Table 2.5: Results of bad debt handling at commercial banks
Unit: %
STT
Target | Value | |
1 | Debt ratio group 2 - 5 | 10.25% |
2 | Bad debt ratio | 4.65% |
3 | Provisioning level of commercial banks | 78,700 billion VND |
4 | Debt write-off ratio/Total outstanding debt | 0.55% |
5 | Credit Risk Coverage Ratio | 10.33% |
6 | Ratio of restructured bad debts/Total outstanding debt | 9.16% |
7 | Restructured debt value | 284,400 billion VND |
Maybe you are interested!
-
Overview of Factors Affecting Bad Debt at Commercial Banks -
Factors affecting bad debt at Vietnamese commercial banks - Phung Thuy Dung - 15 -
Factors affecting the debt repayment ability of corporate customers at Vietnam Joint Stock Commercial Bank for Investment and Development - Long An Branch - 1 -
Research Results on Factors Affecting Bank Credit Expansion for Sustainable Development of Long-Term Industrial Crops of Commercial Banks -
Views on Bad Debt of Commercial Banks:
Credit growth rate improved
Credit growth rate, after decreasing in January 2013, has increased again since February 2013. As of July 31, 2013, credit has increased by 5.15% compared to the beginning of the year. Of which, domestic currency credit increased by 8.6% and foreign currency credit decreased by 10.7%. This figure is lower than the mobilization growth of 9.39%.
Benefits of VAMC and AMCs under commercial banks.
The establishment of VAMC, although slow, still has grounds to expect that this will be a useful tool when looking at the personnel structure and operating regulations. The goal set for VAMC in 2013 is to handle 40,000 - 70,000 billion VND of bad debt, striving to bring bad debt down to a controllable level according to regulations by 2015.
AMCs under commercial banks play a significant role in debt collection and settlement. AMCs were established to serve the needs of debt management and asset exploitation of commercial banks, expand debt buying and selling relationships, and implement debt buying and selling to improve and make the financial situation transparent, in line with the strategy of encouraging debt reduction in the banking system in particular and the national economy in general. For example, the annual debt collection ratio of MBAMC (AMC under Military Bank) accounts for 25-30% of bad debt (group 4, 5) of MB. Of which, the form of debt purchase is 50-70%.
Increased provisioning, resolving part of outstanding bad debt
The provisioning of risk reserves and the use of reserves to handle bad debts in the operations of commercial banks in recent times have also shown initial positive signs. Commercial banks have begun to pay more attention to the reserve fund and seriously implemented the fund allocation according to regulations. Up to now, the total bad debts handled by risk reserves and brought to off-balance sheet monitoring in 2012 and the first 5 months of 2013 is 78,700 billion VND. With the remaining provision balance set aside by the end of May 2013, which has not been used, of 71,700 billion VND, it will be the basis for commercial banks to continue handling bad debts in the coming time.
Debt restructuring according to Official Dispatch 780 achieved many results
As of the end of May 2013, the total outstanding balance of debts restructured in terms of repayment terms and maintained in the same group according to Decision No. 780 of the State Bank of Vietnam was VND 284,400 billion. Restructuring loans helps businesses restore business operations, helps banks temporarily suspend problematic debts, avoid increasing bad debts, transfer debt groups and set up more provisions.
Inspection and supervision of banking activities are focused on.
The State Bank has begun to focus on inspecting and supervising the operations of commercial banks regarding credit granting, provisioning, and interest rates. In 2012, the State Bank conducted a total of 731 inspections and checks. Inspection and supervision of the entire system
The system has made 6,763 recommendations and issued decisions on administrative sanctions against 104 credit institutions, enterprises and individuals with a total fine of more than 5 billion VND. This helps the State Bank have more accurate data on bad debts of commercial banks, on credit granting activities, and have timely instructions on large, risky loans, thereby partly controlling the bad debt ratio and rectifying the operations of commercial banks.
According to Deputy Prime Minister Nguyen Thien Nhan, by June 12, 2013, the management agency had basically controlled the situation at 9 weak banks, completed the equitization of most state-owned commercial banks (except Agribank), and restructured a number of joint venture banks. The transparency of bad debt helps the State Bank to correctly perceive the bad debt situation and have appropriate plans and instructions for banks with high levels of bad debt, many risks and weaknesses in credit management, and guide the timely implementation of bad debt handling measures.
The effectiveness of credit risk management processes in banks
Banks have become more responsible in identifying and quantifying credit risks through internal credit scoring systems and problem debt warning models, thereby limiting risks from customers. Banks are more careful in lending, improving lending processes, evaluating loan applications, providing more criteria to assess customers' financial situation, and limiting lending to high-risk applications even if the collateral is of high value.
Bad debts of state-owned enterprises are closely monitored and handled by the Government and the State Bank.
As of June 2013, 66 state-owned corporations and groups have developed plans for restructuring their enterprises, including financial restructuring and debt settlement. Of these, 44 corporations and groups have had their plans approved. On that basis, 7 corporations and groups have reorganized and rearranged their member units, and 4 corporations and groups have restructured their finances and divested capital (electricity, textile, coal-mineral industry and paper corporations). Bad debt settlement at state-owned enterprises has a great impact on bad debt settlement in the entire banking sector, helping to reduce the bad debt ratio at commercial banks.
2.3.2 Limitations
Restrictions from Banks
Financial statements and bad debt data of some banks are still not transparent. Some banks do not publicly disclose financial statements on mass media such as GPBank, Vietbank, VDB... This affects the data statistics, helping the State Bank and agencies to correctly identify the current bad debt situation.
Banks are still not decisive in handling bad debts. They have not coordinated with the State Bank to handle bad debts strongly. This is shown by the fact that there are still banks that have not accepted to sell bad debts and collateral at low prices. Currently, only ACB is the first bank to publicly sell debt to VAMC.
Bad debt figures are still inconsistent. Vietnamese commercial banks are not consistent in classifying debt, leading to different bad debt figures and provisions. Commercial banks rely on Vietnamese Accounting Standards (VAS) while international organizations use International Accounting Standards (IAS) to classify bad debt. Therefore, according to some economic experts, if international standards are applied, Vietnam's bad debt is likely to increase to double digits. Many Vietnamese commercial banks still apply Basel I standards while currently Basel II standards are applied by the majority of banks in the world.
Risk control in credit granting has not been carried out regularly and effectively by commercial banks, mainly focusing on the stages before and during lending. After lending, the implementation of inspection is still very sketchy. This poses many risks, increasing bad debt in the current difficult economic situation.
Internal credit scoring systems are still lacking in some banks or are too sketchy and vary between banks. Commercial banks have not yet agreed to apply a common credit scoring standard, so there are many cases where customers who meet the criteria at one bank but when borrowing from another bank are at a lower level.
standard. The valuation of collateral depends on the subjectivity of the bank credit officer.
Limitations from economic and social environment
Bad debt settlement is currently slow due to legal mechanisms. A debt with a notarized secured transaction, fully registered with legal procedures and the bank is always the one holding the main ownership documents, but when it comes to handling and recovering the debt, the bank has almost no rights, but is completely dependent on the property owner. When brought to court, even if it is just a normal case with nothing complicated or contradictory, the procedures and processing processes are very complicated and cumbersome. This will make bad debt increasingly worse.
There has not been adequate direct financial support from the state budget because the current state budget still has many limitations, public debt is large and increasing rapidly while the government's spending needs for development investment and social security are very large. This slows down the process of handling bad debt in the banking system.
The underdeveloped Vietnamese debt trading market also affects capital mobilization to handle bad debt, the use of financial instruments to handle bad debt, and the swap and transfer of credit risks related to bad debt.
Vietnam still lacks many mechanisms, policies, and laws to support bad debt handling, compulsory collection, recovery, handling of secured assets, corporate financial restructuring, and corporate bankruptcy.
2.3.3 Causes of limitations
Causes from Commercial Banks
Banks want to cover up bad debts to "clean up" the financial situation of the bank, beautify the figures on the financial statements, and business performance reports . This makes it easier for banks to attract investment capital from shareholders and avoid being reviewed by the State Bank. But hiding bad debts will not reflect
The true situation of the bank, from which the solutions applied to handle bad debt will also be inappropriate and prolong the stagnation of the banks.
The bank's information technology system is still underdeveloped . This has a significant impact on banks when they want to apply international classification standards, Basel II standards. Or when they want to apply an internal scoring standard, it is costly, so banks are still considering it in the current difficult economic situation.
Because of the need to pursue profits and the pressure of meeting targets, bank employees often have the mentality of lending at all costs . Many times, lending is based only on the name, reputation of the customer and the value of the collateral. When bad debts arise from these loans, it is difficult to handle for many reasons (the purpose of the loan is not checked, so the business owner flees, the collateral is located in a planning area, etc.)
The independent inspection and supervision department has not yet played its role . In some banks, although AMCs have been established, their main job is not to manage debt, handle debt or manage assets, but to legalize lending at interest rates exceeding the ceiling of commercial banks. Internal audit work at commercial banks is not thorough, in many cases errors are discovered only to be reported without providing specific solutions to handle bad debts.
The professional level of bank staff is not high. The direction and supervision of commercial banks in debt management, debt classification, and provisioning is not timely, complete, resolute, and accurate. The inspection of the State Bank has not been clearly effective.
Causes from the Government and the State Bank
The State Bank is slow to change policies and mechanisms on banking credit activities . We can see that in the period from 2010 onwards, the State Bank issued very few regulations on controlling and supporting credit activities and risks of banks, and they were not strong.
There is still a lack of coordination among agencies (State Bank of Vietnam (SBV), Ministry of Finance, Ministry of Construction, Ministry of Justice, Ministry of Planning and Investment, and commercial banks) in handling bad debt, with many overlaps.
Acquisitions, mergers, acquisitions, back-office companies, cross-ownership in banks... have created difficulties in determining cash flow . These are also activities that have many potential risks but are difficult to point out for handling, when transparency is still limited.
Information about customers is both lacking and inaccurate, and CIC's operations are not really effective due to many shortcomings in the information provision mechanism . This causes many difficulties for banks in establishing credit relationships. In Vietnam, over 90% are small and medium enterprises, many of which have inaccurate financial reports and are not audited. Even for large audited enterprises, the delay in publishing financial reports as well as the low quality of audits also causes many difficulties for banks.
Causes from the Customer
Using capital for the wrong purpose, investing capital widely . Many customers operate very well, have high profitability, but use borrowed capital to invest in many different fields, especially real estate. When real estate declines, businesses encounter many difficulties, leading to the inability to repay debts to the Bank.
Ineffective production and business activities . Some customers, after receiving debt extensions and refinancing from banks, have not been able to improve their business efficiency. The reason may be that businesses have difficulty collecting debts, outdated production technology, etc. This makes it difficult for customers to operate healthily despite receiving support from banks.
Customers do not cooperate with the Bank in finding solutions to handle bad debts, so the handling is not very effective . Many customers have an attitude of evading responsibility and not taking responsibility.
Contact with bank staff, some customers fled the area causing difficulties when the bank filed a lawsuit in court to resolve.
2.4 ANALYSIS OF FACTORS AFFECTING BAD DEBT OF COMMERCIAL BANKS
2.4.1 Model introduction
As mentioned in the above sections, bad debt is affected by many factors, including both qualitative and quantitative. Therefore, studying the impact of factors affecting bad debt helps to come up with more effective solutions to handle bad debt:
Some quantitative factors:
Outstanding loans: directly affect bad debt. The larger the outstanding loans, the more concentrated the loans are in one industry, the higher the outstanding medium and long-term credit balance in a difficult economic situation, the higher the risk of bad debt.
Interest rates: Adjusting interest rates helps customers reduce debt repayment pressure but at the same time also affects banks' profits.
GDP growth rate, inflation…: are macro factors that affect the economy and thereby affect bad debt. Economic development, businesses and individuals doing profitable business will have a source to repay loans to the Bank.
Qualitative factors:
Factors such as weather, natural disasters, and epidemics all have negative impacts on the socio-economy. Thereby negatively impacting bad debt and bad debt handling.
Factors related to banks: appraisal level, credit policy, technology… also affect bad debt of banks today.
Factors related to the borrower himself: misuse of capital, ineffective business, increased costs, investment outside the industry, customers intentionally defrauding, misappropriating bank capital.