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Bad debt situation improves
In the face of pressure to settle non-performing loans (NPLs), the State Bank of Viet Nam in April last year issued Decision 780/QD-NHNN regarding classification of debts which have been restructured or extended.
The decision allows credit institutions to persist with the restructured or extended loans if the enterprises are functioning well and have a good debt repayment capacity.
Thanks to the ‘Decision 780' lifeboat, many enterprises' debt terms have been restructured and these rescheduled loans are kept in their pre-rescheduled classification groups.
By April this year, debts worth about VND284.4 trillion ($135.2 million) had been restructured and maintained in the existing groups, according to a central bank source.
Decision 780 also requires credit institutions to actively settle their bad debts by using their risk provisions. It also contains provisions to punish those who do not set up risk provisions as regulated.
So credit institutions have to increase their risk provisions by reducing operation costs, profits and dividends.
As a result, in 2012 and in the first four months of this year, the credit institutions had settled non-performance loans (NPLs) worth VND76.7 trillion via the risk provisions.
The above policies have had certain positive impacts on both the banking sectors and enterprises.
In particular, by April this year, the banking sector's total bad debts had come down to VND137.1 trillion, accounting for just 4.67 per cent of the total outstanding loans. These figures are much lower than VND362.8 trillion and 11.5 per cent that were predicted if Decision 780 had not been issued.
This also means that the Decision 780 has helped credit institutions not use VND14.4 trillion from their annual profit to deal with bad debts.
Thousands of enterprises have also been able to gain access to new bank loans for their production and trading activities, thus creating conditions to push up banks' lending, and meet the credit growth target.
However, Decision 780 has not been without side-effects that can assume serious proportions later.
According to many insiders, Decision 780, to some extent, is a technical measure to help the banks to‘hide' their bad debts.
This means that if the bad debts are not exposed, they cannot be resolved as well.
vietnamnews
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