Vietnam will not meet 2015 deadline for Basel II

Banking sector’s huge non-performing loans and inadequate credit risk framework are major stumbling blocks.

These problems remain the government’s most challenging, said banking sector sources. One source said there is no overt evidence that progress towards Basel II is being made, either systemically or in individual institutions.

There is, however, a more urgent need for more pressing structural reforms other than Basel II.

Vietnam is not a member of the Basel Committee on Banking Supervision and is hence not bound by the implementation timeline for Basel II. The State Bank of Vietnam in March 2012, however, included Basel II in its restructuring plan for the banking sector. Unfortunately, it did not establish a specific framework or process for its implementation.

Weak credit assessment processes led to a sharp rise in non-performing assets in the banking sector. Credit loss provisions for these loans remain largely unrecognized in the financial statements of domestic banks.

Reported NPL figures range from 1% to 3%, said SBV governor Nguyen Van Binh, but noted that the real figure is actually closer to 9%. He added that drastic measures would be taken to resolve this issue.

SBV is considering establishing an asset management company to acquire and manage bad loans.