsibilities involved in those issues.”

Regarding the violations at the Construction Bank, the Governor said that in the early stages of restructuring, we encountered many difficult problems in dealing with weak banks. For this bank, the handling must be based on the principle of voluntariness and market forces. Therefore, we must find investment partners with financial capacity to voluntarily participate in the restructuring process.

According to Governor Binh, all weak banks in the past have followed this spirit, only then can they maintain stability and save state resources. Besides, thanks to inspection and supervision activities, the State Bank has discovered and minimized losses. Specifically, the capital of the Construction Bank was not lost. Their illegal activities did not take place at this bank but they borrowed illegally from other credit institutions...

“However, regardless of whether the violation is big or small, the responsibility still belongs to the Governor. But thanks to the close inspection activities in the past time as well as on-site supervision, the violation was detected and handled promptly,” said Governor Binh.

Bad debt will be resolved fundamentally

Regarding the issue of bad debt settlement of credit institutions in Vietnam, Delegate Do Van Duong asked: According to the Governor, up to now, 47% of bad debt has not been resolved. What problems will arise in improving the quality and efficiency of banking system management in the coming time? And VAMC has bought 60,000 billion VND of bad debt, which is very large. But the sales are only 1,500 billion VND, about 2%. So what is the problem? Is it due to the capacity of VAMC or the legal mechanism for debt trading? If there are such problems, is it necessary to have a law on debt trading?

Illustration photo: VNA

Governor Nguyen Van Binh said that the handling of bad debt in the world in general, and in Vietnam in particular, is only through a number of methods: First, credit institutions themselves, using their own risk reserve resources to handle; Second, bank borrowers with improved economic conditions will pay back the bank to handle bad debt; Third, the Government will take charge of handling bad debt, in Vietnam, the VAMC company is being used; Fourth, a comprehensive solution, using policy mechanisms to warm up the economy to handle bad debt.

Up to now, credit institutions have actively participated in handling bad debts. Previously, credit institutions often concealed bad debts and made few provisions for risks in order to have more money to pay dividends and profits.

But in the past 3 years, the State Bank has controlled this work, closely inspected and supervised. Up to now, credit institutions have set aside a large amount of risk reserves, an average of 70,000 billion VND per year to handle bad debts. Most credit institutions do not pay dividends, but reserve this capital for charter capital reserves to improve financial capacity.

“In the past 3 years, the system has handled more than 249,000 billion VND of bad debt. Excluding 86,000 billion VND handled through VAMC, the remaining amount was handled by the provisioning of credit institutions. By the end of July 2014, the provisioning amount set up by credit institutions reached 78,000 billion VND.”

The value of collateral for bad debts is twice as high as the value of bad debts, the ability of credit institutions to evaluate very positively.

Through the monthly reports in 2014, bad debt tends to increase in the months of the year, because credit institutions usually focus on handling bad debt at the end of the year when they calculate the income and expenditure of the whole year. Therefore, bad debt often decreases sharply on December 31 every year, when credit institutions handle bad debt with the source of risk provisions.

On the other hand, during the year, there were the issuance of legal documents, raising the level of debt classification and risk provisioning of credit institutions more strictly than international practices, so bad debt according to new regulations also increased.

“By July 2014, VAMC had only bought 14,000 billion VND, but by September 24, it had increased the purchase amount to 47,000 billion VND. Combined with the 2014 plan to buy about 70,000 billion VND plus the amount of risk provisions of 78,000 billion VND, it is hoped that by the end of this year, the bad debt of credit institutions will be handled fundamentally.”

By July 2014, the bad debt ratio reported by credit institutions was 4.11%, higher than the 3.9% at the end of 2013, but at that time, according to the State Bank's supervision, bad debt was approximately 8%. The difference between the State Bank's supervision data and that of credit institutions is due to the establishment of a stricter supervision mechanism through the information technology system.

The State Bank closely manages the operations and debt classification of credit institutions. It implements the policy of allowing credit institutions to restructure debt for customers to create favorable conditions for customers. Of the total debt of more than 300,000 billion VND to be restructured, about 157,000 billion VND will turn into bad debt if not restructured. The State Bank adds the debt that credit institutions have classified as bad debt to this restructured amount to increase the total bad debt level to 8%.

“With the current speed of bad debt handling, the bad debt ratio reported by credit institutions will be around 3% and the supervision of the State Bank will bring it down to around 6% by the end of this year.”

According to Infonet/VOV