Trillions of dong worth of debt settled each month, after resolution released

A daring decision has helped the financial market and the banking system to stand firmly during Covid-19.

The State Bank of Vietnam (SBV) reports that the bad debt ratio of the banking system had decreased 1.96 percent as of the end of August, lower than the targeted 2 percent.

Trillions of dong worth of debt settled each month, after resolution released

As such, the bad debt ratio decreased from 2.46 percent in late 2016 to 1.99 percent in late 2017, then to 1.91 percent in late 2018 and to 1.63 percent in late 2019.

The Covid-19 pandemic has caused many hardships to businesses, which explains why non-performing loans (NPL) have been increasing rapidly. However, bad debt is still within control.

One of the tools that banks use to restructure their operations and settle bad debts is Resolution 42.

SBV Deputy Governor Nguyen Kim Anh said that Resolution 42 is a very important document, which for the first time, handles all legal entanglements that have existed for many years related to debt and collateral settlement in one National Assembly legal document.

In addition to Resolution 42, the Prime Minister also promulgated Decision 1058 on restructuring credit institutions integrated with bad debt settlement in the 2016-2020 period.

According to Tran Dang Phi, Deputy Chief Inspector of the State Bank, the legal framework on debt settlement is finished, and conforms to international standards and practice in Vietnam.

The framework ensures the stability and safety of the banking system, and improves credit quality, with the bad debt ratio decreasing step by step.

 

Phi said the total debts defined in accordance with Resolution 42, handled from August 15, 2017 to May 31, 2020 was VND7.15 trillion a month, higher than the VND3.63 trillion a month in the 2012-2017 period, before the Resolution 42 took effect.

Worries still exist

Do Giang Nam, deputy CEO of the Vietnam Asset Management Company (VAMC), said the resolution more clearly shows the rights of creditors, VAMC and credit institutions; helps raise individuals’ and institutions’ awareness about debt repayment; creates motivation to encourage banks to sell bad debts at market prices; and helps create a debt market, thus ensuring market rules in bad debt settlements.

However, according to Anh, the resolution is only valid for five years from August 15. This means that after the resolution expires, if there is no legal document to replace it, banks will once again face difficulties in settling bad debts.

Can Van Luc, chief economist of BIDV, warned that the last months of 2020 and the year of 2021 will be a difficult time for banks, predicting that the bad debt ratio may reach 3 percent by the end of 2020 and 4 percent by 2021. 

Luong Bang

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