VietNamNet Bridge – The subprime loans of
joint stock banks in Vietnam
had reached 22 trillion dong by the end of February 2011, accounting for 1.76
percent of the total outstanding loans, lower than the average ratio of 2.33
percent of the whole banking system. However, experts say with the current loan
management mechanism and the loopholes in the legal framework, the figure should
not be celebrated.

Subprime loans difficult to be
measured

According
to the State Bank of Vietnam,
by the end of February 2011, the outstanding loans of joint stock banks had
reached 1.2 million to a billion dong, accounting for 55 percent of the total
outstanding loans of the whole system. The figure represents an increase of
2.16 percent in comparison with the previous month and an increase of 3.9
percent over December 31, 2010. Of the outstanding loans of joint stock banks, Vietnam dong
loans had accounted for 79 percent.

As such,
every month, the total outstanding loans of joint stock banks increased by 1.9
percent, while the average ratio of the whole banking system was 1.76 percent
only. The noteworthy thing is that only 10 out of 39 operational joint stock
banks had outstanding loans decreasing, while the other 29 banks had
outstanding loans increasing.

It seems
that it is unavoidable to see the subprime loans increasing when the
outstanding loans increase. By the end of February, the subprime loans of joint
stock banks had reached 22 trillion dong, increasing by 0.14 percent over the
previous month and by 0.16 percent over December 31, 2010.

The good
news in the figures is that the subprime loans of joint stock banks are not
high, if comparing with the average ratio of 2.33 percent of the whole banking
system. Especially, the subprime loans of the banks in three consecutive months
– December 2010, January and February of 2011 – was only 1.67 percent of the
average outstanding loans of joint stock banks.

However,
the bad news is that in the last two consecutive months, the subprime loans of
joint stock banks kept increasing, even when the State Bank ordered commercial
banks to reduce the outstanding loans to implement the tightened monetary policies.

When asked
to make comments about non-performing loans (NPL), an official of the State
Bank said: “In the context of the stagnant production, it would be a strange
thing if the NPL do not increase”.

The
official said that the goods consumption remains weak, while export markets
have been narrowed. These have made enterprises financial situations become
worse. Therefore, it is quite understandable why, in debt classification, many
debts have been put into the groups of bad debts with higher risk levels.

Also, the outstanding
structural problems at the banks and the moral risks of loan officers have also
been cited as the factors that increase the bad debt. Borrowers always say that
they borrow money to run production and business projects. However, credit
officers cannot be sure if the loans will be used for production and business,
or will be poured into non-production sectors, such as real estate or financial
investments – the very risky investment fields.

Therefore,
though the State Bank regularly releases the figures about the credit given to
non-production sectors, but these are remain unknowns. It is impossible to find
the exact figures about the bad debts and this still has been considered a
“sensitive issue”.

Loopholes existing

The Credit
Information Center CIC under the State Bank, has been well known as the agency
which provides most sufficient and accurate information about the credit
situation. However, with the current mechanism, it is very difficult to get
exact figures, while the agency still cannot fulfill the function of “warning
about credit risks”.

The State
Bank of Vietnam
has set up the principle “one borrower only belonging to one group of debt”
which allows minimizing risks for banks. However, in fact, the principle cannot
be followed.

If a client
borrows money only from one bank, everything would be simple, because the bank
can have sufficient information about the debts of the client.

It will be
a very complicated problem if the client borrows money from many banks, because
the client will not give information to banks about their creditors.

Currently,
CIC can provide different information, from the subprime loans of the whole
banking system, of every bank, or provide the list of the clients who have
debts at high risk levels. However, it still does not have the information
about the clients who have many bad debts with many banks.

Source: TBKTVN