Bad debt settlement: Selling abandoned streets, ghost ships... who dares to buy?

To handle bad debt according to the market mechanism, the most important thing is to create a secondary debt market, through which to handle secured assets and recover capital; however, implementing this in practice is difficult.

Selling real estate, old ships,... who buys?

More than a year ago, the establishment of the Vietnam Asset Management Company (VAMC) was expected to be the mainstay in handling bad debt. However, the actual operation of VAMC has shown to be ineffective. VAMC “embraces” bad debt perhaps only to help banks solve financial reporting problems, but does not solve the root of the problem.

Therefore, the Government has just requested the State Bank to develop a plan to handle bad debts according to the market mechanism. However, according to experts, that is just the desire of the managers. The most important issue is to create a secondary debt market, through which to handle secured assets and recover capital, but in practice it is difficult to do.

Specifically, the assets securing loans in Vietnam are mainly real estate, factories, ships... The question is, in the current situation, who will be the investors to buy these assets?

With real estate assets, foreign investors are currently very interested and want to buy, but are stuck with legal procedures. Lawyer Truong Thanh Duc, Chairman of the Banking Law Club (Vietnam Banking Association), said that the provisions of the law related to real estate do not allow ownership or mortgage by foreigners. Therefore, foreign investors who want to buy back bad debts secured by real estate in Vietnam are not possible. If they want to do this, the law must be amended, but so far, there has been no record of any initiative on this issue.

For domestic investors, the economy is difficult, production and business are narrowed, very few people can afford to buy. The process of selling debt secured by real estate to domestic investors and customers is also very complicated, difficult, prolonged and rarely successful.

In the loan contract between the bank and the customer, there is an agreement that both parties are allowed to handle the secured assets if the debt cannot be recovered. However, in reality, to auction or sell the secured assets by real estate is not simple because the transfer and name change must be notarized. The transaction is only successful when the party whose name is also the borrower agrees, otherwise it will not be carried out.

At that time, the bank must file a lawsuit in court. Go to the first instance court, there will be a verdict, if the borrower does not accept, they will file a lawsuit in a higher court... and so on until there is a final verdict, then transfer to the enforcement agency. To resolve it, it will take at least 4 years, otherwise it will take longer.

Even for individual customers who mortgage their current home (the only home), when the time comes for enforcement, where will their family live or will they be pushed out onto the street, negatively affecting their lives and society? Many localities do not agree and it is very difficult to successfully enforce.

Still the story of "cold money and real rice"

As for factories, the ships are mostly old and outdated, making them difficult to sell, not to mention the value of the assets is inflated many times over their real value.

According to economic expert Bui Kien Thanh, the current situation of hundreds of sellers and one buyer will lead to a situation where bad debt collateral assets are still unsaleable at low prices. Even if they are reduced by 50%, no one will buy them, because why buy them?

For example, if the collateral is the "ghost" cities around Hanoi, if the debt of those "ghost" cities is seized, how will that "debt" be liquidated? Who will buy those assets? At what price? For how long? And can the land paperwork be resolved? Currently, there is no clear legal document on this, Mr. Thanh emphasized.

In fact, VAMC is having difficulty in selling collateral through auctions. In the past, VAMC has organized auctions three times but failed. This is not surprising, because before that, banks had tried to sell collateral to recover debts but failed. Some banks are even tired of auctioning "to the neck", even though they hold many real estate collaterals. Banks cannot sell to recover debts, and do not want to sell because it is too complicated.

On June 6, 2014, the Ministry of Justice, the Ministry of Natural Resources and Environment, and the State Bank issued Joint Circular No. 16/2014 guiding a number of issues regarding the handling of secured assets. Although it has removed barriers and loosened some points such as allowing notarization of name changes from the time of mortgaging assets, it still cannot resolve many, quickly bad debt secured assets to recover capital, said lawyer Duc.

The main problem in dealing with bad debt is to have “cash and real rice”. In other countries, bad debt is handled with cash and those countries use their budgets to handle bad debt, even many countries use 15-20% of GDP to handle bad debt.

In Vietnam, it seems impossible to use budget money to deal with bad debt. That is why we have considered dealing with bad debt with special bonds as in the past, which is a financial tool that does not exist in international practice and has not been very successful.

According to reading the newspaper