Likening Vietnam’s current bad debt to the US subprime mortgage crisis which broke out in 2008, Le Hung Dung, Board Chairman of Eximbank, points out the root of the current problems. “Part of the [Vietnam's] current bad debt comes from ‘subprime loans,’” says the chairman.
Chairman Dung explains that during Vietnam’s period of hot growth a few years ago, realty projects mushroomed, which pulled along bubble credit growth. As a result of loosening credit appraisal, bank loans were extended indiscriminately. The catastrophic consequence arose last year and has since lingered in which banks have had to bear the looming bad debt burden.
As a result, banks are now much more prudent to appraise mortgages for bank loans, placing stronger emphasis on the efficiency of their loans. Some enterprises have complained that they have no access to bank loans. However, that is only part of the picture.
“Businesses claiming that loan access is difficult may be because their application dossiers are incomplete or because they have already had bad debt at another lending institutions, which may make their borrowing process at a certain bank more protracted,” says the chairman.
Chairman Dung admits that the current time is the toughest period during his chairmanship at Eximbank. The bank he is at the helm of and other banks in Vietnam are facing diving profits. Given its pre-tax profit target of VND3.2 trillion in 2013, Eximbank has only covered a quarter of the distance. Chairman Dung says, however, accepting lower profits is a way to constrain bad debt. “We won’t place our bank’s safety in the future at the risk of immediate interest,” he affirms.
A survey on business trends conducted by the central bank shows that quite a few banks have taken careful steps. More than a half of the polled banks said bad debt would continue rising as a result of a risky business environment.
Self-motivation
As a prudent lender, Eximbank has its reasons. Contributing to the process is the participation of SMBC, the bank’s strategic partner. “Such carefulness sometimes frustrates even our credit officers as many loan applications are turned down by the Credit Council and the Risk Management Board,” says Chairman Dung.
Heading the Risk Management Board now is Naoki Nishizawa. This deputy board chairman is a Japanese man of principle. Chairman Dung argues that once the economy languishes and non-performing debt rises at many other banks, Eximbank staff are feeling little relieved because their task of loan recovery is not as arduous as that of colleagues in other credit institutions.
A glimpse into Eximbank’s management H1 report may indicate the bank’s forceful handling of overdue debt. Numerous meetings have been convened to monitor and tackle problems concerning bad debt, risk management and loan recovery.
Representing SMBC’s capital, Naoki Nishizawa is tasked with risk management at Eximbank. As an independent unit, Eximbank’s Risk Management Board is empowered to intervene or supervise loans extended at branches and report them to the board of directors. “This forces credit officers to stay totally transparent and healthy in their loan appraisal and extension,” Chairman Dung says. “It is almost impossible for negative practices to live on once the board has decided to let Mr Nishizawa to have total power.”
By end-June, Eximbank’s bad debt was 1.43 percent of its total outstanding loans, a slight rise against the end of 2012. This is quite impressive compared with the average rate of the banking industry. According to Dung, high non-performing loans from the previous years have explained the current high rate of bad debt. The good news is loan recovery has been conducted emphatically and risk provision employed effectively. “It is hard work for sure, to us all,” says Mr Dung. “But without such hard work and hard times, we won’t be able to pull ourselves from troubles.”
Dung remains steadfast in maintaining that tackling bad debt is the life-or-death issue for every bank. Even with the coming into existence of the Vietnam Asset Management Company, born to help credit institutions handle overdue debt, the heaviest task must still be fulfilled by the bank in question itself.
For the rest of the year, Eximbank’s 15 percent credit growth target may be elusive as it reached only 4 percent in the first half. Likewise, the projected profit also seems infeasible. Dung contends that Eximbank will spend more time consolidating and revising its operations than accelerating growth. Only by hinging upon the solid foundation being built today will Eximbank be able to make breakthroughs in the coming years.
Thanh Thuong
Đăng ký: VietNam News
