In 2011 banks lent out a total of VND258 trillion (USD124 billion) to businesses, with about 10 percent of them now being considered bad debts, half of which are considered insolvent.
The State Bank of Vietnam (SBV) suggested the establishment of a fund for companies dealing with bad debts that are worth moe than VND100 trillion (USD4.8 billion).
One of Vietnam’s main priorities for the economy this year is the restructuring of the banking system, and to achieve this, the problem of extremely large bad debts must be quickly dealt with.
The Governor of SBV, Nguyen Van Binh said, “Bad debts are mainly due to the involvement of State-owned in non-core business activities. The Vietnam Shipbuilding Industry Group (Vinashin) fiasco can be seen as a typical example. Another source of the problem is huge loans being given out to real estate securities speculation.”
Still, the suggestion to create a fund to take over bad debts has raised much controversy as to how it should be set up and administered, including the criteria used for a company to qualify and the way in which to handle repayment structures.
Estimating the real value of bad debts is one of the first obstacles, according to many economists. The structure of this proposed fund would be largely based on the ability of companies to repay.
A total of 12 State-owned enterprises owe bad debts worth a total of VND218,738 billion, according to a report released by the Ministry of Finance on the restructuring of State-owned companies. Much of this money was lent despite these enterprises lack of a detailed business plan.
Prevailing suggestions include government divestment from these enterprises, with a target of between 20 percent to 30 percent total investment over time instead of directly taking over company debt.
Nguyen Tri Hieu, an economist, suggested that the system in Vietnam should be based on the experiences of foreign countries, such as the US, China, and Japan in order to get out of the situation. The US government bailed out their banks with a package of hundreds of trillions without requiring additional oversight or intervening in the management of those banks. The Chinese government forgave the debts of state-owned companies and the Japanese government let weak banks go bankrupt.
Tomoyuki Kimura, director of Asian Development Bank (ADB) in Vietnam advised that when lending, banks should carefully examine business models of the companies in question before granting loans. He also suggested that loans could be tied to restructuring agreements.