Bad debt increases, banks find it difficult to liquidate assets

Group 5 debt (debt with the possibility of losing capital) is showing signs of a slight increase at major banks. Meanwhile, liquidating collateral to recover debt is not easy because customers are often uncooperative, forcing banks to sue in court.

The case of Vietnam Construction Bank (CB) suing Phuong Trang Passenger Transport Joint Stock Company (Phuong Trang Company) for bad debts of thousands of billions of VND has become a concern of the financial market in recent days. In 2015, with quite positive debt collection results, the bad debt balance that CB sold to the Vietnam Asset Management Company (VAMC) reached 500 billion VND. In 2016, along with debt forgiveness, debt sale to VAMC, and asset handling, CB closely coordinated with the authorities to reach conclusions on large debts and actively collect debts in cash.

In the second quarter of 2016, CB has been focusing on handling large bad debt groups. Of which, nearly 3,000 billion VND of bad debt related to 10 loan files of Phuong Trang Company was sued by CB during the period from March 2015 to May 2015. From now until the end of 2016, CB will consolidate the files, initiate lawsuits and handle assets for all borrowers belonging to Phuong Trang Company group. The promotion of handling nearly 3,000 billion VND of bad debt related to Phuong Trang Company debt group will be a positive start for CB to have a basis to actively handle large bad debt groups in 2016.

Phuong Trang Passenger Transport Company has been sued by Vietnam Construction Bank for debt arrears. Photo: Duc Thanh

Responding to a reporter from Investment Newspaper, Mr. Do Tat Kha, Deputy General Director of CB, said that with a bad debt of nearly VND 3,000 billion in 10 lawsuit files, which has been backlogged for many years, after many unsuccessful attempts, CB is forced to file a lawsuit in accordance with the law. “If operational reform is a necessary condition, then the work of collecting and handling bad debts at CB is considered the core of the bank restructuring process. For CB, debt collection plays an even more important role, because the Bank is owned by the State, debt collection is to protect the assets and interests of the State that are being appropriated by businesses and individuals,” said Mr. Kha.

However, the difficulty in handling bad debt is the foreclosure of assets securing debt recovery, due to complicated procedures and banks cannot unilaterally foreclose. Notably, the collateral is mainly real estate, but the warming of real estate has not significantly impacted the process of handling bad debt. Because the bad debts that commercial banks sell to VAMC are bad debts of large value, while the real estate market is currently only warming up in the affordable apartment segment. Moreover, the credit contract allows banks to foreclose, but the right to resolve mortgaged assets, which are real estate, does not currently belong to banks.

A leader of Agribank in Ho Chi Minh City said that customers do not want to cooperate with the bank because they are worried about their collateral being handled. Once the bank and customers cannot find a common voice, they will have to sue in court, which will take a whole year. That is also the reason why the handling of bad debt is currently slow.

Dr. Tran Du Lich, member of the National Financial and Monetary Policy Advisory Council, said that in order to handle bad debt, it is necessary to make the handling of collateral more transparent so that debt can be quickly foreclosed. On the other hand, Vietnam must form a debt buying and selling market, attracting foreign investors to participate in buying and selling debt according to market mechanisms, and cannot just rely on real estate to recover. Handling bad debt according to market mechanisms has also been mentioned in Decree No. 34/2015/ND-CP, but to implement this mechanism, it requires time.

According to Baodautu.vn