Business Times

Unclear financial reports are the biggest problem of the Vietnamese financial market, hindering the restructuring process of commercial banks, investors and experts say.

One director of an investment fund said he would not be interested in buying shares of a small commercial bank in a quantity large enough to hold a controlling stake in bank, even though shares are now very cheap and attractive.

The director explained that it is nearly impossible for anyone to know the truth about a bank if it only reads the bank’s financial reports.

It is also difficult to identify the real owners of banks that do not list shares on the bourse, and therefore, it is unclear if the move to change the management strategy will be accepted.

“These risks are big problems for foreign financial institutions,” he noted.

A report from the International Monetary Fund and the World Bank, issued recently under the financial sector assessment program (FSAP), also mentioned vague figures released by Vietnamese banks.

Regarding the figure about the sharp decrease of the ROA index (return on assets) from 1.8 percent in 2007 to 0.5 percent in 2012, the report noted that the figure was “exaggerated” because of inadequate statistics which do not accurately measure the business performance of Vietnamese banks.

An investment fund director noted that one should “be skeptical” about all the reported important indexes, including the ROA, bad-debt ratio and capital ratio.

The report said the unreliable statistics were caused by unreasonable regulations on debt classification and provisioning against risks, unreliable mortgaged-asset valuations and questionable asset classifications.

Businesses and banks issue financial reports based on Vietnam’s accountancy standards established in 2003 with reference to international accounting standards. However, there still exist big differences in the two systems. The Vietnamese accounting standards tend to magnify the credit institutions’ profitability, asset value and solvency.

The problems have worsened due to the lack of transparency and accountability.

In general, financial reports are not clear enough, especially the reports of state-owned enterprises, while the quality of the information provided by financial institutions is low.

Meanwhile, financial supervision by relevant agencies remains weak.

Regarding the monitoring and management of the banking system’s operations, an economist noted that it was difficult for management agencies to supervise banks’ operations because of poor regulations on information disclosure, while non-financial information disclosure does not exist in reality.

As a result, the watchdog agency only notices problems in the banking system when many banks face them at the same time.

This also explains why there is no exact figure about banks’ bad-debt ratios. Most banks reported a bad-debt ratio of below 4 percent. However, economists believe the actual figure is much higher.