The audit, advisory and tax services group KPMG conducted its first-ever banking survey in Vietnam, polling 20 local lenders with huge total assets but only received responses from 13 members.
About 27% of the banks interviewed said they would make stronger investments to build a more advanced credit risk management system while 67% replied they would raise the expenses, albeit slightly.
Notably, up to 40% said they were not satisfied with the current internal credit rating systems, as per the survey released on Wednesday.
According to KPMG, credit risks mainly result from the weak credit models that have been deployed similarly among members in the banking industry over the last four to five years.
KPMG deems it necessary to adjust credit models based on the particular characters of each bank to make them fit with the lender’s strategy. The failure to have a suitable credit risk management system is one of the factors pushing up bad debts at local banks, KPMG remarked.
Official bad debt ratios have been rising since 2009, with the ratio recorded in this March posting 4.67%. However, many experts and organizations argued that the figure had failed to reflect the actual bad debt situation and credit quality at lenders in the country.
At a meeting to announce the survey result in HCMC on Wednesday, KPMG expert Tran Dinh Vinh reported bad debts of local banks had mainly come from their affiliated securities firms and finance leasing companies as well as State-owned enterprises as their major clients.
The lenders had given loans en masse to their affiliated securities firms in previous years while most customers of finance leasing companies are ineligible for taking out bank loans. Meanwhile, bad debts of State-owned companies in many cases are not classified as bad debts as instructed by the Government.
Current bad debts reported by lenders do not include debts that they already transferred, meaning the debts are no longer present in the banks’ balance sheets, Vinh pointed out.
Besides, overdue corporate bonds are neither counted as bad debts nor have risk provisions extracted accordingly by local banks while certain bad debts have been restructured in line with Decision 780 of the State Bank of Vietnam.
In other words, bad debts reported by local banks are not correct.
The survey, however, indicates that up to 73% of the banks interviewed now were fairly optimistic about financial prospects of the banking industry compared to a year ago while 7% showed strong optimism. Up to 87% expected their revenues to rise in the next 12 months.