A plan from the Ministry of Planning and Investment (MPI) to use State funds to settle the bad debts of commercial banks has received a mixed response from economic experts.

The idea is within a draft plan on restructuring the national economy in the 2016-2020 period.

The Vietnam Asset Management Company (VAMC) has received VND2 trillion ($89.6 million) for the task and it has been estimated that a further VND5-10 trillion ($224 million-$448 million) is needed to stimulate the market for selling bad debts and reach out to investors.

The biggest issue “is to use the State budget to settle bad debts in an effective, transparent and fair manner,” banking and finance expert Mr. Nguyen Tri Hieu said.

The majority of bad debts came from State-owned enterprises (SOEs), he went on, which may account for as much as 60-70 per cent of the total. Following are debts in the private sector, and businesses that play an important role in the economy and have the ability to recover should be prioritized in the settling of bad debts.

Many reject the idea of using State funds, believing it is the responsibility of the banks themselves. However, if bad debts are not to be settled soon the issue will drag the economy down and using State funds is therefore considered a reasonable move. Three questions arise: How much State funding is needed? Where will this funding come from? And how will it be spent?

The State budget faces a host of difficulties, so “using State funds to settle bad debts is not a realistic solution,” according to economic expert Mr. Le Xuan Nghia.

Others say there are alternative means for settling bad debts, such as taking money from divestments by SOEs or borrowing from overseas. Moreover, banks and businesses need to take a loss when settling their bad debts.

This would actually not be the first time the State budget has been used for settling bad debts. VAMC has received VND2 trillion ($89.6 million) to buy debts at market prices and the acquisition of three ailing banks by the State Bank of Vietnam (SBV) also involved using State budget funds, either directly or indirectly.

The aim is to clear up these debts quickly, helping capital sources to flow into the economy. It would also help with the formation of a debt market. If legislative procedures can be more open, and funding comes from the State budget, then VAMC could accelerate its debt settlement.

Once such debts are traded successfully, the money VAMC has received from the State budget would be returned. 

The most important issue right now is to quickly form a legal framework on selling and buying bad debts, detached from concerns about criminal responsibility.

If State budget funds were to be used to settle bad debts there must be policies and criteria based on the principles of transparency and fairness.

VN Economic Times