Settling bad debts takes time, say experts

Tuesday, Sep 23, 2014 08:22

Transactions at Vietcombank's branch in Ha Noi. Banks' bad debts amounted to 4.17 per cent of total outstanding loans as of late August 2014. — VNA/VNS Photo Tran Viet
HA NOI (Biz Hub) — Solving bad debts requires great attempts by lenders and State-owned bodies, and Viet Nam should not expect all the debts to be settled within a certain time, experts said.

Nguyen Duc Thanh, director of the Viet Nam Centre for Economic and Policy Research (VEPR), said banks and enterprises would need to sit together and plan how to share in the difficulties.

Corporate debt restructuring is considered a solution to recover the health of enterprises, and banks may consider cutting or scrapping interest payments, Thanh added. "These attempts are sacrifices needed to collect on these debts," the VEPR director noted.

Dang Bao Khanh, General Director of SeABank, agreed, saying it was high time for banks to proactively accompany their borrowers in solving problems with current loans and aiming for well-designed projects.

Tran Du Lich, a member of the National Monetary and Financial Policy Advisory Council, said banks' bad debts amounted to 4.17 per cent of total outstanding loans as of late August'2014.

About VND210 trillion (US$9.9 billion) worth of non-performing loans have been disposed of, leaving VND161 trillion ($7.67 billion) in bad debts, including new ones.

"Bad debts are spreading throughout the economy, so the flow of capital is slower. Because of this, we cannot expect to dispose of all bad debts within a certain time," Lich said.

In HCM City alone, potentially irrecoverable bank debts make up around 70 per cent of the total number of bad debts, according to the State Bank of Viet Nam's city branch. In the first eight months of this year, banks sold more than VND1 trillion ($47.08 million) in bad debts to the Viet Nam Asset Management Company (VAMC) and are expected to sell more before year-end.

However, VAMC, the single hope of domestic debt sellers, has been struggling with the sales of purchased bad debts because of inappropriate policies and controversial offer prices.

Lich said an indebted company must not only count on political mechanisms but must first have competent financial capacity and independent capital flow outside the banking system.

"The bad debt is worth hundreds of trillions of dong. How can a company with VND500 billion ($23.8 million) in capital debt deal with that?" he asked.

Lich revealed that VAMC was in critical need of an increase in charter capital and financial aid sourced from the Government's foreign loans and State treasury bills.

Nguyen Hong Son, dean of the College of Economics and Business of the National University of Viet Nam, said VAMC should not totally shoulder bad debts because by nature, VAMC's purchases were likely to clear up banks' balance sheets, but the debts incurred in the system were left there unsolved.

Nguyen Quoc Hung, VAMC chairman, agreed that the mechanism was not that good. He expected to sell debts at market prices after VAMC received bigger charter capital.

VAMC plans to bring the bad debt ratio of credit institutions to under 3 per cent by 2015, meaning VND150 trillion to VND200 trillion ($7 billion to $9.4 billion) in debts must be solved.

"VAMC needs ministries and authorities to help with finalising legal documents in courts' sentence enforcement and issuing specific regulations allowing VAMC to accelerate collateral sales," Hung said.

Meanwhile, the State Bank of Viet Nam has encouraged banks to set aside profits for risk provisioning. Several small Vietnamese banks have posted losses in the second quarter after setting aside risk provision funds to control risks and push ahead with restructuring. Other medium and big banks also felt the pinch of growing bad debts and associated risk provision funds.

For example, Vietcombank, one of the country's four largest banks by assets, spent half of its pre-tax profits, equivalent to VND2.4 trillion ($108.6 million), to build risk provision funds in the first six months of this year. — VNS

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