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Banks wary of bad debt   2009-05-19 - DTCK

Commercial banks have been warned about a bad debt rate increase in the post-crisis period and urged to apply measures to minimise non-performing loans (NPL).

Financial experts say that it is unavoidable that bad debt rates increase after a crisis period. Meanwhile, commercial banks affirm they have been strictly controlling loans. Many banks say they will be even more cautious in their credit development, though they expect their turnover will mainly come from credit.


Deputy General Director of VIB Bank Tran Hoai Nam said that the increasing outstanding loans of the banking system should be seen as good news for the national economy in general, and the banking system in particular.


VIB Bank, for example, had disbursed VND5,200 billion by the end of April 2009 under the interest rate subsidy programme. However, Nam said his bank needs to strictly control credit quality in order to minimise risks and possible bad debts.


Nam said that the rate of non-performing loans in 2009 is likely to increase, especially as banks have been trying to push up loaning.


He added that measures to prevent non-performing loans have been applied by the bank since last year, and have helped the bank’s non-performing loans stay at a level much lower than the average 5% of the banking system. He said that in order to avoid bad debt, it is necessary for banks to classify clients and have a good risk management apparatus.


According to Asia Commercial Bank (ACB), non-performing loans of group 3 and above were at 1% on May 14, just a little higher than at the end of last year. Meanwhile, non-performing loans of group 2 and above were at 1.2%.


ACB’s representative said that the biggest risk for banks now is in the foreign currency exchange rate. Clients who borrow in dollars may have difficulties collecting dollars to pay bank debts if the dollar price increases, which may raise the rate of non-performing loans.


The representative said that the bank has had to sacrifice profit for credit expansion in the last two months as it has slashed lending interest rates. However, he said that the bank will not accept low credit quality just to fulfill targets.


ACB has set a credit growth target 87% higher than last year, but it has also decided that the bad debt rate will be below 1.2%.


Eximbank has also set a 60% higher credit growth target over last year with VND34 trillion in outstanding loans. Similarly, the bank has also decided that the bad debt rate (group 3 to 5) will be 4.71% of total outstanding loans only.


Director of the HCM City branch of the State Bank of Vietnam Ho Huu Hanh said that it always happens in every country in a post-crisis period that the non-performing loan rate increases. Hanh affirms that the non-performing loan rate is not worth worrying about.

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