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SBV targets to keep bad debt under 3 pct

The State Bank of Vietnam (SBV) has instructed credit institutions, including domestic and foreign commercial banks, to keep bad debt under 3 percent of outstanding loans.

The central bank requested credit institutions to step up measures to ensure the safety of the banking system and facilitate the ongoing restructuring process.

The central bank started restructuring the banking system in 2011 to ensure the safety of the system, reducing the number of commercial banks to 34 from 42 through mergers and acquisitions.

The government also established the Vietnam Asset Management Company (VAMC) in 2012 to help banks offload non-performing loans or toxic debts from their books.

Before the end of this month, commercial banks will have to submit detailed plans to the SBV of how they intend to clean up bad debt, including selling non-performing loans to the VAMC, setting aside funds for risk provisions, removing soured assets and tightening lending requirements.

Bad debt in Vietnamese banks stood at 2.9 percent at the end of last year, significantly down from 3.7 percent the year before, according to the annual financial report by the National Financial Supervisory Commission.

With the aim of keeping inflation at 3 percent while maintaining economic growth of about 7 percent by 2020, the central bank has set a target of keeping bad debt below 3 percent of total outstanding loans.