Tien Phong CommercialBank : The difference between latent bad debt and implicit debt obligation from an expert perspective

05/11/2022

Bank revenue can come from a variety of sources. In which, a significant source of income in the bank comes from implicit debt obligations, also known as income from guarantees, letters of credit LC in import and export payments. Many banks have strongly developed services, this rate is quite good, for example TPBank reached 10.6%.

Mr. Nguyen Hung, General Director of TPBank shared that this latent debt obligation will contribute a part of income from good service to the bank. And a bank with a large ratio of potential liabilities to total assets is considered good because that bank operates a lot on services, not on loans. In big banks in the world about 20%, good banks in Vietnam over 10%. When a bank has high potential bad debt, it is bad, and when it has high latent debt, it is good.

According to Mr. Hung, "Continued debt obligation" is a technical term that refers to off-balance sheet items of commercial banks, mostly in the form of commitments such as issuance of guarantees, issuance of LCs (letter of credit in payment). In international accounting), the bank has only committed without having to spend money, so it is called "off-balance sheet", and because it is not an obligation, it is called "latent", due to the semantics of the word "potential". ' is slightly inclined to the negative, so it is easy to misunderstand, it is more accurate to call it "commitments that can become obligations", but because it is too long, "implicit liabilities" has long been professional use and are understood to have no negative connotations. Although it is very rare for a "commitment" to turn into an "obligation", banks do oblige customers to have appropriate forms of security (escrow/mortgage/mortgage...) so that when this situation occurs, the bank will be as less affected as possible. Guarantee operation (including Bid guarantee, Contract performance guarantee, temporary guarantee, warranty guarantee...) is a very common and common activity of any commercial bank, especially in construction investment activities, purchase of fixed assets, machinery and equipment, public investment of enterprises, organizations, state agencies... Opening/Issuing LC is a common practice. Commonly used in international payments, banks play an intermediary role to ensure that the parties buying and selling goods and services are safe, the buyer receives the goods and services, and the seller receives the money for the sale. Guarantee balance, LC is not an indicator that reflects the Bank's risk, but on the contrary, has a positive meaning, showing that the bank focuses on services and not only depends on lending. TPBank's growth in guarantee, LC, international payment, and trade finance activities also proves that TPBank is a highly trusted unit in the domestic and international markets.

Lên đầu trang