The central bank last week issued Circular 09/2014/TT-NHNN amending and supplementing a number of provisions in Circular 02/2013/TT-NHNN on classification of assets, and amount, method and use of risk provisions at local banks and foreign bank branches.
Bankers have in recent days shared the concern expressed by BVSC in the report released on March 21.
The report says whether banks will be able to get back on their own feet depends largely on the pace and efficiency of the restructuring of the banking sector, particularly on how Vietnam Asset Management Company operates and how Circular 02 is executed.
The latest circular allows for a rescheduling of the implementation of a couple of provisions in Circular 02 until next year, a move which the report says will erode the market confidence in central bank policies.
Circular 02 has brought hopes on stronger reforms of debt classification, risk management, settlement of bad debt, and improvement of transparency in banking sector operations. However, the central bank earlier decided to delay execution of this very circular for one year beginning on June 1, 2013.
Circular 02 has been hailed as an effective tool to force banks to properly and sufficiently determine bad debt and thus paint a true picture of the health of each and every bank and the banking system as a whole. All this will lead banks to operate in line with international risk management standards and practices.
The end result will be to help the banking system grow in a safe and sustainable way.
The new Circular 09 is believed to result in bad-debt-hit banks feeling less pressure to sell their debt to the Vietnam Asset Management Company (VAMC).
The actual goal of the establishment of VAMC is to transfer bad debt from banks to this firm and keep it there until the economy gets better, so whether VAMC operates as well as expected hinges largely on the exact and adequate assessment of bad debt in the banking sector. VAMC would use this assessment as a basis for drawing up a roadmap to buy bad debt from banks and issue bonds to fund such debt purchases.
Once banks have the opportunity to delay restructuring debt and disclosing bad debt, VAMC will find it tough to buy bad debt from banks. Therefore, VAMV may resort to reports by the central bank’s chief inspector and banks themselves to map out debt purchase and bond issuance plans.
A rescheduling or delay of implementation of regulations often leaves huge impact on businesses and banks.
Last year, after Circular 02 came out, banks had to increase risk provisions and gradually scale up the ratio of risk provisions to total outstanding loans to have backup funds to cope with bad debt in an effective way. In fact, banks actively used their risk provision funds to deal with bad debt and sold certain bad debt to VAMC.
By the end of last year 20 banks had sold VND38.9 trillion worth of bad debt to VAMC. Profits before tax at banks slid a staggering 29% year on year in the first quarter of last year but the situation improved a little bit in the second and third quarters just after Circular 02 was delayed from implementation for the first time. However, their pre-tax profits continued the downward spiral in the final quarter of last year, falling 10% versus a year earlier.
The BVSC report notes the delay of the rule’s implementation would help ease the pressure from huge bad debt at banks, thereby allowing the banking system to have more time to improve their creditworthiness in compliance with Circular 02 and avoid a shocking upsurge in bad debt and a drastic plunge in profit. But the report stresses it would take far more time to restructure the banking system.
Đăng ký: VietNam News
