January 23, 2013 / 9:16 AM / 7 years ago

Vietnam banks to boost provisions for bad debt - cbank

HANOI, Jan 23 (Reuters) - Banks in Vietnam will have to set aside more money from June to safeguard against non-performing loans, the central bank said.

The State Bank of Vietnam has asked banks to make more risk provisions for credit grants, including credit card debts, investment in unlisted corporate bonds and deposits in domestic and foreign banks, in addition to normal loans, it said in a statement late on Tuesday.

The circular also asks all Vietnamese banks and Vietnam-based branches of foreign banks to report their loan classification to the central bank-run Credit Information Centre, which supervises provision-making activities, the statement said.

The directive will come into force on June 1.

Vietnam’s banking system is grappling with one of Southeast Asia’s highest bad debt ratios, which rose to 8.82 percent of loans in September 2012 from 3.07 percent at the end of 2011, central bank data showed.

Analysts said the actual ratio could be much higher.

The Southeast Asian nation’s economic growth fell to a 13-year low of 5.03 percent last year as reduced consumer demand piled up inventory at many firms, forcing many into bankruptcy, further adding to banks’ bad debt problems.

Businesses could not access loans due to their existing debts, while lenders tightened lending rules for fear of further non-performing loans. Vietnam’s lending growth slowed to 8.91 percent last year from an average 29.5 percent annual rise in the 2006-2011 period.

Several major banks reported lower profits for 2012 due to higher risk provisions along with slower lending.

A state-run asset management company, which will buy non-performing loans, may be set up this month and will start debt purchases in this quarter, state media said. (Reporting by Hanoi Newsroom; Editing by Prateek Chatterjee)

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