Bad debt handling is considered a key issue in restructuring the banking system but this process still faces certain obstacles.
Nguyen Trong Dudeputy Chief Inspector of the Banking Inspection and Supervision Agency said that with the direction of the government and the National Assembly, in the recent time, the State Bank of Vietnam (SBV) has directed and developed the bad debt settlement plan, complying with Resolution 42, performing bad debt assessment on each credit institution. On that basis, specific measures for each month and each quarter will be provided. In particular, solutions to deal with bad debts are implemented synchronously along with measures to control and prevent newly arising bad debts, contributing to improving credit quality and reducing bad debt ratio of the system.
Regarding bad debt settlement results according to Resolution 42, accumulated from August 15, 2017 to the end of March 2019, the whole system of credit institutions handled 227.86 trillion dong of bad debt; in which, internal bad debt settlement reached 117.8 trillion dong. Thus, on average, the system handled about 5.8 trillion dong per month, higher than the average level of four trillion dong of bad debts dealt with from 2012 to 2017, the period before the effective date of Resolution 42.
According to Vietnam Assets Management Company (VAMC), there are five banks that have cleared debts at VAMC, including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Military Commercial Joint Stock Bank (MBMBBank), Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), Orient Commercial Joint Stock Bank (OCB) and Vietnam International Commercial Joint Stock Bank (VIB). In addition, some banks intend to finalise all VAMC special bonds in 2019 such as Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), Tien Phong Commercial Joint Stock Bank (TPBank) and Kien Long Commercial JointStock Bank (Kienlongbank).
Although there is an increase in the speed of handling bad debts, according to the assessment of a member of the National Financial and Monetary Policy Advisory Council, it is still tough and needs handling coordination of many stakeholders.
Firstly, the debt trading market is still underdeveloped. The process of determining the value of the debt as a basis for the debt buyers and sellers to refer is still difficult when the valuation of debt is carried out by price appraisal organisations, not according to uniform standards, which leads to different methods and pricing criteria between different organisations.
After that, the transfer or mandate to manage these debts is hard because there is no secondary debt market. Similarly, there are currently no derivative activities such as asset securitisation, debt and bad debt securitisation. This leads to very low liquidity of debts.
Secondly, many bank representatives said that even after the effectiveness of Resolution 42, the biggest problem was seizing security assets (Collateral). If the collateral holder was not willing, the bank could not seize it because there is no sanction. When the client made the bank unable to seize the property, it was forced to return to the final solution of judgment execution, which was time-consuming and costly.
In addition, a number of bad debts associated with the courts, cases, and projects that have suffered losses or bankruptcy have not been processed. There are debts after finishing the transaction procedures, mortgage assets are factories, machines and goods degraded and worn out.
Resolving bad debts is considered a key issue in restructuring the banking system, but this process still faces certain obstacles. Especially for weak banks. One expert said that the bad debt settlement of weak credit institutions faced many difficulties due to factors such as: most collateral for debts are being distrained, related to dispute cases and incomplete legal documents. The approval of restructuring plan, especially for weak banks, is slow, making investors not really interested in.
“Restructuring plans of weak banks must seek advices from many ministries. It will take a few months for obtaining opinions, while investors cannot wait that long, so the opportunity to cooperate with foreign investors has been missed. That is also the reason in recent years, no weak banks have signed any cooperation agreements with foreign investors,” he said.
In this regard, SBV also mentioned the obstacles in implementing restructuring, including the restructuring of weak banks. The report stated that the restructuring of three compulsory buying banks was a tough, complicated and unprecedented process. It was necessary to closely coordinate and consult with many related ministries and agencies.
Another difficulty is the progress of handling restructuring for some non-bank credit institutions with owners, major shareholders are state corporations, is still slow, depending on the content of their overall restructuring plan. Meanwhile, the restructuring of state corporations needs to be approved by the prime minister or the ministries and branches. At the same time, many state-owned corporations are still facing financial troubles and lack of resources.
Therefore, according to experts, to speed up the restructuring weak process of credit institutions, it needs the participation of not only SBV but also many parties. Especially the process of dealing with collateral to recover debts related to economic cases needs to coordinate with many agencies and functional levels.
According to Dr Can Van Luc, it needs to have a focal point to coordinate and solve difficulties in dealing with bad debts following the Resolution 42/2017/ QH14 of the National Assembly, thereby speeding up the process of handling bad debts, ensuring to follow requirements of Decision No. 1058. There are suggestions to increase the right for SBV to approve the restructuring scheme of weak banks to reduce administrative procedures, speed up the approval of plans to help foreign investors find faster cooperation opportunities.
