Customers seek loans at a VietinBank branch in the central province of Quang Nam. — VNA/VNS Photo Tran Viet

HCM CITY (Biz Hub ) — Several measures have been suggested by economic experts to help the banking sector reduce the non-performing loan (NPL) ratio to less than 3 per cent in 2015, as required by the Government.

According to the State Bank of Viet Nam's (SBV) data, by the end of the third quarter in 2014, the banking sector's bad debt ratio accounted for 4.7 per cent of the economy's total outstanding loans.

Over the last three years, domestic commercial banks applied measures to settle bad debts but the results were modest and the bad debt ratio continued to rise.

Analysts said the target of reducing the bad debt ratio to under 3 per cent would be difficult to meet since the volume of bad debt was increasing.

Truong Thanh Duc, chairman of the Viet Nam Banking Association's Legal Club, said enterprises' current production and business activities were still difficult, thus seriously affecting their debt payment capacity.

In addition, the banks' restructuring of existing loans and classification of them in the same debt group would end in April 1, as required by the SBV. This means the banks' debts are likely to increase.

"Because of these hurdles, the banking sector would not be able to realise the set target of reducing the bad debt ratio to less than 3 per cent if it has no measures that are more effective than those being applied," Duc told Viet Nam Economics Times.

Solutions

Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission, however, said: "The domestic economy had shown some signs of strong recovery, including an economic growth rate of 5.9 per cent in 2014; low inflation; satisfactory export growth; and stable exchange rate. Meanwhile, enterprises' production activities are on the path to recovery. This means that lowering the bad debt ratio may be realised."

But he noted that it was necessary to continue implementing the restructure of enterprises and public investment, and improve the domestic investment environment in order to realise the goal of lowering the bad debt ratio.

As someone who is in charge of settling bad debts, Nguyen Quoc Hung, chairman of Viet Nam Assets Management Company (VAMC), said that despite having many challenges, the target of reducing the bad debt ratio to less than 3 per cent would likely be realised this year.

"Credit institutions have acted on their own initiative, implementing the roadmap of settling bad debts. In addition, the government is considering some adjustments on Circular 53/2013/ND-CP on the establishment, organisation and operation of VAMC in ways that would give the company more favourable conditions to settle bad debts," Hung said.

In 2014, VAMC settled bad debts worth VND98 trillion (US$46.13 billion), VND28 trillion higher than the planned figure, he added.

Hung also said that the important factor for VAMC was to have a specific legal framework for resolving bad debts that it had already bought.

Tran Du Lich, member of the Monetary and Financial Policies Advisory Council, stressed the need to improve the market's aggregate demand.

"The resolution of bad debts would be further accelerated if we can realise several measures at the same time. They include stimulating demand, reducing lending interest rate for enterprises with good projects, simplifying administrative procedures to easily sell collateral assets, and setting up a real debt buying and selling market," Lich said.

But he said that among the new measures, demand stimulation, particularly in the real estate area, would be one of the most important.

This is because most bad debts, 85-90 per cent, are in the real estate area.

He also agreed that VAMC needed to be given more rights to buy and sell bad debts.

Speaking about the measures to reduce the bad debt ratio, SBV deputy governor Nguyen Thi Hong revealed that the central bank had set up several scenarios, one of which was that the central bank would ask credit institutions to continue settling bad debts in combination with the implementation of the restructuring process.

For the central bank, it would focus efforts on improving the legal framework in ways that would create favourable conditions for commercial banks and VAMC to buy or sell bad debts and settle assets used as collateral.

The central bank would also have close supervision of credit activities, debt classification and risk provision of commercial banks.

Other possible measures included the creation of a debt buying and selling market and the encouragement of both domestic and foreign investors to participate in buying and selling bad debts, Hong told Tai Chinh & Ngan Hang (Finance & Banking) newspaper.

She also admitted that restructuring and helping enterprises settle difficulties as well as supporting the market, were needed to be done to resolve the banking sector's bad debt problem. — VNS