Banks will need more provisional funds to support the risk of bad debts. — File photo

Asia Commercial Bank General Director Do Minh Toan said his bank targeted credit growth of 13-15 per cent and a bad debt ratio of below 3 per cent this year and had arranged a provisional fund of some VND2 trillion ($95.24 million) for 2015.

This year, the bank planned to sell VND1 trillion ($47.62 million) of NPLs to the Viet Nam Asset Management Company (VAMC) and handle VND1.6 trillion ($76.19 million) in bad debts by itself, he added.

Saigon Joint Stock Commercial Bank reported that it had sold VND11.4 trillion ($542.86 million) in NPLs to the VAMC over the last three years, reducing its bad loan ratio to 0.5 per cent by the end of last year.

The bank said it would have to continue to deal with NPLs to improve its financial situation, and provisional funds were likely to be increased.

Vietnam International Bank also said it would establish a provisional fund of more than VND2 trillion ($95.24 million), though it had held its bad debt ratio at 2.51 per cent last year.

The bank expected its deposits to grow by 8 per cent to VND53 trillion ($2.52 billion) and outstanding loans to increase by 11 per cent to VND42.38 trillion ($2.02 billion) this year.

It planned to resolve some VND3.84 trillion ($182.86 million) in NPLs, predicting provisional funds would rise sharply, with bad debts likely to climb by VND300 billion ($14.28 million) in 2015.

Eximbank leaders said establishing provisional funds was a prerequisite for guaranteeing operational security; hence, it was willing to sacrifice profits to provisions. Last year, a provisional fund amounting to VND3 trillion ($142.86 million) resulted in a pre-tax profit as low as VND68 billion ($3.24 million) for the bank.

The bank planned to sell some VND1 trillion worth of bad debts to the VAMC this year, they added.

The State Bank of Viet Nam (SBV) has urged credit institutions to step up bad debt resolution since January in a bid to reduce the overall NPL ratio in the domestic banking system to less than 3 per cent in 2015, following government orders.

The lenders have to resolve by June 30 at least 60 per cent of the total number of bad loans they are supposed to handle in 2015. They have to transfer at least 75 per cent of the total debts they will register for sale to VAMC this year, within the same deadline. The deadline for selling all their NPLs is September 30.

The SBV has allowed the VAMC to issue special bonds, worth up to VND80 trillion ($3.76 billion), to acquire bad loans from credit institutions this year. The central bank also required lenders to establish yearly provisional funds amounting to 20 per cent of the value of the bonds they had bought from the company.

Tran Du Lich, a member of the National Financial and Monetary Policy Advisory Council, said selling NPLs to the VAMC was a good way for banks to clean up their accounting balances, but the requirement for provisions would create significant pressure for them.

Banks have reportedly petitioned the SBV to halve the 20 per cent provisional rate. — VNS