VietNamNet Bridge – Commercial banks now can sigh with relief as the State Bank of Vietnam (SBV) has decided to amend the regulation on debt classification to save them.

The Governor of the State Bank of Vietnam Nguyen Van Binh has confirmed that SBV is amending the Circular No. 02 on debt classification and provisioning against risks.

He said in an interview given to Tuoi tre that in order to protect commercial banks from shocks, commercial banks would not have to list the violated, but good debts as “bad loans.”

Under the Circular No. 02, if a client has a loan listed in the fifth-group loan (the group of the worst loans), all of its loans, including the loans from other banks, will also be put into the fifth group.

But with the new circular to be issued, the classification method would not be applied and the other good debts will stay where they are.

As such, the State Bank has decided that it needs to protect commercial banks. Prior to that, it had to choose between imposing international standards in debt classification and applying Vietnamese standards.

While commercial banks begged the central bank to allow to delay the implementation of the Circular No. 2 with strict regulations, economists repeatedly urged the central bank to apply the international standards in the context of the Vietnam’s deeper integration into the world.

The director of a joint stock bank has admitted that the central bank’s decision has helped banks lift the constant anxiety. If the strict rules of the Circular No. 02 are applied in classifying debts, the bad debts of the banking system would be double, while the bad debt ratio would be no less than 15 percent.

The banker commented that a flexible policy for now would be better for the national economy.

A construction company, for example, is implementing an infrastructure project funded by the state budget. The company borrows money from 10 banks. However, as the disbursement from the state budget is always very low, it cannot pay interests on schedule for a bank loan.

The bank loan would be listed as a bad loan and reported to the Credit Information Center (CIC), and the agency would immediately inform to the other banks and warn them against the continuous disbursement for the company under the signed credit contracts.

In this case, if the Circular No. 02 is applied, the company will be pushed against the wall, because it will not be able to borrow more money from any banks, while it cannot sell the half-done construction works for money.

Currently, the State Bank’s Inspection Agency, after the inspection tours to banks, would show the lists of the debts that it recommends banks to list as bad loans (3rd, 4th or 5th groups’ loans).

These may include the debts which are “not really black”, but have some “problems” such as the lack of necessary documents or unclear lending purposes.

The State Bank’s Chief Inspector Nguyen Huu Nghia told Thoi bao Kinh te Saigon that if the regulation is applied right now, the bad debts would increase dramatically. This is why the State Bank has decided to delay the implementation of the regulation until 2015.

TBKTSG