Allowing insolvent banks to file for bankruptcy on a trial basis and settlement of bad debt are capturing public attention as the National Assembly (NA) will discuss an economic restructuring plan on November 2, but a senior expert believes both jobs are tricky.

Bank bankruptcy not for now

Former Vice President of the Central Institute for Economic Management Vo Tri Thanh affirmed the time was not “ripe” to allow a number of banks to go bust, even on a pilot basis.

“The most difficult issue is the banking system has yet to achieve stability and sustainability. Besides, Vietnam has zero experience in doing this,” he told the Daily.

The Bankruptcy Law of Vietnam gets a low score in the Doing Business report of the World Bank (WB) for it is extremely time-consuming. “Such ranking is just for a normal business, not a credit institution which is far more complicated and sensitive,” he said.

“Banks, even the best ones, mainly rely on deposits. Thus, it is very important to reinforce the confidence and behavior of depositors and the public in general in the present context to keep the system safe.”

The suggestion for a pilot plan in which weak banks could file for court receivership is making headlines in the economic life of the country. In fact, this idea comes from the economic restructuring plan for 2016-2020 that the Government has submitted to the NA.

Stating that bankruptcy is activated only when the interests of depositors and the stability of the financial system are guaranteed, the plan asks for a review of the rules on merger, consolidation, acquisition, bankruptcy and dissolution in the credit system for amendment and supplement.

Thanh described this as “a mountain of work” which would need a lot of time.

Bank bankruptcy is currently just an idea in the draft economic restructuring plan. So far, no impact assessments have been done or specific plans mapped out to realize such an idea.

“In my opinion, allowing for bank bankruptcy must adhere to the principle of protecting 100% of depositors,” Thanh said. However, this is currently an institutional bottleneck.

The Law on Deposit Insurance says the deposit insurance agency shall bear a maximum compensation of VND50 million per depositor. This means individuals and organizations with over VND50 million deposited would run the risk of losing their money.

Settlement of bad debt needs another approach

Resources equivalent to 12.5% of GDP have been used to stabilize the banking system and handle bad debt in the past five years, said Vice Chair of the National Financial Supervisory Commission Truong Van Phuoc. Even so, the ratio of non-performing loans has remained high.

Lawyer Truong Thanh Duc, chairman of the board of members at Basico Law Firm, said the major legal obstacles to bad debt settlement were no longer circulars and decisions as 15 years ago.

“Currently, the main obstacles are laws, and to remove them, these laws must be fixed, enacting a law to write off bad debt for example,” said Duc.

The laws provide for authorization, mortgage and guaranty in a confusing, ambiguous and illogical way, leading to many mortgage contracts declared void, costing banks both principal and interest.

“In the end, mortgage contracts are nullified, discouraging banks from aggressively handling bad debt and collateral,” Duc stressed.

The rules on debt trading are also inadequate, he added. Decree 69 of the Government dated July 1, 2016 imposes stringent requirements such as legal capital of VND5 billion for providers of debt trading brokerage and consulting services, VND100 billion for debt traders and VND500 billion for debt exchange operators.

Due to such requirements, business registration agencies have issued virtually no certificates for debt trading companies.

Duc believed at least ten laws should be modified to make the settlement of bad debt more favorable and efficient.

SGT