Need to urgently establish asset management company under SBV to tackle Vietnam’s bad debts

When bad debt threatens the safety of the banking system and the stability of the macro economy, the bad debt settlement needs to have the intervention of the government, even using the state budget or internal or external loans.

Seeing that bad debt of banking industry is caused by various reasons and that it reflects the situation of the macro economy, the banking supervisory agency believes that bad debt goes with congestion of capital for business, inventories, unfinished investment projects and declining of the real estate market.

With the above root causes, handling banking bad debt not only is the responsibility of the banking industry, but also requires a system of synchronization solutions, including credit agencies handling it themselves, macro economy management solutions, inventory dealing, “unfreezing” the real estate market; encouraging investment, consumption and enclosed mechanisms and policies.

In credit mechanisms and banking operation safety solutions group, the Banking supervisory agency stated that, currently, State Bank has solutions consisting of mechanisms and policies that support credit agency and enterprises which are in debt rescheduling and extension process; facilitate credit for big effective projects and actively implementing debt handling and trading solutions. In addition, this bureau also built new regulations on debt classification; setting up tighter risk provision policy; and enlarging list of assets with potential risk that need to be classified and need risk provision to have a more appropriate reflection of a bad debt situation and limiting bad debt increasing.

With current bad debt situation, to assure fast bad debt handling, clearing up capital for the economy, the banking supervisory agency believes that, the most basic and effective solution is to urgently establish asset management company under SBV (VAMC) to support the bad debt handling process

This solution is based on the demand of having professional and confident organization which has the ability to receive and concentrated process bad debts of credit institutions in large scale in order to maximize the value of capital return. It should be noted that VAMC is a special enterprise established by the government, in the form of one member limited company with 100 percent State owned capital, operates on the base on principal of expenses coming from earnings, not for profit, and under the direct control and supervision of SBV. VAMC buys and accepts bad debts which have collateral by assets, most real estate. Credit institutions that sell debts will be paid by bonds or special debt instruments issued by VAMC.

Real Estate

Even having VAMC, bad debt settlement of the banking system still needs solutions group of credit agencies as a key solution. In addition to debt restructuring, debt extension, and considering reasonably reducing or waive interest for customers who have good prospects to generate revenue for the debt paying, credit agencies need actively dispose secure asset, sell debt to retrieve capital, reduce bad debt, continue investment, lend to customers who have bad debt because of temporary difficulties but having good prospects of restoring and development. On the other hand, VAMC can converts debt into contributing capital, shares of borrowing enterprise and involves in restructuring enterprise at the same time.

According to “suggestion” of Banking supervisory agency, selling the debt to an organization – especially to Debt trading companies and Asset management companies – is also a solution that needs to be looked at.

Real estate market evaluated to be declining and freezing in the past time has bad influence to prospect of retrieving investment credits, real estate trading, and the debt which has secure asset. In order to remove difficulties for the real estate market, SBV has loosened real estate investment and trading lending through eliminating limited loan outstanding to some demands for loans for real estate investing and trading

What’s worth to know is that in the near future a series of solutions to support the real estate market are intended to be implemented. Notable solutions include reducing-waiving VAT for individual and household to buy first social or commercial house, corporate income tax favours for corporations invested in social houses, facilitating corporations to have quick transfer of real estate project structure

In addition to the above solutions, other supporting and coordinating solutions from Ministries and sectors are also important in handling bad debt. These solution groups will focus on removing difficulties for enterprises though reduce or wave tax, debt extension, implementing promote investment and consuming. At the same time, allocating fully capital for constructions and project to end the deadweight debt in construction investment; increasing scale and effectiveness of MSE credit guarantee funds to increase the possibility to access to bank credit of enterprises. These supporting solutions will help dealing with inventory and remove the difficulties of business.

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