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Bad debt responsibility should be shared: cbank head

Bad debt responsibility should be shared: cbank head

Thursday, November 15, 2012, 13:00 GMT+7

The coordination of state agencies, including the State Bank of Vietnam (SBV) and the Ministry of Construction, is essential in tackling mounting non-performing loans, said the head of the SBV at a recent televised National Assembly (NA) meeting.

The session was broadcast live by Vietnam Television.

Though admitting that SBV and local credit institutions have sufficient resources to combat the growing level of bad debts, SBV Governor Nguyen Van Binh added that other state agencies including the Ministry of Construction, should step in. 

As of September 30, total bad debt recorded by SBV was at 8.82 percent of total outstanding loans, about VND237.54 trillion (US$11.4 billion), nearly doubling the number reported by local credit institutions.

The total outstanding credit of the local economy was at about VND2,700 trillion ($129.57 billion), of which 73 percent was asset-secured loans, Binh said.

Among those asset-secured loans, more than 66 percent are secured by real estate.

On that basis, Binh said that in order to handle bad debts, the SBV needs to shore up consumption in the real estate market, which is under the management of the Ministry of Construction.

“Previously, the local realty market primarily served the real estate business, including speculators and manipulators. It needs to be corrected".

“We need to find real house buyers whose financial capacity can afford their real demand.”

Binh also pointed out the inappropriate housing structures, mostly in terms of floor area and price, failing to meet the financial capacity of real home buyers.

While answering the questions of NA delegate Dam Thi My Huong on why bad debt has grown so large, Binh said local institutions have been dishonest in reporting on debt, as those which reported NPLs at some 1-3 percent have seen the real figure rise multiple times after SBV inspections.

“This is primarily the responsibility of the credit institutions."

In addition to the internal weaknesses of local credit institutions, downsides have also been found in borrowers, macroeconomic policies, and poor supervision of SBV inspection teams.

Binh also acknowledged that the liquidity of the system and the economy "is very thin and unstable, I do not dare use the word strong."

In 2011, the percentage of raised capital that wwas lent by the local banking system was more than 100 percent, leading to a severe liquidity shortage and even systemic breakdown.

According to Binh, this year’s rate was about 93-96 percent, while globally the rate is only about 60-70 percent.

"Among more than 100 credit institutions in Vietnam, there are around 50 organizations that have excessive spending over their mobilized capital daily, creating huge pressure on the interest rates," said Binh.

Deserve half of a Nobel Prize?

An NA delegate, economist Tran Du Lich, after attentively listening to Binh’s Q&A session, said he was quite disappointed with what the governor had addressed.

"I am very optimistic as I always think that after all, we can still regain market confidence. But after seeing Binh’s presentation, my optimism is fading,” Lich said.

“Binh said the NPL situation is not so serious, so why have we taken the matter so seriously, even with the intention of setting up an asset management company and mobilizing the whole political-economic system to step in,” he added.

Binh reminded delegate Lich that he was the first to point out the bad debt problem and assess the severity of the situation and the resolutions in the NA meeting a year ago. He also reiterated that he considered the problem to be a serious one, not based on absolute numbers, but on how rapidly the situation has worsened recently.

However, the debt settlement is on the right track, but does not depend only on the banking industry, Binh said.

Regarding Lich’s question of what Binh’s responsibility is when the foot-dragging lending rate cut is killing so many local firms, Binh said the SBV’s polices are facing the problem of the "impossible trinity" theory in economics, which states that monetary policies cannot be deployed in order to control inflation, maintain growth and stabilize the exchange rate at the same time.

"The theorist of the “impossible trinity" won a Nobel Prize for his discovery. But in Vietnam, SBV’s task is to curb inflation and maintain a high growth rate at the same time.” “I once joked with the NA chairman that if I can do one of these well, I only need half of the Nobel Prize," he said.

Rates on a slide

In the first 10 months of this year, the central bank decreased the key interest rates, including base interest rate, discount rate and refinancing rate, five times, and cut the interest rate ceiling four times for a total reduction of 4-5 percent per annum.

Accordingly, the interest rate for the economy also fell around 13 percent per annum for prioritized sectors, such as the agricultural, exporting, and supporting industries, and small and medium enterprises.

As of September30, the proportion of loans with interest rates over 15 percent was 20.9 percent, down about 70 percent compared to July 15.

The interest rates offered by the group of five state commercial banks saw the sharpest falls, 91 percent compared to July 15.

Binh said, in terms of costs, as the deposit rate was relatively high in the past, at 15-17 percent per annum, it’s hard for local commercial banks to reduce the interest rate of old loans to 15 percent per annum.

So far, according to the central bank, the interest rates have dropped to approximately the same level as in 2007, before the global economic crisis, with depositing and lending rates reduced by 3-5 percent and 5-8 percent compared to the beginning of 2012.

The common lending rate for prioritized sectors is hovering around 9-13 percent per annum, while that for other businesses and consumption is at 12 -15 percent per annum.

After five months of reductions, credit growth has rebounded since June, reaching 2.45 percent as of September compared to the end of 2011.

Credit growth for the priority areas is higher than the overall credit growth to the economy, especially credit for the agricultural and rural sector (9.57 percent) and exports (10.76 percent).

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