What is the solution to bad debt?

(Baonghean) -Perhaps never before has the mass media mentioned so much about the issue of bad debt of banks as it does today. Bad debt is now not only a concern within the banking sector but has become a common concern of the country and the economy as the number of bad debt is increasing, with no end in sight…

According to data from the State Bank of Nghe An province branch, by July 31, 2012, bad debt at credit institutions in the province reached 2,326 billion VND, an increase of 1,360 billion VND compared to the beginning of the year. Of which, bad debt of enterprises was 1,111 billion VND; business households, individuals and other groups was 1,215 billion VND. Bad debt is causing a negative chain effect in social life as well as in general economic development. When banks have bad debt, they have to worry about finding every solution to handle bad debt; businesses and individuals with bad debt are also preoccupied with the "debt", worried about finding ways to pay it back. Both lenders and borrowers are "stuck" with bad debt, therefore no longer have the capacity to focus on investment, new production and business, leading to a chain stagnation in the economy.



Banks are actively seeking solutions to recover bad debts.

There are many reasons for the rapid increase in bad debt, including the massive development of the commercial banking system in recent years. The easy emergence of banks has put pressure on the banks themselves, in which they seek every way to increase mobilized capital, promote credit growth by loosening lending standards, etc., causing bad debt to increase. In addition, in recent years, the market has continuously witnessed interest rate races between commercial banks. When mobilization interest rates increase, output lending interest rates are forced to increase accordingly. Therefore, the cost of capital of enterprises increases, the ability to repay debt is affected, leading to overdue debt and bad debt.

At the same time, high interest rates, the real estate market is bustling with buying and selling, pushing up the phenomenon of real estate price "bubble", many banks have lent for real estate investment. Specifically, bad debts in the real estate business sector at credit institutions in the province as of July 31, 2012, accounted for about 50% of bad debts in the whole area. It is worth mentioning that the majority of the current loan collateral portfolio at commercial banks is real estate.

Talking to us, Mr. Le Quynh An - Director of Ocean Commercial Joint Stock Bank, Vinh branch analyzed: Implementing the Government's policy according to Resolution 11/NQ-CP is to tighten public spending, cut construction works, projects... limit non-production and real estate loans, banks have tightened loans, only prioritizing loans for agricultural production, export... Currently, the outstanding debt structure at banks in Nghe An mainly focuses on the fields of basic construction, wholesale, retail, production and distribution of electricity, gas, water, processing industry, services. These industries are all closely related to each other and support each other, so when one industry encounters difficulties, other industries are more or less affected. The government tightens spending, cuts projects and works, the construction industry is most heavily affected. Construction projects are not allocated payment sources, causing the wholesale and retail sectors such as construction materials... to not be able to consume goods, the processing industry also has no output... Leading to all businesses having difficulty in collecting debts to pay off bank loans, resulting in overdue debts and bad debts.

Mr. Vu Van Thang - Director of Maritime Bank Nghe An branch said: "The increase in bad debt is due to the economic situation and policy risks, risks of professional ethics. Bank staff intentionally make mistakes in procedures, create fake documents, falsify documents, value assets far beyond their actual value... The bank's procedures are strict, but sometimes due to the pressure of growth targets, bank staff approve loans more "loosely", which is also the reason leading to the increase in bad debt.

To effectively handle bad debt, Mr. Le Quynh An - Director of Ocean Commercial Joint Stock Bank, Vinh branch said: Based on the actual situation of customers with bad debt, the bank will have specific handling measures such as consulting on financial solutions for businesses; restructuring debts, reducing interest rates, finding outlets for businesses having difficulties in selling goods. At the same time, supporting businesses in debt collection... In cases where customers are not willing to pay their debts, the bank must handle mortgaged assets to recover debts.

Many experts believe that dealing with bad debt should be decided and acted upon quickly to avoid negative consequences for the economy.

Quynh Lan