VietNamNet Bridge – While domestic banks have insisted on the delay of the implementation of the Circular No. 02 on classifying debts in accordance with international standards, foreign banks want the opposite thing. Meanwhile, SBV does not want any further delay.

The reports of credit institutions showed that the total non-performing loans (NPL) had reached VND140 trillion by the end of November 2013, accounting for more than 4 percent of the total outstanding loans.

The figure represents a slight decrease if compared with the 4.8 percent by the end of October 2013 and a sharp decrease if compared with the 68 percent increase of the same period of 2012.

While affirming the necessity for Vietnam to apply the international standards in classifying debts, bankers have warned that a lot of banks would get collapsed if the Circular No. 02, with its strict requirements, would reveal the real situation of banks’ bad debts which is worse than reported.

A senior executive of the Military Bank said Vietnamese banks need some more time to get adapted to the new method of calculation, or they would get shocked because they are still not well prepared enough for this.

Analysts have also pointed out that the Circular No. 02 is really “fearful” for banks, who have got nearly exhausted in the struggle to survive the economic recession.

This explains why Nguyen Tri Hieu, a well-known banking expert, who initially protested against the circular implementation delay, has recently agreed on this.

According to Hieu, the bad debt ratio of the banking system is now reportedly at 3-4 percent, but it would be as high as 10 percent or 20 percent, if banks classify debts in accordance with the Circular No. 02.

At first, Hieu said the implementation of the circular should not be delayed for any reason, because Circular No. 02 would make a revolution in the banking sector.

However, he later admitted that if the Circular No. 02 is applied, banks would have to make higher provisions against risks. If so, the capital costs would increase, which would lead to the interest rate increases.

Especially, not only commercial banks, but businesses would also suffer, because they would find it more difficult to access bank loans, or have to borrow money at higher interest rates.

However, foreign experts don’t think Vietnam should delay the circular implementation any further.

In June 2013, the banking working group of the Vietnam Business Forum (VBF) once expressed its disappointment about the delay. Alain Cany, Co-chair of VBF, affirmed that the delay is not the good news for foreign investors.

What will the foreign investors say if they hear that the circular implementation would be delayed once more?

Tareq Muhmood, CEO of ANZ Vietnam, has said on Doanh nhan Saigon that it is now the right time for banks to follow a common standard in classifying bad debts, affirming that no further delay should be made.

Victoria Kwakwa, Vietnam Country Director of the World Bank, has recommended that the State Bank of Vietnam should apply the Circular No. 02 as soon as possible to minimize the risk of the banking system and improve the investors’ confidence.

Meanwhile, Tomoyuki Kimura, Vietnam Country Director of ADB, said he hopes the circular would be applied from early 2014 instead of July 2014 as planned.

K. Chi