Leaders in the banking industry are calling for the establishment of a debt trading company with the capacity to buy up about VND100 trillion (US$4.8 billion) worth of bad debt, although questions remain about how it would be organised.
The State Bank of Vietnam, at a meeting with the 14 leading commercial banks on May 31, had said it intended to establish such a company and announced the possible amount as part of a plan to clean up the bad debt situation plaguing commercial banks, which was slowed the flow of new credit into the economy.
The central bank has stressed the need to ensure that credit growth expands in accordance with government targets in light of the fact that overall lending has declined by 0.2 per cent since December 31.
“I support the intention of the State Bank,” finance expert Can Van Luc told the news website vnexpress.net. “At this time, there’s a need for a debt trading company at the national level. VND100 trillion is just an initially estimated figure, but it’s clear that the State Bank has based it on the current bad debt situation in the banking system.”
Industry insiders have said that looser government financial and monetary policies implemented in the last few months – including tax payment extensions, and increase in public spending and interest rate cuts – would only help ease economic difficulties in the short term. But they continued to wonder whether banks would accept the risks of boosting lending in the face of their current debt levels.
Bad debts now amounted to $6-7 billion, about 5 per cent of the country’s total outstanding credit of $130 billion, Luc said.
Luc noted that commercial banks had been dealing with debt through their own asset management companies. However, he said,a national-level firm would be more effective and help speed up the needed restructuring of banks.
Eximbank general director Truong Van Phuoc said the creation of the new company would enable banks to engage in new lending and reduce interest rates.
The major question, however, is where the funds would come from to buy up the bad debts. The deputy director of the Ministry of Finance’s Debt and Asset Trading Corporation (DATC), Pham Manh Thuong, said, “No one has enough capital to buy this amount of debt at once…. There will have to be mechanisms to gradually deal with it.”
He said the DATC was negotiating to buy up about VND5 trillion ($240.38 million) in bad debt from banks.
Nguyen Xuan Thanh, public policy director of the Fullbright Programme, has said that the DATC should be granted significant capital from the State budget but wondered, “Will it be able to do better than the banks? Even banks, which understand their debtors most clearly, can’t recover debts, so the corporation is likely to see many difficulties.”
National Financial Supervisory Committee chair Vu Viet Ngoan said people shouldn’t expect that the measure would immediately solve the country’s bad debt situation. Ngoan also suggested that clear regulations be issued to govern the operations of the debt trading company in order to avoid putting State assets at risk.
“The State budget will suffer if this company see losses,” he said.