NPL and weak banks handled

	2017 - the time to dispose of weak banks
	Need drastic solutions to deal with weak banks

NPLs still increase

According to the draft report of the SBV, from 2011 to now, Vietnam's economy has faced many difficulties and challenges, with many unstable macroeconomic factors and difficulties in business and production (many enterprises dissolved and stopped working). Besides, after the rapid growth period, the credit institutions continued to focus on sectors with high potential risks and together withunfavorable effects of macroeconomic, making NPLs of credit institutions increase at a high level. Moreover, the operations of credit institutions faced many difficulties, the NPLs were large, liquidity was stressful, and a large amount of credit institutions found it impossible to pay with high potential risks and risks of bankruptcy, which cause insecurity for the system and cut-throat and unhealthy competition

However, until now, the handling ofNPL and weak banks have achieved positive results. By the end of 2016, according to statistics from the SBV, NPL accounted for only 2.46% of total loans. If only considering this figure, this was a good result, even many commercial banks reported their NPLs only accounting for 1-2% in the final reports in 2016. But, if considering comprehensively from arrear debts to existing debts in the Vietnam Asset Management Company (VAMC), the volume of debts is quite large, not mentioning the debt swap and debt transfer which are predicted to be bad debts by the experts.

Besides banks handling NPL, there are still banks of which the NPL ratio is increasing such as Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) with the NPL ratio accounting for 5.35% of total loans, sharply increasing compared to the ratio of 1.86% of the previousyear. In particular, subprime loans increased to nearly 1,525 billion vnd compared to the ratio of 231 billion vnd of late 2015. Doubtful loans increased to nearly 2,046 billion vnd, and irrecoverable loans also increased to more than 7,071 billion vnd. As same as the Sacombank is Vietnam Export Import Commercial Joint Stock Bank (Eximbank) with the NPL ratio accounting for 2.95% compared to the ratio of 1.86% of 2015.

Report on prospects of the banking sector in 2017 of Vietcombank Securities Company Limited (VCBS) remarked that the whole sector’s NPL ratio remained at high level. The NPLs which concentrated at VAMC have not been settled thoroughly. The main measures to settle NPL is still provisioning. If the NPL ratio is regulated by adding the debit balance from incorrect classification (and regulate the credit growth to eliminate high credit growth partly due to debt swap), the NPL may actually be even higher.

Because of the large volume of NPL, the handling of weak banks faces many difficulties due to the NPL ratio focusing on some weak banks and credit institutions under special control and some weak and some finance companies and financial leasing companies. Consequently, this requires to be continued and soon issue drastic measures to solve weak credit institutions.

Prepared plans

These above problems during settlement of NPL and weak credit institutions are mainly caused by shortcomings in the law system which does not fit the actual context and conditionsof the credit institutions as well as businesses. According to the SBV, the legal framework relating to the special control of credit institutions has many uncompleted contents and be insufficient; the process of recovery and restructure of weak credit institutions meets many difficulties due to not having appropriate measures and solutions with specialized characteristics of weak credit institution such as provisions on supporting measures from the SBV, from supporting banks and specific operating mechanisms for weak credit institutions, especially compulsory repurchased commercial banks.

Therefore, the SBV has planned a Law on supporting Credit Institutions restructuring and NPL settlement to handle thoroughly and comprehensively all involved matters. Accordingly, the Law will include three parts: provisions on processing of weak credit institutions, measures to supportweak credit institutions recovery; the provisions on handling NPL and collateral assets for loans of credit institutions; provisions amending and supplementing some articles of the Law on credit institutions 2010 relating to overcome cross-ownership and cross-investment in the system to improve the ability of administration and operation of the credit institutions. Specially, the provisions on handling weak credit institutions was planned to have 9 steps and the notable steps are that the SBV will implement a compulsory purchase plan or bankrupt plan for credit institutions.

Thus, the draft mentioned the bank bankruptcy plan. According to banking and finance expert, Assoc. Prof Nguyen Thi Mui, some weak banks have implemented a number of measures such as: Special control, banks overcome by themselves, assigning some banks with State elements for support, and the SBV supports weak banks to ensure the liquidity by a number of mechanisms. Until now, if banks remain weak, solutions to bankrupt weak banks need to be considered. Of course, we should pay attention not to break the system, and ensure the benefits of depositors when bankrupting a bank.

In fact, the determination of the head of the SBV was realized when Circular 39/2016/TT-NHNN on lending activities of credit institutions was issued with the regulations that a credit institution does not permit customers to borrow a loan to repay his loans owed at that credit institution (loans for debt swap), does not permit customers to borrow a loan to repay his loans at other credit institutions, or repaying his foreign loans except for loans used for repaying debts prior to the payment due date that fully meet the requirements as described.

VAMC special bond terms to be extended Terms for special bonds issued by the Viet Nam Asset Management Company (VAMC) to buy non-performing loans ...

It can be seen that the SBV is issuing really powerful and necessary measures to resolve the remaining long time obstacles of the banking sector. With those measures, expectations of a healthier and more professional system will become realistic, increasing the faith for investors.