"As long as banks are still using two sets of books, bad debts will never stop."

"The biggest potential risk in the Vietnamese banking system."Male"Currently, the problem is a lack of transparency in accounting records. They report one set of records to the State Bank of Vietnam, while maintaining a separate set for themselves. This is an alarming issue in the banking system regarding risk management," independent financial expert, Dr. Pham Do Chi, observed.

Recently, the concept of risk management has been discussed extensively, especially in the context of the ongoing global economic crisis. How would you define risk management using data on non-performing bank loans?

Dr. Pham Do Chi: "Due to the interest rate ceiling imposed by the State Bank of Vietnam, banks are forced to circumvent the rules by maintaining two sets of accounting records."

VietnameseMaleThere are currently many sources of information on bad debts. The most official source is the data published by the State Bank of Vietnam, based on the aggregated reports of each credit institution. As of July 7, 2012, this figure was 4.47%, equivalent to VND 117,000 billion.

The second figure reported to the National Assembly by the Governor of the State Bank was 10%. Following that was a figure of 8.6% from the State Bank Inspectorate itself, based on recalculations of figures reported by credit institutions or data obtained through inspections.

Most recently, the National Financial Supervisory Commission has published several large-scale and fairly accurate studies on short-term economic and financial issues such as inflation, production stagnation, the status of banks, securities companies, and insurance companies... The Supervisory Commission's bad debt figure (11.8%) seems more accurate and higher than that of the State Bank of Vietnam.

Furthermore, this doesn't even take into account the figures from foreign organizations. A typical example of this source of information is the non-performing loan ratio published by Fitch. Essentially, Fitch uses financial data from Vietnamese credit institutions.Malebut classifying debt according to international accounting standards instead of Vietnamese accounting standards.MaleThe figures released by Fitch are often three times higher than the official figures from the State Bank of Vietnam (over 13%).

Outstanding real estate loan figures also vary. This is because the classification of the lowest real estate loan figures aligns with how banks report real estate loan balances by lending sector, and therefore only includes loans to real estate companies and excludes personal loans.

Even the larger figure doesn't fully account for real estate loans because many loans are actually for real estate investment but are classified under other sectors. And if we include loans secured by real estate, this figure would exceed 50% of total outstanding credit.

According to his assessment, the current state of risk management in the Vietnamese banking system...MaleWhat is the current situation? What are the fundamental shortcomings?

The biggest potential risk in the Vietnamese banking system.MaleCurrently, the problem is a lack of transparency in accounting records. They report one set of records to the State Bank, while maintaining a separate set for themselves. This is an alarming issue in the banking system regarding risk management.

In reality, risk management in the Vietnamese banking system...MaleThis is very weak, with interest rates paid separately to specific customer groups. Due to the dual deposit interest rate system; the official rate went from 14% down to 12%, and now to 9%, but the negotiated additional interest rates paid to certain customer groups are actually higher.

Furthermore, many banks also resorted to informal lending practices to circumvent credit limits in June and at the end of 2011. In addition, debt restructuring was quite common in some Vietnamese banks.MaleWhen the unpaid interest of some large customers is replaced by a "new debt line" in the books of both parties, this can be easily found in the reports of several large borrowing companies. This is extremely risky when it explodes because the "huge" profits shown on the books may not necessarily be real profits.

Therefore, bad debts are not reported accurately because they must be reported according to the records published with the State Bank of Vietnam. And because of this, reports on the actual bad debt situation of the banking sector contain many of the figures mentioned above.

As an independent financial expert with over 10 years of close monitoring of Vietnam's economic and financial markets, I am currently also confused by these figures, unsure which ones are correct and which are incorrect.

Vietnamese banking systemMaleIn the eyes of foreign investors and analysts, it's a complete mess. I can't do the analysis because I lack sufficient data and accurate information. Even more dangerous is the potential for policymakers to be caught off guard by this lack of data. Could the erratic economic and financial policies of recent years have stemmed from this lack of information?

Furthermore, a lack of financial transparency can easily lead to moral hazard risks within the banking system or the consequences of default and insolvency, as seen in the case of the "super fraudster" Le Thi Huyen Nhu last year and the recent case of SME Securities Company. With the current dual accounting system in place, bad debts will never stop accumulating.

Due to the State Bank of Vietnam's interest rate ceiling, banks are forced to circumvent it by maintaining two sets of accounting records. Restructuring a bank without implementing a risk control system, because the exact amount of bad debt and credit limits are unknown, is impossible. If banks intentionally misrepresent figures, how can risk be controlled?

What is the most important solution for effective risk management, sir?

In my opinion, the solution is to immediately re-establish a market mechanism and allow interest rates to float. The State Bank has delayed this for too long!

In this way, banks would no longer need to find ways to circumvent interest rate restrictions, the books would then be a single entity, and the State Bank of Vietnam could easily check the "health" of each bank to take appropriate and timely measures.

According to VnEconomy-M