Luận văn situation o f non performing loans and resolutions to non performing loan disposition in vietnamese commercial banks

LETTER OF DECLARATION I hereby declare that the Graduation Project of “Situation of non-performing louns and Resolutions to non-performing loan disposition in Vietnamese commercial hank

TRANSMITTAL MEMORANDUM

This work would not be done without the help of Associate Professor Nguyen Van

Dinh Their guidance and advice have resulted in a positive outcome for the thesis The

author weuld like to show a sincere thankfulness to the advisor.

LETTER OF DECLARATION

I hereby declare that the Graduation Project of “Situation of non-performing

louns and Resolutions to non-performing loan disposition in Vietnamese commercial

hanks” is the results of my own research and has never been published in any work

of others During the implementation process of this project, I have seriously taken

research ethics; all findings of this project are results of my own rescarch and

surveys; all references in this project are clearly cited according to regulations

J bear full responsibility for the fidelity of the number and data and other contents

TABLE OF NOTATIONS AND ABBREVIATIONS

Abbreviation

Financial Institutions

Debt Asset Trading Company l

Gross domestic production

ming toans State Bank of Vietnam

Meaning

4.2.2 Further responses from SBV

4.2.3, Solutions surmounting inherent shortcomings in VAMC

4.2.4, Solutions for development of debt trading market

APPENDIX

Appendix | Ownership structive of SOCBs (updated in 10/2013)

Appendix 2 Overlapping ownership among SOLs and CBs (as of 5/2012)

Appendix 3 Overlapping ownership amongst ACB, Eximbank, Sacombank, and

some small ISCBs (as of 3/2012)

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

CHAPTER 2: RESEARCH QUESTIONS AND RESEARCH METHOI3OLOGIES.28

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

Figure 3.10 YoY credit growth and Viemamese state invesiment growth from 2002 to

Figare 3.11 Loans amount and NPL ratio in real-estate projects from 2010 to October

2012 (Central institute for economic management, 2013) -43

Figure 3.12, Struture of NPLs in terms of industry in September 2012 (Central institute

for ceonomic management, 2013

Figure 4,1 Scheme of “Restructuring Vietnamese Fis systems” (Dung, 2014)

Figure 4.2 NPI.s purchased by VAMC and total NPLs (Linh, 2015)

Figure 4.3 Main differences between Necree $3 and Decree $4

2 Research scope and object

2A Research scope

TABLE OF FIGURES

Figure | Classification of loans according to Cieoular No 02/2013/TT1-NHNN 15

Figure 1.2 The KAMCO's role in bad debt settlement in Korea

Figure 1.3 The non-perforing loans mali i Korea irom 1996 to 2005 in percentage

Bank, nd.)

Figure 1.6 Quaterly net charge-off rate in The Unitied State from 2001 to 2015 in

percentage (Feferal Reserve, n.d.)

Figure 3.1, Cridit prowth and GDP growth, from 200! to 2014, in Vietnam (%) (World

Figure 3.2 Comparation of credit growth in Victnam and other ASRAN cauntries

2005 — 2014; Ha, 2015 aad ‘Tien, 2015)

Figure 3.6 NPL ratio during the year of 2014 in Vietnam (%) (SBV, 2015)

2 Research scope and object

2A Research scope

TABLE OF FIGURES

Figure | Classification of loans according to Cieoular No 02/2013/TT1-NHNN 15

Figure 1.2 The KAMCO's role in bad debt settlement in Korea

Figure 1.3 The non-perforing loans mali i Korea irom 1996 to 2005 in percentage

Bank, nd.)

Figure 1.6 Quaterly net charge-off rate in The Unitied State from 2001 to 2015 in

percentage (Feferal Reserve, n.d.)

Figure 3.1, Cridit prowth and GDP growth, from 200! to 2014, in Vietnam (%) (World

Figure 3.2 Comparation of credit growth in Victnam and other ASRAN cauntries

2005 — 2014; Ha, 2015 aad ‘Tien, 2015)

Figure 3.6 NPL ratio during the year of 2014 in Vietnam (%) (SBV, 2015)

Figure 3.10 YoY credit growth and Viemamese state invesiment growth from 2002 to

Figare 3.11 Loans amount and NPL ratio in real-estate projects from 2010 to October

2012 (Central institute for economic management, 2013) -43

Figure 3.12, Struture of NPLs in terms of industry in September 2012 (Central institute

for ceonomic management, 2013

Figure 4,1 Scheme of “Restructuring Vietnamese Fis systems” (Dung, 2014)

Figure 4.2 NPI.s purchased by VAMC and total NPLs (Linh, 2015)

Figure 4.3 Main differences between Necree $3 and Decree $4

4.2.2 Further responses from SBV

4.2.3, Solutions surmounting inherent shortcomings in VAMC

4.2.4, Solutions for development of debt trading market

APPENDIX

Appendix | Ownership structive of SOCBs (updated in 10/2013)

Appendix 2 Overlapping ownership among SOLs and CBs (as of 5/2012)

Appendix 3 Overlapping ownership amongst ACB, Eximbank, Sacombank, and

some small ISCBs (as of 3/2012)

2 Research scope and object

2A Research scope

INTRODUCTION

1 Necessity of tapic chosen

Credit growth in Vietnam was rapid for many years, however, trom beginning of 2007,

this growth spun out of control It was estimated that lending increased by

approximately 280% during 2007-2011 To explain, the accession of Vietnam to World

Trade Organization (WTO) in 2007 brought a sharp increase in foreign capital inflow

‘This induced the first wave accelerating the upsnrge in domestic credit and hsee,

corresponding increase in price level The finst wave of credit growth, then, was reined

in middle of 2008 by the government because of pressure of high inflation However,

the sevond wave came quickly from the first oue TL started monetary stimulus of the

govermment to compensate for lower cxport demand duc to global financial crisis, This

second wave of credit boom was considered as even longer than the first one (Pincus,

2013) Notably, this credit growth was much higher than GDP’s one Therefore, it was

believed to be exceasive, which potentially reflected poor loan quality of the bank

Indeed, bad debts, which reflect the asset qualiry, among Vietnamese commercial

banks increased significantly from the end of 2011 Notably, bad debts or NPLs have

been proved to impacts negatively and significant to not only the banks themselves, but also the whoic banking system because there have beon close-knit relationship and collaboration between all commercial banks When NPLs expand its destructive effects into the banking system, the country economy is also expected to suffer a range of unfavorable changes Bven, high NPLs ratio is an important signal of financial crisis

flistorically, before facing economic downturn, some countries of Kovea, Indouesia,

Malaysia, and Thailand all experienced high ratio of NPLs over total outstanding loans

In details, their ratio was 14%, 27%, 32%, and 51%, respectively Regarding to NP'Ls’

huge potential destruction to banking system and the whole economy, research of such

kind of debts is of significant essence

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

INTRODUCTION

1 Necessity of tapic chosen

Credit growth in Vietnam was rapid for many years, however, trom beginning of 2007,

this growth spun out of control It was estimated that lending increased by

approximately 280% during 2007-2011 To explain, the accession of Vietnam to World

Trade Organization (WTO) in 2007 brought a sharp increase in foreign capital inflow

‘This induced the first wave accelerating the upsnrge in domestic credit and hsee,

corresponding increase in price level The finst wave of credit growth, then, was reined

in middle of 2008 by the government because of pressure of high inflation However,

the sevond wave came quickly from the first oue TL started monetary stimulus of the

govermment to compensate for lower cxport demand duc to global financial crisis, This

second wave of credit boom was considered as even longer than the first one (Pincus,

2013) Notably, this credit growth was much higher than GDP’s one Therefore, it was

believed to be exceasive, which potentially reflected poor loan quality of the bank

Indeed, bad debts, which reflect the asset qualiry, among Vietnamese commercial

banks increased significantly from the end of 2011 Notably, bad debts or NPLs have

been proved to impacts negatively and significant to not only the banks themselves, but also the whoic banking system because there have beon close-knit relationship and collaboration between all commercial banks When NPLs expand its destructive effects into the banking system, the country economy is also expected to suffer a range of unfavorable changes Bven, high NPLs ratio is an important signal of financial crisis

flistorically, before facing economic downturn, some countries of Kovea, Indouesia,

Malaysia, and Thailand all experienced high ratio of NPLs over total outstanding loans

In details, their ratio was 14%, 27%, 32%, and 51%, respectively Regarding to NP'Ls’

huge potential destruction to banking system and the whole economy, research of such

kind of debts is of significant essence

TABLE OF FIGURES

Figure | Classification of loans according to Cieoular No 02/2013/TT1-NHNN 15

Figure 1.2 The KAMCO's role in bad debt settlement in Korea

Figure 1.3 The non-perforing loans mali i Korea irom 1996 to 2005 in percentage

Bank, nd.)

Figure 1.6 Quaterly net charge-off rate in The Unitied State from 2001 to 2015 in

percentage (Feferal Reserve, n.d.)

Figure 3.1, Cridit prowth and GDP growth, from 200! to 2014, in Vietnam (%) (World

Figure 3.2 Comparation of credit growth in Victnam and other ASRAN cauntries

2005 — 2014; Ha, 2015 aad ‘Tien, 2015)

Figure 3.6 NPL ratio during the year of 2014 in Vietnam (%) (SBV, 2015)

2 Research scope and object

2A Research scope

2 Research scope and object

2A Research scope

CHAPTER 2: RESEARCH QUESTIONS AND RESEARCH METHOI3OLOGIES.28

4.2.2 Further responses from SBV

4.2.3, Solutions surmounting inherent shortcomings in VAMC

4.2.4, Solutions for development of debt trading market

APPENDIX

Appendix | Ownership structive of SOCBs (updated in 10/2013)

Appendix 2 Overlapping ownership among SOLs and CBs (as of 5/2012)

Appendix 3 Overlapping ownership amongst ACB, Eximbank, Sacombank, and

some small ISCBs (as of 3/2012)

INTRODUCTION

1 Necessity of tapic chosen

Credit growth in Vietnam was rapid for many years, however, trom beginning of 2007,

this growth spun out of control It was estimated that lending increased by

approximately 280% during 2007-2011 To explain, the accession of Vietnam to World

Trade Organization (WTO) in 2007 brought a sharp increase in foreign capital inflow

‘This induced the first wave accelerating the upsnrge in domestic credit and hsee,

corresponding increase in price level The finst wave of credit growth, then, was reined

in middle of 2008 by the government because of pressure of high inflation However,

the sevond wave came quickly from the first oue TL started monetary stimulus of the

govermment to compensate for lower cxport demand duc to global financial crisis, This

second wave of credit boom was considered as even longer than the first one (Pincus,

2013) Notably, this credit growth was much higher than GDP’s one Therefore, it was

believed to be exceasive, which potentially reflected poor loan quality of the bank

Indeed, bad debts, which reflect the asset qualiry, among Vietnamese commercial

banks increased significantly from the end of 2011 Notably, bad debts or NPLs have

been proved to impacts negatively and significant to not only the banks themselves, but also the whoic banking system because there have beon close-knit relationship and collaboration between all commercial banks When NPLs expand its destructive effects into the banking system, the country economy is also expected to suffer a range of unfavorable changes Bven, high NPLs ratio is an important signal of financial crisis

flistorically, before facing economic downturn, some countries of Kovea, Indouesia,

Malaysia, and Thailand all experienced high ratio of NPLs over total outstanding loans

In details, their ratio was 14%, 27%, 32%, and 51%, respectively Regarding to NP'Ls’

huge potential destruction to banking system and the whole economy, research of such

kind of debts is of significant essence

Figure 3.10 YoY credit growth and Viemamese state invesiment growth from 2002 to

Figare 3.11 Loans amount and NPL ratio in real-estate projects from 2010 to October

2012 (Central institute for economic management, 2013) -43

Figure 3.12, Struture of NPLs in terms of industry in September 2012 (Central institute

for ceonomic management, 2013

Figure 4,1 Scheme of “Restructuring Vietnamese Fis systems” (Dung, 2014)

Figure 4.2 NPI.s purchased by VAMC and total NPLs (Linh, 2015)

Figure 4.3 Main differences between Necree $3 and Decree $4

Figure 3.10 YoY credit growth and Viemamese state invesiment growth from 2002 to

Figare 3.11 Loans amount and NPL ratio in real-estate projects from 2010 to October

2012 (Central institute for economic management, 2013) -43

Figure 3.12, Struture of NPLs in terms of industry in September 2012 (Central institute

for ceonomic management, 2013

Figure 4,1 Scheme of “Restructuring Vietnamese Fis systems” (Dung, 2014)

Figure 4.2 NPI.s purchased by VAMC and total NPLs (Linh, 2015)

Figure 4.3 Main differences between Necree $3 and Decree $4

INTRODUCTION

1 Necessity of tapic chosen

Credit growth in Vietnam was rapid for many years, however, trom beginning of 2007,

this growth spun out of control It was estimated that lending increased by

approximately 280% during 2007-2011 To explain, the accession of Vietnam to World

Trade Organization (WTO) in 2007 brought a sharp increase in foreign capital inflow

‘This induced the first wave accelerating the upsnrge in domestic credit and hsee,

corresponding increase in price level The finst wave of credit growth, then, was reined

in middle of 2008 by the government because of pressure of high inflation However,

the sevond wave came quickly from the first oue TL started monetary stimulus of the

govermment to compensate for lower cxport demand duc to global financial crisis, This

second wave of credit boom was considered as even longer than the first one (Pincus,

2013) Notably, this credit growth was much higher than GDP’s one Therefore, it was

believed to be exceasive, which potentially reflected poor loan quality of the bank

Indeed, bad debts, which reflect the asset qualiry, among Vietnamese commercial

banks increased significantly from the end of 2011 Notably, bad debts or NPLs have

been proved to impacts negatively and significant to not only the banks themselves, but also the whoic banking system because there have beon close-knit relationship and collaboration between all commercial banks When NPLs expand its destructive effects into the banking system, the country economy is also expected to suffer a range of unfavorable changes Bven, high NPLs ratio is an important signal of financial crisis

flistorically, before facing economic downturn, some countries of Kovea, Indouesia,

Malaysia, and Thailand all experienced high ratio of NPLs over total outstanding loans

In details, their ratio was 14%, 27%, 32%, and 51%, respectively Regarding to NP'Ls’

huge potential destruction to banking system and the whole economy, research of such

kind of debts is of significant essence

2 Research scope and object

2A Research scope

Besides, a great mumber of siudies investigating causes, cousequences and solutions on

‘bad debts was and have been conducted around the world In which, many of them is designated for specific situation of a certain country In Victnam, there has not been a lot of research on NPLs among Vietnamese banks Also, numerous existing research is considered 88 out of date because they have not been updated to the current situation of Vietnam Another aspect in favor of the theme of this research is that nonperforming

foans strongly affected the economy in the widespread area duting the time ‘The study

of non-performing loan will be 4 meaningful reference to investors about the market on

amacro scale, especially foreign investors

For these reasons, the researcher is intended to choose the topic of’ “Situation of non- peiforming loans and Resolutions to non-performing disposition in Vietnamese comunercial banks" This thesis is hoped to be a valuable reference for investors and other researchers to have more conipreher

The thesis is going to focus on following objects:

* The Literature about commercial banks and non-performing loans in

commercial banks

4.2.2 Further responses from SBV

4.2.3, Solutions surmounting inherent shortcomings in VAMC

4.2.4, Solutions for development of debt trading market

APPENDIX

Appendix | Ownership structive of SOCBs (updated in 10/2013)

Appendix 2 Overlapping ownership among SOLs and CBs (as of 5/2012)

Appendix 3 Overlapping ownership amongst ACB, Eximbank, Sacombank, and

some small ISCBs (as of 3/2012)

TABLE OF FIGURES

Figure | Classification of loans according to Cieoular No 02/2013/TT1-NHNN 15

Figure 1.2 The KAMCO's role in bad debt settlement in Korea

Figure 1.3 The non-perforing loans mali i Korea irom 1996 to 2005 in percentage

Bank, nd.)

Figure 1.6 Quaterly net charge-off rate in The Unitied State from 2001 to 2015 in

percentage (Feferal Reserve, n.d.)

Figure 3.1, Cridit prowth and GDP growth, from 200! to 2014, in Vietnam (%) (World

Figure 3.2 Comparation of credit growth in Victnam and other ASRAN cauntries

2005 — 2014; Ha, 2015 aad ‘Tien, 2015)

Figure 3.6 NPL ratio during the year of 2014 in Vietnam (%) (SBV, 2015)

INTRODUCTION

1 Necessity of tapic chosen

Credit growth in Vietnam was rapid for many years, however, trom beginning of 2007,

this growth spun out of control It was estimated that lending increased by

approximately 280% during 2007-2011 To explain, the accession of Vietnam to World

Trade Organization (WTO) in 2007 brought a sharp increase in foreign capital inflow

‘This induced the first wave accelerating the upsnrge in domestic credit and hsee,

corresponding increase in price level The finst wave of credit growth, then, was reined

in middle of 2008 by the government because of pressure of high inflation However,

the sevond wave came quickly from the first oue TL started monetary stimulus of the

govermment to compensate for lower cxport demand duc to global financial crisis, This

second wave of credit boom was considered as even longer than the first one (Pincus,

2013) Notably, this credit growth was much higher than GDP’s one Therefore, it was

believed to be exceasive, which potentially reflected poor loan quality of the bank

Indeed, bad debts, which reflect the asset qualiry, among Vietnamese commercial

banks increased significantly from the end of 2011 Notably, bad debts or NPLs have

been proved to impacts negatively and significant to not only the banks themselves, but also the whoic banking system because there have beon close-knit relationship and collaboration between all commercial banks When NPLs expand its destructive effects into the banking system, the country economy is also expected to suffer a range of unfavorable changes Bven, high NPLs ratio is an important signal of financial crisis

flistorically, before facing economic downturn, some countries of Kovea, Indouesia,

Malaysia, and Thailand all experienced high ratio of NPLs over total outstanding loans

In details, their ratio was 14%, 27%, 32%, and 51%, respectively Regarding to NP'Ls’

huge potential destruction to banking system and the whole economy, research of such

kind of debts is of significant essence

2 Research scope and object

2A Research scope

4.2.2 Further responses from SBV

4.2.3, Solutions surmounting inherent shortcomings in VAMC

4.2.4, Solutions for development of debt trading market

APPENDIX

Appendix | Ownership structive of SOCBs (updated in 10/2013)

Appendix 2 Overlapping ownership among SOLs and CBs (as of 5/2012)

Appendix 3 Overlapping ownership amongst ACB, Eximbank, Sacombank, and

some small ISCBs (as of 3/2012)