Tackling the challenge of the banks’ bad debts

Posted on April 27, 2013

The Ministry of Planning and Investment’s Central Institute for Economic Management deputy head Dr. Vo Tri Thanh recently spoke with VIR about ways to handle banks’ bad debts in an effective manner after the establishment of the national asset management company.

How would you describe the current situation in Vietnam's banking system?  A number of problems still persist with the banking system though banks' liquidation has become better.How would you describe the current situation in Vietnam’s banking system? A number of problems still persist with the banking system though banks’ liquidation has become better.

Underperformed banks have yet to be radically tackled. Non-performing loans (NPLs) basically remain little changed. Thereby, in the upcoming time when the State Bank of Vietnam (SBV) applies new criteria on setting the NPL rate following international standards, the rate may be doubled though it now reportedly stays at 6 per cent.

The birth of the Vietnam Asset management Company (VAMC) cultivates high hope in settling bad debt malaise, but its presence has proven later than proposed. What is the main cause of concern?

The VAMC would come into being no sooner than May.

Even after VAMC birth, the risk and obligations in dealing with bad debts still belong to commercial banks. The state only helps to extend the time for tackling bad debts and partly improve bank liquidity through using refinancing rate vehicle.

Therefore, VAMC is in fact not a panacea in addressing bad debts.

So what is the best approach to settling bad debts in a sustainable manner?

VAMC mainly deals with NPLs having collateral at banks. Its setup is important, but this organization alone is unable to resolve bad debts.

In fact, throngs of NPLs at state-owned enterprises (SOEs) did not have collaterals at banks like in case of Vinashin and Vinalines. In dealing with such debts, the Ministry of Finance must step in, particularly efforts must gear towards accelerating current SOE business restructuring pace.

In a nutshell, a raft of factors would involve to ensure bad debts are radically settled, such as warming up the economy, controlling money supply, restructuring the economy, particularly SOEs and the banking sector.

Besides, the VAMC, when established, should scale up physical bad debt purchases. If the VAMC was founded only to defer payment of bad debts (by five years), then return the debts to commercial banks, it would be uncertain whether firms could take bank loans or not.