Despite repeatedly cutting the selling prices of secured assets for recovering bad debts, banks still face difficulties in liquidating them in the current market context.
Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) is selling a series of real estate assets for settling bad debts. The bank has recently decided to reduce the prices of three huge land plots by nearly three trillion dong as it repeatedly could not find buyers.
One of the plots is a complex of high-rise buildings and sport area located in Binh Tri Dong and a part of the land plot number 122 in Binh Tri Dong B ward. It is offered at a starting price of 6.029 trillion dong, more than 600 billion dong less that what it was offered six months ago.
The second one is the urban zone in Binh Thuy ward (Binh Thuy district, HCM City), which is offered at a starting price of 3.424 trillion dong, 1.1 trillion dong less than the previous price.
In October 2018, Sacombank offered for sale of Phong Phu Industrial zone in Binh Chanh district for 6.650 trillion dong, one trillion dong less than the initial offer price.
In the end of 2018, for the third time, Vietnam Asset Management Company (VAMC) and Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) Phu Tai branch (Binh Dinh province), through Lam Son Auction Company, auctioned all the debts of Thuan Thao Nam Saigon Company and 95 individual customers. Thuan Thao Nam Saigon respectively owes 1.9 trillion dong and 473.3 billion dong to VAMC and BIDV, respectively. In this auction, the creditors lowered the starting price to just 1.090,3 trillion dong.
In the first auction, the starting price was set at 1.208 trillion dong, but there was no participant. In the second auction, VAMC and BIDV lowered the price by five percent to 1.147 trillion dong, but were also unsuccessful.
VAMC also continuously discounted the price of the bad debt of Dong Thien Phu. In the end of 2018, the starting price offered by VAMC this time is 137 billion dong, seven billion dong less than the previous offer. Compared to nearly four months ago, the starting price dropped by about 107 billion dong, equivalent to a 44 percent decline.
The bad debt settlement at Sacombank is being accelerated, and considered the bank’s central issued, according to the bank’s Chair Duong Cong Minh. Accordingly, the bank has strongly increased its provisions for risks by nearly two times to 1.592 trillion dong. The total on-balance sheet bad debts of Sacombank by the end of 2018 declined by nearly half compared to the beginning of the year, reaching 5.427 trillion dong. The ratio of bad debts on total outstanding loans to customers significantly decreased from 4.67 percent to 2.11 percent.
However, at many banks, bad debts showed signs of increasing at the end of 2018. The ratio of bad debts on outstanding loans to customers of Orient Commercial Joint Stock Bank (OCB) rose from 1.79 percent to 2.28 percent as of late 2018. In which, a part of the bad debts were repurchased by OCB from VAMC as they were unhandled after the five-year period.
By the end of 2018, the ratio of bad debts on outstanding loans in market 1 of Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) increased to 1.56 percent instead of 1.13 percent in the end of 2017.
In this situation, VAMC and many banks are urgently coordinating to settle bad debts, liquidate collateral, in which many large debts were discounted by hundreds of billion dong or even trillions dong. As assessed by a financial and economic expert, banks have been significantly boosted the bad debt handling. However, a further reduction of bad debts is unlikely to be seen soon, because they involve the projects of businesses or have high value.
Banking and financial expert Nguyen Tri Hieu explained that the settlement of bad debt is having many problems. Specifically, the issuance of Resolution 42/2017/QH14 is to support the bad debt handling, but it only offers the mechanism, while in fact, the bad debt settlement not only depends on mechanism but also on the interaction of the parties involved (including banks, debtors, and related parties such as courts, local authorities, security agencies, etc.).
In early 2019, the government set out a drastic task to handle bad debts for the banking system. In particular, banks should bring the on-balance sheet bad debt ratio to below two percent and the ratio of bad debts and debts which potentially can become bad debts to less than five percent.
