Commercial banks have been allowed to keep Vinashin’s bad debts in “pending” status and do not have to declare the debt as bad debt on their financial reports.
They can also make provisions against risks in accordance with their financial capabilities.
In its golden age, Vinashin, a once-leading group in shipbuilding (an industry that Vietnam had once targeted as a priority for development) was a VIP client of many commercial banks.
By the time its problems were exposed to the public, Vinashin’s bank debts had reached VND26 trillion, a huge sum, particularly taking into account that many Vietnamese banks had less than VND2 trillion worth of chartered capital at that time.
BIDV’s outstanding loans to Vinashin, for example, had reached VND6.6 trillion, a figure considerably higher than 15 percent of the bank’s equity at that point in time. Under current law, also in effect at that time, a loan from a bank to a single client must not be higher than 15 percent of its equity.
In the case of Habubank,the total credit value provided by the institution to Vinashin reached VND3.345 trillion, equal to 83 percent of the bank’s chartered capital. The bank later merged with SHB.
The full list of banks which are Vinashin’s creditors has never been released.
Every bank has to deal with bad debts in its own way. Some of the banks have made public how they would settle the debts, while most of the creditors have no intention of “airing their dirty laundry” in public.
In general, the debts have been classified in the “second group” category (fifth-group debts are the worst, considered irrecoverable), for which banks have to make 5 percent provisions against risk.
However, some banks, including BIDV, said they would make 100 percent provisions against risks for the loans.
SHB is believed to be the quickest among the creditors in settling the debts. By December 31, 2012, Vinashin’s debts at SHB had fallen to just over VND4 trillion, which amounted to 44 percent of the non-performing loans of the bank. The figure had dropped to VND1.2 trillion by the end of 2013, as shown in the bank’s financial report.
Vinashin’s debts have been transferred to the Debt Asset Trade Corporation (DATC), a company belonging to the Ministry of Finance, for settlement.
The favored method used by DATC to settle debts is to issue bonds, and that has been used for Vinashin’s debts, including domestic debts and $600 million in foreign loans.
DATC has reportedly restructured VND13.2 trillion worth of principal and interest so far with the 10-year bonds, which have an interest rate of 8.9 percent, equal to the government bonds’ interest rate.
This means that banks not only can free themselves from the debts, but also can make a profit from the bonds after 10 years.
The same method will also be applied to restructure the other VND13 trillion worth of debts this year.
Commenting about the debt settlement, Do Thien Anh Tuan, lecturer at the Fulbright Economics Teaching Program, said this method does notreally clear the debts, as the debts had simply been lifted from banks’ shoulders and put onto the shoulders of DATC or the government.