What solutions are there for dealing with bad debts?
(Baonghean)Perhaps never before has the issue of bad debts in banks been discussed so extensively in the media as it is now. Bad debts are no longer just a concern within the banking sector; they have become a national and economic worry as the number of bad debts continues to rise without end…
According to data from the State Bank of Vietnam's Nghe An branch, as of July 31, 2012, non-performing loans (NPLs) at credit institutions in the province amounted to VND 2,326 billion, an increase of VND 1,360 billion compared to the beginning of the year. Of this, NPLs from businesses totaled VND 1,111 billion; and those from households, individuals, and other entities totaled VND 1,215 billion. NPLs are creating a negative ripple effect on social life and overall economic development. When banks have NPLs, they must find solutions to resolve them; businesses and households with NPLs are also preoccupied with this burden, anxiously searching for ways to repay them. Both lenders and borrowers are caught in a cycle of NPLs, thus lacking the capacity to focus on new investments, production, and business activities, leading to a chain reaction of stagnation in the economy.
Banks are actively seeking solutions to recover bad debts.
There are many reasons for the rapid increase in bad debts, including the massive development of the commercial banking system in recent years. The easy establishment of banks has put pressure on them, leading them to seek ways to increase mobilized capital and boost credit growth by loosening lending standards, thus increasing bad debts. In addition, in recent years, the market has witnessed continuous interest rate wars among commercial banks. When deposit interest rates increase, lending interest rates are forced to increase as well. Therefore, the cost of capital for businesses rises, affecting their ability to repay debts, leading to overdue and bad debts.
Simultaneously with high interest rates and a booming real estate market with buying and selling activity, fueling a real estate price bubble, many banks have lent to real estate investors. Specifically, non-performing loans in the real estate sector at credit institutions in the province, as of July 31, 2012, accounted for approximately 50% of the total non-performing loans in the province. It is also noteworthy that real estate constitutes the majority of collateral assets currently held by commercial banks for loans.
In an interview with us, Mr. Le Quynh An, Director of Ocean Commercial Bank's Vinh branch, analyzed: Following the government's policy under Resolution 11/NQ-CP to tighten public spending, cut back on construction projects and other projects, and restrict lending to non-production and real estate sectors, the bank has tightened lending, prioritizing loans for agricultural production and exports. Currently, the loan portfolio structure at banks in Nghe An province mainly focuses on basic construction, wholesale and retail trade, electricity, gas, and water production and distribution, processing industries, and services. These sectors are closely related and mutually supportive, so when one sector faces difficulties, others are also affected to varying degrees. With the government tightening spending and cutting back on projects and constructions, the construction sector is the most severely impacted. Construction projects lacked payment sources, leading to a situation where wholesale and retail sectors like construction materials couldn't sell their goods, and processing industries also lacked outlets... This resulted in all businesses facing difficulties in recovering debts to repay banks, leading to overdue and bad debts.
Mr. Vu Van Thang, Director of the Maritime Bank branch in Nghe An, stated: “The increase in bad debt stems from the current economic situation and risks related to policies and professional ethics. Bank officials intentionally violate procedures, create fraudulent documents, falsify records, and overvalue assets… The bank's procedures are strict, but sometimes, due to pressure from growth targets, bank officials are more lenient in approving loans, which is also a reason for the increase in bad debt.”
To effectively handle bad debts, Mr. Le Quynh An, Director of Ocean Commercial Bank's Vinh branch, said: Based on the actual situation of customers with bad debts, the bank will have specific handling measures such as advising on financial solutions for businesses; restructuring debts, reducing interest rates, and finding markets for businesses facing difficulties in selling goods. At the same time, it will support businesses in debt recovery… For cases where customers are unwilling to repay, the bank must seize collateral to recover the debt.
Many experts believe that addressing bad debt is a matter that should be decided and acted upon quickly to avoid negative consequences for the economy.
Quynh Lan
