Inspection conclusion on bank restructuring and bad debt settlement in 2013

The conclusion stated that, in accordance with the policy of improving the efficiency of credit institutions, the Prime Minister has approved restructuring projects (including Project 254, Project 843 and Project 1058). On that basis, the State Bank has issued a number of documents, creating a legal basis for restructuring banks in conjunction with handling bad debts.

Customers transact at BAOVIET Bank, 8 Le Thai To, Hanoi. Photo: Tran Viet/VNA

The Government Inspectorate assessed: The banking sector has made efforts and coordinated with ministries, branches and localities to implement Project 254 closely following the set goals and orientations; weak credit institutions have been identified, with restructuring plans, basically maintaining the stability and safety of the credit institution system, ensuring liquidity, and operating within the control of the State.

Mergers and consolidations take place on a voluntary basis, according to approved plans/projects; bad debts in the system are identified, made more transparent and gradually resolved; financial capacity, governance and scale of operations of credit institutions are gradually improved and enhanced; cross-ownership and cross-investment in the credit institution system have been gradually resolved. Credit institutions handle bad debts according to Project 843, divest ineffective and high-risk investments and restructure their investment portfolios in a safe direction.

Under its authority, the State Bank has advised and directly issued documents regulating and guiding implementation, contributing to the completion of the legal framework on currency and banking; strengthening inspection, supervision, and supporting the restructuring of credit institutions to ensure the safety of the banking system.

According to the report and assessment of the State Bank, the bad debt of the whole system as of September 30, 2012 was estimated at over 17.2%; implementing solutions to handle bad debt according to Project 254 and Project 843, the whole system of credit institutions has handled and reduced the bad debt on the balance sheet by December 31, 2015 to 2.55% and by December 31, 2017 to 1.99%, achieving results below 3% according to Project 843.

The reduction in the on-balance sheet bad debt ratio is due to the consultation, solutions, and focused direction of the State Bank, the implementation of credit institutions, and the role of the Vietnam Asset Management Company (VAMC), one of the special tools of the State in handling bad debt through the purchase and sale of bad debt with special bonds.

Based on the summary and evaluation of the achieved results, analysis of the existing problems, limitations, causes and lessons learned in restructuring according to Project 254 and handling bad debts according to Project 843, the State Bank has developed and submitted to the Prime Minister for approval Project 1058 to continue implementing restructuring and handling bad debts in the period 2016-2020.

Project 1058 is being implemented by the State Bank according to a roadmap to continue handling existing problems and weaknesses of credit institutions in order to maintain and ensure the safe and healthy operation of the credit institution system.

In addition to the achieved results, the current situation of the credit institution system according to the State Bank's assessment still has shortcomings and limitations such as: Low business performance; limited competitiveness and financial soundness; increasing capital of the credit institution system still faces many difficulties; the management and risk control capacity of credit institutions still has many limitations and inadequacies compared to the scale, growth rate, level and requirements of risk management in operations.

Credit activities are still the main income generating activities for credit institutions; the level of credit concentration for some customers and customer groups as well as some industries and fields with potential risks remains high. Cross-ownership, excessive share ownership, and controlling shareholder groups have been gradually controlled, but in reality, there are still many potential risks, and the risk of domination and manipulation of banks has not been thoroughly handled.

According to the Government Inspectorate, the handling of bad debts has initially achieved results, but if we include bad debts sold to VAMC that have not been handled and debts that have been restructured to maintain the same debt group (not yet converted to bad debts), the bad debt ratio is still high; some credit institutions do not properly implement regulations on debt classification and risk provisioning, the situation of large accumulated receivables that have not been handled, does not accurately reflect the actual credit quality, and the business results of credit institutions are incorrectly reflected...

Correct and overcome shortcomings, defects and violations

Regarding the recommendation, the Government Inspector General recommends that the Prime Minister direct: The State Bank to rectify and overcome existing shortcomings, shortcomings, and violations; Focus on perfecting institutions, rectifying management, and completing the credit institution restructuring project associated with handling bad debts in the coming period. Credit institutions shall rectify existing shortcomings, shortcomings, and violations, and consider handling the responsibilities of units and individuals under their authority.

For VAMC, review and evaluate the organization, operation, and role of VAMC in participating in debt settlement, on that basis determine the necessity, organization, operation, and reasonable and effective capital scale for VAMC... VAMC reviews its role in participating in bad debt settlement, rectify the purchase of debt with special bonds to comply with regulations, review violations discovered through inspection to rectify and overcome shortcomings and defects.

Regarding administrative handling, the Government Inspector General requested to review the responsibility of the head of the State Bank Governor for the shortcomings and defects of the State Bank in deploying and implementing Project 254 and Project 843 for the period 2012 - 2015 stated in the inspection conclusion; Review the responsibility of the Deputy Governors of the State Bank related to the shortcomings and defects in the conclusion.

According to the authority to review and handle the credit institution's leaders who have allowed limitations, shortcomings, violations, and shortcomings to occur in the development and implementation of credit institution's plans and projects according to the credit institution restructuring project associated with bad debt settlement that has been approved as stated in the Inspection Conclusion.

On the side of the Ministry of Finance, direct the inspection and handling according to authority of violations by BTC Value Valuation Joint Stock Company (Valuation company and appraiser appraising the debt of Hoan Cau Khanh Hoa Company, Hoan Cau Nha Trang Company Limited at Sacombank); Vietnam Investment and Valuation Joint Stock Company (Valuation company and appraiser appraising the debt of Thuan Kieu Joint Stock Company at VietinBank) due to failure to comply with valuation regulations.

(Source: Tin Tuc Newspaper)

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