Bad debt solution

(Baonghean) - Recently, the decision of the State Bank of Vietnam (SBV) to buy back 3 Joint Stock Commercial Banks (JSC) Construction Bank (VNCB), Global Petroleum Bank (GP Bank) and Ocean Bank (Ocean Bank) at the price of 0 VND has attracted the attention of managers, operators, experts and public opinion. This is a sign that the time has come to find a solution to the problem of "bad debt" in banks. The reporter had an interview with Dr. Truong Van Phuoc, Vice Chairman of the National Financial Supervisory Commission to learn about the specific solution.

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Enhance the effectiveness of bad debt handling

PV: Dr. Truong Van Phuoc, in your opinion, what is the origin and cause of bad debt?

Dr. Truong Van Phuoc:Vietnam is a small-scale, low-starting economy. Although the economy has grown rapidly, strongly and achieved many successes, the growth has been unstable and mainly in breadth, depending on increasing investment capital. Meanwhile, the domestic financial market is not yet complete, the efficiency of capital use is low and slow to improve. In Vietnam, the capital market is still young and has not developed in time to meet the capital growth needs of the economy, so the capital supply for the domestic economy is mainly from credit from the banking sector.

Objective causes come from external instability (the global economic crisis in 2008) and internal instability within the economy (the transition from a planned economy to a market economy). Hot and unsustainable growth due to lack of attention to growth quality. In addition, monetary policy was loose for a long time (2000 - 2007) and suddenly tightened since 2010, the credit institution system (CI) developed too quickly in quantity while management and operation capacity did not keep up with the scale and speed of development.

PV: In your opinion, how should we handle bad debt? What results have been achieved?

Dr. Truong Van Phuoc:Before the period when we decided to restructure, the bad debt ratio reported by credit institutions was 3.1% (2011), but in reality, bad debt was around 17%. High bad debt not only negatively impacts the financial market but also affects economic growth. It can be said that bad debt in Vietnam is handled in a special way, different from the experience of many countries in the world. Timely handling of bad debt creates a good environment for banks and enterprises to normalize credit relations, enterprises can access loans while banks maintain their profitability.

PV: In your opinion, what are the current problems in dealing with bad debt in Vietnam, and what are your recommendations?

Dr. Truong Van Phuoc:The current progress in handling bad debt depends largely on the removal of legal difficulties in the process of handling collateral assets. The cost of risk provisioning/profit before tax and before risk provisioning has increased from 39% (in 2011) to 60% (in August 2015). Although there are still many difficulties in the debt handling process, the credit institution system still ensures profitability. Excluding 3 loss-making credit institutions, the profit after tax in 2014 was about 34 trillion VND, an increase of 5.3% compared to 2013 and an increase of 13.8% compared to 2012. It is worth noting that the credit institution system still maintains and ensures its obligation to contribute to the State budget.

To increase the effectiveness of bad debt handling, it is necessary to create a stable macroeconomic environment, sustainable economic growth, create an environment for businesses to operate effectively, increase credit reasonably, create profits for the credit institution system, and increase the source of bad debt handling. In addition, it is necessary to quickly circulate capital from mortgaged assets to return to the market a source of capital that is stagnant due to bad debt.

In addition to measures to apply policies to continue to stabilize the macro economy and achieve sustainable growth, it is also necessary to create higher liquidity for the handling of secured assets, especially real estate. Obviously, perfecting the legal framework for debt trading, utilizing capital from domestic and foreign investors to trade at market prices for secured assets, forming and developing a secondary debt trading market is a very urgent task, a requirement of the current reality of handling bad debts in banks in Vietnam.

PV: Thank you very much for this interview.

Red River