Central bank shuffles SOE debt load responsibility

Total non-performing loans owed by state-owned enterprises is unofficially estimated at hundreds of trillions of dong and it is obvious the SOEs have no way to repay state banks. So the government is in a quandary on how to deal with the situation to collect these NPLs without bankrupting most of the financially weak SOEs, said Ta Quang Khanh, chief of the State Bank of Vietnam’s credit department.
In a recent interview, Ta Quang Khanh talked about this matter. Excepts:
NPLs have become one of the biggest obstacles to the future development of state banks. An official document by the State Bank of Vietnam ruled that “If SOEs do not repay loans of credit institutions, these credit institutions will have full authorisation to file lawsuits against SOE debtors”. Has any bank done such a thing as take legal action against an SOE?
Yes, the Industrial and Commercial Bank Vietnam (Icbv) and Vietcombank have sued SOEs because these SOEs did not repay bank loans. However, the banks did not want to make the lawsuit more serious because they are afraid that the lawsuits may seriously affect the operations of these SOEs and even themselves.
All NPLs are owed by SOEs, right?
In some cases, SOEs have the capacity to repay bank loans but they simply do not want to citing such reasons as previous management that signed off bank loans have since retired or work in other state industries so successors do not have the relevant documents to repay the bank loans under the contract terms. But not all SOEs do take this course of action. However, we must warn SOEs that they are responsible for repaying bank loans.
Why don’t banks take into possession the assets of defaulting SOE?
Banks really want to freeze assets of SOEs but they are enterprises of the state. If banks attempted to apply strong policies against them, such a decision would impact the interests of some high-level officials or affect the employment of thousands of workers. If SOEs are bankrupted, there are many complex things that may emerge. For example, if banks freeze the assets of SOEs, or stop lending to SOEs, this would force the SOEs to stop operating.
In what ways should state banks collect NPls?
I think that each bank must apply its own flexible measures in collecting past loans instead of strong but ineffective measures. For bank loans left behind for a decade as the government instructed banks to loan to SOEs but up to now the banks have still failed to collect the loans. Banks must find ways to force these SOEs to gradually repay instead of forcing them to immediately repay all outstanding loans. Or, banks can use measures such debt and asset trading companies to deal with these debtors or reduce the payments to the state budget or banks can offset the debts by taking equity stakes in the equitised SOEs and such like.
The SBV stated “when implementing the restructuring of SOEs, if SOEs meet any difficulties leading to incapacity to repay bank loans, credit institutions will have the authorisation to ‘actively’ deal with the situation?
SOEs that have been restructured are often in a financially weak state for a period of time so banks must be responsible for helping them develop properly so that they can repay bank loans. Therefore, if the government and banks straight away launches strict policies to collect these NPL arrears, it is sure thing that these weak SOEs will quickly find themselves bankrupted. Everyone knows that loans to banks cannot be collected, which leads to loss and stagnancy in state assets. However, the government has issued a guideline on further speeding up the equitisation of SOEs to become shareholding companies so banks also must speed up collecting NPL arrears.

 

Category: Finance