VietNamNet Bridge – The pressure on the banking system has been eased once the bad debts are on the decrease. However, bankers themselves admitted that their worries still have not been lifted.

Bad debts decrease thanks to the debt restructuring

The reports of the credit institutions showed that by the end of April 2013, the bad debts of the whole banking system had reached to VND137.1 trillion, an increase of VND18.7 trillion, or 15.8 percent in comparison with that at the end of 2012.

As such, the bad debt ratio had increased to 4.67 percent from the 4.08 percent at the end of 2012 and 3.07 percent at the end of 2011.

Meanwhile, the figures about the bad debts by the watchdog agency, though being much higher than the figures reported by commercial banks, showed a positive sign that the bad debt ratio is on the decrease.

By December 31, 2012, the bad debt ratio had decreased by 1.2 percent from September 30, 2012, from nearly 9 percent to 7.8 percent.

The debt restructuring in accordance with the State Bank’s Decision No 780 has allowed the banking system to restructure the bad debt sum of VND284.4 trillion.

The decision has also helped banks avoid the provisioning of VND14.4 trillion against the risks.

Meanwhile, the accumulative receipt & expenses margin of the whole banking system had been VND13.1 trillion only by April 2013, a decrease of 40 percent over 2011. This means that if the banks had had to make the above said provisioning, they would have seen the minus receipt & expenses margin of VND1.3 trillion.

By the end of April 2013, banks had provisioned VND150.3 trillion for the loans, of which VND76.7 trillion has been used to settle the bad debts (VND69.2 trillion was used in 2012, and VND7.5 trillion in the first four months of 2012). As such the unused provisioned money is VND73.6 trillion, up by 14.6 percent in comparison with the end of 2012.

If the remaining provisioned money is used, this would help settle about 50 percent of the bad debts, according to credit institutions.

VAMC, the national asset management company, which is in charge of dealing with the bad debts, is going to make debut on July 9. The super-company, as believed by the governor of the State Bank, would allow to settle VND40-70 trillion worth of bad debts.

Risks still exist

Former Deputy Chair of the National Finance Supervision Council -- Le Xuan Nghia, has warned that though the debt restructuring solutions and the VAMC would help ease the bad debts, these could not be the remedy for all banks, especially the small and weak ones.

Once VAMC buys bad debts by issuing bonds, the bond would become the banks’ assets for which they would have make provisioning. This means that the banks with bigger bad debts would see the expenses increasing rapidly in the context of the slow lending.

Banks’ outstanding loans have increased slightly, by 2.98 percent in comparison with the end of 2012, but the loans remain modest. The lending interest rates have decreased sharply, which has narrowed the margin between the input and output interest rate to 1.93 percent from the 2.33 percent at the end of 2012, according to the Director of the Credit Department of the State Bank Nguyen Thi Hong.

SGTT