Find solutions to bad debt

(Baonghean)Bad debt is a top concern for businesses and banks. How to handle bad debt and limit risks is a matter of concern today.

According to data from the State Bank of Vietnam, Nghe An province branch, as of June 30, 2012, bad debts at credit institutions in the province amounted to VND1,994 billion, accounting for 3.15% of the total outstanding debt in the province, an increase of VND1,028 billion compared to the beginning of the year. Of which, 60% is bad debt of enterprises, the rest is of business households and individuals. Bad debts are mainly concentrated in a number of areas: real estate business, construction, commercial services, other industries. However, public opinion is still skeptical about the actual bad debt figure which is even larger and which credit institutions are "hiding" and not being completely transparent. The State Bank of Vietnam Inspectorate has just announced that the bad debt ratio of the domestic banking sector according to the monitoring results of the banking inspection and supervision agency is 8.6% (equivalent to VND202,000 billion).



Construction business sector - one of the sectors with the most bad debt.

Although all bad debts have been provisioned by banks for risks and have collateral, it is worth mentioning that a large amount of capital is "lying idle" for provision, causing waste! The problem of bad debts has become more urgent than ever when the economy is in a prolonged recession, businesses are facing difficulties and losses, and the number of businesses ceasing operations and dissolving is increasing. What is the solution to improve the effectiveness of bad debt handling at present? That is a problem without an effective answer when the result depends entirely on the customer's ability to repay the debt.

Mr. Phan Huu Phung - Director of Saigon Commercial Joint Stock Bank, Nghe An branch shared: Bad debt is currently our biggest concern. The branch is re-evaluating customers. For customers who are able to repay their debts in the future, we are restructuring debts, extending debts for customers, creating conditions for customers to overcome difficulties. Carefully analyze and re-evaluate where the business's cash flow is stagnant, whether the inventory is in stock or the debt has not been recovered, accurately identify the bottlenecks of the business to have the most suitable application plan. Depending on each customer's business sector, evaluate, determine specifically, and have flexible solutions for each customer's specific conditions. For customers who are unable to repay their debts, the branch must sell mortgaged assets to recover debts. More than ever, at this stage, both banks and customers work together to solve this difficult problem.

Mr. Bui Xuan Huong - Director of Eximbank Vinh Branch confided: In my opinion, understanding and sharing with customers is the most effective way to handle bad debt. In addition to debt restructuring, debt extension, and interest rate reduction for customers, Eximbank Vinh staff advises customers to sell assets to repay debt, and at the same time provides information support (brokerage) to help customers sell assets. It is possible to use debt offset measures with a term (term purchase and sale of mortgaged assets). In parallel with debt handling, bank staff advise and consult customers on cash flow, where is the cash flow? If customers are doing business properly, the bank will extend the debt, divide the debt into different repayment periods, and reduce interest rates to reduce pressure on customers. We believe that customers who are restructured according to the right criteria and conditions will certainly soon have a source of income and repay the debt to the bank.

According to Mr. Bui Xuan Huong, the reason for the rapid increase in bad debt and overdue debt is, in addition to the objective factors due to difficulties in production and business, large inventories, construction enterprises having difficulty recovering capital, real estate enterprises having frozen markets... leading to the ability to pay debts when due not being guaranteed, most of the bad debts originate from the overly superficial appraisal stage of credit officers when bad projects are also evaluated as good to easily disburse loan capital...

Many customers, when checked on the use of capital after borrowing, admitted that part of the loan was used for production and business, the other part was used to buy supplies, even personal expenses... until the capital invested in production and business suffered losses, there was no other source to repay the bank, leading to bad debt. Many customers borrowed for production and business but in fact used the capital for the wrong purpose, leading to risks, losses, and bad debt...

The State Bank’s leaders said: To effectively handle bad debts, it is necessary to improve the appraisal level of credit officers, and closely check the process before, during and after lending to promptly take measures if customers use capital for the wrong purpose. When customers show signs of bad debts, it is necessary to find out the cause to have appropriate solutions… Quickly handling collateral assets to recover capital is a fundamental solution that needs to be done immediately.

Quynh Lan