The economy is about to have an additional 300,000 billion VND?

Immediately after the National Assembly passed the Resolution on bad debt settlement, banks (creditors) were all excited and said that within the next 2 years, 50% of bad debt, equivalent to about 300,000 billion VND, will be settled and put back into the economy.

The bank has the right to be a "creditor"

Illustration from the Internet.

This is a pilot resolution with specific characteristics to resolve bad debts arising before August 15, 2017. In particular, there are some new points such as allowing banks and organizations that buy, sell and handle bad debts to sell debts and collateral publicly, transparently and at market prices, which can be higher or lower than the principal balance of the debt.

In addition, debt trading and handling organizations are allowed to buy bad debts that are accounted for on or off the balance sheet of banks, except for joint venture credit institutions and 100% foreign-owned banks; and are allowed to convert bad debts purchased with special bonds into bad debts purchased at market prices according to the guidance of the State Bank of Vietnam (SBV). Notably, the resolution allows units to sell bad debts to legal entities and individuals, even if they do not have the function of buying and selling debts.

According to the data reported by the Governor of the State Bank of Vietnam to the National Assembly, by the end of 2016, the bad debt on the balance sheet of credit institutions was over VND150,000 billion and the total bad debt that the Debt Trading Company (VAMC) had purchased but had not yet been resolved was over VND195,000 billion. Thus, the bad debt on the balance sheet and bad debt sold to VAMC that has not yet been resolved is currently over VND345,000 billion, accounting for 5.8% of the total outstanding debt. If we calculate the total bad debt on the balance sheet, debt with potential risks and debt sold to VAMC that has not been resolved, the total bad debt in the whole system is 10.08% of the total outstanding debt, equivalent to about VND600,000 billion.

Mr. Nguyen Duc Huong, Chairman of the Board of Directors of Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank), commented that the National Assembly's approval of the resolution on bad debt settlement is a special event for the first time in Vietnam, marking a milestone in the policy of saving the economy in general and the banking system in particular. For the first time, banks have full rights as creditors. "The resolution was issued at the right time when the real estate market has good liquidity. In the next two years, banks will handle about 50% of bad debt, which means clearing 300,000 billion VND to serve economic development. In the next five years, about 80% will be handled, while about 20% of bad debt that is difficult to handle will have to wait for time," Mr. Huong said, and commented that the resolution is very detailed but still needs consistent guidance from the Government, professional guidance from the State Bank and other agencies to create consistency.

A representative of Asia Commercial Bank said that the new regulations will help the bank handle 50% of the current bad debts, with the ability to handle up to 70% of bad debts in real estate.

With 80% of bad debts related to real estate, the vice chairman of the board of directors of a large joint stock bank in Ho Chi Minh City also affirmed that the new resolution will greatly support in speeding up the current sluggish handling process. Because in reality, although loan contracts have provisions on handling assets when customers do not repay their debts, banks cannot do so if customers do not cooperate. Therefore, giving credit institutions the right to handle assets securing loans will solve the bottleneck that is causing banks to fall into difficulty when they are holding a pile of assets but still lack capital and are stuck with capital.

More capital for the economy

According to financial expert Nguyen Tri Hieu, this is only the first step in the process of resolving bad debt in Vietnam. The important thing is that the remaining links in this activity are still intact. The bad debt figure of about 600,000 billion VND is very large, and other solutions are needed. For example, the state management agency needs to issue additional guidance documents to confirm that banks are allowed to sell collateral assets below the debt value. The banks themselves accept and consider this as a risk, a normal loss in business. Then the debt settlement will certainly be faster.

Dr. Le Dat Chi, Deputy Head of the Finance Department (Ho Chi Minh City University of Economics) also said that the resolution only paved the way to handle existing debts. But in reality, since VAMC was established and bought back the debts, these "blood clots" have continued to arise. Therefore, the important issue is to have solutions to limit the emergence of new debts. That is to legalize the risk management process of banks. At the same time, the inspection and supervision agency must ensure compliance with those regulations as well as the clear responsibilities of individuals in the loan handling process...

“Most importantly, the Government needs to supplement or amend regulations on risk management as well as related issues in the Law on Credit Institutions, thereby creating a basis to control bad debt that may increase in the banking system,” said Dr. Le Dat Chi.

Resolving bad debt will help the economy have additional capital for production, which is also an important factor contributing to reducing interest rates and increasing business competitiveness.

According to Thanhnien