VietNamNet Bridge – It may take Vietnam a decade to resolve the bad debt issue that is crippling the banking system, says an economic report.

“It will take 7 to 10 years to clear bad debt and the process will depend on the bad debt volume and the complexity of the matter,” says the report done by the University of Economics under Vietnam National University in Hanoi.

With the bad debt ratio of 6% announced in February by the central bank and other data on bad debt, the banking system has a total of VND180-300 trillion loans that have turned bad, said Dr. Nguyen Duc Thanh, the main author of the report.

However, the actual bad debt ratio is unclear, he remarked. It stood at 3.57% in March 2012 as reported by credit institutions, but later surged to 8.6% as announced by the central bank and 9.53% in September that year.

As of end-2012, the bad debt ratio had fallen to 7.8% according to a report of the Government based on the data provided by the Bank Supervision and Inspection Agency at the central bank. By the end of this March, the percentage had slid to 4.51% based on the reports of credit institutions.

Meanwhile, the Economic Committee of the National Assembly said the bad debt ratio in 2012 had risen 64% over the preceding year. However, the committee fell short of making clear this figure.

Thanh said: “Bad debt might even increase twofold from the current level.” In this case, banks would be severely hit and the capital adequacy ratio might drop by half.

“It is an urgent need to systematically tackle bad debt,” he said.

Economists shared the same concern. Le Dang Doanh said bad debt might soar to VND500 trillion, so the establishment of Vietnam Asset Management Company (VAMC) with capital of VND500 billion could not help solve the problem.

He asked: “Can this company wipe out the VND500-trillion bad debt?”

It will be hard to address the problem when State-owned enterprises owe a massive debt of VND1,300 trillion, multiple private firms are going bust and the property market remains frozen, he stressed.

Bui Khac Son, general director of Deposit Insurance of Vietnam, said numerous State-owned enterprises and realty companies were struggling with a mountain of debt. He described bad debt as gangrene that needs to be removed immediately.

Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, expressed a more pessimistic view. “I’m afraid that by the time we finish settling bad debt, Vietnam’s manufacturing industry would be in tatters.”

He explained Vietnamese firms, even State-owned ones, active in animal husbandry, cosmetics, beverage and confectionary had been gradually eliminated from their home market as they had been taken over by foreign-invested enterprises.

In its conclusion, the report says: “The economy is further sinking into a downturn and facing more internal risks. Meanwhile, there has been little progress in restructuring the economy and changing the growth model.”

Source: SGT