Banks’ bad debt self-settlement likely to trigger crisis

Credit channels have got stuck due to mounting bad debts that have been proposed to be tackled in several ways.

If banks are allowed to address this issue on their own, crisis stands a good chance to emerge, according to banking and financial expert Nguyen Tri Hieu.

How do the international investors think of the State Bank of Vietnam (SBV)’s decision to announce the amount of bad debts among local credit institutions?

The announcement made by the deputy Chief Inspector of SBV has been highly appraised. However, the release has yet to take the international community by surprised. What concerns them is hardly having appropriate remedies been executed as yet.

What are the similarities and difference between soaring bad debts of Vietnamese credit institutions and that of the US ones?

The two markets both see bad debts stemming from the real estate market turmoil yet differ in the volume. The US crisis absorbed all equity of credit institutions whereas Vietnam’s bad debt crisis is still under control.

Also, the US debtors were principally individuals who bought houses either for living or for investment while the majority of bad debts in Vietnam have been incurred by businesses, of which state-owned enterprises and firms obtaining enormous stakes in commercial banks make up a considerable proportion.

Part of the 700 billion dollar bailout package was used to purchase bad debts and banks were not forced to handle their own bad debts? Is it feasible to get this solution applied in Vietnam?

Vietnam’s banking system is likely to fall into severe crisis in the following year unless the government provides assistance. If commercial banks are allowed to address this problem on their own, it is very likely that bad debts would place barriers to the credit flows throughout the economy. Also, the crisis would stand a good chance of emerging.

Should the national debt trading firm be set up, at least half of the state budget that is to obtain bad debts could go for good. Yet, the banking sector would then be “purified”, which means easing burdens on enterprises.

Do you think there is still time to find the way out of the bad debt problems?

It is high time that bad debts be immediately abolished so as to circumvent likely crisis. The bad debt ratio could mount to 20pct unless a comprehensive remedy will be available by the end of the year.

 

Category: Finance