Lesson 2: The hardships of debt collection!
As a financial intermediary, the banking industry is always at risk. Apart from bad debts arising from objective reasons such as economic difficulties, business losses, bad debts, difficulties due to changes in mechanisms and growth policies of the State, many bad debts originate from the appraisal stage of credit officers.
What is worrying is that the majority of the current loan collateral portfolio at commercial banks is also real estate, but handling mortgaged assets is not simple when bad debts arise. Usually, if an agreement cannot be reached with the customer or the customer does not cooperate, deliberately delays to prolong the repayment period, the bank has no choice but to transfer the lawsuit to the court. However, in many cases, even with a court ruling, the bank still faces obstacles due to the enforcement stage. Regarding this issue, through discussions between bank officials as well as enforcement officers, it is acknowledged that when it comes to mortgaged assets that are real estate, it is difficult to freeze them, and auctioning and selling the assets to recover capital is even more difficult, causing many cases to drag on. According to statistics compiled by the Nghe An Judgment Enforcement Department, from 1996 to present, in the banking sector alone, there have been 20 judgments with enforcement decisions with an amount to be enforced of nearly 20 billion VND, but to date only 3.7 billion VND has been enforced and many cases have had to drag on for decades.
The case of the Nghe An branch of the Bank for Industry and Trade suing Ms. Nguyen Thi Mia is an example. On September 6, 1995, Ms. Mia applied for a loan from the Nghe An Bank for Industry and Trade in the amount of 150 million VND. The collateral for the loan was a house and land in Block 16, Truong Thi Ward (Vinh City) with a land use rights certificate in the name of her daughter and her husband, Ms. Ngo Thi Mai Thanh and Mr. Nguyen Huy Hoang (Ms. Ngo Thi Mai Thanh and Mr. Nguyen Huy Hoang guaranteed for Ms. Mia). However, due to the inability to pay, the bank was forced to sue the litigant in court; but until the day the Bank for Industry and Trade sued Ms. Mia in court, the bank still had not managed the land use rights certificate! The complicated and difficult case has been going on for a long time. Recently (July 1, 2012), the Nghe An branch of the People's Bank of Vietnam continued to send an official dispatch to the Department of Judgment Execution, requesting measures to force Ms. Mia, Mr. Hoang and Ms. Thanh to strictly implement the judgment No. 08/2007 that the Provincial People's Court had announced.
Cases that must go through enforcement often owe higher interest than the principal. Even the above enforcement case, the case has been going on for a long time but has not ended yet, the amount of 285 million VND (at the end of 2011) that must be enforced has not been collected yet, while the interest is compounding. It is known that the difficulty is not only in cases where the bank does not have control over the mortgaged property but also in many cases where the parties cooperate to have the bank list the property but the property is still very difficult to sell. That is the case of Nguyen Xuan Lai in Hung Chinh (Hung Nguyen) who borrowed from Ben Thuy Industrial and Commercial Bank and the amount that must be enforced is over 1 billion VND, by November 2011, the enforcement agency had only collected 50 million VND, the rest has not been collected yet. To borrow money from the bank, Mr. Lai made 2 loan contracts. One contract has mortgaged property being the residential land of Ms. Nguyen Thi Thu in Quan Bau (Vinh City) and another contract has mortgaged property being the house and land in Hamlet 3, Hung Chinh Commune. However, the mortgaged property in Hung Chinh is located in an alley, after 6 times the Property Auction Center has auctioned and lowered the price, from 1.1 billion VND to 600 million VND, but no one has bought it, while the cost of enforcement is increasing. Buyers are inherently afraid of auctioning off property, and in the context of a frozen real estate market, selling is even more difficult, and not only in the land sector, mortgaged property being factory machinery is also very "difficult to solve".
That is the case of debt settlement of Truong Son Automobile Company in Bac Vinh Industrial Park. The leader of Vinh Foreign Trade Bank said that in 2005, this was a key project of the province and received attention from many sectors. To speed up the progress while shareholders had not contributed enough capital, this enterprise borrowed more than 4.5 billion VND from Vinh Foreign Trade Bank to invest in an automobile assembly plant. The product had no brand, the after-sales service system was not available, causing difficulties in output, production and business losses leading to bankruptcy, resulting in the debt of both principal and interest up to now being over 10 billion VND. The mortgaged asset was the machinery of a technology enterprise that was both outdated and old, and had stopped operating for many years, so selling this asset was not easy and not everyone could buy it, because it had to be approved by the Bac Vinh Industrial Park Management Board. “We currently have 3 cases that must be brought to court, and the effective judgment has been transferred to enforcement. As for the debt of Truong Son Auto Corporation, the bank does not want to enforce it because if it takes this asset, it is not known how it will be sold, while it will incur additional costs for hiring someone to look after it!” - also according to the leader of Vinh Foreign Trade Bank shared.
Mr. Nguyen Van Cong - Deputy Head of the Professional Department (Nghe An Judgment Enforcement Department) added: “Another difficulty we often encounter is that when the assets of the enterprise are specialized machinery and equipment, it is very difficult to liquidate. In many cases, cars and construction machinery are mortgaged, but the bank only holds the documents, while the assets are still used by the customer, so when the assets have to be handled, the location of the machinery is unclear, and the cars may have passed through several owners. There are many cases where customers report to the traffic police that the vehicle registration has been lost to be reissued, then transferred.”
During our research, we also found that the procedure for handling assets must go through many agencies, many levels of processing, filing lawsuits in court, enforcement centers, asset valuation agencies, auction centers... leading to wasting too much time and money. Some mortgaged assets have not completed all ownership certification procedures, making it difficult to find partners who want to buy; liquidating secured assets...
(To be continued)
Thu Huyen
