VietNamNet Bridge - The Governor of the State Bank of Vietnam Nguyen Van Binh has said that the bad debt ratio will be reduced to 3 percent by the end of the year from 4.83 percent.

Tran Hoang Ngan, a National Assembly’s Deputy, told newspapers the debt settlement process was “going smoothly” and affirmed that the bad debt ratio will be cut to below 3 percent this year.

Prior to that, the head of the central bank Nguyen Van Binh also said non-performing loans (NPL) – the biggest problem of the national economy – will be settled completely by the end of the year.

Binh, in his instruction released in January 2015, decided that at least 60 percent of the 2015’s yearly NPL settlement plan must be completed by June 30, while at least 75 percent of the plan to sell NPL to the Vietnam Asset Management Company (VAMC) needs to be fulfilled.

VAMC reported that it had bought VND170 trillion worth of NPL by the end of May, 90 percent of which were loans mortgaged with real estate.

Many commercial banks have sold big debts to VAMC in an effort to “beautify” the balance sheet. SCB, for example, sold VND11.409 trillion worth of NPL in 2014, Sacombank sold VND4.9 trillion.

However, the goal set by the central bank is unattainable.

An expert said that the bad debt will escalate instead of decrease. 

The expert has many reasons to be doubtful about the feasibility of the central bank’s plan. However, the biggest reason is that settling bad debts will not be the priority task for the State Bank.

“There are many problems that need to be settled now, including pressure on the dong/dollar exchange rate, a possible new  bank loan interest rate and inflation rate increasing again,” he explained.

“I believe that stabilizing the local currency value, not the bad debt settlement, is the top priority task for the State Bank,” he said.

While the Governor of the State Bank has made a strong commitment on reducing bad debts, large commercial banks’ reports showed their bad debts have increased.

Vietcombank, for example, reported that its bad debt ratio had increased to 2.67 percent by the end of the first quarter from 2.31 percent earlier this year. Though the figures show the bank is still ‘within the safety line’, the increase in the bad debt ratio of a large commercial bank, in analysts’ eyes, is “really worrying”.

The bad debt ratio of the banks in HCM City increased from 5.31 percent by the end of 2014 to 5.53 percent by the end of Q1.

Manh Ha