According to Pham Thanh Quang, general director of Debt and Asset Trading Corporation, it would take some 20 trillion dong to purchase banks’ bad debts rather than 100 trillion dong proposed by the Governor.
What do you think of the State Bank of Vietnam (SBV)’s intention to set up a bad debt trading company with initial capital of roughly 100 trillion dong?
It is vital that such company be temporarily established amid the banking restructuring process. The matters are to identify the purposes of purchasing bad debts, not merely profitability or economic bailout.
For several years, banks’ bad debts have placed increasing pressure on the economy. The economy’s total outstanding loans are estimated at 2.5 million thousand billion dong, of which state-own enterprises’ are 415 thousand billion dong and property projects account for some 50pct-60pct.
Where could the projected capital of 100 trillion dong come from?
In my experience, the initial capital should be around 20 trillion dong in order to purchase those of great urgency.
Currently, bad debts have become a drag on the economy, making bank credit hardly accessible despite recent interest rate easing. “Commercial banks should better manage by their own profits rather than depend on people’s capital or the state budget”, said minister of Planning and Investment Bui Quang Vinh at the National Assembly Meeting on 13 June.
The official development assistance (ODA) capital and favourable loans from WB and ADB which should be gradually disbursed would an important source. More importantly, it is commercial banks themselves that handle their own debts.
What do you think is the most effective method of purchasing bad debts?
DATC was founded in 2004 and started acquiring bad debts two years later. With the initial 2 trillion charter capital funded by the government, our firm has by far purchased bad debts of nearly 100 enterprises. Currently, we have equity capital raised to 2,700 billion dong let alone risk provisioning of 500 billion dong and stakes at some of our affiliates.
Normally, we have been purchasing, write-off, auditing and participation in the board of directors for financial restructuring and management enhancement carried out.
What about buying commercial banks’ bad debts?
Our experience shows that the process would be time-consuming. Banks would normally like to get rid of bad debts, yet are much concerned about selling prices.
We have by far acquired nearly 200 bad debts worth of above 10 trillion dong at some 28pct-30pct of the principal debt value, mostly from state-own banks. Acquisition of collateral is merely temporary as such assets will be returned on debt payment; rather, bad debts are bought for corporate restructuring. In fact, the business aims to save businesses rather than merely clean up their books.
DATC could be scaled up by raising charter capital to some 20 trillion dong and put under the management of the government. Thus, a debt trading firm managed by the State Bank of Vietnam would not necessarily be set up as DATC that aims at shoring up businesses would otherwise become one of the biggest customers of that company. Bad debts could only be settled step by step rather than in one or two days.