Thus, the entire industry must determine a credit structure in which the level of risk is commensurate with the ability to manage risks. Reducing the proportion of loans to discouraged sectors and then increasing the proportion of priority sectors must be done carefully to ensure the appropriate amount of capital provided to markets such as real estate, securities, etc., limiting the "freezing" situation in these markets, linking credit structure adjustment with restructuring these markets towards sustainable development. For systemic and difficult-to-control risks, there must be a policy to develop appropriate risk insurance tools for organizations with good risk control capabilities. Thereby, in the case of no risk management capability, commercial banks can prevent risks by transferring them to these organizations.
Second, the State Bank controls credit growth through analyzing capital demand, capital supply capacity and risk tolerance of the commercial banking system in both the short, medium and long term.
Given the fact that the banking system is still at a low level of development, with segments not clearly defined, unhealthy competition activities are always latent, the lack of clear orientation and strict control of credit growth limits will bring negative consequences for the development of each bank and the entire system. On the macro level, the role of bank credit capital in total social investment capital - an economic indicator that plays a decisive role in implementing the country's socio-economic goals, shows that in the short to medium term, the State Bank needs to continue to manage credit growth limits for the entire economy. Practice has shown that setting but not controlling credit growth in typical periods such as 2006 - 2008 and 2010 has left undesirable consequences for the banking system and the entire economy. In order to increase credit growth towards macroeconomic stability (ensuring sufficient capital for investment and consumption needs, while not causing inflation or bad debt), the State Bank should determine and regulate the credit growth rate for a long-term period. Every year, the State Bank sets out credit growth targets that closely follow medium- and long-term targets, combined with adjustments to suit actual conditions.
The credit growth rate of the banking system needs to be determined reasonably and harmoniously in the overall relationship of the allocation of national financial resources and linking the allocation of bank credit capital with market signals and limiting government intervention. The proportion of capital allocated through the market mechanism must be gradually increased in accordance with the development level of the economy; determining a suitable financial structure that promotes economic sustainability. Thus, bank credit in the context of
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The financial system is developing towards a balanced structure, mainly playing the role of providing short-term capital, and long-term capital is allocated through the stock and bond markets.
Credit capital sources need to be determined in a close and harmonious relationship with other investment capital sources such as State development investment capital, foreign investment capital, investment capital from the owners of enterprises themselves... The State Bank needs to coordinate closely with the Ministry of Planning and Investment and the Ministry of Finance to determine the scale of credit capital to meet the socio-economic goals in the five-year socio-economic development plan approved by the National Assembly.
Every year, the State Bank assesses the financial capacity and credit risk management capacity of commercial banks, requiring commercial banks to develop plans for credit growth, improve the quality of credit operations, and capital capacity to meet credit growth. On that basis, the State Bank assesses the overall plan of the entire system and takes appropriate adjustment and support measures. Commercial banks report results, assessments, and recommendations to the State Bank every quarter for appropriate adjustment measures. Issuing a plan for medium-term credit growth, in parallel with the annual credit growth target, will bring benefits to the monetary policy management and credit management of commercial banks.
One is: strengthening the coordination between monetary and credit policy management and other important macro policies such as attracting foreign investment, public investment, etc. This coordination mechanism helps capital sources to be mobilized, allocated and monitored more effectively, avoiding the situation of investment capital increasing rapidly in a period, leading to the situation of the economy growing too quickly.
Second, setting short-term credit growth targets based on long-term targets will help the State Bank's credit management work become more stable and more closely linked to other management work related to interest rates, money supply, exchange rates, payments, and banking inspection and supervision.
Third: on the basis of long-term credit growth set by the State Bank for the entire industry, commercial banks themselves will have appropriate plans for their own credit growth. This will help commercial banks control credit growth better than before, avoiding the situation of credit growth being too high in a few years and having to bear the consequences of credit quality decline in the following period.
Fourth, an appropriate credit growth target will help guide public expectations on the SBV's policy management and the credit policy of commercial banks. This will make the public adjust their investment and consumption behavior, contributing to promoting the effectiveness and progress of the process towards monetary policy goals.
Third, identify and orient credit towards areas with stable development and good capital absorption capacity in the context of an economy that has not yet recovered sustainably.
Rural agriculture and export production are typical areas in which the State Bank can continue to direct the commercial banking system to direct credit flows, especially medium and long-term credit in the coming time through appropriate support measures. In order for these policies to be widely implemented in practice, the State Bank needs to implement support measures for commercial banks participating in these areas such as allowing banks to borrow re-lending at preferential interest rates, reducing the required reserve ratio for banks with high credit balances for high priority areas... and gradually shifting to non-financial support such as regulations on conditions for re-lending, on operating networks... The agricultural and rural sectors have good growth rates, are less sensitive to macroeconomic fluctuations, but still lack appropriate credit sources to carry out industrialization and modernization. Accordingly, there is a need for large-scale, long-term capital sources for businesses to invest in and develop large-scale farm models (creating scale advantages), applying high technology, thereby creating momentum for the development of this sector. In addition, continue to build pilot models applying new scientific and technological advances to agricultural mechanization, for example, synchronous mechanization models for rice production, safe vegetable production, dairy farming, etc.
To identify other potential growth sectors while ensuring reasonable credit structure adjustment, the State Bank continues to closely coordinate with ministries, branches and professional associations to identify potential economic sectors of the country in the coming time to promote credit for this sector, contributing to creating a real breakthrough in economic development, implementing the task of restructuring the economy. To ensure a planned and realistic credit growth target, the Government needs to coordinate with ministries and branches to set development targets for sectors, industries and regions combined with the ultimate target of inflation and economic growth, thereby building a credit growth target associated with a suitable credit structure. This requires a specific and clear coordination mechanism between the State Bank (developing and issuing credit policies), commercial banks (implementing credit policies), the Ministry of Industry and Trade (managing industries), the Ministry of Planning and Investment (managing licensing of investment projects), and specialized management ministries such as the Ministry of Construction, the Ministry of Agriculture and Rural Development, etc. The coordination mechanism is built to aim at exchanging timely and accurate information on the operating situation of sectors and industries with development potential and capital needs so that the banking sector can direct credit capital to the right place and at the right time. In addition, the difficulties and shortcomings in
Access and use of capital will also be shared among the parties to seek measures to adjust credit structure, debt restructuring, and other support measures. Thus, building a credit structure requires synchronous support from relevant agencies and departments, and comprehensive planning from above to help the banking industry implement consistently.
Fourth, to encourage credit growth from the demand side and reduce the level of credit risk right from the appraisal and lending decision, the banking industry can research and deploy credit products suitable to the characteristics of each field.
This is to increase the ability to expand credit as well as credit efficiency such as preferential loan interest rate packages, credit product packages based on the chain from production to consumption; lending according to cash flow; supporting customers in making production - business plans, reasonable investment projects, finding output markets for products and services; lending links between investors, construction contractors, construction material suppliers and home buyers... In the current context, the cooperation between commercial banks in implementing these credit products is not high, making the formation of a linked production chain quite difficult. Therefore, the role of the State Bank must be the leading unit to create a cooperation framework to share information and resources among commercial banks. The measure of developing credit product packages based on the linkage chain and finding diverse output markets for products will help customers borrow capital to limit risks in the process of trading products and services, limiting credit risks for customers themselves and then commercial banks. The measure of supporting customers to develop production - business plans and investment projects will help commercial banks better understand the loan, especially the potential risks that may occur, thereby having appropriate and timely risk control solutions.
3.2.1.2. Improve the operations of the Asset Management Company of Vietnamese credit institutions to promote the purchase and handling of bad debts.
VAMC officially came into operation in July 2013 and started purchasing bad debts in September 2013, making a positive contribution to the bad debt settlement of the banking system, contributing greatly to bringing the bad debt ratio below 3% by the end of 2015 as planned. In order to create more favorable conditions for the process of purchasing and handling bad debts, the Prime Minister issued Decree 34/2015/ND-CP amending and supplementing a number of articles of Decree 53/2013/ND-CP, giving more rights and benefits to VAMC in its operations. In the coming time, facing the pressure to continue purchasing from commercial banks, mobilizing resources to purchase bad debts at market prices, as well as to effectively handle purchased bad debts, creating conditions for the banking system to expand credit, it is necessary to supplement and complete the following contents for VAMC, including: (i) complete
legal framework; (ii) improving functions and operations; and (iii) improving the environment for bad debt handling.
First, about the legal basis of VAMC
The legal basis of VAMC plays an important role in the success of the bad debt settlement process. Accordingly, the transfer of bad debts from commercial banks must be clearly regulated with the most open legal corridor to facilitate these bad debt transactions to take place quickly. Legal obstacles to the transfer of bad debts must be removed, such as the requirement to obtain the consent of customers before transferring bad debts to VAMC or VAMC not having to sign a change of the secured party in the secured contract when buying back bad debts from commercial banks.
To enhance the effectiveness of the bad debt handling process, it is necessary to monitor the consolidation of commercial banks, avoiding the case where commercial banks sell bad debts to their affiliated AMCs at prices higher than reasonable. This practice is often applied by commercial banks as a measure to "beautify" their financial situation. One measure that the supervisory agency can apply is to require commercial banks to calculate the capital adequacy ratio on the consolidated aspect including the bank's subsidiary AMCs.
Second, on corporate governance of VAMC
Good corporate governance is essential to ensure the effective operation of VAMC. VAMC needs to have a Board of Members consisting of members from the parent company, representatives of government agencies, and indispensable independent members from outside. Regarding the criteria for selecting members of the Board of Members of VAMC, the appointed members must be highly educated and experienced in one or more fields including: a) Finance and economics; b) Law; c) Accounting and auditing; d) Public administration; e) Credit management; f) Investment projects; g) Real estate investment and development; h) Real estate management and business; i) Valuation; j) Urban planning; k) Banking and investment; l) Bankruptcy and restructuring; m) Risk management. The Board of Members must have at least 03 independent members from outside (Government research centers, State audit, business associations...).
The National Assembly needs to have a regular audit mechanism through the State Audit (in addition to the Government's inspection) or independent audit of the operations of VAMC to ensure that VAMC seriously and effectively performs its assigned tasks. VAMC itself needs to publish financial reports, procedures and methods of debt settlement periodically through press conferences and posting information on mass media (so far, very little information about VAMC's operations has been published on the organization's website).
Third, regarding VAMC's criteria for purchasing bad debts from credit institutions, in principle, VAMC should only purchase bad debts that VAMC can handle.
It is more efficient to let commercial banks handle it themselves. For example, fixed assets such as confiscated properties and loans requiring foreclosure are good options for transfer to VAMC for handling. On the other hand, bad debts that the SBV sees itself capable of restructuring and customers with whom commercial banks want to maintain long-term relationships can be left for commercial banks to handle themselves. Small-scale bad debts, which commercial banks themselves can collect better than VAMC, should also be left for banks to handle themselves.
To achieve economies of scale, VAMC should group all related debts (for example, loans from the same customer, a group of customers or loans related to the same type of collateral) into one group and purchase these debts from commercial banks. Therefore, strict application of Circular No. 02/2013/TT-NHNN is extremely necessary so that banks can accurately assess the quality of corporate debts and promptly take measures to handle bad debts.
Bad debts of an enterprise or individual at different commercial banks need to be assessed and handled simultaneously, regardless of whether the debts at one or several commercial banks are not classified as bad debts. This mechanism will facilitate comprehensive restructuring of enterprises, ensuring the final handling of bad debts.
To make the selection of bad debts to be purchased more effective, VAMC should focus on handling private bad debts rather than bad debts of state-owned enterprises. Experience in handling bad debts in countries around the world shows that when national AMCs are required to handle loans as directed by the Government, they are often not very effective.
Fourth, on the purchase price of bad debts of VAMC
Purchasing bad debts from VAMC at market price and original price (minus the provision for DPRR) with special bonds and requiring commercial banks to set aside DPRR for these bonds is a suitable solution for the current economic conditions as well as the State Bank's goal of restructuring the commercial banking system in conjunction with restructuring enterprises, supporting economic growth. This limits the disadvantages when the purchase price of bad debts is higher than the market value, which will lead to the possibility that commercial banks will sell a large amount of bad assets to VAMC and create a mentality of quickly pushing bad debts off the balance sheet without responsibility for handling these debts.
For the purchase of bad debt at market price that VAMC will conduct in the near future, it is often very difficult to value bad assets (especially in the context of the crisis).
financial), based on recovery, cash flow forecasts (with appropriate discount rates), and collateral appraisal, VAMC should determine an approximate value of the debts and use it for the purpose of the transfer. Since time is always a concern in bad debt handling and the number of bad debts is very large, the transfer will take place at an initial price with a clear agreement between the seller and the buyer on the final price of the transaction determined after the value of the assets handled by VAMC has been completely handled. In addition, transferring assets to VAMC at market prices requires VAMC to have a clear objective of recovering the initial capital invested. The limitations of this method are that it may reduce the desire to sell bad debts to VAMC because both the benefits and risks are not precisely determined at the time of transferring bad debts. In this case, some profit or loss sharing arrangements between VAMC and commercial banks may help to overcome the problem. It is important to note that setting a price, or a payment rate, for a range of bad debts, although it simplifies and standardizes the revaluation process, may have certain disadvantages. For example, a system of uniform prices applied to all unsecured loans in the same bad debt portfolio may lead commercial banks to choose to sell the lowest-valued debts to VAMC.
In case VAMC and commercial banks do not reach an agreement on the market price of bad debts, an independent organization will be responsible for objectively evaluating this bad debt, and both parties must accept the price offered by the independent organization. In addition, VAMC and commercial banks can agree on a price equal to the average price of similar bad debts purchased at market price, along with a commitment that when the settlement is completed, the profits or losses from the settlement will be redistributed according to a certain ratio. This is necessary to speed up the progress of handling bad debts.
Determining the selling price of purchased bad debts at market prices to investors is also an issue that needs attention. If the price determination process is not reasonable, the possibility of losses for VAMC will be very high, especially in cases where the purchase and sale transactions are prolonged while the collateral assets are damaged or obsolete. In such cases, VAMC will become very hesitant in buying and selling bad debts due to the fear of losses and causing VAMC to have negative charter capital (ie reducing the state capital portion in this organization).
Fifth, on the process of transferring bad debt from credit institutions to VAMC When VAMC buys bad debt to support commercial banks that are losing money but can still continue to operate
operations, the transfer should be done only once, not repeatedly
in the long run. An open-ended transfer agreement may create moral hazard problems in the future, reducing the credit quality of the commercial bank.
An important aspect of the transfer process involves providing information, documents and records about the assets, especially when the amount of assets that VAMC takes over is large. VAMC should not accept to purchase loans whose documents about the loans and borrowers, internal assessments of the loans, business plans and collateral do not fully meet legal requirements.
Finally, to successfully sell the assets, VAMC needs to find out which individual or legal entity owns the loan to avoid possible complaints that could slow down the process of handling bad debts.
Sixth, on the capital used to buy bad debt from VAMC
International experience shows that the entire funding source for AMCs owned by the Government should not be mobilized from the budget alone, especially when the scale of bad debts is relatively large. In the current difficult budget conditions and on the principle of linking the responsibility for handling bad debts to the origin of bad debts, VAMC issuing special bonds to buy back bad debts from commercial banks is a completely suitable solution. The characteristic of these bonds is that they can be used to borrow refinancing from the State Bank with preferential interest rates of up to 70% of the face value of the bonds and commercial banks must make risk provisions for these special bonds. The provisions in Decree No. 53/2013/ND-CP are a completely suitable solution for the current conditions of Vietnam. In addition, the pressure on capital mobilization for VAMC is reduced and the State Bank can proactively regulate the amount of money supply, creating synchronous coordination with monetary policy. At the same time, the increase of charter capital for VAMC to 2,000 billion VND (there has been a proposal to continue increasing charter capital for VAMC - not yet official) for this organization to buy debt at market price as well as issue bonds to buy debt at market price (in Decree No. 34/2015/ND-CP) has been implemented but the progress of buying and handling must be accelerated to be able to quickly rotate capital, while increasing the efficiency and timeliness of debt buying, creating a debt buying and selling market not only for the present but also as a premise for the bad debt handling stage later.
In the coming time, the Government and the State Bank of Vietnam need to consider allowing VAMC to sell purchased bad debts to international investors by issuing strict mechanisms to both handle debts and attract capital, but also ensure the rights of investors, customers with bad debts in particular, as well as the stability of the financial system and the Vietnamese economy in general. If we cannot find investors with abundant capital and professional debt handling capabilities, it will be very difficult to find domestic investors with sufficient financial capacity and expertise.