VietNamNet Bridge – Central bank governor Nguyen Van Binh, speaking at the National Assembly Q&A session in Hanoi on Tuesday, acknowledged a worrying uptick in bad debt in the banking system but downplayed the widening difference between local and international gold prices.

Bad debt rising rapidly

As of September 30, bad debt in the banking system had amounted to some 4.43% of total outstanding loans as reported by credit institutions, while inspectors of the State Bank of Vietnam (SBV) released a double figure, at 8.82%.
Binh said bad debt had been growing sharply since 2008. In the first ten months of 2012, the growth rate hit a record high of 66%. Therefore, the central bank began in August 2011 to draw up a plan for restructuring the banking system.

To deal with bad debt, the banking sector has adopted a host of measures such as debt restructuring and stricter control on risk provisions.

Risk provisions in the year to date have risen by VND14 trillion, taking the total to VND75 trillion. Credit institutions have cleared up VND12 trillion of bad debt via risk provisions.

It is a must to settle bad debt in the real estate market. “We are financially capable enough to do this, but without outlets for property products, it will be difficult, especially when property prices have not fallen much,” said Binh.

Total outstanding loans in the economy amount to VND2,700 trillion, or roughly US$13 billion, 72% of it guaranteed by collateral, in which properties account for over 66%, he informed.

Gold price gap not to be bridged

The gap between local and global gold prices so far has left no impact on the macro economy, so there is no need to narrow it, said Binh in response to a question posed by Deputy Duong Hoang Huong from Phu Tho.

Before Decree 24 was issued, each segment of the gold market had been managed by a different agency. The legal environment was uncertain, resulting in many shortcomings in gold market management.

With the introduction of Decree 24 in 2011, the State is now the only gold bar producer and other firms have officially stopped gold bar production.

Since April, illegal gold import has significantly declined and the exchange rate has remained stable. Therefore, although the gap between local and global gold prices has widened to some VND3 million a tael, the macro economy remains intact.

Deputy Nguyen Van Tuyet was not satisfied with the answer of the governor, reminding that the NA resolution in 2011 had set a goal of filling the gap between local and global prices.

Binh replied 15 tons of gold had been imported in the fourth quarter of 2011 following the NA resolution. Since Decree 24 was passed, the legal environment has changed, so gold import is no longer necessary.

Banking interest groups exist

Binh admitted that there exist interest groups in some credit institutions. “There are cases in which an entire bank depends on decisions of certain individuals.”

The SBV has inspected 27 banks and found that many of them are dominated by a small group of shareholders.

Loans relating to such a group make up a large proportion, as much as 90%, of a bank’s total outstanding loans.

Outstanding loans of these major clients and shareholders are mainly related to real estate. As such, some banks have seen their bad debt shooting up and incurred heavy losses, violating banking regulations.

Binh related how such a group established ‘companies in their backyard’ and decided loans for such companies after over-evaluating mortgaged assets.

However, Binh said no interest group could get involved in the process of restructuring the banking system.

He explained the regulations of SBV are really tight and perfect with two banking laws and relevant documents.

Moreover, the central bank so far has not forced any credit institution to restructure but has encouraged them to make voluntary adjustments. There cannot be an interest group in this voluntary mechanism, said Binh.

Regarding interest groups in tacking bad debt, the governor said a package of solutions was needed for solving the bad debt problem. A national asset management company, if established, would be one of the solutions.

“This company would belong to the Government, not some individuals, so there would be no interest group,” he noted.

VietNamNet/SGT