Recently, Vietnam Association of Finanacial Investors (VAFT) has put forward ten measures to swiftly handle bad debts of commercial banks without any harm to the state budget.
First and foremost is bad-debt provisions increase which may hurt banks’ profits and salary fund, yet quickly absorb losses and strengthen their internal financial capacity.
Secondly, appropriate salary and bonus schemes would help lower costs in order to bolster increased provisions for bad debts.
Thirdly, non-performing loans should be securitised in order to impede business bankruptcy and to preserve banks’ capital.
Fourthly, foreign ownership ratio at commercial banks should be raised to 40pct and that of strategic investors should account 25pct-30pct of chartered capital, which would boost foreign indirect investment (FII).
Fifthly, foreign banks of sound financial and governmental capacity should be allowed to purchase domestic feeble banks with weak governance and mounting bad debts.
“In such instances, funding or debt write-off could hardly help these lenders become much stronger due to their weak internal capacities. Their presence is likely to place further pressure on the banking sector”, the agency said.
The similar remedy has been relatively popular worldwide like in Thailand, South Korea and Indonesia during the Asian financial crisis 1996-200.
Sixthly, large credit institutions particularly state-owned ones should be encouraged to get hold of weaker banks. For these giants to proactively take part in the purchase, financial assistance from the central bank would be required which would ultimately tackle bad debts and make the banking industry healthier.
Besides, tax exemption should be applicable to debt trading so as to bolster the establishment of debt market and its development.
Moreover, enterprises’ issuance of corporate bonds should be exempted from corporate tax, which would then facilitate mobilisation rate easing, banks’ attraction of long-term rather than short-term capital as presently. The exemption is also expected to boost up debt securitisation, corporate bond development and stabilisation of capital mobilisation among the banking sector.
Additionally, it is high time to break the ice in the frozen real estate market. Should the huge demand for affordable housing be met, social securities issues would be tackled and the property market would simultaneously warm up. As a consequence, bad debts in the construction sector and property trading would quickly drop and the economy could strand a good chance of recovery.
Last but not least, the state budget allocation for 2013 should be reconsidered towards increasing spending on infrastructure development and cutting down on unimportant projects, which is expected to stimulate economic development among many sectors and quickly lower bad debts among the banking sector.