Applying robust risk management to the banking industry: Thailand’s case study

Participants to the seminar “Managing Distressed Assets: Learning from the Past, Progressing toward the Future” jointly organized by Viet Nam Asset Management Company (VAMC), and Thailand’s KASIKORNBANK (KBank). Photo: VGP

The information was provided at the seminar “Managing Distressed Assets: Learning from the Past, Progressing toward the Future” which was co-organized by Viet Nam Asset Management Company (VAMC), and Thailand’s KASIKORNBANK (KBank) with the main objective to seek for effective solutions to help improve the overall performance of banking sector in Viet Nam by leveraging Thailand’s experience in dealing with the Asian financial crisis in 1997 as the case study

A representative of VAMC said non-performing Loans (NPLs) at commercial banks has been kept under control at around 3% as reported (excluding those unsettled bad debts sold to VAMC, and problem loans at credit institutions). With the introduction of VAMC and  National Assembly Resolution 42/2017/QH14, the State of Bank of Viet Nam still has the target in sight; that is, to reduce NPLs at credit institutions and VAMC to below 3% by 2020.

Established in 2013, VAMC has been actively working to resolve NPLs problem, reduce the whole NPLs ratio in the whole banking system to below 3 percent.

So far until the end of this November, VAMC has bought 320 trillion VND outstanding NPLs by special bonds and at market price.

 “Thanks to the governance of SBV, the tight collaboration of related authorities, the endeavor of all VAMC staffs as well as the cooperation of all credit institutions, VAMC has always achieved its target, affirms its the role as an useful tool of the Government in resolving NPLs without using the state budget” said Nguyen Tien Dong, Chairman of VAMC.

VAMC continuously enhance capacities and learn from other countries in order to actively support credit institutions and enterprises and promote credit growth for the Vietnamese economy.

Ms. Suthasinee Nimitkul, Director from Bank of Thailand stated 2017 marks two decades of the crisis which still has the long lasting impact on the financial sector in many countries, especially in Thailand where at the peak of the crisis NPLs was accounted for more than 40% in the system, amounting well over USD 75 billion.

She said: “At the time, the concept of NPLs was not widely recognized within the Thai financial sector. As a result, banks were not well equipped with adequate tools to protect against such catastrophe. On the hand, the crisis has helped us understand the importance of having in place a solid regulatory framework to monitor and quickly respond to any potential risks.”

Mr. Pattarapong Kanhasuwan, Executive Vice President of KBank said:”  “Thai commercial banks have learned a hard lesson and now we have extensively implemented robust risk management process from credit origination, collection, and monitoring”

He also pointed out that as a result the majority of large commercial banks in Thailand have been adopting Basel III, the international framework, designed to improve the regulation, monitoring, and risk management of the banking sector, for quite some time now.

Reviewing various international experiences in NPL resolution and current status of Viet Nam’s debt trading market; Dr. Can Van Luc, Chief Economist of BIDV, has indicated a necessity of formally establishing a debt trading market, including that for NPL trading.

He also made several policy recommendations including: improving the legal framework, especially a government decree on the debt trading market;  diversifying methods of NPL resolution (including NPL securitization); allowing for more market participants such as foreign and domestic private investors, trustees (acting on behalf of foreign investors), debt valuation firms, debt traders’ associations;  improving liquidity in the secondary debt trading market; accelerating the implementation of the National Assembly Resolution 42 (including a gradual increase of VAMC’s chartered capital); and accelerating speed of restructuring SOEs and credit institutions./.