The State Bank of Vietnam (SBV) has recently reported on the three-year results of piloting bad debt handling by credit institutions (CIs) under Resolution 42/2017. From August 15, 2017 to May 31, 2020, the banking system processed 160.92 trillion dong of bad debts on the balance sheet, dealt with 67.28 trillion dong of off-balance sheet bad debts as determined according to Resolution 42, sold 65.68 trillion dong to the Vietnam Assets Management Company (VAMC) and settled by special bonds.
The total bad debts handled according to Resolution 42 reached on average about 7.15 trillion dong per month, more than two times higher than the results of bad debt handling in the 2012-2017 period. Governor Le Minh Hung once identified the results of handling bad debts according to Resolution 42 in the form of debt repayment by customers increased, reflecting improved debt repayment consciousness.
However, in fact, according to Hung, the implementation of Resolution 42 still has many limitations related to that of ministries and localities; the coordination of police agencies at all levels; the mechanism for accessing information on the status of collateral; cooperation in civil judgment enforcement activities; and the limitation of the selection of appraisal body.
Expert Can Van Luc said that the resolution still had four to five major problems that have not been removed, so it was clear that the participation of the local ministries had not been drastic, for example regarding the liquidation tax guaranteed products, and judgment execution fees. Besides, the local police had not drastically participated.
Collateral auction and handling is not easy for banks. VietinBank, BIDV and others continuously put up for sale, auction of customers’ debts and assets. Some collaterals are liquidated 10-20 times. For example, BIDV auctioned all debts of Thuan Thao Nam Saigon Joint Stock Company 17 times, collateral assets of Thuy Dat JSC 29 times; VietinBank auctioned the assets of Anh Dat Transport Construction Trading Joint Stock Company 12 times; Sacombank suspended to sell a series of real estate assets that were worth hundreds of billion dong for many years.
Nguyen Huu Hung, deputy director of HCM City Auction Centre, shared the results of successful auctions of guaranteed assets accounted for about 50%. Many packages of bad debt guaranteed assets must be priced and discounted many times. Investors were still afraid, so it was very difficult to sell successfully.
Expert Nguyen Tri Hieu also emphasized that legal procedures were too complicated, with many obstacles, which were the main barriers of the debt trading market in Vietnam.
In the first six months of the year, despite the impact from Circular 01, the bad debts of the banking sector still increased. According to statistics with 25 banks (excluding Agribank), the value of bad debt grew by 20 percent in the half year, the bad debt ratio rose from 1.44 percent to 1.68%.
According to expert Nguyen Tri Hieu, Circular 01 helps a number of businesses not be converted into group of bad debts, in order to continue to borrow money from banks. However, this also pushes risks towards banks. Hieu believes that the arising bad debts actually still exist, Circular 01 makes a part of bad debts not appear in the financial statements.
Expert Can Van Luc also assessed that current customers were more complicated because a number of individuals and organisations had signs of taking advantage of Covid-19 to delay repayment, and hand over liquidation accounts to credit institutions.
Some banks have prepared to incur bad debts in the future by raising provisions. Vietcombank is the most active entity, the bad debt coverage ratio increased from 179 percent to 254%. At some other banks such as TPBank, Techcombank, NamABank, and MB, this rate also increased by 10-15 percentage points.
With the impact of the pandemic, along with the risks arising from new loans at banks, the handling of old bad debts and collateral are also more difficult. Many recommendations are given. Bank leaders want the ministries to participate more actively, suggesting the court to soon apply the shortened order to the disposal of loan collateral.
HCM City People’s Committee recently proposed to continue piloting the handling of bad debts until the end of 2025 according to Resolution 42/2017. Currently the resolution is only applicable for five years from 2017 because the bad debt settlement process is difficult and time-consuming. In addition, there should be appropriate tax policy related to the sale of collateral to deal with bad debts.
Meanwhile, Nguyen Tien Dong, Chair of VAMC suggested that in the long run, it was necessary to turn Resolution 42 into official law. Because it was not legalised and the sanctions were not clear, many provisions in the resolution when being implemented must be based on a number of laws, while the legal value was higher than the Law on Credit Institutions. This made VAMC and banks difficult to carry out. He said that it was necessary to give sanctions and specified the tasks for each branch and locality in dealing with bad debts.
At the same point, expert Can Van Luc said that the entry of the authorities was extremely important. However, according to Luc, the development of a separate law on dealing with bad debts should be considered more carefully. In the short term, according to Luc, the ministries, branches and localities must do all their responsibilities. Resolution 42 was the decision to handle the situation in the context of high bad debts. By 2022, the economy was expected to operate normally, citizens’ enterprises would be more aware and willing to repay debts. Based on the situation at that time, a new resolution or law could be considered.
