Banks in Vietnam are underreporting bad and doubtful debt by as much as 10 times so their numbers look better and to avoid investigation of their loan portfolios, an economist said.
Tran Du Lich, former deputy head of the HCM City Institute of Economic Research, said banks were reporting bad debt rates of three percent, but inspections by the State Bank of Vietnam show the real rates were 10 times higher.
“With the high bad debts, banks must have a hedge fund of higher value, which will affect their business results as well as their prestige, so they want to hide their bad debts," Lich said.
Bad debt levels announced by the State Bank of Vietnam, credit rating organisations such as Moody's Investor Services, and the International Monetary Fund are higher than the rate reported by the banks, he said.
Some experts said banks were reluctant to report accurate levels for fear of attracting scrutiny, which can expose irregular investment activities.
Moody's said In mid-November 2013 that the bad debt rate of Vietnam's banks was 15 percent, while the SBV put the rate at 4.7 percent.
The IMF said the bad debt rate between 1999 and 2000 was at 30 percent, while the SBV said it was 15 percent.
Le Dang Doanh, former head of the Central Institute for Economic Management, said that hiding bad debt was a danger to the banking system because it prevented the government from taking appropriate measures and undermined investor confidence.
SBV data for the third quarter of 2014 put bad debt at 4.7 percent of the economy's total outstanding loans. Vietnam is targetting bad debt at three percent for 2015.
The SBV announced the establishment of the Vietnam Asset Management Company (VAMC) in 2013 to purchase bad debt from financial institutions, provide debt restructuring and guarantee continued operations of enterprises, organisations and individuals through guaranteed loans.
VAMC looks to buy bad debts totalling some VND170trn from the local banking system by the end of May. It sees its target for total bad debt purchases of VND200trn by the end of this year as achievable.