Handling bad debt, freeing up economic resources

Bad debt not only causes a huge amount of capital to stagnate in commercial banks but also freezes a large amount of collateral assets with a value equivalent to that capital. As long as bad debt is not thoroughly handled, the financial resources of the economy will remain "clogged". Therefore, thoroughly handling bad debt is the most important measure to unblock capital sources for current socio-economic development.

Customers transact at Vietinbank Nghe An Branch.Photo: Hoang Vinh

Socialization of bad debt handling

Regarding the handling of bad debts, many economic and financial experts continue to recommend that bad debts should be thoroughly resolved through securitization with government bonds to be widely traded on the market. Resolving bad debts through the issuance of government bonds is not only feasible but also meets the requirements of "socializing bad debt handling" because all individuals and economic and social organizations can buy bonds and voluntarily participate and benefit from the method and results of bad debt handling.

In addition, the solution to develop the foreign exchange market to attract non-financial assets among the population, while limiting foreign currency speculation, dollarization and gold-ization is also very important. Foreign currency and gold speculation are identified and determined as the "addresses" that confine the largest and most wasteful financial resources in our country. Foreign currency and gold speculation originates from the loss of confidence in the Vietnamese Dong, the scarcity and price difference, and the worship of foreign currency and gold.

However, all three of these causes have a common origin, which is the limitations of the financial system, specifically the underdevelopment of the foreign exchange market in Vietnam. Therefore, in order to quickly consolidate and develop the foreign exchange market while limiting foreign currency credit to eliminate dollarization and gold-ization in Vietnam, it is necessary to first perfect the price mechanism, gradually applying a flexible interest rate and exchange rate regime according to the market mechanism.

According to experts, interest rates and exchange rates are always the most important factors affecting the operation of the entire financial system. If interest rates and exchange rates are determined on a market basis, they will always reflect the demand and cost of capital, thus allocating and using capital most effectively. While we cannot completely float interest rates and exchange rates, we should be more bold in removing control over interest rate ceilings and exchange rate anchors, gradually loosening direct control over interest rates and considering this as a solution to remove difficulties hindering the development of banking activities, the stock market and the financial system in general in our country - an expert analyzed.

Along with the interest rate liberation, it is necessary to liberate the exchange rate, allowing financial institutions to negotiate openly and transparently with customers the two-way foreign currency buying and selling prices, meeting the legitimate foreign currency needs of the people. When there is no longer a "cheap exchange rate" in the bank, when the VND interest rate is positive and truly attractive, there will be no more demand for virtual foreign currency, the motivation to hold foreign currency as a reserve and the expectation of price increase will decrease, contributing to reducing the pressure and cost of state intervention in "prices" and the market - this expert further analyzed.

In addition, the current restriction and eventual cessation of accepting foreign currency savings deposits and encouraging residents and businesses to sell foreign currency to commercial banks should also be maintained and promoted. Accepting foreign currency savings deposits with the aim of attracting foreign currency from residents and increasing the ability to supply foreign currency to commercial banks from another perspective will inadvertently encourage foreign currency speculation and dollarization.

If the public satisfies the requirement of profitability through interest rates, while the exchange rate and purchasing power of VND are always kept stable, then eliminating foreign currency savings clearly coincides with the socio-economic development goals and is the political task of state agencies such as the State Bank, the Ministry of Finance, etc.

Some people may be concerned that ending the acceptance of foreign currency deposits will cause a loss of foreign currency resources and reduce the ability of commercial banks to supply foreign currency. However, when interest rates and exchange rates in Vietnam are determined and maintained satisfactorily, ensuring the principles of purchasing power parity and interest rates, if the expected return of currencies in Vietnam is higher, capital will flow in and more foreign currency will be sold to commercial banks - experts affirm.

Limit foreign currency holdings

Experts also recommend that it is necessary to pay close attention to limiting the foreign currency holdings of private enterprises through re-establishing the foreign currency exchange regime and encouraging the sale of foreign currency to commercial banks. Unlike the public, the foreign currency holdings of private enterprises are to reserve for the need to import for business activities.

Obviously, restricting foreign currency lending towards eliminating foreign currency credit; screening customers to reduce foreign currency lending subjects based on the ability to regenerate foreign currency capital and sell to commercial banks... is completely consistent with the content of the current regulations on foreign currency lending subjects of the State Bank of Vietnam, and also consistent with the reality in Vietnam of "export based on import" - an expert said.

Sharing this view, Director of Hoang Son Handicraft Import-Export Company Nguyen Van Bang (Hanoi) said that it is important that after selecting customers, commercial banks need to determine the credit limit in foreign currency for each specific customer, even according to different needs of the production, business and import process.

By doing so, banks can save foreign currency capital and eliminate unethical business practices when we have not been able to eliminate the current situation of two exchange rates and two interest rates. Based on determining the foreign currency credit limit, commercial banks can proactively develop mobilization plans in each period to meet the maximum customer demand while limiting the negative foreign exchange status, excess capital and having to transfer capital abroad.

Finally, an effective solution recognized by experts is to eliminate the bases that create the difference in gold prices between the domestic market and the international market. This is something that has been mentioned many times by managers and scientists but has not yet been resolved. The domestic gold price is always higher than the international gold price, sometimes even up to millions of VND/Ounce.

Price differences are the motivation for gold imports and domestic gold reserves. If we want to limit this, we need to improve the regulations on gold import and export management so as not to create a difference in gold prices. However, we also need to realize that limiting and eliminating foreign currency and gold credit in Vietnam is a trade-off, accepting the immediate difficulties and challenges to strengthen the confidence, purchasing power and sovereignty of the Vietnamese currency, which is one of the basic conditions for stable macroeconomic stability.

In the current conditions of our country, the healthy and effective development of the money market (including the domestic and interbank foreign exchange markets) is a prerequisite for the stability and development of the financial system. Therefore, experts believe that resolving the issues of "liberating" exchange rates and interest rates or abolishing regulations that cause the situation of two exchange rates and two interest rates combined with allowing commercial banks to negotiate capital purchases and sales, satisfying liquidity needs are the basic solutions to consolidate and promote the development of the foreign exchange market in Vietnam. Accordingly, thoroughly handling bad debts and unblocking capital sources are always the most important measures for the country's socio-economic development.

Red River