“Time bomb” at VDB?

In credit operations, money deduction for standby fund should be matched with risk estimations but at Vietnam Development Bank (VDB), despite the huge outstanding loans of trillion dong annually, its deduction for the fund is only 0.5 percent on its total risky assets.

Comparing debt classification ratio and risk standby fund between VDB and other credit institutions, people’s credit funds showed that VDB’s capital was attached with “an adventurous process”.

Pursuant to Decision 493/2005/QD-NHNN dated April 22, 2005 and Decision 18 dated April 25, 2007, the State Bank of Vietnam required credit institutions to evaluate and categorize debts in Group 1 to Group 5 as for risky assets including loans and guaranteed loans.

Also, credit institutions must deduct capital for risk prevention fund at two levels: 0.75 percent on all risky assets (aforementioned) and more details, 5 percent for Debts Group 2, 20 percent for Debts Group 3, 50 percent for Debts Group 4 and 100 percent for Debts Group 5.

Furthermore, the institutions have to comply the statutory reserve ratio of 3 percent for less than 12-month deposits (in dong) and 1 percent for longer 12-month deposit balance. And they have to join deposit insurance fee of 0.15 percent a year (calculated based on average deposit balance of kinds of insured deposits).

The aim of all above regulations is to keep liquidity for credit institutions and protect interests of depositors.

But VDB now enjoys a special regime which contains a big risk in operation safety. The 0.5 percent deduction for risk prevention fund at VDB has been unchanged, which can be understood that 100 percent of investment and export loans of the state via VDB are almost not risky. Outstanding loan of VDB is like a time bomb.

Under current rule of Decision 44.2007/QD-TTg, within 120 days from the end of financial year, VDB must report financial statement. But the item of annual report of the bank on portal gate has been “blank” for five years.

Some sources said that total disbursed capital of VDB from 2006 to 2010 was 83 trillion dong, in which those in dong accounted for 90 trillion dong with average growth of 20 percent a year.

This time VDB is managing 2,346 projects with total contracted loans of 155.495 trillion dong. Of which 105 are projects Group A with loans of 73.583 trillion dong. – Vietbiz24

Posted by VBN on May 17 2011. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry