Joint stock banks subprime loans reportedly low

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.- TBKTVN

Tags: subprime loans, Vietnam banking industry, Vietnam finance, Vietnam financial