Bank loan loss in Vietnam : a dialectical view

Abstract

Loan loss recognition and communication have been contentious issues in Vietnam recently. Before 2012, the State Bank of Vietnam and commercial banks continuously signaled that the banking system was under control, with the nonperforming loans (NPLs) ratio below 3%. However, a belief expressed through newspapers and other media was that the NPL ratio was much higher under international standards. This ratio became controversial when different figures were disclosed from different sources, and it has fluctuated strongly since 2012. The acceleration of NPLs in 2012 froze credit flows and the economy. Later, the NPL ratio steadily decreased until it reached the benchmark of 3%, which was announced as the safety level, and it has remained thus since 2014. However, many believe that the published figure of 3% represented just a part of the NPL iceberg. Most recently, the National Financial Supervisory Commission announced that the NPL was 9.5% at the end of 2017, while according to the banking industry's report it was below 3%. Accompanying the different NPL numbers is the continuous change from 2012 to date in accounting regulation on debt classification and provisioning. That constant change represents the embarrassment of bank regulators in regulating loan loss recognition. It raises the research question why loan loss recognition and communication are contentious issues in the Vietnamese context. Answering this question is expected to equip Vietnam's bank regulators with a theoretical basis for their decision-making in regulating loan loss recognition, and improve transparency in loan loss recognition as well. Seemingly, loan loss recognition used to be controversial in many other countries, such as Japan, the United States and China before, during and after their financial crisis. It led to the issuance of bank regulations such as Basel Accords I and II as well as new accounting standards - IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 9 Financial Instruments - to resolve that controversy. Nevertheless, the phenomenon is repeated in Vietnam. It leads to the following subresearch questions: 'Is Vietnam experiencing the same issue that occurred in other countries?' and 'Has Vietnam learned from history given that the country has been equipped with those new rules?'

Date of Award	2017
Original language	English