Vietnam drafts rules urging lenders to settle bad loans before dividend payouts

The rules will apply to credit institutions and not to state-owned commercial banks.

The central bank of Vietnam is drafting a new circular that will prevent private credit institutions from making cash dividend payments before handling their bad debts, reports Viet Nam News.

Those which still hold special bonds issued by the Viet Nam Asset Management Company (VAMC) must use the funds to handle their non-performing loans (NPLs) and enhance the institutions’ finance status.

Also read: Vietnamese banks' war against bad debt pays off

The draft circular also sets conditions for bad debts to qualify as being eligible for purchase by VAMC with special bonds. Bad loans and collateral must be legal with valid documents and have no disputes at the time of trading. 

The new regulation will not apply to state-owned commercial banks as dividend payouts of banks in which the government owns more than 51% of the charter capital still need approval from both the central bank and the Ministry of Finance.

The State Bank of Vietnam (SBV) is aiming to decrease the NPL) ratio of the banking system, including NPLs sold to the VAMC, from 6.6% at the end of 2018 to below 5% by the end of 2019. The development strategy for the banking sector to 2025 also targets driving down the bad loan ratio to below 3% of outstanding loans by 2020. 

Vietnamese banks handled $6.42b (VND149.22t) in NPLs in 2018 to drive down the bad loan ratio to 1.89% in 2018 from 1.9% in the previous year. The headline figure represents the lowest level since 2012.