VietNamNet Bridge - One of the controversial points in the draft plan on restructuring the national economy in the 2016-2020 period drafted by the Ministry of Planning and Investment is the use of the state’s money to settle commercial banks’ bad debts.

The proposal has not been applauded by experts who believe that it is unfair to ‘use public money for private business’.

Duong Quoc Anh, deputy chair of the National Assembly’s Economics Committee, said he has not received any report on the issue. However, he said, in principle, credit institutions have to settle their bad debts themselves. If they cannot do this, they will sell the bad debts to the state at market prices.

“In Vietnam, the bad debt treatment is going this way,” Anh commented.

One of the controversial points in the draft plan on restructuring the national economy in the 2016-2020 period drafted by the Ministry of Planning and Investment is the use of the state’s money to settle commercial banks’ bad debts.

There are four major sources of revenue to the nation: households, businesses, the state budget and foreign investors. However, he believes that the state budget is the main resource to settle bad debts. Domestic businesses remain small and weak, while foreign investors are not interested in buying debts in Vietnam because of the legal provisions related to land use rights.

Nguyen Tri Hieu, a renowned banking expert, commented that Vietnam still does not have a debt trading market in the true sense of the word. The Vietnam Asset Management Company (VAMC), a state company, buys bad debts and pays in special bonds.

“VAMC just serves as the parking lot for bad debts,” Hieu said about the role of VAMC.

Regarding the state’s money to settle bad debts, Hieu believes this is a feasible solution.

“It is necessary to build up a debt market, where banks sell bad debts and receive cash,” he commented.

Regarding the bad debt prices, Hieu said to date, VAMC has bought bad debts at book value. However, if buying bad debt with money from the state budget, the price for trading must be the market price, or the real value of the debts, which will be lower than the book value.

“In order to change the situation, it is necessary to change our behavior toward the bad debts. This means that bad debts must be bought at real value and commercial banks take losses,” he said.

The State Bank of Vietnam said the bad debt ratio of the banking system by the end of June 2016 was 2.58 percent, which was 0.25 percent lower than May but higher than the 2.55 percent by late 2015.

The Q2 reports from 15 commercial banks showed that the total non-performing ratio (NPL) had increased by VND10.42 trillion compared with earlier this year.


Kim Chi