Bad debt ratio will be kept at below 3 per cent by 2020. — Photo vneconomy.vn

State Bank of Viet Nam plans to reduce the ratio of non-performing loans (NPLs) to below 3 per cent by 2020 under an action plan to implement a government resolution.

The government resolution speaks of renovating the growth model and economic restructuring in the 2016 to 2020 period.

The central bank’s policies would target the stabilising of the macro-economy and controlling inflation at below 5 per cent.

Accordingly, NPLs at credit institutions would be reduced to below 3 per cent. This would include bad debts sold to the Viet Nam Asset Management Company (VAMC) but not include bad debts of poorly-performing banks for which the government approved handling measures separately.

Previously, at a first draft version of the law on supporting credit institution restructuring and handling NPLs, the central bank mentioned the unexpected high bad debt ratio, which surprised the market.

The draft said that the NPL ratio could amount to 8.86 per cent, including bad debts managed by VAMC and debts which potentially turned into non-performing due to a shortage of mechanisms in handing bad debts and mortgaged assets.

With the outstanding loans totalling VND5.5 quadrillion (US$241 billion) as of the end of 2016, bad debts could amount to VND487 trillion.

The central bank also planned to reduce lending interest rates to ensure the competitiveness with average lending rates in ASEAN-4.

At the government’s meeting early this week, Prime Minister Nguyen Xuan Phuc said that if interest rates were not lowered, rates could not be raised, and adding a one per cent cut in rates could help save VND55 trillion in financial costs. – VNS