Bad debt ratio reports show different figures due to different calculation methods Credit institutions have reported the bad debt ratio of Vietnam’s banking system at 3.86 percent, while the State Bank’s Inspection Agency announced a bad debt ratio of 9.71 percent at the end of February.   Explaining the big difference in the two figures released by credit institutions and the watchdog agency, Dao Quoc Tinh, Deputy Chief of the State Bank’s Inspection Agency, said commercial banks excluded some kinds of debts, while the inspectors counted those debts which they believed were also “bad debts”. The problem lies in the State Bank’s Decision No 780 on debt classification, which came into force in April 2012. It stipulates that local banks and foreign bank branches do not have to put into the bad debt category those loans already rescheduled or extended, given the borrowers’ proven ability to repay. The debt classification method being applied in Vietnam, which uses lower standards than the international practice, was also believed to be the main reason behind the big gap in 2013’s bad debt ratio announced by the State Bank and Moody’s, a credit rating firm. Moody’s, in its latest report released in February 2014, claimed that the bad debt ratio of Vietnamese banks had reached 15 percent by the end of 2013. The State Bank has rejected that figure, insisting that the ratio had dropped from 4.73 percent by October 2013 to 3.63 percent by the end of 2013. Meanwhile, the National Finance Supervision Councilasserted that the bad debt ratio of the banking system had reached 9-10 percent by that time. The central bank believes that Moody’s calculated Vietnam’s bad debt ratio based on its method, criteria and information it collected.  Meanwhile, the central bank calculated the ratio on the basis of information from official sources and the currently applied legal documents. However, the explanation by the watchdog agency has not satisfied economists, who say that the exceptionally high discrepancy cannot serve policy making. Nguyen Quoc Hung, Deputy Chair of the Vietnam Asset Management Company (VAMC), an important tool of the government in the debt settlement, said VAMC has bought over VND45 trillion worth of debts so far. However, economists insistthat all VAMC has done is just take the bad debts off of the banks’ balance sheets, and that the bad debts have not really been settled yet. A source said that VAMC has been able to take back over VND400 billion worth of bad debts so far, while its plan to sell the bad debtsis running into obstacles due to unreasonable policies. “The situation is getting worse if nothing improves,” said Nguyen Dinh Thien, Head of the Vietnam Economics Institute at the 2014 Spring Economic Forum. “We should not rely on VAMC to settle bad debts. We need cash,” he said. “In order to have cash, the State needs to accelerate the state-owned enterprise equitization, sell the State’s stakes in some enterprises, or even borrow money from foreign sources if necessary”. Dat Viet