Fitch: Asset-Quality Risks for Vietnam Banks Remain Despite New Rules

Asset-quality risks for Vietnam banks are likely to remain high despite new rules that help align loan-classification standards across banks, says Fitch Ratings in its latest Asia-Pacific Banks Chart of the Month report on Vietnam.

The gradual enforcement of asset classification based on data by the Credit Information Center (CIC) - a new arm set up by the State Bank of Vietnam (SBV) - should reduce discrepancy in loan classification standards across Vietnam banks. Beginning April 2015, Vietnam banks are required to classify loan quality according to the lowest rating assigned to each borrower by creditors as collated by the CIC.

This is a positive step, but long-standing asset-quality issues in the system remain unresolved, underlined by significant outstanding problem loans, which are understated by reported NPL ratios.

Recovery rates for bad debt sold to Vietnam Asset Management Company (VAMC) have been low, suggesting banks will continue to bear any potential recovery shortfall for these NPLs.

However, improved macroeconomic stability will likely help slow new NPL formation. A sustained improvement in the domestic property sector - and measures to increase foreign-property ownership - may also be positive for collateral recovery